FOR OFFICIAL USE ONLY RESTRUCTURING PAPER ON A

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY RESTRUCTURING PAPER ON A Report No: PROPOSED PROJECT RESTRUCTURING OF DEEPENING MTBF AND STRENGTHENING FINANCIAL ACCOUNTABILITY PROJECT (P117248) TF BD SASGP SOUTH ASIA REGION TO THE GOVERNMENT OF BANGLADESH JULY 10, 2014 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 ABBREVIATIONS AND ACRONYMS DMFAS DMTBF FBE GA ibas MISC MTBF MTMF MTSBP PAD PC PDO PMCU Debt Management Financial Administration System Deepening Medium Term Budget Framework Forward Baseline Estimate Grant Agreement Integrated Budget and Accounting System Management Implementation Support Consultancy Medium Term Budget Framework Medium Term Macroeconomic Framework Medium Term Strategic Business Plan Project Appraisal Document Planning Commission Project Development Objective Project Management Coordination Unit Regional Vice President: Country Director: Practice Manager: Task Team Leader: Philippe H Le Houerou Johannes M Zutt Alexandre Arrobbio Jonas Arp Fallov 2

3 BANGLADESH DEEPENING MTBF AND STRENGTHENING FINANCIAL ACCOUNTABILITY PROJECT (P117248) CONTENTS A SUMMARY 6 B PROJECT STATUS 7 C PROPOSED CHANGES 8 DATA SHEET Bangladesh Deepening MTBF and Strengthening Financial Accountability (P117248) SOUTH ASIA GGODR Basic Information Project ID: P Lending Instrument: Regional Vice President: Philippe H Le Houerou 3 Report No: Technical Assistance Loan Original EA Category: Not Required (C) Country Director: Johannes CM Zutt Current EA Category: Not Required (C) Senior Director: Mario Marcell Original Approval Date: 23-Sep-2009 Practice Manager: Alexandre Arrobbio Current Closing Date: 31-Jul-2014 Team Leader: Borrower: Responsible Agency: Restructuring Type Jonas Arp Fallov Government of Bangladesh Finance Division, Ministry of Finance Form Type: Simple Restructuring Paper Decision Country Director Approval

4 Restructuring Level: Level 2 Financing ( as of 01-Apr-2014 ) Key Dates Project Ln/Cr/TF Status P TF Effecti ve Disbursements (in Millions) Project Ln/Cr/TF Status P TF Policy Waivers Effecti ve Approval Date Signing Date Authority: Explanation of Approval Authority: Effectivenes s Date Level Two Original Closing Date Revised Closing Date 29-Oct Oct Oct Jul Jul-2014 Currenc y Original Revised Cancelle d Disburse d Undisbu rsed % Disburse d USD % Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [ X ] Does the project require any policy waiver(s)? Yes [ ] No [ X ] A Summary of Proposed Changes The following changes are proposed: A partial extension of the closing date by two months, from July 31, 2014 to September 30, 2014 in order to provide the additional time needed for 26 scholarship students already enrolled in overseas master s programs to complete their studies and fund costs related to their scholarships for August and September 2014 from the project grant Only expenditures related to the completion of overseas master s programs for the 26 scholarship students already enrolled will be eligible after July 31, 2014 A reallocation between spending categories to create a new spending category exclusively for expenditures eligible in the extension period An amendment to the Grant Agreement (GA) to formalize the above changes Change in Implementing Agency Yes [ ] No [ X ] Change in Project's Development Objectives Yes [ ] No [ X ] Change in Results Framework Yes [ ] No [ X ] Change in Safeguard Policies Triggered Yes [ ] No [ X ] 4

5 Change of EA category Yes [ ] No [ X ] Other Changes to Safeguards Yes [ ] No [ X ] Change in Legal Covenants Yes [ ] No [ X ] Change in Loan Closing Date(s) Yes [X ] No [ ] Cancellations Proposed Yes [ ] No [ X ] Change to Financing Plan Yes [ ] No [ X ] Change in Disbursement Arrangements Yes [ ] No [X ] Reallocation between Disbursement Categories Yes [X ] No [] Change in Disbursement Estimates Yes [ ] No [X ] Change to Components and Cost Yes [ ] No [X ] Change in Institutional Arrangements Yes [ ] No [X ] Change in Financial Management Yes [ ] No [X ] Change in Procurement Yes [ ] No [X ] Change in Implementation Schedule Yes [ ] No [X ] Other Change(s) Yes [ ] No [X ] Appraisal Summary Change in Economic and Financial Analysis Yes [ ] No [X ] Appraisal Summary Change in Technical Analysis Yes [ ] No [X ] Appraisal Summary Change in Social Analysis Yes [ ] No [X ] Appraisal Summary Change in Environmental Analysis Yes [ ] No [X ] Appraisal Summary Change in Risk Assessment Yes [ ] No [X ] B Project Status Despite a number of achievements, 2 out of 4 PDO-level indicators will not be achieved, and critical activities will not be completed, by the closing date In particular, targets relating to the institutionalization of the Medium Term Budget Framework and the finalization of the Integrated Budget and Accounting System (ibas++) will not be achieved Accordingly, performance ratings for achievement of PDO and overall implementation progress have been downgraded to Unsatisfactory Based on the unsatisfactory performance, the development partners of the SPEMP Multi Donor Trust fund and Government had decided not to extend SPEMP A beyond its closing date of July 31, 2014 However, with respect to scholarships under component 3 of the project, the Government has submitted a specific request dated July 10, 2014 for a partial extension of the closing date by two months to ensure that the 26 scholarship students already enrolled in overseas master s programs can finalize their studies C Proposed Changes Development Objectives/Results 5

6 Project Development Objectives Original PDO The project aims to deepen and institutionalize the MTBF and build a more strategic and performance oriented budget management process, while strengthening financial accountability across the expenditure management cycle The project supports fundamental reforms of operational budget management functions in both central units and line ministries Enhanced budget process and financial accountability is likely to improve the allocative and operational efficiency in public expenditure management which in turn will enable better provision of key public services in support of the Government's social and economic policy objectives Change in Project's Development Objectives Reallocations Explanation: A reallocation is proposed to create a new spending category 2a scholarships for training to be used exclusively for expenditures eligible for the partial extension period of two months Expenditures for scholarship activities up until July 31, 2014 will be charged against category 2 (Consulting services, training and study tours), whereas expenditures for scholarship activities for August 2014 and September 2014 up to an amount of US $ 140,600 will be charged to category 2a (Scholarships for training) Ln/Cr/TF Currency Current Category of Expenditure Allocation Disbursement % (Type Total) Current Proposed Current Proposed TF USD 1) DISB - GOODS 6,660,000 6,660, ) Works \ Cons Serv\Train \ Study Tr 2a) Scholarship for training 3) DISB - OPERATING COSTS 42,113,000 41,972, , ,727,000 3,727, ) UNALLOCATED Designated Account UN Advances Total: 52,500,000 52,500,000 A SUMMARY The following changes are proposed: A partial extension of the closing date by two months, from July 31, 2014 to September 30, 2014 in order to provide the additional time needed for 26 scholarship students already enrolled in overseas master s programs to complete their studies and fund costs related to their scholarships for August and September 6

7 2014 from the project grant Only expenditures related to the completion of overseas master s programs for the 26 scholarship students already enrolled will be eligible after July 31, 2014 A reallocation between spending categories to create a new spending category exclusively for expenditures eligible in the extension period An amendment to the Grant Agreement (GA) to formalize the above changes Despite the project s unsatisfactory implementation rating, it is nonetheless proposed to partially extend the project closing date for the following reasons: (i) the scholarships program has been a success; (ii) 26 students are already overseas and would not be able to obtain their master s degrees if the project is not extended; (iii) the investment made with donor funds would be lost; and (iv) the related reputational risk to the Bank and development partners if support for the scholarship students is withdrawn at this time Given this is a partial extension, and all other activities will close by the original closing date of July 31, 2014 or before, there is no risk of extending unsatisfactory activities B PROJECT STATUS 2 out of 4 Project Development Objective (PDO) level indicators pertaining to targets on institutionalizing the MTBF and on implementing ibas++, which is a prerequisite for achieving international standards of financial reporting, will not be reached by the project end-date Accordingly, the rating for progress towards achievement of PDO has been maintained as unsatisfactory While there have been achievements in some areas, overall project implementation has remained sluggish and critical activities are unlikely to be completed by the closing date Consequently, the overall implementation progress rating has been maintained as unsatisfactory The main areas of progress to date and the activities unlikely to be completed by the closing date are summarized below Main areas of progress to date: An upgraded debt management system (DMFAS version 60) installed and connected A draft Medium Term Debt Management Strategy prepared Medium-Term Budget Framework rolled out to all line ministries and new budget institutions (Budget Management Wings, Budget Management Committees and Budget Working Groups) formally established The Finance Minister has ratified the MTBF-roadmap A FD/Planning Commission (PC) joint working group was established to facilitate technical discussions and progress on issues requiring coordination and joint agreement All line ministries have submitted quarterly financial management reports for Q1 of 2014 Annual Performance Reports submitted by 2 line ministries Gender budget reporting submitted by 40 line ministries The Medium Term Strategic Business Plan (MTSBP) of the Ministry of Agriculture has been signed by the Minister and been published Draft MTSBPs 7

8 have been formulated for the Power Division, the Local Governance Division, the Ministry of Education and the Ministry of Social Welfare Draft MTSBPs for the Power Division and the Local Governance Division are at the final stage An internal audit manual and strategy have been approved by Finance Division and a decision taken to establish an internal audit unit/cell in Finance Division The new classification structure for budgeting, accounting and reporting was finalized by the designated task force based on recommendations received from the IMF An Account Code (accounting policies and procedures manual) was drafted to be shared with major stakeholders ibas rolled out to 337 upazilla account offices ibas is importing data from 188 branches of the Sonali Bank and 9 branches of the Bangladesh Bank Electronic fund transfer has been enabled in for all CAO offices Further security enhancements are required 14,170 public officials have participated in training conducted by the project, of which 2,800 over the last 6 months To date, 35 government officials have completed scholarships for overseas master s programs Targets that will not be achieved by the closing date: Introduction of FBEs in line ministries Macroeconomic model will not be used as the basis of the government s Medium Term Macro Framework (MTMF) Envisioned number (22700) of government officials trained Envisioned number of line ministries (5) with budgets based on Medium Term Strategic Business Plans Introduction of an adequate legal framework Development and testing of ibas++ (see below) In terms of compliance with audit covenants, the auditor expressed unqualified audit opinion on the latest financial statements of financial year There has been a repeated audit observation on inadequate documentation and payment procedure of Karmadokhota Training, which has however subsequently been resolved to the satisfaction of the Bank Following a number of issues raised in the recent implementation support missions, a technical assessment mission was carried out in May 2014 on the status of ibas++ implementation, which is critical to implementation success of component 2 and the overall project The assessment found a disconnect between current software development and the foundational and supporting documentation, a lack of ownership of the project by the Finance Division and other budget and accounting staff in the government as well as inadequacies in project management The timeline for implementation of the system proposed by the government as the basis for a project extension was deemed unrealistic Based on the technical assessment of ibas++ and the unsatisfactory performance overall, the development partners of the SPEMP Multi Donor Trust fund and Government decided not to extend the project 8

9 In preparing for an orderly closure of the project, a detailed review of commitments and actual expenditures revealed that total project costs exceeded the original grant amount of US $ 50 million As the project had been appraised for US $ 688 million, and the Bank had agreed to provide additional resources as necessary, a level 2-restructuring was processed in June 2014 to increase the grant amount to US $ 525 million and reallocate between spending categories in order to cover commitments already made by the project However, subsequent discussions with Government and development partners revealed the need to put in place financial arrangements so that scholarship students already enrolled in overseas master s programs can finalize their studies Consequently, the Government has submitted a specific request dated July 10, 2014 for a partial extension of the closing date by 2 months C PROPOSED CHANGES Background Under component 3 (Training and Capacity Building), the project is financing scholarships for overseas master s programs for government officials at selected universities in the UK and Japan The main objective of the scholarship program is to create a pool of BCS officers with advanced graduate level education in economics, finance and financial management and related fields to sustain the on-going public financial management reform programs in Bangladesh Candidates for scholarships have been selected among the top achievers from the Fiscal Economics and Economic Management (FEEM) training courses which have been offered to government officials on a regular basis financed by the DMTBF-project 62 government officials have been inducted into overseas master s programs compared to a target of 63 a target realization rate of 98 % 35 officials have already completed overseas master s programs, while 26 are currently pursuing their master s studies Partial extension of closing date The 26 government officials currently pursuing overseas master s studies under the scholarship program will only complete their studies by the end of September 2014 Since activities for August and September 2014 are beyond the project closing date of July 31, 2014, the expenditures relating to these activities would not be eligible It is proposed to partially extend the closing date of the project from July 31, 2014 to September 30, 2014 to ensure that the 27 scholarship students already enrolled can complete their studies and the related expenditures for August and September 2014 can be financed under the project The eligible expenditures for August and September 2014 are estimated at US$ 140,600 and consist of monthly installments of living allowance, departure allowance and return airfare as well as bank charges and a contingency to allow for currency fluctuations (see table 1 below) 9

10 Table 1 Estimated expenditures for Scholarship Program for August and September 2014 Expenditure category Expenditures in US$ Monthly living allowances 78,061 Departure allowances 26,715 Return air fare 30,218 Bank charges and contingency for currency 5,606 fluctuations Total 140,600 The expenditures of the extension period are financed within the existing grant amount of US $ 525 million and the activities covered by the government project document (TPP), which stretches until March 2015 The government counterpart funds of the project will finance the salary of the project director, additional project directors and an accounts officer, who will ensure that payments can be processed during the extension period as needed Bank policy requires an extension of the closing date to be justified in terms of (a) the Project DOs remain achievable; (b) the performance of the borrower remains satisfactory; and (c) the Bank and the borrower agree on actions that will be undertaken by the borrower to complete the Project While these criteria are not fulfilled for the project overall, a partial extension is nonetheless proposed based on the following: Component 3 of the project (which includes the scholarship program) has been rated moderately satisfactory The target for enrollment into overseas master s programs is 98 % achieved (62 students enrolled as opposed to 63 targeted), and the borrower s performance in running the scholarship program is assessed by the task team as satisfactory The extension will ensure that the scholarship students can complete their studies as intended and return back to Bangladesh, thereby avoiding negative consequences for the beneficiaries as well as reputational risks for the Bank and SPEMP donors The extension will protect the investment made by SPEMP Donors as the majority of the expenditure relating to the scholarship program is already incurred There is agreement between the Bank and the Borrower on the actions that need be undertaken to complete the activities for the 26 remaining scholarship students Given the extension is partial, all other activities will close by the original closing date of July 31, hence there is no risk of continuing unsatisfactory activities Reallocation between spending categories A reallocation is proposed to create a new spending category 2a scholarships for training to be used exclusively for expenditures eligible for the partial extension period of two months (see table 2 below) Expenditures for scholarship activities up until July 31, 2014 will be charged against category 2 (Consulting services, training and study tours), whereas expenditures for scholarship activities for August 2014 and September 2014 up to an amount of US $ 140,600 as defined above will be charged to category 2a (Scholarships for training) All other expenditures will only be eligible up to the current closing date of July 31,

11 Table 2 Reallocation between spending categories US $ million Original Allocation Proposed allocation Eligibility of expenditures 1) Goods 6,660,000 6,660,000 On or before July 31, ) Consulting services, training and study tours 42,113,000 41,972,400 On or before July 31, a) Scholarships for training (New) - 140,600 August 1, 2014 to September 30, ) Operating costs 3, , On or before July 31, ) Unallocated On or before July 31, 2014 Total 52,500,000 52,500,000 11