FOR OFFICIAL USE ONLY RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF GOVERNANCE TECHNICAL ASSISTANCE PROJECT. Loan No. IDA 37570, P071063

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1 Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY Report No: KG Public Disclosure Authorized Public Disclosure Authorized RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF GOVERNANCE TECHNICAL ASSISTANCE PROJECT Loan No. IDA 37570, P May 15, 2003 TO THE KYRGYZ REPUBLIC December 19, 2012 Public Disclosure Authorized ECSP4 ECAVP 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 FMIS GTAC HRMIS PFM TMIS TSA Financial Management Information System Governance Technical Assistance Project Human Resource Management Information System Public Financial Management Treasury Management Information System Treasury Single Account Regional Vice President: Country Director: Sector Manager: Task Team Leader: Philippe H. Le Houérou Saroj Kumar Jha William Leslie Dorotinsky K. Migara O. De Silva 2

3 KYRGYZ REPUBLIC GOVERNANCE TECHNICAL ASSISTANCE PROJECT CONTENTS Page A. SUMMARY... 4 B. PROJECT STATUS... 4 C. PROPOSED CHANGES

4 Kyrgyzstan, Government Technical Assistance Project P Loan No. IDA RESTRUCTURING PAPER A. SUMMARY This paper seeks management s approval to extend the closing date for the Governance Technical Assistance Project (GTAC), Loan No. IDA 37570, P from December 28, 2012 until December 31, This will be the third extension for a cumulative period of five years. This time is required to finalize implementation of key project activities and to allow for full achievement of the Project s Development Objectives: to improve transparency and support modernization of the Treasury. There are no other proposed changes in the project. B. PROJECT STATUS Although the project is in its 9 th year, it has been impacted by two primary causes: 1) Kyrgyzstan has undergone two significant political upheavals causing complete changes in government; and 2) As a result of the political instability, tendering documents for a major component of the project, the acquisition and implementation of an integrated financial management information system (FMIS), were significantly delayed. One of the key objectives of GTAC is to support Kyrgyzstan s transition from its current manual method of budget formulation, execution, accounting, payment processing, and human resource management to a commercial internationally tested automation package which includes TMIS (Treasury Management Information System) and HRMIS (Human Resource Management System). The TMIS package is a necessary requirement for a fully operational Treasury Single Account (TSA) and serves as the foundation of all PFM reforms envisioned in the Government s PFM Strategy As context, since the contract for the FMIS was signed, there have been five Ministers of Finance, three Directors of the State Personnel Service, and three Directors of the Central Treasury. Each change in leadership has triggered a period of delay while the project was evaluated, implementation modes were questioned, and underlying objectives were re-validated. In each case, the leadership has affirmed the project but at a cost of delayed time. Of the total loan amount of $7,775,000, 68% has been disbursed to date. No payments under the FMIS contract have been made in the last 12 months as disputes arose between the vendor and Ministry of Finance as to whether milestones had been met. There are no audit reports due and previous audit reports have been found satisfactory by the Bank. 4

5 C. PROPOSED CHANGES Achievement of an operational TMIS and TSA was proposed as a prior action for a Development Policy Operation this year and this action provided significant impetus for implementation of the project as the status of the project has been elevated above primary counterparts to the highest levels of leadership in the Government, including the First Vice Prime Minister and the President s Administration. Until the implementation of the TMIS became the subject of the DPO, discussions between the Central Treasury and the vendor would languish on technical disagreements and unproductive periods between meetings with little progress taking place. This is the main reason why the project has been a Problem at Risk with both the DO and IP ratings of moderately unsatisfactory for the last 11 months. However, with the increased attention of senior government officials, significant progress has been made and key accomplishments have occurred. After many months of discussion, a Uniform Chart of Accounts, a necessary precondition to configuration of the FMIS, has been adopted by Government Resolution and temporary instructions on implementation have been issued. After long debate about the appropriate interface between the TMIS and the payment systems of the National Bank of Kyrgyzstan, a Protocol has been signed that defines the respective roles and responsibilities of the Central Treasury and National Bank, the controls that will be in place to provide information integrity, and the technical requirements for information interchange. This protocol was a necessary pre-condition for the configuration of the FMIS. The prior Director of Central Treasury commissioned an in-house IT unit to begin development of an FMIS that could be an alternative to the commercial off-theshelf system supported by GTAC. The Bank has expressed concern about potential weaknesses in internal control that could result from abandoning the commercial system and adopting the in-house system. However, the Coordination Council for GTAC made a decision on December 12, 2012, to proceed with the commercial system and to request an extension of the project of the Bank. This decision was confirmed by the Minister of Finance in a letter requesting extension also dated December 12, The Ministry of Finance and its FMIS vendor have presented a detailed revised project schedule that lays out by week all steps necessary to finalize, implement, train on, and achieve operational acceptance of all three modules TMIS, HRMIS, and Budget Planning with the final step late in the fourth quarter of Upon resolution of the revised project schedule and operational acceptance of the three FMIS modules, remaining payments due to the vendor under the contract will occur during the extension period which will achieve almost full disbursement of the loan amount. 5

6 In summary, along with focus on successful implementation of the FMIS at the most senior levels of government for the first time during the project, key milestones in the project having been accomplished in recent months, and with a detailed plan on all remaining steps necessary for final acceptance and operation laid out, extension of the closing date of the project is warranted to meet the development policy objective. 6