Document of The World Bank FOR OFFICIAL USE ONLY PROJECT PAPER ON A PROPOSED ADDITIONAL CREDIT

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT PAPER ON A PROPOSED ADDITIONAL CREDIT IN THE AMOUNT OF SDR 9.2 MILLION (US$14.0 MILLION EQUIVALENT) TO THE SOCIALIST REPUBLIC OF VIETNAM AND ON A PROPOSED PROJECT RESTRUCTURING FOR THE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT January 4, 2011 Poverty Reduction and Economic Management Unit East Asia and Pacific Region Report No: VN This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective: January 4, 2011) Currency Unit = Vietnamese Dong (VND) VND 1 = US$ US$1 = VND 19,499 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AF BA BPS CM COA CQS DMFAS DPI FMIS GBP GFMIS GOV IA MOF MPI MTDP MTEF MTFF PFMRP PMU QCBS SDR SU TA TABMIS TSA UCOA VND Additional Financing Budget Allocation Budget Preparation System Cash Management Chart of Accounts Selection Based on the Consultants Qualifications Debt Management Financial and Analysis System Department of Planning and Investment Financial Management Information System Great Britain Pound Government Financial Management Information System Government of Vietnam Implementing Agency Ministry of Finance Ministry of Planning and Investment Medium Term Debt Program Medium Term Expenditure Framework Medium Term Fiscal Framework Public Financial Management Reform Project Project Management Unit Quality- and Cost-Based Selection Special Drawing Right Spending Unit Technical Assistance Treasury and Budget Management Information System Treasury Single Account Unified Chart of Accounts Vietnamese Dong Vice President: James W. Adams Country Director: Victoria Kwakwa Sector Director: Vikram Nehru Sector Manager: Linda Van Gelder Task Team Leader: Quyen Hoang Vu

3 VIETNAM PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ADDITIONAL FINANCING AND RESTRUCTURING CONTENTS Project Paper Data Sheet Project Paper I. Introduction... 1 II. Background and Rationale for Additional Financing and Restructuring... 1 III. Proposed Changes... 5 IV. Appraisal Summary... 8 Annexes Annex 1. Revised Results Framework and Monitoring Indicators Annex 2. Operational Risk Assessment Framework Annex 3. Detailed Description of Modified or New Project Activities Annex 4. Revised Estimate of Project Costs and Reallocation of Funds (a). Detailed Breakdown of Additional Financing and Total Undisbursement (b). Extension Phase Estimated Project Costs by Funding Source (c). Reallocation of Funds and Changed Percentage of Financing Annex 5. Updated Implementation and Procurement Plans MAP IBRD 33511

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5 VIETNAM PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT ADDITIONAL FINANCING AND RESTRUCTURING Country Director: Victoria Kwakwa Sector Director: Vikram Nehru Team Leader: Quyen Hoang Vu Project ID: P Expected Effectiveness Date: May 2011 Lending Instrument: Investment Lending (IL) Additional Financing Type: Project Paper Data Sheet Basic Information - Additional Financing (AF) Sectors: General public administration sector (50%), Sub-national government administration (50%) Themes: Public expenditure, financial management and procurement (P), Debt management and fiscal sustainability (P) Environmental category: Not required (C) Expected Closing Date: February 28, 2013 Joint IFC: Joint Level: Basic Information - Original Project Project ID: P Environmental category: Not required (C) Project Name: Public Financial Management Expected Closing Date: February 28, 2011 Reform Project Lending Instrument: Specific Investment Loan (SIL) Joint IFC: Joint Level: AF Project Financing Data [ ] Loan [ x ] Credit [ ] Grant [ ] Guarantee [ ] Other: Proposed terms: IDA Standard Credit Grace period (years): 10 Years to maturity: 35 Commitment fee: 0.5% Service charge: 0.75% AF Financing Plan (US$m) Source Total Amount (US $m) Total Project Cost: Cofinancing: Borrower: Total Bank Financing: IBRD IDA New Recommitted Client Information Recipient: Socialist Republic of Vietnam Responsible Agency: Ministry of Finance of Vietnam Contact Person: Mme. Dang Thi Thuy (Director of Project Management Unit) Telephone No.: (84 4) Fax No.: (84 4) DangThiThuy@mof.gov.vn

6 AF Estimated Disbursements (Bank FY/US$m) FY Annual Cumulative Project Development Objective and Description Original project development objective: The objective of the Project is to strengthen the Recipient s capacity to plan, execute and report on its budget and to improve the transparency and accountability of the budgetary systems and processes. Revised project development objective: N/A Project description: The project aims to strengthen and integrate core treasury and budget management information systems; to strengthen the links between budget management and the Government s developmental goals within a medium-term expenditure framework; and to improve the management of public debt and other fiscal risks. Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waters (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) Does the project require any exceptions from Bank policies? Have these been approved by Bank management? [ ]Yes [ x ] No [ ]Yes [ x ] No [ ]Yes [ x ] No [ ]Yes [ x ] No [ ]Yes [ x ] No [ ]Yes [ x ] No [ ]Yes [ x ] No [ ]Yes [ x ] No [ ]Yes [ x ] No [ ]Yes [ x ] No [ ]Yes [ x ] No [ ]Yes [ x ] No [ ]Yes [ ] No Financing Agreement Reference Paragraphs 1 and 2, Section I.A, Schedule 2 Conditions and Legal Covenants: Description of Condition/Covenant The Recipient shall maintain, throughout the period of project implementation, the Steering Committee to: (i) provide overall guidance and direction in the implementation of the project, and (ii) ensure the project activities are coordinated with other national initiatives for public administration reform. Date Due Already in place/ ongoing.

7 Paragraph 3, Section I.A, Schedule 2 Paragraphs 4(a), 4(b) and 4(c), Section I.A, Schedule 2 Paragraphs 5(a) and 5(b), Section I.A, Schedule 2 Paragraphs 6(a) and 6(b), Section I.A, Schedule 2 The Recipient shall maintain, throughout the period of project implementation, a Project Management Unit (PMU) led by experienced manager of MOF, with qualified staff in adequate numbers, all with qualifications and experience and terms of reference satisfactory to the World Bank, for: (i) overall project management and administration; (ii) coordination among relevant departments within the MOF, and with other relevant agencies and line ministries; and (iii) monitoring and evaluation of Project activities. The Recipient shall maintain: (i) a Financial Management Manual; (ii) a FM system; and (iii) training to the PMU staff in financial management and disbursement, in a manner satisfactory to the Bank. The Recipient shall: (a) by no later than May 31 and November 30 of each year, furnish to the Bank for its review and comments, a semi-annual work program; and (b) implement said work program in a manner satisfactory to the Bank, taking into consideration the Bank s view thereon. The Recipient shall: (a) by no later than November 30 of each year, furnish to the Bank for its prior concurrence, an annual plan for the maintenance and, if necessary, upgrade of the hardware and software, and the connectivity of said system, said annual plan to include the estimated costs therefor; and (b) carry out such plan in a manner satisfactory to the Bank. Already in place/ ongoing. Already in place/ ongoing. Already in place/ ongoing. Already in place/ ongoing.

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9 I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to: (a) provide an additional credit in an amount of SDR 9.2 million (US$14.0 million equivalent) to the Socialist Republic of Vietnam for the Public Financial Management Reform Project (Project Identification No. P075399, Credit Number 3767-VN); and (b) introduce changes in the project and the accompanying amendments to the project s legal documents. 2. The objectives of this Additional Financing (AF) are to: (i) ensure successful completion of original project activities that face cost overrun; and (ii) scale-up the implementation of selected activities and add limited number of new activities in order to improve the efficiency of the project and sustain its development effectiveness. 3. A second-order restructuring is also being sought as part of the Additional Financing, to adjust the scope of several sub-components, and to reallocate funds to other categories. No changes to the project development objective, overall design, and implementation modalities are sought. 4. As part of the proposed restructuring, a second two-year extension of closing date of the original credit from February 28, 2011 to February 28, 2013 would be approved, increasing the project life to 9 years. The extended closing date of original credit will coincide with the closing date of additional credit. (Extension of the original credit will be carried out in two phases starting with six months extension till August 30, 2011 and followed by 18 months extension later. The proposed two phased approach will prevent interruption of ongoing activities while the new Financing Agreement is signed and declared effective.) II. Background and Rationale for Additional Financing and Restructuring A. Consistency with Country Partnership Strategy (CPS) 5. The project, with additional financing, restructuring and extension, remains fully consistent with the Country Partnership Strategy (CPS), particularly in terms of providing support for strengthening the institutions necessary to facilitate a more complex and diverse economy in Vietnam. Specifically, it supports the fourth goal of promoting good governance. The focus is on the sub-goal of improving public financial management systems and practices, information and transparency. Indirect but important contributions will be made to the achievement of other governance sub-goals including public administration reform, development of e-government and combating of corruption. B. Project Background 6. The project credit in the amount of SDR39.90 million, equivalent at that time to US$54.33 million, was approved by the Board of Executive Directors on May 22, 2003, and became effective on September 4, Standard IDA credit terms were applicable, with a 10 years grace period and 40 years maturity. Total project financing was US$71.45 million, including a US$9.99 grant from DFID and the counterpart contribution of US$7.14 million. The original project s closing date was February 28, 2009, which was later extended to February 28, The objective of the project is to strengthen budget planning, execution, reporting and accountability. Three key performance indicators are: (i) accuracy, timeliness, relevance, transparency and compliance with international best practices in budget execution and reporting at each level of government; (ii) better planning of the State Budget and the Public Investment Program to achieve the growth and poverty reduction goals set out in the Comprehensive Poverty Reduction and Growth Strategy 1

10 (CPRGS); and (iii) greater fiscal sustainability through improved and integrated recording of external and domestic public and publicly guaranteed debt, improved capacity to monitor SOE liabilities, and improved ability to assess associated fiscal risks. 8. The project is organized into four components, namely: (1) Strengthening treasury and budget management; (2) Strengthening state budget and investment planning; (3) Strengthening management of public debt and monitoring of SOE fiscal risks; and (4) Project management support. The project provides an integrated package of assistance to strengthen budget planning, execution, reporting and accountability of the country s public financial management system. The project includes major investments to upgrade the core systems of public financial management, and Technical Assistance (TA) to support institutional reform, policy formulation, and capacity building. 9. As part of the project, an integrated Treasury and Budget Management Information System (TABMIS) is being implemented in treasury offices and financial agencies in three out of four levels of the government central, provincial and district. Upon completion, TAMBIS will enable accurate, timely and consolidated budget reporting and cash accounting. A platform is also being introduced for a number of essential PFM reforms such as revamping and integrating account code structure, and introducing elements of accrual accounting and modern cash management. The project is providing support for modern budget planning approaches in core government agencies and provinces. It is also providing support to strengthen public debt management in core government agencies, including an integrated framework for recording of domestic and external debt and monitoring of fiscal risks. C. Status of Implementation and Progress in Meeting Project Objectives 10. The project is making progress to meet its development objectives, though several outstanding challenges remain, as discussed below. 11. Component 1 (Strengthening treasury and budget management): The following four out of five critical stages of TABMIS have been implemented: (i) analysis and re-design of the policies, business processes and the accounting regime for TABMIS, (ii) analysis, design, development and testing of the software, (iii) setting up the hardware system, and (iv) piloting and roll-out the system. To date, TABMIS has been implemented at the Ministry of Finance (MOF) and rolled out to treasuries and financial agencies in 35 out of 63 provinces. Fifteen largest spending line-ministries are getting ready to use TABMIS to conduct budget allocations for The implementation of the TABMIS system is laying a strong foundation for realizing the first performance indicator when nationwide roll-out gets completed in A number of key associated reforms (unified Chart of Accounts, commitment accounting and other elements of accruals accounting, enabled Treasury Single Account and improved cash management) are underway to help Vietnam adopt international best practices. 13. There are certain issues regarding the contractual agreements related to TABMIS. MOF is currently negotiating with key contractors on possible improvements in the contracts (including warranty/post-warranty clauses, additional hardware needs, and user licensing terms), for satisfactory system performance and operational acceptance, and sustainability of developed solutions. 14. The completion of TABMIS will require additional budget and time. Moreover, several existing functions have not been fully activated, due to lack of legal and technical requirements including data integration across external systems that are under development. 2

11 15. Component 2 (Strengthening state budget and investment planning): The medium-term fiscal framework (MTFF) and the medium-term expenditure framework (MTEF) have been successfully piloted in 6 ministries (Ministries of Finance, Planning and Investment, Education and Training, Health, Transport, and Agriculture and Rural Development) and 4 provinces (Hanoi, Ha Tay, Vinh Long, and Binh Duong). 16. However, a budget preparation information system (BPS), which among other things can support the preparation of MTFF and MTEF, has not been implemented yet. The development of BPS has been consciously delayed to take account of some of the critical changes that are expected in the new budget law. The new budget law is expected to be submitted to the government after the new administration assumes office in mid Component 3 (Strengthening the management of public debt and other fiscal risks): This component is aimed at strengthening public debt management and institutions by supporting the promulgation of the Public Debt Law and establishment of the specialized Debt Management Department. Currently, the project is focused on strengthening the capacity of the institutions that are responsible for undertaking public debt and risk management. This is being done by providing technical assistance to develop a long-term debt strategy, medium-term debt management program, and risk management regulations. These measures are expected to contribute to greater fiscal sustainability. 18. However, the implementation of the domestic debt management information system (DMFAS) and the integration of the debt databases had initially experienced procurement delays. The problem has been resolved and DMFAS implementation finally started in December Initial attempts to strengthen the monitoring the fiscal risks from SOEs were only partially successful due to lack of necessary legal framework, poor data availability and limited assessment capacity. 19. Component 4 (Project implementation support): This component, including fiduciary management, remains satisfactory. Institutional and implementation arrangements remain effective (including the well functioning Inter-Ministerial Steering Committee, Component Technical Units, and the Project Management Unit organized into specialized component implementation teams). Commitment of senior officials towards this project and the support of consultants have improved during the period of project implementation. However, there is still a need to bring in additional advisory support in terms of technical functions, as well as for project and contract management. 20. The ratings and sub-ratings for the past three ISRs for the project are shown in Table 1 below. Table 1: ISR Ratings in the last 12 months Rating Category ISR #12 ISR #13 ISR #14 (Dec 2009) (Sep 2010) (Jan 2011) Progress Towards PDO S S S Overall Implementation Progress MS MS MS Financial Management S S S Procurement S MS MS Counterpart Funding S S S Overall Safeguard Compliance n/a n/a n/a ISR Rating - HS (Highly Satisfactory), S (Satisfactory), MS (Moderately Satisfactory), MU (Moderately Unsatisfactory), U (Unsatisfactory), and HU (Highly Unsatisfactory) 21. Overall progress is assessed as Moderately Satisfactory (MS) due to delayed implementation of TABMIS and DMFAS. MOF has adopted concrete plans to ensure successful completion in 2011 of (i) TABMIS implementation (improve TABMIS performance and functionalities, address project 3

12 management issues, complete nationwide rollout, and fully take-over the system administration role), and (ii) DMFAS implementation. Procurement management was recently downgraded to MS due to internal procurement approval procedure currently being used in MOF which appears to be cumbersome. MOF has committed to resolve this issue by making necessary procedure streamlining and developing detailed coordination mechanism among relevant units. 22. Disbursement and commitments. As of November 30, 2010, disbursement from IDA and DFID was 54 percent and 86 percent, respectively, hence the overall disbursement for the project is 59 percent. It is expected that by the end of the current project period (i.e., February 28, 2011), 62 percent of the IDA Credit and 90 percent of DFID Grant will be disbursed. The request for additional financing takes into account the undisbursed amounts (US$22.59 million IDA credit, US$1.08 million DFID grant, and US$2.82 million GOV counterpart fund) including gains from exchange rate fluctuations between SDR and USD, and GBP and USD of about US$6.35 million, and US$1.32 million respectively. 23. Compliance with Covenants. This project is in compliance with all dated legal covenants. There are no overdue or qualified audit reports. Financial Management has been rated Satisfactory for the project, Procurement has been recently rated Moderately Satisfactory, while safeguards compliance is not required for this project. D. Rationale for Additional Financing and Restructuring 24. Additional Financing (AF) is required in order to ensure successful completion of original project activities that face cost overrun and to enhance the efficiency and sustainability of the project through scaled-up and new activities. (i) Nearly 65 percent of AF will go towards completion of the original project activities for which the cost has increased during the past seven years of project implementation. AF is needed to complete TABMIS nationwide implementation, ensure system stability and sustainability for the full scope of users and functions required. (ii) The reminder 35 percent of AF will be used to finance implementation of additional or expanded activities. For component 1, AF is required to increase system efficiency by scaling up implementation of selected module, and prepare for staged expansions towards the longer term vision of a Government Financial Management Information System (GFMIS), with TABMIS at its core 1. For component 2, AF is required to timely prepare for the adoption of MTFF and MTEF, which were successful piloted during the last four year, and integration of these frameworks to the annual budget process. For component 3, AF is needed to further enhance public debt and risk management instruments and capacity, and to strengthen the monitoring of fiscal risks arising from SOEs. 25. A level-2 Restructuring is required in response to changing circumstances to align the modified project activities with the legal agreement, reallocate the budget to other activities, and extend the project for two years. It does not involve any changes to project development objectives or associated outcome targets. The project had experienced delays due to time consuming procurement process and slow implementation involving large and complex IT systems and was extended. The limited capacity of MOF 1 On August 27, 2010, GOV Prime Minister issued Decision No adopting the national IT program for public sector during The program aims to strengthen information infrastructure, proactively apply IT in public sector to enhance productivity and reduce operation costs, and lay the foundation for e-government which will provide updated information and online services to enterprises and citizens. The program mandates MOF to implement TABMIS nationwide and prepare for a government integrated financial information system. 4

13 also affected the pace of implementation of the project. Some of these issues have since been addressed and the project implementation has gathered pace in recent years. III. Proposed Changes 26. Project development objectives remain unchanged. Three key performance indicators of the project also remain valid. However, the output indicators are updated to fully reflect the expectations from the key project activities (see Annex 1). Supplemental Letter No. 2 of the Development Credit Agreement (DCA) will also have to be amended to reflect the changed indicators. A. Additional Financing 27. The AF will focus on completion of original project activities and enhancement of project impact and efficiency. 28. For component 1, the cost of meeting some of the original project activities has increased during the past seven years, resulting in a cost overrun. The numbers of users, volume of usage, and correspondingly, system size, and support services have been found to be significantly higher than what was assumed in 2003 when the project was designed. To complete TABMIS nationwide implementation, ensure system stability and sustainability for all the users and functions, additional hardware, software licenses, and associated implementation services are required as well as the need to conduct additional user and technical training, and technical assistance in project management and implementation. 29. In the meantime, there is a need to implement additional activities, in order to timely improve the efficiency of operations and sustain project s impact. These include: (i) The AF will support expansion of Budget Allocation (BA) Module to major supervising agencies (about 300) at central budget levels. This is to increase system efficiency and spread out the current workload. Ultimately this aims to sustain the project s accomplishments and impact, and ensure that system capabilities will be appreciated by wider system users from MOF to the government, including lines ministries and provinces, as a whole. The additional funds will be used to optimize IT infrastructure for BA rollout to line ministries and agencies, provide training to users, and for purchase of additional hardware, software licenses and implementation services. (ii) The AF will support the designing of a Web Portal enabling e-transaction by all SUs (about 100,000) and partners of government, also serving as a platform for additional future PFM applications. This is to prepare for a modified approach to linking SUs with TABMIS via a portal, which will replace the concept in the original project of providing SUs direct access. The additional funds will be used to study a suitable portal model, to develop an implementation roadmap, and to prepare technical requirements and bidding document for the portal. (iii) The AF will support further public finance reform beyond the current project. It will develop a model and a roadmap towards GOV s longer term vision of a Government Financial Management Information System (GFMIS), with TABMIS at its core, and of e-government. This includes (i) establishment and operation of State Accountant General function, towards producing government-wide financial statements including public assets financial information; and (ii) preparation of a model and roadmap for future development towards GFMIS including Asset Management, and possibly other key elements of the GFMIS such as Human Resource and Payroll, Public Investment, and Inventory Management. The available funds will be used to finance a series of technical assistance on these topics. 5

14 30. For component 2, the AF will help in institutionalizing the MTEF and MTFF in the budget process. MTFF and MTEF have been successfully piloted during the last four years, but additional work is needed toward their adoption into relevant law and mainstreaming into the budget process. The additional funds will be used to develop guidelines for implementation of these frameworks. 31. For component 3, the AF will facilitate adoption and operationalization of sound practices of public debt and risk management, strengthen debt management system, and improve monitoring of fiscal risks arising from SOEs. Initial activities have been conducted under the project in the last years, but additional work is needed to sustain project accomplishments and impacts. The additional funds will be used to enhance public debt and risk management instruments and capacity, and develop a strategy to implement debt and risk management information systems. B. Restructuring 32. The proposed restructuring does not involve any changes to project development objectives or to the associated outcome targets. The proposed restructuring involves changes to intermediate outputs and associated inputs: (i) adjusting the scope and title of a number of sub-components in response to changing circumstances; (ii) allocating additional financing and reallocating funds of original credit to other categories; and (iii) extending the project for two more years. At GOV request, a retroactive financing up to SDR 920,000 (US$1.4 million equivalent) is allowed on the Additional Credit. 33. Adjusting the scope and title of several sub-components. The scope of sub-components and associated costs have been revised, merged, and added to align the modified project activities with the legal provisions. Detailed adjustments are included in Annex Allocation of additional financing and reallocation of funds. These are done through four dimensions as described below. Detailed breakdown by disbursement category is included in Annex 4(c). (a) Allocation of the Additional Credit amounts to each sub-component and disbursement category. The AF of US$ 14 million will mainly be allocated to Component 1 (about 80 percent). (b) Reallocation of the unallocated amount of the Original Credit (SDR3.11 million) to other categories of items to be financed out of the proceeds of the Credit. (c) Addition and updated definition of categories: A new category of Consultants Services/ Training/Workshops is added to reflect the plan to use IDA, instead of DFID cofinancing which is expiring, for this type of expenditures. The definition of Incremental Operating Costs for TABMIS is updated to include costs related to training other than those provided by TABMIS contractor. (d) Changes to percentage of financing in each category: The original capital structure is rather complicated, causing difficulties for financial management and reporting of the Project. Simplification of capital structure is now proposed with only three types: 100 percent IDA, 95 percent IDA, and 100 percent counterpart fund. These changes will be applicable to expenditures incurred after the date of the amendment of legal agreement. 35. Revised closing date. An extension of the project is required for completion of outstanding and additional activities. The key original outstanding activities include (i) Completion of TABMIS rollout to the remaining 28 provinces and any adjustments required after the first years of operation, full operationalization of core TABMIS modules including commitment management and cash management, and introduction of a Treasury Single Account; (ii) Development of a feasibility study for a budget preparation system (BPS); and (iii) Implementation of the domestic debt management system (DMFAS) 6

15 and integration of domestic and external debt databases. To justify for this second extension, MOF has developed an Action Plan outlining the activities to be carried out during the extended period as well as the disbursement projections for the remaining life of the project (Annex 5 and Table 4). The implementation plan and disbursement projections have been appraised and found acceptable. C. Updated Project Costs, Financing, Implementation and Procurement Plans 36. Project costs and financing. Project costs and financing have changed from the original project, as per the tables below. Details are included in Annex 4(a) and Annex 4(b) respectively. (a) Original Table 2. Updated Project Costs (US$m.) Original (c) (d) Undisbursed Currency (2/2011) Gain (b) Disbursed (2/2011) (f) Additional Financing (g) Total undisbursed (c)+(d)+(f) (h) Project Total (a)+(d)+(f) Component Component Component Component Total (a) Original Table 3. Updated Financing Plan (US$m.) (b) Disbursed (2/2011) Original Credit (c) Undisbursed (2/2011) (d) Currency Gain (e) Total (a) + (d) (f) Additional Credit (h) Project Total (a)+(d)+(f) Loan Grant Counterpart Total Implementation and Procurement Schedule. The revised plan for all activities to be implemented in the extended period and the accompanying procurement plan are included in Annex Disbursements. Disbursements are projected as per the table below. Table 4. Updated Disbursement Projection (US$m.) /2011 2/2011-6/2011 7/2011-6/2012 7/2012-6/2013 Total extension of which IDA Total project Component Component Component Component Total (cum.)

16 IV. Appraisal Summary 39. The Bank has completed appraisal of the economic, financial, technical, fiduciary, environmental, and social aspects of the proposed additional activities. Appraisal verifies that needed implementation arrangements are set, fiduciary controls are in place, and the GOV is ready and has adequate capacity to implement the additional activities. The implementation arrangements are expected to continue to operate satisfactorily during the remainder of the project. A. Economic and Financial Analysis 40. As with the parent project, the direct benefits of budget, treasury, and debt management reform are to strengthen the Government s capability to manage public finances more effectively. Therefore, the impact of the project is mostly institutional and cannot be easily isolated or quantified. Consequently, a traditional economic analysis (such as net profit value (NPV) or internal rate of return (IRR)) to justify the project is not appropriate in this case. At project start, it was concluded that the project cost should be more than compensated by savings due to better planning, implementation and control of the budget. Vietnam's total public expenditure in 2001 was the equivalent of some US$7 billion. It was considered that efficiencies of just a quarter of a percentage point of this amount per year (US$17.5 million) would be sufficient to achieve undiscounted payback in just over four years. With similar argument, it can be considered that the gains from project are now several time higher since total public expenditure has almost quadrupled since then (about US$27 billion in 2010). 41. Costs. With an additional US$17 million required for investment costs, and US$ million financing extended from the original credit (including gains from exchange rate fluctuations between SDR and GBP and USD of about US$ 7.67 million), the total project costs are now US$ 96 million. 42. Benefits. The project will not generate direct income or benefits against which costs could be compared. Nevertheless, the project will have substantial fiscal benefits over time, namely: (i) improved aggregate fiscal discipline and fiscal risk management (TABMIS, MTEF and MTFF, and debt and risk management will result in better planning, monitoring and control of aggregate budget spending, and avoiding excessive risk exposure and unnecessary borrowing costs); (ii) improved budget allocation at the sector and institutional level (TABMIS, MTEF and MTFF, and roll-out of Budget Allocation module will result in better planning, monitoring and control of spending allocations); and (iii) improved operational efficiency and effectiveness of public expenditure and financial management (TABMIS will result in timely and accurate information and enable improved transparency, for better decision making, control and compliance, external and internal scrutiny, and improved cash management etc). Moreover, the additional activities to be implemented, including the Technical Assistance towards GFMIS, will help improve and sustain the project s impact, and ensure timely preparation for the next phase of PFM reforms in Vietnam. B. Risks 43. Like any projects involving procurement and implementation of large scale IT system, this project was originally considered to be of high risk. However, with a reasonably satisfactory track record of project implementation, the overall risk can now been downgraded to medium risk (Medium-I). Specifically, the downgrade can be explained by the following factors: (i) the AF does not include the development of any additional system, which tends to be complex and time consuming; (ii) the Implementing Agency and the PMU have gained considerable experience in managing this project and remains highly committed; and (iii) the managerial and technical capacity of involved agencies have been considerably enhanced. 8

17 44. Most of the risks will have high impact if they materialize, but there is a low likelihood of them occurring (see Annex 2). One of the highest risks is associated with the sustainability of the project s impact, involving: (i) MOF and contractor s ability to constantly ensure satisfactory system performance, capacity, and functionality vis-à-vis government requirements in short and medium term; (ii) MOF s ability to smoothly take over the operation of the completed systems from the contractors before the end of the contract and (iii) continued effort by the Government to maintain project initiatives after completion of the project. 45. Mitigation measures are built into the project s plan, and will be implemented and properly monitored to ensure successful and timely implementation of the project. These include: (i) MOF will continue to work closely with the contractor to resolve related issues (system hanging, slow response times, problem resolution times, and server capacities) to strengthen and maintain system credibility; and implement additional activities toward full operationalization of key system modules. (ii) MOF will be developing a time-bound and well defined take-over plan from the contractor; developing a capacity enhancement plan informed by an IT audit (to assess needs, gaps, strategy to enhance capacity and infrastructure); intensifying training to ensure adequate in-house capacity for system management, information security and performance monitoring; and gradually taking over the ownership of the TABMIS database and system administration functions; and (iii) MOF will be institutionalizing the reforms initiated under the project to sustain their long-term impacts; appropriately scaling up accomplishments; timely studying roadmaps for future expansions and incorporating identified roadmaps into mainstreaming development strategies; and strengthening training and change management with various stakeholders to timely prepare for future reforms and enhance reform buy-in. C. Financial Terms for the AF 46. The Additional Financing would be provided as an IDA Credit. The only condition of effectiveness is the receipt of a legal opinion certifying that the Additional Financing Agreement will have been duly authorized and executed by the Government of Socialist Republic of Vietnam and is legally binding. D. Fiduciary, Safeguard, Institutional and other Operational Aspects 47. Fiduciary. Procurement under the proposed Additional Financing will be carried out in accordance with the World Bank s Guidelines: Procurement under IBRD and IDA Credit, May 2004, as revised in October 2006 and May 2010, and Guidelines: the Selection and Employment of Consultants by the World Bank Borrowers, May 2004 as revised in October 2006 and May 2010 and in provision stipulated in the Financing Agreement. Apart from the requirement to use the most updated version of the procurement guidelines and the increase of the authorized amount for the Designated Account, the fiduciary arrangements will remain unchanged from those of the parent project. The PMU implementing the additional activities was appraised for its capacity to implement procurement and adequacy of financial management arrangements under the parent project. The PMU has implemented procurement and exercised financial management satisfactorily and demonstrated a satisfactory track record of implementation of fiduciary requirements. With the activities planned for the remaining project period, the PMU is advised to request monthly replenishments of the Designated Account. The Bank s Anti- Corruption Guidelines will apply to the Additional Financing. 9

18 48. The propose procurement plan submitted by MOF has been found acceptable to the Bank team and is in accordance with discussions held. The proposed procurement methods for goods and consultants services are in accordance with the provision of the Procurement Schedule of the Financing Agreement (FA). 49. The procurement plan foresees a large number of individual contracts (both local and international), as opposed to firms. This approach is considered to be appropriate since the majority of these consulting services are of a specialized nature where the experience and qualifications of the individuals are paramount. The proposed pairing of international with national consultants is a measure to minimize the time normally required for international consultant to familiarize themselves with local conditions. Furthermore, it is expected that MOF would consider grouping a number of individual consultancies into several packages to be procured via QCBS or CQS as appropriate. The justification for procuring a large value additional hardware and licenses through direct purchase or variation orders through the Contractor for the on-going TABMIS contract is acceptable given the proprietary nature of the required goods and warranty and integration responsibility. It is expected that an updated procurement plan in light of appraisal discussions will be finalized by the end of negotiations. 50. Social. The extension phase is not expected to change to the assessment of the social impact of the original project. 51. Environment. As with the original project, no environmental impact of the extension phase is expected. 52. Safeguards. Similarly to the original project, no safeguard issues are triggered. 53. Institutional arrangements. At the broad level, the implementation arrangements will remain unchanged from the original project, given that (i) these have been proven to be satisfactory in recent years of project implementation; (ii) MOF and PMU have gained considerable experience in managing this project and remain highly committed to implement the activities proposed under the AF; and (iii) MOF is committed to adopt the coordination plan and reinforce human resources of the PMU. 54. Meanwhile, as noted above, it will be particularly arduous to coordinate the selection and manage a large number of individual consultants in the extension period. MOF has committed to maintain and enhance the current arrangements within MOF and PMU. By end of April 2011, MOF will adopt a timebound assignment and coordination plan, to ensure smooth implementation of the AF activities among relevant functional departments, the Component Technical Units led by senior officials, and the PMU s Component Implementation Teams. In addition, the PMU will urgently bring in additional full-time staff and advisory consultants to support project and contract management, and enhance necessary training to its staff. Moreover, MOF will timely review the current internal procurement approval procedure which appears to be cumbersome, and will make necessary streamlining. 55. Fraud and Corruption. The areas considered most likely to be subject to wrongdoing are fraud in financial management, and fraud and corruption in procurement. Safeguards to prevent fraud and corruption in these areas that have been put in place by the MOF have been reviewed and assessed as adequate to enable them to implement the Bank's anti-corruption guidelines, a copy of which has been provided. There have been no allegations of fraud or corruption thus far in the parent public financial management reform project, and no extraordinary mitigation measures are considered necessary to supplement those that are already in place. 10

19 Annex 1. Revised Results Framework and Monitoring Indicators Current PDO Revisions to the Results Framework Proposed change Rationale for Change The objective of the Project is to strengthen the Recipient s capacity to plan, execute and report on its budget and to improve the transparency and accountability of the budgetary systems and processes. PDO indicators Accuracy, timeliness, relevance, transparency and compliance with international best practices in budget execution and reporting at each level of government. Better planning of the State Budget and the Public Investment Program to achieve the growth and poverty reduction goals set out in the CPRGS. Greater fiscal sustainability through improved and more integrated recording of external and domestic public and publicly guaranteed debt, improved capacity to monitor SOE liabilities, and improved ability to assess associated fiscal risks. The objective of the Project is to strengthen the Recipient s capacity to plan, execute and report on its budget and to improve the transparency and accountability of the budgetary systems and processes. Accuracy, timeliness, relevance, transparency and compliance with international best practices in budget execution and reporting at each level of government. Better planning of the State Budget and the Public Investment Program to achieve the growth and poverty reduction goals set out in the SEDP. Greater fiscal sustainability through improved and more integrated recording of external and domestic public and publicly guaranteed debt, improved capacity to monitor SOE liabilities, and improved ability to assess associated fiscal risks. Unchanged. Unchanged. Minor change in the guiding strategy paper from CPRGS to SEDP. Unchanged. Intermediate Results/Output Indicators Part A: Strengthen Treasury and Budget Management (a) Utilization throughout government of an integrated chart of accounts for treasury and budget management and spending units, consistent with appropriate international standards (by end 2004). (a) Utilization throughout government of a restructured and integrated chart of accounts for treasury and budget management, consistent with appropriate international standards (by end 2011). 11 Revised. The chart of accounts (COA) was restructured and integrated for treasury and budget management, but yet for spending units. Eventually, the COA is expected to be further revised to enable consolidation of information from Spending Units, but further study needs to be conducted (see outcome indicator 1(i)).

20 Current Revisions to the Results Framework (b) Implementation of TABMIS in Treasury head office, MOF, MPI and one pilot province (by end 2005), with relevant staff trained. (c) Roll-out of TABMIS to all Treasury offices in provinces and districts (by end 2007), with relevant staff trained. (d) Roll-out of TABMIS to Finance departments and planning departments at provincial and district level (by 2008), with relevant staff trained. (e) Piloting of TABMIS in selected large spending units (by 2008), with relevant staff trained. Proposed change (b) Implementation of TABMIS in treasury head office, MOF and two pilot provinces (by June 2009), with relevant staff trained. (c) Roll-out of TABMIS to all Treasury and Finance Offices in provinces and districts (by end 2011), with relevant staff trained. (d) Implementation of budget allocation module in 40 large central ministries and government agencies (by end 2011), with relevant staff trained. (e) Roll-out of budget allocation module deployment to selected major supervising agencies at central budget level (by March 2013), with acceptable performance and relevant staff trained. Rationale for Change The restructured COA is being utilized at rolled out sites. COA utilization progress is therefore contingent on completion of roll-out which is now scheduled for end Revised. Roll-out plan has been modified, leaving the major provinces toward the end, to mitigate the operational risks. Revised. Roll-out is implemented to Treasury and Finance Offices in each site at the same time. The rollout plan has also been modified towards completion by end Departments of Planning and Investment (DPIs) at provincial and district levels were excluded from TABMIS roll-out since it was considered not costeffective to do so. DPI access to TABMIS will be further studied under the Web portal and GFMIS work (Annex 2, sub-components 1(g) and 1(i)). Former indicator dropped. New indicator proposed, in line with changed project activities (see more detail in Annex 2, sub-component 1(d)). New. To monitor the results of one major additional subcomponent (see more detail in Annex 2, sub-component 1(e)). 12

21 Current Revisions to the Results Framework Proposed change (f) About 80% of state budget expenditure commitment and associated contracts, and 100% of capital expenditure commitment are recorded and monitored through TABMIS (by end 2011). (g) Budget execution results directly obtained from TABMIS are published on MOF website on a monthly basis within 15 days after the end of the month (by March 2013). (h) Preservation of at least 30 dedicated and properly trained technical specialists at central, to manage TABMIS databases, system security, user access, and to provide technical support to end users. Rationale for Change New. To monitor the efficiency of commitment management enabled by TABMIS. New. To monitor the accuracy and timeliness in budget execution and reporting. Currently, only aggregated estimates of budget execution are published, on a quarterly basis and 45 days after the end of the quarter. It is also advised that the level of disaggregation of published data should be increased. New. This is to mitigate one of the highest risks associated with the sustainability of project impacts (refer to main text, paragraphs 43-45). (f) Progress on the road from cash to accruals accounting and to a Treasury Single Account. (i) Progress on the road from cash to accruals accounting; Unified Chart of Accounts for consolidation of state accounting information developed (by March 2013). (j) Model, roadmap for development and implementation of cash management system adopted (in 2012); and Study on cash management tools and systems conducted; and Treasury Single Account introduced (by March 2013). 13 Revised. A unified COA and progress toward applying IPSAS and accrual accounting are expected (Annex 3, sub-components 1(e)-1, 1(e)-3, and 1(e)-4). New. To reflect progress on the road toward implementation of modern CM systems. It is expected that in 2012 the legal framework for cash management including CM system model and roadmap will be adopted. A study on CM tools and systems including for cash flow forecasting will also be conducted by project end.