This action is funded by the European Union

Transcription

1 EN This action is funded by the European Union ANNEX of the Commission Implementing Decision on the Annual Action Programme 2017 in favour of Mongolia to be financed from the general budget of the Union Action Document for Strengthening Governance for Inclusive and Sustainable Development in Mongolia 1. Title/basic act/ CRIS number 2. Zone benefiting from the action/location 3. Programming document 4. Sector of concentration/ thematic area 5. Amounts concerned 6. Aid modality(ies) and implementation modality(ies) Strengthening Governance for Inclusive and Sustainable Development in Mongolia, CRIS number: 2017/ financed under Development Cooperation Instrument Asia, Mongolia The action shall be carried out at the following location: Mongolia Multiannual Indicative Programme for Mongolia Sector of concentration 1 MIP : Improved governance of revenues (from extractive industries) for inclusive and sustainable growth. DEV. Aid: YES Total estimated cost: EUR Total amount of EU budget contribution EUR Project Modality Indirect management with World Bank 7 a) DAC code(s) 150 Government and Civil Society 100% Public Finances Management 50%; Anticorruption organisations and institutions 50% b) Main Delivery Channel 8. Markers (from CRIS DAC form) World Bank General policy objective Participation development/good governance Not Significant Main targeted objective objective X [1]

2 9. GPGC thematic flagships Aid to environment X Gender equality (including Women X In Development) Trade Development X Reproductive, Maternal, New born X and child health RIO Convention markers Not targeted Significant objective Main objective Biological diversity X Combat desertification X Climate change mitigation X Climate change adaptation X N.A 10. SDGs Main SDG: Peace, Justice and Strong Institutions. Secondary SDG: Reduced inequalities. SUMMARY Facing a major fiscal crisis due to the fall of raw material prices that was aggravated by structural weaknesses in how public finances have been managed. Mongolia requested the International Monetary Fund (IMF) support in October In May 2017, the IMF has approved a three-year, $434 million loan for Mongolia as part of a broader $5.5 billion financing package supported also by Japan, Korea, China, the World Bank, and the Asian Development Bank. The IMF package, combined with other IFI programmes, defines a battery of PFM reforms for Mongolia that the Government has agreed to implement in the next years. The package will contribute to regain the trust of foreign investors that left the country due to financial instability which intensified it. Also, a PFM reform would hold potential for an enhanced effectiveness of spending, better accountability and improved revenue collection. This would be essential for Mongolia in advancing towards the achievement of SDGs as laid down in their Sustainable Development Vision document adopted the spring of The proposed action would support the implementation of an ambitious PFM reform agenda through technical assistance building on the commitments Mongolia has undertaken in the context of the IMF/IFI/donors package as well as integrating existing Mongolian initiatives linked to the enhancement of quality of spending. The action will be implemented by the World Bank and will complement a WB loan operating being implemented in parallel, thus ensuring a close alignment to the IMF/IFI package and structural reforms plan. The current EU action amounts to EUR 5 million, funded from focal sector 1 of the MIP - good governance). 1 [2]

3 The implementation of a PFM improvement plan would be an essential element in supporting Mongolia to fulfil EU budget support eligibility criteria for a Budget Support operation foreseen in 2018 as agreed at the 17th EU-Mongolia Joint Committee held in Ulaanbaatar in March 2017 and reiterated by President Juncker in his meeting with Mongolia's Minister of Foreign Affairs on 2nd May CONTEXT 1.1 Sector/Country/Regional context/thematic area Mongolia is a parliamentary republic with a directly elected president and a unicameral national assembly the State Great Hural consisting of 76 members. Since the end of socialist rule in early 1990's, Mongolia has built a multi-party democracy. The two leading political parties are the Mongolian People s Party (MPP) and the Democratic Party (DP) and have ruled in alteration since the early 1990s. The last legislative elections were held in June 2016, resulting in an overwhelming majority for the Mongolian People's Party (obtaining 65 out of 76 seats in the Mongolian State Great Khural). On 26 June 2017 presidential elections were held. For the first time, no candidate received a majority of the votes in the first round, leading to a second round decision on 7 July The Mongolian economy has experienced repeated boom cycles over the last decade linked to overly pro-cyclical spending patterns. In 2011, the country was among the fastest growing economies in the world (17 %) on the back of major resource boom. Mongolia faces today a major fiscal crisis, as the public spending was prematurely expanded based on borrowing against future revenue streams combined with a large budget deficit, reaching 18% of GDP in Adverse international developments, falling raw material prices and political uncertainties resulting in a deteriorating investment climate in the country led to a collapse of foreign direct investments (from USD 4,5 billion in 2011 to USD 94 million in 2015) and GDP growth falling to just above 1% in The new government taking office after elections in June 2016 asked the IMF for assistance in October Over the next 3 years, a rebound is expected on the back of an improvement in the terms-of-trade and improved fiscal discipline. Growth is expected to pick up as of 2018 and when the second phase of the large mine Oyu Tolgoi starts producing around 2021, strong economic performance and increasing public revenues will likely resume. Despite rapid growth and GDP per capita of USD 4,000 in 2015 and although the country has achieved clear reductions in poverty during its boom years, partly linked to expansion of a social programmes, about a fifth of the population remains below the poverty line. With the recent fall in economic activity and fiscal constraints, poverty will likely be on the rise again and social payment levels appear unsustainable Public Policy Assessment and EU Policy Framework Seeking to advance greater coherence and continuity, cross-party work on elaboration of a comprehensive development plan was initiated and adopted towards the end of the last parliament in The Sustainable Development Vision 2030 aspires for Mongolia to be among the leading middle-income countries by 2030 (based on GDP per capita). It also [3]

4 envisions a multi-sector stable economy, preserving at the same time an ecological balance and a stable and democratic governance framework in place. This document also outlines 20, rather ambitious, key performance indicators to be used for implementation performance assessment. The Government Action Plan (GAP), is based on the above and sets out a list of goals aimed at building the capacity of the civil service, ensuring that the civil service comprises professionals both at the central and local government levels to deliver public services in an open, transparent and efficient manner, as well as to strengthening public trust for the Administration. While the improved governance and better PFM are reflected in the development policy and GAP mentioned above, targets, funding and monitoring still need to be defined. Legislative work to enhance quality of spending and consultation with non-governmental stakeholders has been adopted, including a Law on laws and a Law on development planning. Given the economic situation, the main priority of Mongolia in the next three years will be the implementation of the reform package agreed with the IMF. The main structural reforms included in the package target three pillars; 1) fiscal consolidation and macro-economic stability, 2) the rehabilitation of the banking system, aiming to support private-sector led growth, and 3) targeted social safeguards to protect the most vulnerable during the adjustment process and institutional reforms to ensure that the social sector and fiscal adjustments are durable. This project will contribute to implement reforms included in the first pillar. The proposed action is fully in line with the MIP , where the first focal sector focuses on good governance and management of public revenues in support of sustainable and inclusive development. Finally, the project will contribute to create a sound macroeconomic environment leading to sustainable growth, which is in line with Sustainable Development Goal nº 8 "Promote just, peaceful and inclusive societies" dedicated to the promotion of peaceful and inclusive societies for sustainable development, the provision of access to justice for all, and building effective, accountable institutions at all levels Stakeholder analysis Important stakeholders in the context of this analysis are the Parliament, the government administration, civil society and the private sector. Weak legislative processes have led to enactment of laws without sufficient policy analysis and risk assessment, resulting in frequent changes and amendments soon after their initial adoption. To respond to these challenges, the Parliament approved the Law on Legislation in 2015, requiring that all draft legislation is subject to mandatory impact assessment and cost-benefit analysis prior to submission to Parliament. The Administration, particularly, its key components, the Ministry of Finance and the Cabinet Secretariat (in charge of policy monitoring and evaluation) play an important role in policy making and implementation, as well as in the management and oversight of the central and local government institutions. As the country needs to manage its public revenues and expenditures efficiently by allocating resources effectively and administer sound social and economic policies, the establishment of a competent and accountable civil service becomes imperative. Thus, there is a need for enhancing the institutional capacity of the Administration [4]

5 and encouraging the development of a stable, non-partisan, professional and merit-based civil service. In this context, the capacity of the National Development Agency, the National Audit Office, the Independent Authority against Corruption, and the Civil Service Commission need to be enhanced. For the country to achieve its objectives as outlined in the Vision 2030 document, it will require a higher level of institutional capacity and a more stable, less politicised and more professional civil service. The civil society is vibrant and active, playing an increasing role in fostering transparency and accountability. In this context, civil society has the potential to become a powerful force for change and enhanced accountability if it manages to develop its interventionist capacities further. Through persistent efforts in scrutinising public discourse and debate, civil society may be able to exert the necessary pressure on the political system in overcoming many of the challenges it faces towards a path of sustainable and inclusive growth. The business community is an integral actor in promoting integrity in the private sector. It should actively participate in implementing specific measures outlined in the National Anti- Corruption Programme (2016) approved by Parliament. Business should also collaborate with the Independent Agency against Corruption which serves as the principle responsible agency for investigating corruption cases Priority areas for support/problem analysis The GOM has undertaken reforms to gradually develop a PFM system, including strengthening internal controls, cash management, accounting and reporting, as well as improvements in fiscal policy, budget planning and decentralization of roles and resources to subnational governments. Despite this, there are still challenges related to the efficiency, effectiveness and transparency of the PFM system that if addressed, could contribute to improve quality of public expenditures. Also maintaining macro-fiscal balance and pro-cyclical spending patterns were contributing factors to the fiscal challenges Mongolia has faced. The IMF programme provides for a range of measures seeking to strengthen macro-fiscal management. However, support to the implementation of these including establishing and operating a fiscal council are needed. Greater control and management of contingent liabilities, e.g. from public private partnerships, also forms an element of strengthening management of fiscal balances. Some of the most crucial PFM weaknesses to be addressed are the lack of alignment of expenditures and revenue outputs with the originally approved budget, poor quality of cash flow forecast and unpredictability in availability of funds, have weakened budget credibility and diminish public policy effectiveness. This project will contribute to elaborate a 5 year PFM improvement plan and to set up a Fiscal Council to evaluate macroeconomic and budgetary forecast. These two project outcomes will contribute to tackle PFM problems in Mongolia. The effective involvement of citizens in the budget process and policy elaboration process is low despite the approval in 2014 Law on Glass Accounts. This Law was an attempt to ensure the efficient and proper use of state and local government funds, the transparency of decisions concerning budget management and public overview of the same. Nevertheless, the Law has not been fully implemented and corruption remains one of the main problems of the country in terms of Governance (PEFA and Transparency International corruption perception [5]

6 index). In line with the mission of this Law, the project will contribute to establish effective mechanisms at national and local level to promote transparency, citizen's participation and internal and external budget oversight. Efficiency of public investments in Mongolia appears to have considerably scope for improving performance. IMF has undertaken a Public Investment Management Assessment finding a range of factors contributing to efficiency of public investments. Mongolia has relatively high level investments but low level of outputs. This is partly due to lack of mid/long-term planning capacities. The project will aim at reinforcing the public investment management system and public investment programmes by strengthening links between sectoral development strategies and the medium term budgetary framework. 2 RISKS AND ASSUMPTIONS Risks No PFM Strategy or Action Plan Political Instability Lack of political will to push through governance reforms Public Administrative Reforms remain dappled Risk level (H/M/L) M L M-H H Mitigating measures The GoM has adopted an Action Plan ( ) that provides a frame for structural reforms and the PFM Strategy should emerge out of this. PFM TA will facilitate the GoM in their endeavour The new government has an overwhelming majority in parliament and will remain in place for 3-4 years and will frontload reforms to The Presidential Elections (26 June 2017) are not expected to derail the current stability or create less conducive conditions for effective PFM reforms Medium risk in the short-term, higher in the medium-to-longer run as the commodity boom re-materialises and the incentive to reform diminishes The highly politicized civil service remains a concern. Genuine compliance to the Laws and Regulations together with stronger civil society involvement is to be pursued. 3 LESSONS LEARNT, COMPLEMENTARITY AND CROSS-CUTTING ISSUES 3.1 Lessons learnt The GOM is re-assessing co-ordination with donors. Amidst the economic boom and early repayment of IMF debt in 2012 the government had reduced its focus on external support. The new government, aware of the macro-fiscal challenges it faces for is renewing its coordination with development partners. The key lesson for the EU funds will only [6]

7 constitute a marginal amount when set against the full package of loans of 5.5 billion USD and that EU support must be closely tied to the wider reform efforts agreed in the context of the wider IMF/IFI package. The key single lesson emerging from the previous 15 years of assistance in the governance and PFM sector is that much of it has had little impact. This has largely been due to lack of genuine ownership for reforms in, for instance, Public Administrative Reform, and the high degree of politicization of the civil service. This entails a high turnover of officials each time there are changes in the Government. Economic Governance for Equitable Growth project (EG4EG - DCI-ASIE/2015/ ) has provided support to MOF in area of PFM. The engagement has tended to be activity driven where it has been difficult to approach the improvement of PFM in a more systemic manner. 3.2 Complementarity, synergy and donor coordination The new government has taken initiatives to advance donor coordination. MOF is in the lead and has organised a large conference last year and this year a more operational meeting setting out a strategy based on economy wide coordination and sector specific coordination group. The effective articulation of government priorities at country and sector level and the government lead in seeking to align donors behind such priorities is still a process to take effective hold. During the former government where Mongolia experienced initially an unprecedented boom, the attention to donor coordination and aid funding was limited. Donors established their own fora to facilitate exchange and coordination. The present action would form a part of a wider IMF/IFI package and the effective coordination of the different elements aiming at improving/strengthening PFM would be central. The IMF, WB and ADB have integrated their requirements in the respective policy loans in a single matrix. The aim of the present action would be to advance that an overall PFM improvement plan be drawn up and would form the basis for a coordinated engagement with GoM on PFM reform. The present funding could be instrumental in advancing that such an overall PFM plan be drawn up as basis for this joint engagement. The World Bank is also currently (June 2017) preparing an Economic Management Support Development Policy Financing Operation (EMSO) to join efforts with the Government in laying the foundation for a stable and sustainable growth path. The WB Strengthening Fiscal and Financial Stability Project is aligned with both the IMF-led program and the WB EMSO. This EU action, channelled through the World Bank, will ensure donor coordination on joint capacity building efforts. 3.3 Cross-cutting issues The GOM is currently in process of further articulating the implementation of the Mongolian development vision that is formulated in the context of the SDGs. The current action through strengthening of public financial management will contribute to the achievement of such efforts to deliver on other policy goals in a cost efficient manner, including the integration of [7]

8 gender issues and environmental mainstreaming. The current action will underpin such elements through the facilitation and support to advancing gender based budgeting and integration and adherence to environmental and social impact assessment of e.g. public investments. Concerning Human Rights, this intervention will focus on transparency and fight against corruption. The project will foster budget transparency which will allow CSOs to make a difference reinforcing domestic accountability at local and national level. The final aim is allowing CSO's to play an important role in the budget processes, helping to ensure that public resources are used effectively and efficiently. 4 DESCRIPTION OF THE ACTION 4.1 Objectives/results This programme is relevant for the Agenda It contributes primarily to the progressive achievement of SDG "Peace, Justice and Strong Institutions", but also promotes progress towards SDG "Reduced inequalities". This does not imply a commitment by the Mongolia benefiting from this programme. The tentative proposed format is as follows: The overall objective is the enhancement of governance in Mongolia through improved PFM, strengthened accountability processes and better management for results, allowing for achievement of the national development objectives. The specific objective is strengthening of the ability of the MoF of Mongolia to perform its role as the central fiscal authority and in improving PFM systems. 4.2 Main activities The present support to PFM will be aligned behind the agreed programme of the IMF/IFI package and could in particular include support to the following elements: Prepare and adopt a PFM Improvement Plan A 5-year PFM Improvement Plan will provide a suitable framework for the Government and its international partners to prioritise and sequence initiatives and actions across the range of PFM functions: fiscal planning and budget preparation, budget execution accounting and fiscal/financial reporting, internal and external audit. Results 1 - Improved capacity of the MoF to effectively develop, coordinate and implement the PFM reforms as well as to effectively interlink PFM reforms with other ongoing reform implementations. Indicative Activities: Preparation and adoption of PFM Improvement Plan; Development of instructions for a PFM Reform Coordination unit within MoF to ensure effective coordination mechanism for the various stakeholders responsible for [8]

9 the implementation of PFM reform, monitoring an evaluation of implementation, including data collection and reporting, as well as update of PFM improvement plan; Facilitate the setting up of regular engagement and dialogue with CSOs, think tanks research institutes as well as with the Parliament - on the implementation of the PFM reforms, annual report, and action plans; Facilitate the setting up of regular donor coordination by the PFM Reform Coordination Unit including donor assistance mapping and programming; Compile a training need analysis, develop and implement a capacity building plan to facilitate the implementation of PFM reforms as outlined in the PFM Improvement Plan. Facilitation on training and workshops on gender responsive budgeting. Conduct and assist in research to facilitate the fiscal planning functions of PFM (macroeconomic forecasting and budget planning) of MoF through consultancy services. Fiscal Council Fiscal Councils are independent public institutions aimed at promoting sustainable public finances through various functions, including public assessments of fiscal plans and performance, and the evaluation or provision of macroeconomic and budgetary forecasts. The establishment of a Fiscal Council in Mongolia is a structural benchmark of the IMF programme. Result 2 Independent Fiscal Council established and operational Indicative Activities: Researching and reviewing international practice concerning independent fiscal institutions; Develop proposal on Fiscal Council for Mongolia and options for its institutional setup; Develop and approve regulation setting-up an independent Fiscal Council, including mandate, institutional arrangements and resources required. Budget transparency, oversight and citizen engagement Fiscal transparency can be improved through public participation in the budget process, which is particularly weak in Mongolia. Credible and effective mechanisms are needed to capture a range of public perspectives on budget matters through public hearings, surveys and focus groups at local and national levels. Implementation and the update of the transparency action plans developed for addressing of the findings of the Open Budget index and the IMF Fiscal transparency assessment is crucial in this regard. Result 3 Improved budget transparency, participation and oversight to increase the citizens' access and understanding on the Budget. Indicative activities: [9]

10 3.1 Improving Transparency Produce and publish a Mid-Year Review and a Citizens Budget for the Executive s Budget Proposal. Increase the comprehensiveness of the Executive s Budget Proposal, by presenting more details on the classification of expenditures for future years and macroeconomic forecasts. Increase the comprehensiveness of the Year-End Report by presenting more details on planned versus actual performance. 3.2 Improving Participation Establish credible and effective mechanisms (i.e., public hearings, surveys, focus groups) for capturing a range of public perspectives on budget matters. Hold legislative hearings on the budgets of specific ministries, departments, and agencies at which testimony from the public is heard Establish formal mechanisms for the public to participate in audit investigations. 3.3 Improving Oversight In law and practice, ensure the legislature is consulted prior to the virement of funds in the Enacted Budget and the spending of contingency funds that were not identified in the Enacted Budget. Ensure the legislature holds public meetings to review Audit Reports. Improved public reporting and dissemination of external audit reports in citizen friendly formats Contingent liabilities The GOM has been ambitious in its efforts to adopt IPSAS (International Public Sector Accounting Standards) since it began to implement accruals accounting in Its financial statements have included most classes of assets and liabilities, including physical infrastructure. But the accounts do not yet include important liabilities, including liabilities for pensions and those associated with public-private partnerships. In recent years, public-private partnerships and concessions have proliferated in Mongolia, undertaken by different units of government without sufficient central oversight. In addition, there is a substantial number of government loan guarantees. These contingent liabilities and associated fiscal risks have not yet been fully quantified. The legal framework regulating contingent liabilities is somehow missing in recent budgetary legitimations. Especially, there is a high potential for uncertainty and risk that may arise from the Public Private Partnerships (PPP) related guarantees. Initially, the Government s biggest concern was the coverage of guarantees issued on Development Bank of Mongolia's borrowing. However, recently the concern is on the issuing of new guarantees on mega PPP arrangements. The Government of Mongolia (GOM) is aware of the risks to be exposed but lacks the experience and specific methods to evaluate how much the state budget can be [10]

11 impacted by a specific mega project. In order to monitor contingency risks, the regular monitoring and evaluating functions should be taken up by the Debt Management Office (DMO). Besides, legal changes will be needed in the regulatory framework to establish a coordination mechanism between line ministries, Ministry of Finance and other parties. Finally, the GOM will need to create a sound reporting system to enhance public awareness about potential risks of the particular mega projects. Results 4 Improved management of contingent liabilities Indicative Activities: Assessment of current situation against the best practices (IMF s Manual On Transparency and IPSAS); Improve the framework for managing and disclosing contingent liabilities, which puts in place proper safeguards against risks associated with contingent liabilities; Establish a database centralizing management of contingent liabilities which would provide the GOM, as minimum, (i) an assessment of risk before liabilities are assumed and (ii) an inventory of outstanding contingent liabilities, along with estimates of payments that may come due; Explicit consideration of fiscal risks during the budgeting process; To develop a sound quantitative model to evaluate PPP related risks for debt level and potential burden on the budget; To assist in drafting a regulatory framework to amend the Budgetary regulations to legitimate the coordination of related authorities and institutions involved in issuance of contingent liability; To develop risk mitigation techniques and guidelines; To introduce a domestic credit rating method for MoF to evaluate the credit risk of beneficiaries of debt guarantees. Public Investment Management The current Public Investment Plan includes costs but is unconstrained fiscally and presents an un-prioritized list of projects without any cost-benefit and economic analysis. Sector strategies do not include measurable targets for the outputs and outcomes of investment projects. Multi-year estimates are included in the MTFF but they are not designed to guide sectoral allocations including public investments. Result 5 Improved Public Investment Management Indicative Activities: Assess existing skills in cost-benefit analysis and prioritisation of capital investment projects and prepare capacity development plan; Develop mechanisms for prioritising capital projects proposal taking into account the economic and financial benefits of the projects; Conduct a Public Investment Management Improvement training for staffs responsible for public investment of MoF and line ministries; [11]

12 Create of database to include unfinished, ingoing and new public investment projects on the basis of a standardised methodology; Review the process of consideration of future recurrent costs of public investment projects and consider necessary improvements to methodology. 4.3 Intervention logic The intervention will be complementary to the IMF/IFI package that defines objectives for a PFM reform. The lack of capacities of the MOF is one of the main challenges to implement successfully the IMF/IFI package. In order to support its implementation the WB approved a TA loan to implement the "Strengthening Fiscal and Financial Stability" (SFFS) project. The SFFS project aims at contributing to the Government of Mongolia s efforts to strengthen fiscal and financial stability and improve the quality of expenditure management. Due to limitation of funding available from the WB, a number of activities of the SFFS project originally formulated were put on hold. These activities are related to improving the efficiency of PFM, strengthening Macroeconomic and Fiscal Management and accountability, and are in line with EU priorities for the country. Activities proposed are indicative and will be fine-tuned in an update project implementation plan to be developed during the project s inception phase. 5 IMPLEMENTATION 5.1 Financing agreement In order to implement this action, it is foreseen to conclude a financing agreement with the partner country, referred to in Article 184(2)(b) of Regulation (EU, Euratom) No 966/ Indicative implementation period The indicative operational implementation period of this action, during which the activities described in section 4.2 will be carried out and the corresponding contracts and agreements implemented, is 60 months from the date of entry into force of the financing agreement. Extensions of the implementation period may be agreed by the Commission s authorising officer responsible by amending this decision and the relevant contracts and agreements; such amendments to this decision constitute technical amendments in the sense of point (i) of Article 2(3)(c) of Regulation (EU) No 236/ Implementation modalities Indirect management with an international organisation. This action may be implemented in indirect management with the World Bank in accordance with Article 58(1)(c) of Regulation (EU, Euratom) No 966/2012. The proposed action will be implemented by establishing a co-financing hybrid trust fund with both recipient MOFexecuted TF (RETF) and Bank-executed TF (BETF) for the present project which will provide technical assistance for PFM reforms. [12]

13 The World Bank is a suitable partner to implement this action; this is in particular justified on the following grounds: - The World Bank has extensive expertise in PFM and specific country expertise, given its long-standing support to MOF in Mongolia on PFM issues. The WB has carried out the only PEFA assessment in Mongolia (April 2015) - Through the support to World Bank, the EU support will be better coordinated with the full IMF/IFI package. The support will be instrumental in moving towards a jointly agreed performance framework for PFM reforms and joint engagement with Ministry of Finance on these matters. The entrusted entity would conduct procurement and grant award procedures and manage the resulting contracts and carry out payments to contractors and grant beneficiaries. For the budget-implementation tasks not yet assessed, the entrusted international organisation is currently undergoing the ex-ante assessment in accordance with Article 61(1) of Regulation (EU, Euratom) No 966/2012. The Commission s authorising officer responsible deems that, based on the compliance with the ex-ante assessment based on Regulation (EU, Euratom) No 1605/2002 and long-lasting problem-free cooperation, the international organisation can be entrusted with budget-implementation tasks under indirect management. 5.4 Indicative budget EU contribution (amount in EUR) Indicative third party contributio n, in currency identified Indirect management with the World Bank EUR 5.7 Evaluation, 5.8- Audit EUR 5.9 Communication and visibility EUR Total EUR 5.5 Organisational set-up and responsibilities 2 The EU funded action will be aligned but separate from the World Bank loan "Strengthening Fiscal and Financial Stability" which includes two components to support Macroeconomic stability and PFM that amount for USD 5.5 million. The World Bank loan has a total budget of USD 12 million. This EU action will allow additional results to be achieved. [13]

14 The Ministry of Finances will be the implementing agency for the project and responsible for its overall management and implementation. There will be a Project implementation Unit (PIU) providing its services to this project. The PIU will ensure compliance with the procurement, disbursement, and financial management procedures. The PIU will report to a project director who will be appointed by the Ministry of Finances. To effectively oversee the implementation of the project, a Project Steering Committee (PSC) will be created, which will be chaired by the Mongolian Ministry of Finances, and in which the World Bank and the European Union will participate as observers. The PSC shall meet regularly (twice a year) and be responsible for the key functions of project implementation, such as: (a) ensuring efficient interdepartmental and beneficiaries interactions, (b) supervising the monitoring and evaluation, (c) proposing recommendations to strengthen implementation, and (d) interacting with the World Bank and the European Union. 5.6 Performance monitoring and reporting The day-to-day technical and financial monitoring of the implementation of this action will be a continuous process and part of the implementing partner s responsibilities. To this aim, the implementing partner shall establish a permanent internal, technical and financial monitoring system for the action and elaborate regular progress reports (not less than annual) and final reports. Every report shall provide an accurate account of implementation of the action, difficulties encountered, changes introduced, as well as the degree of achievement of its results (outputs and direct outcomes) as measured by corresponding indicators, using as reference the logframe matrix (for project modality) or the list of result indicators (for budget support). The report shall be laid out in such a way as to allow monitoring of the means envisaged and employed and of the budget details for the action. The final report, narrative and financial, will cover the entire period of the action implementation. The Commission may undertake additional project monitoring visits both through its own staff and through independent consultants recruited directly by the Commission for independent monitoring reviews (or recruited by the responsible agent contracted by the Commission for implementing such reviews). 5.7 Evaluation Having regard to the nature of the action, a mid-term evaluation and an ex-post evaluation will not be carried out for this action or its components. The Commission may, during implementation, decide to undertake such an evaluation for duly justified reasons either on its own decision or on the initiative of the partner. A final evaluation will be carried out for accountability and learning purposes (including for policy revision), The evaluation reports shall be shared with the partner country and other key stakeholders. The implementing partner and the Commission shall analyse the conclusions and recommendations of the evaluations and, where appropriate, in agreement with the partner [14]

15 country, jointly decide on the follow-up actions to be taken and any adjustments necessary, including, if indicated, the reorientation of the project. Indicatively, one contract for evaluation services shall be concluded under a framework contract at the end of the implementation period. 5.8 Audit Without prejudice to the obligations applicable to contracts concluded for the implementation of this action, the Commission may, on the basis of a risk assessment, contract independent audits or expenditure verification assignments for one or several contracts or agreements. Indicatively, one contract for audit services shall be concluded under a framework contract if deemed necessary. 5.9 Communication and visibility Communication and visibility of the EU is a legal obligation for all external actions funded by the EU. This action shall contain communication and visibility measures which shall be based on a specific Communication and Visibility Plan of the Action, to be elaborated at the start of implementation and supported with the budget indicated in section 5.4 above. In terms of legal obligations on communication and visibility, the measures shall be implemented by the Commission, the partner country, contractors, grant beneficiaries and/or entrusted entities. Appropriate contractual obligations shall be included in, respectively, the financing agreement, procurement and grant contracts, and delegation agreements. The Communication and Visibility Manual for European Union External Action shall be used to establish the Communication and Visibility Plan of the Action and the appropriate contractual obligations. The Delegation may decide to launch a framework contract to conduct workshops, seminars or other visibility events related to the action. The number of contracts and the timing will be decided during the implementation. [15]

16 APPENDIX - INDICATIVE LOGFRAME MATRIX (FOR PROJECT MODALITY) The activities, the expected outputs and all the indicators, targets and baselines included in the logframe matrix are indicative and may be updated during the implementation of the action, no amendment being required to the financing decision. When it is not possible to determine the outputs of an action at formulation stage, intermediary outcomes should be presented and the outputs defined during inception of the overall programme and its components. The indicative logframe matrix will evolve during the lifetime of the action: new lines will be added for including the activities as well as new columns for intermediary targets (milestones) for the output and outcome indicators whenever it is relevant for monitoring and reporting purposes. Note also that indicators should be disaggregated by sex whenever relevant. Results chain Indicators Baselines (incl. reference year) Overall objective: Impact Specific objective(s): Outcome(s) Enhanced governance through improved PFM, strengthened accountability processes and better management for results, allowing for achievement of the national development objectives. Strengthening ability of the Ministry of Finance to perform its role as the central fiscal authority and in improving PFM systems - WGI on Government Effectiveness - Enhanced aggregate fiscal discipline - Improved allocative efficiency - Better service delivery - SDGs - Overall performance of PEFA indicators 1.Percentile rank (2015) Aggregate expenditure outturn compared to original approved budget, Central government (2015 PEFA): % 3. PI 12(2015 PEFA) 4. PI 23 (2015 PEFA) 5. SDGs baseline PEFA 2015 and GOM Economic Plan 2016 Targets (incl. reference year) 1. Percentile rank (2022) > Aggregate expenditure outturn: <15% 3. PI 16 (2020PEFA Update) 4. PI 8 (2020PEFA Update) 5. Progress in implementati on of SDGs 10 and PEFA Update Sources and means of verification 1. WGI data on Government Effectiveness 2. PEFA update 1. PEFA update 2. Performance Assessment Framework (PAF) from and GOM reports on Stabilisation Plan and Economic Programme Assumptions Improved PFM capacity and structures applied in support of effective implementation of PFM reform agenda. [16]

17 Outputs 1. Improved capacity of the MoF to effectively develop, coordinate and implement the PFM reforms 2.Independent Fiscal Council established and operational 3.Improved budget transparency, participation and oversight 4. Improved management of contingent liabilities. 5. Improved Public Investment Management Verification of outputs. 1. PFM Improvement Plan developed and under implementation and PFM Reform Coordination unit established and operational 2. Annual reports on Fiscal Council activities produced and made public 3. Progress in Open Budget Survey/ IBP & PEFA PIs 9, 18, 28, 30 and Progress in PEFA PI Progress in PEFA PI-11 PEFA 2015 and GOM Economic PEFA 2015 and GOM Economic Plan 2016 Performance framework for IMF/IFI package PFM improvement plan 1. GOM reports on implelemntation of PFM Improvement Plan 3. Fiscal Council annual reports 4. OPB/IBP & PEFA updates Structural measures to support PFM are used by GOM stakeholders with a view to enhance quality of PFM [17]