RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF IRAQ: PUBLIC FINANCE MANAGEMENT REFORM PROJECT (P110862) (GRANT TF094552)

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF Report No: IQ IRAQ: PUBLIC FINANCE MANAGEMENT REFORM PROJECT (P110862) (GRANT TF094552) RVP APPROVAL DATE: JUNE 27, 2009 TO THE: IRAQ- MINISTRY OF PLANNING AND DEVELOPMENT COOPERATION January 25, 2013 Governance and Public Sector Management Unit, Poverty Reduction and Economic Management (PREM) Department Middle East and North Africa 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. 1

2 ABBREVIATIONS AND ACRONYMS BCC BETF BORR BSA COTS EA GFS ICT IFMIS IG IPSAS ISDS ITF MOF MOFATC MOPDC PAD PDO PFM PMT PRA TA Budget Call Circular Bank Executed Trust Fund Borrower Board of Supreme Audit Commercial Off-the Shelf Environmental Assessment Government Financial Statistics Information and Communications Technologies Integrated Financial Management Information System Inspector General International Public Sector Accounting Standards Integrated Safeguard Data Sheet Iraq Trust Fund Ministry of Finance Ministry of Finance Accounting Training Center Ministry of Planning and Development Cooperation Project Appraisal Document Project Development Objective Public Financial Management Project Management Team Procurement Regulatory Agency Technical Assistance Regional Vice President: Country Director: Sector Manager: Sector Director: Task Team Leader: Inger Andersen Ferid Belhaj Guenter Heidenhof Manuela Ferro Arun Arya 2

3 Restructuring Restructuring Type: Level II 1. Basic Information Project ID & Name P110862: IQ-Public Financial Mgmt Reform Country Iraq Task Team Leader Arun Arya Sector Manager/Director Guenter Heidenhof/ Manuela Ferro Country Director Ferid Belhaj Original Board Approval Date 06/26/2009 Original Closing Date: 06/30/2013 Current Closing Date 06/30/2013 Proposed Closing Date [if applicable] 09/30/2013 EA Category C-Not Required Revised EA Category C-Not Required EA Completion Date Revised EA Completion Date 2. Revised Financing Plan (US$m) Source Original Revised BORR IRTF Total Borrower Organization Department Location Republic of Iraq Baghdad, Iraq 4. Implementing Agency Organization Department Location Ministry of Finance Baghdad, Iraq 3

4 5. Disbursement Estimates (US$m) Actual amount disbursed as of 12/8/ Fiscal Year Annual US$ Cumulative US$ , , , , ,333,349 4,311, ,287,480 5,599,352 Total 5,599, Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N Does the restructured projects trigger any new safeguard policies? If yes, please select from the checklist below and update ISDS accordingly before submitting the package. N 7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes The Project Development Objective is to support the Government of Iraq's efforts to develop a more effective, accountable and transparent public financial management. 7b. Revised Project Development Objectives/Outcomes Not applicable 4

5 IRAQ IRAQ: PUBLIC FINANCE MANAGEMENT PROJECT TABLE OF CONTENTS P A. SUMMARY... 6 B. PROJECT STATUS... 6 C. PROPOSED CHANGES... 8 D. APPRAISAL SUMMARY ANNEX 1: RESULTS FRAMEWORK AND MONITORING ANNEX 2: REALLOCATION OF PROCEEDS... D-26 ANNEX 3: EXTENSION OF CLOSING DATE... D-27 5

6 RESTRUCTURING PAPER IRAQ: PUBLIC FINANCE MANAGEMENT PROJECT (P110862): (GRANT TF094552) (RECIPIENT-EXECUTED) A. SUMMARY 1. This Restructuring Paper proposes a Level II restructuring to (a) add a new component, namely the Integrated Financial Management Information System (IFMIS) ; (b) re-allocation of Grant proceeds; and, (c) extend the project closing date, at the request of the Recipient. 2. During the Mid-Term Review of the project in August 2011, it was agreed with the Government that the Project s impact would be significantly enhanced if an IFMIS is also implemented. Component 1 on Budget Preparation and Component 3 on Budget Execution Controls can deliver better results if implemented together with IFMIS. Under the new IFMIS Component, the Ministry of Finance (MOF) plans to develop, commission and test the prototype of IFMIS. Down the road, the Government also plans to roll-out IFMIS to all public sector entities including all ministries, treasuries, spending units and governorates at its own cost. 3. The project s original closing date was June 30, The Government has requested for a 3-months extension to the project closing date citing the reason that the implementation of the Project could not start until mid-2011 due to three terrorist attacks on the premises of the Ministry of Finance. With regard to the extension, given that the Iraq Trust Fund is closing on 31 December 2013, we are requesting an extension up to 31 August B. PROJECT STATUS 4. The Iraq Public Financial Management (PFM) project was started as an emergency operation in July 2009 under the Iraq Trust Fund (ITF). The project is to be completed in June The total estimated cost of the Project is US$18 million: i) US$16 million to be Recipient-executed; and ii) US$2 million to be Bank-executed on behalf of the Recipient. Under the Recipient-executed part, against the project cost of $16 million, $3.6 million (23 %) has been disbursed. Under the Bank-executed part, against the project cost of $2 million, the entire $2 million (100 %) has been disbursed. Against the total project cost of $18 million, $5.6 million (31 %) has been disbursed. 5. The progress made under the Recipient-executed part is as follows: a) Component 1- Strengthening Budget Preparation: The inception reports for (a) improving the budget strategy, content of and adherence to the Budget Call Circular (BCC), and, (b) improving the methodology of investment project preparation and evaluation, have been prepared. b) Component 2 Strengthening Public Procurement: Under the assignment on developing the Standard Bidding Documents (SBDs), National Implementation 6

7 Manual (NIM), and Training Curriculum, draft outputs have been prepared. Similarly, a workshop on international arbitration was organized to inform the national stakeholders about international best practices. A contract for the Training Needs Assessment has recently been signed and the work is about to begin. c) Component 3 Strengthening Budget Execution: Consultants have submitted their draft final reports on Cash Management and Commitment Control Systems. The procurement process for the organization of internal financial controls is ongoing and a contract for upgrading the MOF website for enhancing citizen s access on fiscal data has recently been signed. d) Component 4 Capacity Development: Consultants have prepared the Capacity Development Plan of the Ministry of Finance Accounting Training Center (MoFATC), which has been recently approved by the government. The actual capacity building work is expected to start soon. 6. Initially, there were significant delays in procuring goods and signing consultancy services contracts. The payment approval procedure used was not appropriate and led to delays in payments. Accordingly, the last ISR rating of the Project in April 2012 was Moderately Unsatisfactory. However, as per Bank s task team s advice, the payment approval system has now been streamlined. The resignation of Finance Officer from the project management team had led to a lack of an authorized signatory to issue payments, which consequently led to payment delays. However, this issue stands resolved now. In summary, the project has made some good physical progress under all components since April 2012, but there have been delays in the payments, due to which disbursements have not kept pace with the physical progress. The project has uncommitted funds of $6.78 million (44%) but once the Government is able to sign the Integrated Financial Management Information System (IFMIS) contract, all uncommitted funds would be committed. 7. The progress under the Bank-executed part has been as follows: 8. Under the Bank-executed trust fund (BETF), US$2 million were allocated for the technical assistance (TA) to support the implementation of the Grant and had two components: (1) Strengthening Budget Preparation, and (2) Capacity Development of the Board of Supreme Audit (BSA). All of the US$2 million allocated funds for the BETF have been fully utilized and all planned activities completed. At the Government request, a proposal for Additional Financing of $621,500 has been prepared for the approval of the management. The component-wise progress is as follows: a) Component 1 Strengthening Budget Preparation: A fully functional Medium Term Expenditure Framework (MTEF) has been developed and has been used for preparing budget strategies for ; ; and The Iraqi Medium-term Fiscal (IMF) model is also operational and being tested for the budget strategy for the period. A comprehensive historical database of fiscal information is in place. The budget preparation process improved with an increasingly detailed policy focus during strategy discussions. The use of the IMF Model has delivered MoF the capability to undertake research on policy 7

8 components of the budget; trend analysis; and to fine-tune the top-down setting of fiscal envelopes. b) Component 2 - Capacity Development of the Board of Supreme Audit (BSA): The program aimed at building capacity, improving key audit practices and methodologies. The BSA staff has enhanced their skills in financial, risk-based, procurement, and performance audit. In addition, capacity has built around special subjects such as oil audit, forensic audit, arbitration, contract management, auditing of World Bank-financed projects, and Monitoring and Evaluation. The program has trained about 270 auditors, including 10 master trainers investing about 10,500 training hour. It has developed one audit manual and improved another. Moreover, it provided the BSA with solid recommendations on how to proceed at a number of areas from peer SAIs and experts who had experienced a similar reform process. Extension of the Project Closing Date: 9. The Government of Iraq, Ministry of Finance, has requested extension of the project closure date citing that the implementation of the Project could not start until mid because the premises of the Iraqi Ministry of Finance were exposed to three terrorist attacks, which resulted in delaying the project. They have said that continuous fragile security situation in Iraq posed a challenge for foreign consultants who found it risky to travel to Iraq. While in Iraq, the security situation restrained their movements and the time for which they could meet the government counterparts. 10. From the perspective of Bank s task team, while the security has indeed caused some implementation delays, there have been several other factors contributing to slow progress. However, the main reason why the extension is necessary is that as a restructuring process, a new component IFMIS is being added which requires a minimum 9 months time to be completed. At best, the above implementation schedule could be reduced to 8 months. The task team, therefore, recommends extension of the project closure date until 31 August These two extra months would enable the government to ensure completion of ongoing activities in a timely and orderly manner. If this extension is not given, the project objectives will be difficult to achieve. This is the first and last extension of the project. A detailed explanation on the extension of project closing date is included in Annex 3. C. PROPOSED CHANGES 11. Results/indicators. See Revised Annex 1 below. 12. Components. It is proposed to introduce a new Component 5 on Integrated Financial Management Information System (IFMIS) to the Project. Following is the description of this component. NEW Component 5 Integrated Financial Management Information System (IFMIS) ($6,000,000) 8

9 13. The Ministry of Finance, Government of Iraq, wants to implement IFMIS in two phases: a) Phase 1 Prototype Development and Testing for the Supply and Implementation of Integrated Financial Management Information System to be conducted in the period January 2013 to August 31, 2013, and b) Phase 2 Pilot Implementation and Government wide Rollout based on the results of phase 1 comprising: i. Phase2A Pilot Implementation To commence on January 1, 2014 and conclude on December 31, 2014 ii. Phase 2B Government wide Rollout To commence January 1, 2015 and be completed by June 30, The Project would support only Phase 1 of this plan. Following the evaluation of Phase 1, the Ministry of Finance, Government of Iraq, will implement the IFMIS Government wide system in Phase 2 with other resources. The IFMIS would magnify the impact of other components of the project in the following manner: a) Provide capability to automate the budget preparation process to ensure complete and accurate budget formulation and presentation (support Component 1); b) Increase the ability of the Ministry of Finance to undertake central control and monitoring of expenditure and receipts in government Ministries, departments and spending units (support Component 3); and c) Provide the Ministry of Finance with access to comprehensive and meaningful information on budgetary, financial and operational performance during the financial year (support Components 1 and 3). 15. The Bank s task team has been engaged in a policy dialogue with the government on IFMIS since August The IMF too has participated in this dialogue. Implementation of the IFMIS was part of the Stand-by Arrangement (SBA) of IMF. The Government has shown commitment to implement IFMIS which was evident from their participation in a series of workshops organized by the Bank. A 30-member delegation from the government participated in the Stakeholder s workshop in Beirut in May, 2012, wherein after detailed deliberations, the functional and technical specifications of the IFMIS system were agreed upon. An agreement was signed with the Bank on the roadmap and detailed technical and functional specifications. The Government has clearly stated that the Ministry of Finance is ready to participate in providing funds from its budget for implementing IFMIS, over and above what can be provided, by the World Bank, under the Iraq PFM Project. 16. From a historical perspective, it may be pertinent to note that in 2003, the Coalition Provisional Authority (CPA) and the International Monetary Fund (IMF) had conducted assessments that identified a need for improvements in the Government of Iraq s (GoI) budget and financial control system. These assessments found that the GoI financial structure provided limited ability to monitor Iraqi ministerial budgets and expenditures, leaving the ministries vulnerable to fraud, waste, and misappropriation of funds. The CPA, which then managed the budget, conceived the Iraqi Financial Management Information System (IFMIS) as a solution to manage and oversee the GoI budget. The U.S. Agency for International Development (USAID) was instructed by the CPA to implement an Iraqi 9

10 financial management information system, which entered into a broad-based contract with BearingPoint, Inc. for that purpose. IFMIS represented only a small part of the total effort and estimated cost under the contract. Bearing Point, in turn, provided a sub-contract to FreeBalance to develop the design of IFMIS. Subsequently, during , Bearing Point gave 11 Technical Assistance Orders (TAOs) to FreeBalance for maintaining the ongoing operation of the system, mainly for BearingPoint staff, so that they knew how to do it and could explain to GoI. In July 2007, the U.S. Embassy in Iraq ordered the suspension of the IFMIS project because the BearingPoint project leader and his security detail had been kidnapped and the GoI lacked support for the system. 17. The task under this Project is to build on a system that was implemented under the USA Department of Treasury financing of about $30 million, where the Free Balance System was used by the main contractor (Bearing Point). The Ministry of Finance, Government of Iraq, after having used the FreeBalance system earlier, wants to continue using it in future, with some upgradation and customization as per their specific requirements. Considering that the US Department of Treasury had indicated that they were no more interested in funding the PFM Project, the Government of Iraq has turned to the Bank as the financier of last resort. The Government is satisfied with the Free Balance Accountability software for which there is availability of trained Iraqi staff which is familiar with the system. 18. The Ministry of Finance wants to use the FreeBalance Accountability Suite v7.0 configured in accordance with the Government of Iraq requirements to provide automated financial management capability in the Budget Preparation and Budget Execution functions. The proposed IFMIS will be based on implementation of the required modules of the Commercial Off-the Shelf (COTS) FreeBalance Inc. Accountability Suite version 7 with minimal customization. 19. The proposed IFMIS will include Common Application requirements across all modules, including user access and responsibility controls, the General Ledger Module incorporating a Budget Classification Structure (Chart of Accounts) suitable for Iraq, a Budget Preparation Module (including provision to upload approved budget for execution) and a Budget Execution Module which incorporates appropriate business processes, Commitment Control and Accounting, Expenditure Processing and Payment, Revenue recording (Tax, Non-Tax, Grant, Loan), and Cash Management, Banking and Reconciliation functions. Finally, the IFMIS will provide Financial Reporting for management purposes and to meet GFS and IPSAS reporting requirements by developing specific reports for Iraq circumstances. 20. The award of contract to FreeBalance for the development and testing of IFMIS prototype has been approved by the OPRC with the direction that the contract will be revised based on its comments and will be cleared by the RPM. The contract is currently undergoing revision by the government and will be submitted to the RPM for clearance after the directions of the OPRC have been fully complied with. This is expected by January 31, In the unlikely event that the Bank does not approves this contract, a System Requirement Study (SRS) for implementing IFMIS would be conducted as an 10

11 independent assignment, the outputs of which, could be used by the government for designing the prototype, piloting and rolling-out of IFMIS, after this project is completed. Cost of implementing IFMIS: 22. The cost of developing and testing IFMIS prototype will be as follows: a) Cost for development and testing of prototype: Approximately US$4,900,000 will be required for the acquisition of the IFMIS, including the initial System Requirements Studies and subsequent Supply, Installation, and Commissioning of the FreeBalance Accountability Suite V9.0 at Select Ministries, Treasuries, and Independent Boards of the Government of Iraq. b) Acquisition of ICT hardware for the system operation: i. Establishing the Data Centre for the IFMIS: US$700,000 ii. Establishing the Disaster Recovery Site: US$300,000 c) Consultant services: i. Engaging an international ICT specialist US$60,000 ii. Engaging a local PFM specialist US$40, Accordingly, a total funding of US $6,000,000 will be required for this new component. The Ministry of Finance, Government of Iraq, has agreed to finance additional requirements for computer hardware, networks and on-site development in the pilot ministries and agencies. Financing: 24. Funding for the new component will come from the Project s Unallocated Category. The initial large unallocated amount of US$ 2.82 million was appropriate at the start of the project, as the cost estimates did not include the numerous downstream activities which were likely to arise from the consultant outputs, and, prior to those outputs, it was not possible to accurately estimate the costs for these activities. However, a number of the downstream activities did not materialize as expected, and other planned activities have been modified or cancelled. As a result, this unallocated amount has risen to US$ 7.00 million, which is sufficient to finance the IFMIS. 25. Project Costs: 11

12 Project Costs (US$m.) Components/Activities Current Proposed Component 1 - Strengthening Budget Formulation & Implementation Component 2 - Strengthening Public Sector Procurement Component 3 - Strengthening Budget Execution & Implementation Component 4 - Capacity Development and Project Management & Auditing n/a 6.00 NEW Component 5 Integrated Financial Management Information System (IFMIS) Unallocated Total Financial Management: 26. Project will continue using the same financial management and disbursement arrangements, including accounting and reporting, internal controls, auditing and budgeting. There are no overdue audit reports or overdue financial reports. The audit report with audited financial statements and management letter for the year ended December 31, 2011 were submitted to timely to the Bank. The external auditor has issued unqualified clean opinions. Re-allocation of Proceeds: 27. The proposed restructuring will be accompanied with reallocation of uncommitted and unallocated funds under the project for the new component 5 of IFMIS. The proposed re-allocation of proceeds under different categories of consultancy, goods and incremental operating costs is included in Annex 2. Procurement Management: 28. Procurement for this project will continue to be carried out in accordance with the World Bank s Procurement Guidelines as indicated in the Grant Agreement. 29. Procurement of Goods: Goods procured under the new Component 5 estimated at $1,000,000 includes ICT hardware, and will be added to the Procurement Plan as ICB and NCB packages to be completed before closing date. 30. Selection of Consultants: The new component would require initial System Requirements Studies and subsequent Supply, Installation, and Commissioning of the FreeBalance Accountability Suite V7.0 estimated at $4,900,000 to be added to the Procurement Plan as Single Source selection as it is a buildup on previous FreeBalance system installations, to benefit from the firm s continued professional liability for the system, and exceptional qualification for this specific assignment.

13 D. APPRAISAL SUMMARY Economic and Financial 31. The project, by introducing a modern PFM platform, will contribute to an improved and more rigorous budget preparation process, provide a well regulated budget execution methodology including control of cash resources, implement sounder procurement and purchasing control and provide comprehensive and timely financial reporting mechanisms subject to external audit. Improved business processes and responsibility assignment within the IFMIS will help to minimize resource leakages, and provide an accountability trail to identify those who indulge in leakages. The overall fiscal impact of the project is, therefore, likely to be positive. Better overall resource management, coordination amongst various government entities, and comprehensive and timely available financial data will help to improve the allocation of public resources to priority areas. A more efficient PFM system would curb irregularities in budget execution; and generally improve fiscal transparency and accountability. Technical 32. FreeBalance is a global provider of software solutions for public financial management (PFM). The FreeBalance Accountability Suite is a commercial off-theshelf, Government Resource Planning (GRP) solution which is implemented globally within governments across the world. Customers include the governments of Afghanistan, Antigua and Barbuda, Canada, Guyana, Iraq, Jamaica, Kosovo, Kyrgyzstan, Mongolia, Namibia, Pakistan, Palestine, Sierra Leone, Southern Sudan, Timor-Leste, Uganda, and the USA. 33. The FreeBalance Accountability Suite supports good fiscal practice and internationally recognized standards such as the United Nations Common Functions of Government (COFOG), the IMF Government Finance Statistics (GFS), the IMF Code of Good Practices on Fiscal Transparency, Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS), International Public Sector Accounting Standards (IPSAS), Millennium Challenge Corporation (MCC), Medium Term Expenditure Frameworks (MTEF), and, the World Bank Treasury Reference Model. Social and Environment 34. The proposed installation of IFMIS does not involve any physical structure or construction, land acquisition and environmental impacts. IFMIS will be installed in the existing government buildings. No new buildings are to be constructed. Only upgradation of existing computer rooms might be required before installation of IFMIS, which is not expected to have an environmental impact. The project does not focus on any particular population group. Therefore, the project will not trigger any environmental and social safeguard policies. The project restructuring and additional financing is classified as Category C. 13

14 Risks 35. The risks of adding a new component under the project through the proposed restructuring are as follows: (a) Considering the Project closing date is June 30, 2013, the remaining time left under the project is only six months. If there are any delays at any stage of implementation, there is a risk that the task might not be completed within project time. As a mitigation measure, project closing date is being requested to be extended by 2 months. (b) The Government may not have the capacity to implement IFMIS as it requires an understanding of public financial management as well as complex and integrated IT systems. This may pose risk to the operations, management and sustainability of IFMIS. This risk will be mitigated by establishing a core group of functional and technical staff that would work with the FreeBalance team right from the first stage of system study and design. Also, the government project management team will be strengthened by recruitment of a new international ICT Advisor and Local PFM consultant. (c) The Government may not give timely clearances to interim deliverables of FreeBalance leading to implementation delays. As a mitigation measure, the Ministry of Finance has constituted an inter-departmental committee to review and clear the IFMIS software prototype. (d) There could be delays in procurement of hardware which is the responsibility of the government. If that happens, it would lead to an overall implementation delay. As a mitigation measure, the procurement process of hardware would be started soon after signing the contract with FreeBalance. The compatible technical specifications of the hardware have already been provided to the Government by FreeBalance. 14

15 Annex 1: Results Framework and Monitoring REPUBLIC OF IRAQ: Public Finance Management Reforms Project Restructuring Results Framework PDO Current (PAD) The Project Development Objective is to support the Government of Iraq's efforts to develop more effective, accountable and transparent public financial management. PDO indicators Current (PAD) 1. Capital budget execution rate increases by at least 10 percentage points 2. Outstanding balances in Spending Units decline by 30 percentage points, as a share of the budget 3. At least 50% of contracts above threshold awarded competitively 4. Ministry of Finance training institute providing training in all operational aspects of Revisions to the Results Framework Proposed Continued Proposed change* Continued Continued Dropped Continued Comments/ Rationale for Change There was a mistake in formulating this indicator. There was no baseline estimated at the start of the project. During the mid-term review, the Ministry of Planning reported that at the start of the project, in 2009, 90 % of the contracts above national threshold, were being awarded competitively. If that was the case, the target of 50 % should not have been set up below the baseline. The baseline of 90 % was anyway satisfactory as per international norms. 15

16 Revisions to the Results Framework PFM project Intermediate Results indicators Current (PAD) Proposed change* Comments/ Rationale for Change Intermediate Results (Component 1): Strengthening Budget Formulation and Implementation 1. Draft sector strategies completed and submitted to all relevant parties for comment/revision/etc. Draft sector strategies prepared Paraphrased to make it more simplified and specific. The Unit of Measure revised to a logical field (Y/N) and the yearly targets revised accordingly to reflect the targets as per the original 2. New procedures in place for project preparation and appraisal 3. New macro-economic and fiscal team established within MoF Economic Policy Division 4. New budget instructions approved and guidelines ready 5. New Budget Call Circular (BCC) in use Continued Continued Continued Continued PAD. The Unit of Measure revised to a logical field (Y/N) and the yearly targets revised accordingly to reflect the targets as per the original PAD. The Unit of Measure revised to a logical field (Y/N) and the yearly targets revised accordingly to reflect the targets as per the original PAD. The Unit of Measure revised to a logical field (Y/N) and the yearly targets revised accordingly to reflect the targets as per the original PAD. The Unit of Measure revised to a logical field (Y/N) and the yearly targets revised accordingly to reflect the targets as per the original PAD. Intermediate Results (Component 2): Strengthening Public Sector Procurement 1. Standard Bidding Documents finalized Sector specific Standard Bidding Documents finalized for ministries of health, education, electricity and public works. Paraphrased to make it more simplified and specific. The Unit of Measure revised to a logical field (Y/N) and the yearly targets revised 16

17 2. National Procurement Manual finalized 3. Procurement Bulletin board being fully implemented, and housed within Procurement Regulatory Agency 4. Training Needs Assessment completed, training curriculum developed and first round of Train-the-trainers completed Revisions to the Results Framework Dropped Design of single portal website for public procurement notices prepared Continued Comments/ Rationale for Change accordingly to reflect the targets as per the original PAD. The National Procurement Manual was to be prepared in line with the National Procurement Law. Since the Government has not yet passed a National Procurement Law and it is not foreseeable in near future, the National Procurement Manual cannot be finalized within the project time frame. Paraphrased to make it more simplified and specific. The Unit of Measure revised to a logical field (Y/N) and the yearly targets revised accordingly to reflect the targets as per the original PAD. The Unit of Measure revised to a logical field (Y/N) and the yearly targets revised accordingly to reflect the targets as per the original PAD. Intermediate Results (Component 3): Strengthening Budget Execution and Implementation 1. First round of training on new cash release system completed with selected pilot ministries 2. Detailed rules and regulations for new commitment control system developed Continued Continued The Unit of Measure revised to a logical field (Y/N) and the yearly targets revised accordingly to reflect the targets as per the original PAD. The Unit of Measure revised to a logical field (Y/N) and the yearly targets revised accordingly to reflect the targets as per the original 17

18 3. New financial/fiscal performance system developed, and tested in three ministries 4. Training materials developed for financial/fiscal performance system, and training of Master Trainers carried out 5. Assessment of IG system completed, and documentation provided clarifying mandate of internal controllers 6. Website being regularly updated 7. IT assessment completed, and functional requirements for upgraded system developed Revisions to the Results Framework Dropped Dropped Continued Website of Ministry of Finance upgraded for enhancing citizen s access of fiscal data. Dropped Comments/ Rationale for Change PAD. A new component 5 on Integrated Financial Management Information System (IFMIS) is being added to the project which would develop financial/fiscal performance evaluation in three ministries A new component 5 on Integrated Financial Management Information System (IFMIS) is being added to the project which would develop training materials for the financial/fiscal performance evaluation system. The Unit of Measure revised to a logical field (Y/N) and the yearly targets revised accordingly to reflect the targets as per the original PAD. A regular updation of website would not have contributed to the PDO unless the current website was upgraded to enhancing citizen s access of fiscal data. A new component 5 on Integrated Financial Management Information System (IFMIS) is being added to the project which would conduct IT assessment and develop functional requirements for an upgraded system. Intermediate Result Component 4: Capacity Development and Project Management 1. Training program fully in place Training program fully in place in MOFATC 18 Paraphrased to make it more specific. The Unit of Measure revised to a logical

19 Revisions to the Results Framework Comments/ Rationale for Change field (Y/N) and the yearly targets revised accordingly to reflect the targets as per the original PAD. Intermediate Result (Component Five): Development and Testing of IFMIS Prototype 1. Prototype for IFMIS developed 2. Prototype for IFMIS tested New New As per goals and deliverables of new component As per goals and deliverables of new component. 19

20 Core Revised Results Framework and Monitoring IRAQ: PUBLIC FINANCE MANAGEMENT REFORMS PROJECT Project Development Objective (PDO): The Project Development Objective is to support the Government of Iraq's efforts to develop more effective, accountable and transparent public financial management. Revised Project Development Objective: n/a PDO Level Results Indicators* D=Dropped C=Continue N= New R=Revised Unit of Measure Baseline Cumulative Target Values** YR 1 YR 2 YR 3 YR4 Frequency Data Source/ Methodology Responsibility for Data Collection Indicator One: Capital budget execution rate increases by at least 10 percentage points Indicator Two: Outstanding balances in Spending Units decline by 30 percentage points, as a share of the budget Indicator Three: At least 50% of contracts above threshold awarded competitively Indicator Four: Ministry of Finance training institute providing training in all operational aspects of PFM project C % Annual Capital Budget Execution Reports of the MOPDC C % 38 8 Annual Budget Execution and Cash Balance Reports of the MOF D % Not Known 50 Annual Monitoring Reports of Procurement Regulation Authority C Y/N Y Annual MOFATC Reports, Physical Inspection MOPDC MOF MOPDC, Procurement Regulation Authority MOF, MOFATC 20

21 INTERMEDIATE RESULTS Intermediate Result (Component One): Strengthening Budget Formulation and Implementation Revised Intermediate Result (Component One): Strengthening Budget Formulation One: Draft sector strategies prepared Two: New procedures in place for project preparation and appraisal Three: New macro-economic and fiscal team established within MoF Economic Policy Division R Y/N N N N N Y Annual Strategy documents C Y/N N N N N Y Annual GoI revised regulations on project preparation and appraisal C Y/N N N N N Y Annual Consultant reports GoI regulations as published MoF, MoPDC, PMT MoF, MoPDC, PMT MoF, MoPDC, Ministry of Oil, IG and other internal controls Four: New budget instructions approved and guidelines ready Five: New Budget Call Circular (BCC) in use C Y/N N N N N Y Annual GoI new budget instructions regulations as C Y/N N N N N Y Annual GoI new Budget Call Circular MoF, MoPDC, MoF, PMT 21

22 Intermediate Result (Component Two): Strengthening Public Sector Procurement Revised Intermediate Result (Component Two): One: Sector specific Standard Bidding Documents finalized for ministries of health, education, electricity and public works. Two: National Procurement Manual finalized R Y/N N N N N Y Annual Standard Bidding Documents D Dropped MoF, PRA, PMT, Ministries of health, education, electricity and public works. Three: Design of single portal website for public procurement notices prepared Four: Training Needs Assessment completed, training curriculum developed and first round of Train-the-trainers completed R Y/N N N N N Y Annual Website PRA, PMT, MoPDC C Y/N N N N N Y Annual Consultant reports Training evaluations PRA, MoF, PMT, MoPDC 22

23 Intermediate Result (Component Three): Strengthening Budget Execution and Implementation Revised Intermediate Result (Component Three): Strengthening Budget Execution One: First round of training on new cash release system completed with selected pilot ministries Two: Detailed rules and regulations for new commitment control system developed Three: New financial/fiscal performance system developed, and tested in three ministries C Y/N N N N Y Y Annual Consultant reports Training evaluations C Y/N N N N Y Y Annual Consultant reports D Current reporting does not adequately detail the outstanding stock of advances End PY1: New system for financial and fiscal performan ce measurem ent developed and agreed New system tested in three ministries Training materials developed Training of Master Trainers completed New system in place, leading to 20% reduction in unused, outstandin g balances in Spending Units New system being implemented throughout GoI 30% reduction in unused, outstanding balances in Spending Units Semiannually GoI regulations as published Training reports Consultant reports GoI regulations as published GoI financial performance reports MoF, PMT, line ministries participating in pilot MoF, PMT MoF, PMT, line agencies Four: Training materials developed for D Training Needs Assessme nt carried Ongoing training Ongoing training Training reports MoF, PMT, line agencies 23

24 financial/fiscal performance system, and training of Master Trainers carried out Five: Assessment of IG system completed, and documentation provided clarifying mandate of internal controllers Six: Website of Ministry of Finance upgraded for enhancing citizen s access of fiscal data. Seven: IT assessment completed, and functional requirements for upgraded system developed out C Y/N N N N Y Y Annual Consultant reports IG evaluation reports MoF, MoPDC, IG, PMT, R Y/N N N N Y Y Annual Website MoF, PMT D MoF department s fragmented in their information -sharing ability End PY1: Assessme nt completed of current IT environme nt, Functional requiremen ts for upgraded system, including for links with FMIS, developed Procurem ent started for new software and hardware This should occur regardless of whether it is through Project financing, internal GoI resources, or other donors New software and hardware are in place and contributing to improved efficiency of MoF operations Plans in place for rollout of system in next phase Semiannually Consultant reports Technical specifications MoF, PMT 24

25 Intermediate Result (Component Four): Capacity Development and Project Management Revised Intermediate Result (Component Four): One: Training program fully in place in MoFATC R Y/N N N N Y Y Annual Twinning institute reports (particularly Training Needs Assessment) MoF (training institute) Intermediate Result (Component Five): Development and Testing of IFMIS Prototype Training evaluations Revised Intermediate Result (Component Five): One: Prototype for IFMIS developed Two: Prototype for IFMIS tested N Y/N The Government has agreed on the scope of IFMIS design on which, prototype needs to be developed. N Y/N Prototype is yet to be developed. Testing will be done after it is developed. IFMIS Prototype is developed after conducting a SRS study involving all stakeholders IFMIS Prototype is tested in the Ministry of Finance, 3 pilot Ministries and the Board of Supreme Audit. Monthly, after February 2013 onwards Monthly, after April 2013 onwards Approval of the prototype by the Ministry of Finance Physical inspection and testing of the system by running it on live data of pilot agencies MOF MOF, BSA, Pilot Ministries, Bank Consultants 25

26 ANNEX 2: Reallocation of Proceeds REPUBLIC OF YEMEN IRAQ FINANCE MANAGEMENT PROJECT P {GRANT} Restructuring Paper 1. Proceeds for REPUBLIC OF IRAQ PUBLIC FINANCE MANAGEMENT PROJECT, [Trust Fund No ], P will be reallocated as follows: Category of Expenditure Allocation % of Financing Current Revised Current Revised Current Revised (1) Goods (1) Goods 1,250,000 2,050, (2) Consultants (2) Consultants 12,850,000 13,600, services, including audit, and Training services, including audit, and Training (3) Incremental (3) Incremental 300, , Operating Costs Operating Costs Unallocated Unallocated 1,600, TOTAL 16,000,000 16,000, The Iraq PFM project was started in July 2009 and has to be completed by June Under the Recipient-executed part, against the project cost of $16 million, $2.46 million (15 %) has been disbursed. Under the Bank-executed part, against the project cost of $2 million, $1.99 million (99.9 %) has been disbursed. Against the total project cost of $18 million, $4.46 million (25 %) has been disbursed. 3. Under the Recipient-executed part, the uncommitted funds are US$ 7.00 million, which is about 44 % of the project cost. There is no additional requirement of funds under the existing components and most funds are committed. There is no other purpose for which the government wants to spend the uncommitted amount. Hence, the proposed reallocation is necessary to provide funds for the new component 5 (IFMIS). It will be done by reallocation of the uncommitted and unallocated funds under the project. Considering the implementation of IFMIS will require additional funds under consultancy, goods and incremental operating costs, commensurate increases have been made in those categories as per above table. 1 The US$ 1.6 million cited here is from the Allocation of Proceeds table in the Conformed Copy of the Grant Agreement, and Annex 4 of the Emergency Project Paper (EPP) which at the time of Negotiations was taken as 10% of the total Project cost. The larger figure cited earlier US$ 2.82 million is the figure used in the EPP Annex 3 (Summary of Estimated Costs): refer to EPP Annex 3 Note 2,..the bulk of the Unallocated has been included in the Consultant Services category, as this category represents the majority of the downstream activities. 26

27 ANNEX 3: Extension of Closing Date 1. The Iraq Public Financial Management (PFM) project was started as an emergency operation in July 2009 under the Iraq Trust Fund (ITF). The project is to be completed in June The total estimated cost of the Project is US$18 million: i) US$16 million to be Recipient-executed; and ii) US$2 million to be Bank-executed on behalf of the Recipient. Under the Recipient-executed part, against the project cost of $16 million, $3.6 million (23 %) has been disbursed. Under the Bank-executed part, against the project cost of $2 million, the entire $2 million (100 %) has been disbursed. Against the total project cost of $18 million, $5.6 million (31 %) has been disbursed. 2. The Government of Iraq, Ministry of Finance, has requested extension of the project closure date citing that the implementation of the Project could not start until mid-2011 because the premises of the Iraqi Ministry of Finance were exposed to three terrorist attacks, which resulted in delaying the project. The continuous fragile security situation in Iraq posed a challenge for foreign consultants who found it risky to travel to Iraq on their respective assignments. While in Iraq, the security situation restrained their movements and the time for which they could meet the government counterparts. 3. The Government of Iraq, Ministry of Finance, has requested extension of the project closure date citing that the implementation of the Project could not start until mid-2011 because the premises of the Iraqi Ministry of Finance were exposed to three terrorist attacks, which resulted in delaying the project. The continuous fragile security situation in Iraq posed a challenge for foreign consultants who found it risky to travel to Iraq on their respective assignments. While in Iraq, the security situation restrained their movements and the time for which they could meet the government counterparts. 4. The task team partly agrees with the justification provided by the Government and feels that the adverse security situation has been one of the several reasons leading to a slow pace of project implementation in the initial part of the project leading to less than 3 % disbursement at the time of mid-term review in August The project involves inputs from international consultants, who find it extremely difficult to operate in the prevalent security environment. There are delays in issuing visas and restrictions on their movements in Iraq. The more substantive reasons for the implementation delays were as follows: a) Significant delay in procuring goods and signing consultancy services contracts. b) The payment approval procedure adopted by the Project Management Team (PMT) was not appropriate and effectively delayed payment to consultants. c) High level of uncommitted funds d) Lack of full time staff e) Lack of independent office for the PMT 5. Most of above factors have now been rectified and proposed restructuring and addition of a new component on IFMIS would enable the project to increase its commitments to 100 %. From thereon, a good contract management and Bank s 27

28 supervision could ensure that the project is fully disbursed and the targeted results achieved. 6. However, the main reason why the extension is necessary is that as a restructuring process, a new component IFMIS is being added which requires a minimum 9 months time to be completed. A Contract is about to be signed under which the 9-month implementation schedule is as follows. Activity/Milestone Time-Period (ii) System Requirement Study January March 2013 (iii) Preparation of configuration blue print for the prototype (iv) Establishment of ICT infrastructure April June 2013 February April 2013 (v) Testing of Prototype at MoF July - August 2013 (vi) Testing of Prototype at 5 Treasuries, 3 Line Ministries and Board of Supreme Audit August - September At best, the above implementation schedule could be reduced to 8 months by doing activities (v) and (vi) in parallel, during July-August The task team, therefore, recommends extension of the project closure date until 31 August These two extra months would enable the government to ensure completion of ongoing activities in a timely and orderly manner. If this extension is not given, the project objectives will be difficult to achieve. This is the first and last extension of the project. 28