Republic of Fiji: Supporting Public Financial Management Reform

Transcription

1 Technical Assistance Report Project Number: Knowledge and Support Technical Assistance (KSTA) November 2017 Republic of Fiji: Supporting Public Financial Management Reform This document is being disclosed to the public in accordance with ADB's Public Communications Policy The views expressed herein are those of the consultant and do not necessarily represent those of ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature.

2 CURRENCY EQUIVALENTS (as of 14 November 2017) Currency unit Fiji dollar/s (F$) F$1.00 = $ $1.00 = F$ ABBREVIATIONS ADB Asian Development Bank GDP gross domestic product MOE PEFA PFM PFMIP PSE RCU TA Ministry of Economy public expenditure and financial accountability public financial management Public Financial Management Improvement Programme permanent secretary for economy reform coordination unit technical assistance NOTES (i) (ii) The fiscal year (FY) of the Government of Fiji ends on 31 July. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2017 ends on 31 July 2017 In this report, "$" refers to US dollars unless otherwise stated. Vice-President Stephen Groff, Operations 2 Director General Ma. Carmela Locsin, Pacific Department (PARD) Regional Robert Jauncey, Pacific Subregional Office (SPSO), PARD Director Team leader Laisiasa Tora, Country Economist, PARD Team members Rafael Nadyrshin, Procurement Specialist, Operations Services and Financial Management Department Young Seo, Senior Counsel, Office of the Counsel General Shiu Singh, Senior Public Management Officer, SPSO, PARD Leba Sovea, Senior Programs Assistant, SPSO, PARD Peer reviewer Hanif Rahemtulla, Senior Public Management Specialist, Sector and Thematic GroupGovernance, Sustainable Development and Climate Change Department In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

3 CONTENTS KNOWLEDGE AND SUPPORT TECHNICAL ASSISTANCE AT A GLANCE Page I. INTRODUCTION 1 II. ISSUES 1 III. THE TECHNICAL ASSISTANCE 3 A. Impact and Outcome 3 B. Outputs, Methods, and Activities 3 C. Cost and Financing 4 D. Implementation Arrangements 4 IV. THE PRESIDENT'S DECISION 5 APPENDIXES 1. Design and Monitoring Framework 6 2. Cost Estimates and Financing Plan 8 3. List of Linked Documents 9

4 Project Classification Information Status: Complete KNOWLEDGE AND SUPPORT TECHNICAL ASSISTANCE AT A GLANCE 1. Basic Data Project Number: Project Name Supporting Public Financial Department PARD/SPSO Management Reform /Division Nature of Activity Policy Advice Executing Agency Modality Regular Country Fiji, Republic of Ministry of Economy 2. Sector Subsector(s) ADB Financing ($ million) Public sector management Public expenditure and fiscal management 0.75 Total 0.75 qq 3. Strategic Agenda Subcomponents Climate Change Information Inclusive economic Pillar 1: Economic opportunities, Climate Change impact on the growth (IEG) including jobs, created and expanded Project Low qq 4. Drivers of Change Components Gender Equity and Mainstreaming Governance and capacity development (GCD) Organizational development Public financial governance No gender elements (NGE) qq Private sector development (PSD) Public sector goods and services essential for private sector development 5. Poverty and SDG Targeting Location Impact Geographic Targeting No Household Targeting No Nation-wide High SDG Targeting Yes SDG Goals SDG8, SDG17 Qq 6. Risk Categorization Low Qq 7. Safeguard Categorization Safeguard Policy Statement does not apply qq 8. Financing Modality and Sources Amount ($ million) ADB 0.75 Knowledge and Support technical assistance: Technical Assistance 0.75 Special Fund Cofinancing 0.00 None 0.00 Counterpart 0.00 None 0.00 Total 0.75 qq Qq Source: Asian Development Bank This document must only be generated in eops Generated Date: 27-Nov :01:37 AM

5 I. INTRODUCTION 1. The Government of Fiji recognizes that strong public financial management (PFM) is key to macroeconomic stability and poverty reduction. The knowledge and support technical assistance (TA) will support the implementation of Fiji s Public Financial Management Improvement Programme (PFMIP) by improving institutional capacity for reform and reform coordination. 1 Implementing the PFMIP will help promote fiscal discipline, the strategic allocation of resources, and efficient service delivery. 2. The TA is included in the Asian Development Bank (ADB) country operations business plan for Fiji, , 2 and is aligned to the National Development Plan , 3 which focuses on improving public sector efficiency and incentivizing more efficient allocation of resources to enhance good governance and support sustainable growth in key economic sectors. 4 II. ISSUES 3. Development context. Fiji is one of the more developed Pacific island countries, but faces significant challenges related to the country s small size and remote location. Fiji s economy has outperformed those of most other Pacific islands countries in , with steady growth since FY2010, longer than any period since independence in However, this expansion is largely driven by the public sector, with private investment discouraged by Fiji s high-cost business and investment environment. 5 Moreover, Fiji s vulnerability to natural disasters such as cyclones and floods has contributed to volatility in growth. Growth in FY2016 fell to.4% following extensive damage caused by Cyclone Winston, a reduction from 4.7% during FY2013FY2015. In FY2017 post-cyclone reconstruction combined with large public infrastructure investments to drive growth resulted in government debt increasing to an estimated 45.5% of gross domestic product (GDP), with budget deficits rising to 7.4%. Fiji s debt is expected to rise further to 47.3% of GDP in FY2018, which is close to the limit of the government s public debt ceiling of 50% of GDP; 6 this leaves limited fiscal space to further stimulate growth and respond to shocks such as natural disasters. In response the government has adopted a medium-term fiscal adjustment program based on maintaining the budget deficit at less than 3.0% of GDP and reducing the debt stock to 40% of GDP (footnote 6). 4. Reform agenda. The government recognizes that achieving a sound fiscal position requires sound policies, systems, and processes. A strong PFM system is regarded as vital to macroeconomic stability, and is a key ingredient for sustained growth and poverty reduction. A public expenditure and financial accountability (PEFA) assessment undertaken in 2013 (footnote 1) provided the government an opportunity to evaluate the strengths and weaknesses of Fiji s PFM system. The PEFA identified improvements that had taken place in , and also highlighted several weaknesses and challenges. On the basis of the PEFA findings, the government developed and adopted the PFMIP, which outlines a time-bound action plan to 1 Government of Fiji Republic of Fiji: Public Financial Management Performance Report and Performance Indicators. Suva; and Government of Fiji Public Financial Management Improvement Programme Suva. The PFMIP was formulated based on the unpublished 2013 public expenditure and financial accountability (PEFA) assessment. 2 ADB Country Operations Business Plan: Fiji, Manila. 3 Government of Fiji. National Development Plan Suva. 4 The TA first appeared in the business opportunities section of ADB s website on 23 November ADB Country Diagnostic Study Fiji: Building Inclusive Institutions for Sustained Growth. Manila. 6 Government of Fiji The Supplement to the Budget Address. Suva.

6 2 implement critical and ambitious PFM reforms. It includes measures to strengthen institutions, improve service delivery, and enhance expenditure quality. 5. Implementing the Public Financial Management Improvement Programme. Implementation of the PFMIP is central to the government s efforts to achieve a strong PFM system. Steady progress is being made and recent PFM improvements include (i) simplification of tax laws, systems, and processes through amendments to the Income Tax Act; (ii) introduction of pay-as-you-earn as a final tax and value-added tax self-assessment; (iii) inclusion of performance management in budget documents at the program and activity level, and tracking of the implications of new policy decisions; (iv) submission of annual procurement plans and their publication on the Ministry of Economy (MOE) website; (v) amendment of procurement regulations to tighten the conditions for the waiver of competitive bids; and (vi) development of a debt management strategy and processes for evaluation of guarantees and onlending. However, the government recognizes that additional reforms are essential, and that the pace of reform must be accelerated to create the required fiscal space. 6. Major reforms prioritized for implementation during include (i) improving overall budget reliability by strengthening the recording and monitoring of expenditure arrears; (ii) conducting public expenditure reviews of the education and health sectors; (iii) improving the link between policy priorities and resource allocation through the incorporation of multiyear perspectives in fiscal planning, expenditure policy, and budgeting; and (iv) improving the completeness and timeliness of accounts reconciliation, including payroll and advance accounts. 7. The MOE has identified three major factors critical to accelerating the implementation of high-priority reforms: (i) Improving the institutional capacity for reform. Fiji s small population and continued high migration rate have contributed to a shortage of qualified staff, and subsequent weak institutional capacity for reform. A PFM capacity development program, prepared as part of the PFMIP, 7 has identified and prioritized the need to address the following skills gaps: (a) technical skills, through training in basic procurement, public policy analysis, budget analysis, revenue forecasting, debt analysis, and cash flow management; (b) management skills, through training in basic management functions, delegation and time management, handling of difficult conversations, and negotiations; and (c) leadership skills, through training in leadership, motivating staff, and managing the political economy. (ii) Improving reform coordination within and outside the government. There is no government-led PFM reform coordination mechanism. The internal PFM Reform Steering Committee (led by the MOE) is largely inactive because of high turnover of experienced staff within the MOE, poor transition arrangements and handover practices, and overstretched management capacity. In addition, although PFM TA is being provided by the Government of Australia, ADB, the Pacific Financial Technical Assistance Center, and the World Bank, TA needs are discussed on a bilateral basis, with limited information sharing. (iii) Restructuring the Ministry of Economy to improve provision of core functions. Coordination and collaboration within and across MOE divisions and units can be strengthened to improve MOE service delivery and overall 7 Government of Fiji Fiji PFM Capacity Development Program. Suva.

7 3 effectiveness. The MOE has 372 staff positions, but just under half (48.4%) were filled as of 31 December The professional cadre comprising qualified accountants, auditors, and economists makes up about 25% of the workforce, and most of the middle and senior management positions. Working closely with the government s Civil Service Reform Unit, 8 the MOE undertook internal reviews of its units and divisions to determine whether a new structure was needed to improve service delivery efficiency and effectiveness. A new structure was subsequently approved (in August 2017) that improves the alignment between the policy and operating environments, and up to 70% of all positions have now been filled. 8. ADB support. The ADB TA will support recruitment of international and national experts in fiscal policy, budget management, financial management, public procurement, and knowledge management to help the MOE address the factors identified above, and thereby improve its institutional capacity to implement the PFMIP and strengthen reform coordination. In so doing, the TA will also support the implementation of potential elements of subprogram 2 of a planned $180 million programmatic policy-based loan operation. Likely areas of support to be reflected in the subprogram include public expenditure reviews, monitoring and recording of expenditure arrears, debt management, and budget strengthening. III. THE TECHNICAL ASSISTANCE A. Impact and Outcome 9. The TA is aligned with the following impact: inclusive socioeconomic development (footnote 3). The TA will have the following outcome: PFM improved. 9 B. Outputs, Methods, and Activities 10. The outputs of the TA will be (i) institutional capacity to implement the PFMIP improved, and (ii) reform coordination between government agencies and development partners strengthened. To achieve the outputs, the TA will establish and fund a PFM reform coordination unit (RCU) comprising four consultants (three international and one national) and three dedicated MOE counterpart staff as local reform champions. The RCU will report to the permanent secretary for economy (PSE), and be led by a credible and experienced international consultant (advisor to the PSE and team leader). The team leader will supervise the other international consultants (RCU advisors) and the national consultant, manage daily liaisons between the PSE and the RCU, advise on human resources development and process improvements, and provide regular reports to the PFM Reform Steering Committee on the status of reform implementation. 11. Output 1: Institutional capacity to implement the Public Financial Management Improvement Programme improved. Under the overall oversight of the PSE, the RCU will support implementation of the PFMIP through ongoing mentoring, capacity building, and interactive training of counterpart staff. The RCU will help formulate a clear operational work plan and change-management strategy, and monitor their implementation in support of the PFMIP strategic outcomes and priorities (e.g., public expenditure reviews for health and education, and the adoption of a medium-term expenditure framework). The RCU will provide at least eight 8 The Civil Service Reform Unit was set up to increase the efficiency, professionalism, and accountability of the Fijian public service. The Government of Australia and the World Bank are working closely with the unit to support the government s civil service reform agenda. 9 The design and monitoring framework is in Appendix 1.

8 4 structured training sessions per year for government staff on relevant topics to be identified in consultation with the PSE. The RCU will also provide regular briefings for decision makers through seminars and interactive training support for policy formulation and data analysis; support the production of PFM updates; and produce regular, user-friendly, knowledge briefs and videos and analytical pieces. 12. The team leader will advise the PSE on all matters related to PFM reform. The RCU advisors will work with the departments responsible for budgeting and planning; fiscal policy, research and analysis; and financial policy and accounting services. The RCU will advise the heads of these departments on the implementation of high-priority reforms (paragraph 6), and support the implementation of subprogram 2 reform actions (paragraph 8). The national consultant will work closely with the team leader and RCU advisors and across all functional areas to produce user-friendly knowledge materials and short videos. 13. Output 2: Reform coordination between government agencies and development partners strengthened. The team leader will liaise with development partners and external agencies on PFMIP implementation to ensure reform efforts are coordinated, complementary and aligned with the PFMIP. The PFM Reform Steering Committee will be reactivated to strengthen internal coordination. The RCU will support the MOE s efforts to improve line ministry awareness of the PFMIP and the government s broader fiscal strategies and policies. 14. The TA will support the MOE in establishing a government-led PFM reform coordination mechanism to improve coordination with key partners that support PFM reforms (e.g., the Government of Australia, ADB, the Pacific Financial Technical Assistance Center, and the World Bank). With support from the RCU, the MOE will strengthen coordination to ensure that PFM reform efforts achieve timely results, while avoiding duplicative or contradictory advice from development partners. C. Cost and Financing 15. The TA is estimated to cost $825,000, of which $750,000 will be financed on a grant basis by ADB s Technical Assistance Special Fund (TASF-other sources). The key expenditure items are listed in Appendix 2. The government will provide counterpart support in the form of counterpart staff, office accommodation, office supplies, secretarial assistance, domestic transportation, and other in-kind contributions. The TA will also act to improve development partner coordination through cofinancing and joint analytical work. In this respect, additional development partner financing is expected during TA implementation. D. Implementation Arrangements 16. ADB will administer the TA. The MOE will be the executing and implementing agency. Consultant recruitment will be managed by ADB but the consultants will report to the PSE. The consultants will operate as the RCU under the supervision of the team leader, who will be the liaison point with the PSE. Procurement of goods and services are envisaged for various activities such as training, seminars and conferences. Procurement will follow ADB s Procurement Policy (2017, as amended from time to time) and the Procurement Regulations for ADB Borrowers (2017, as amended from time to time).

9 5 Implementation Arrangements Aspects Arrangements Indicative implementation period January 2018January 2020 Executing agency Implementing agency Consultants Advance contracting Disbursement Source: Asian Development Bank. Ministry of Economy Ministry of Economy To be selected and engaged by ADB Advisor to the permanent secretary for economy Budget management specialist Financial management specialist Publication and video production specialist All contracts 12 person-months $216, person-months $180,000 8 person-months $144,000 6 person-months $60,000 The TA resources will be disbursed following ADB s Technical Assistance Disbursement Handbook (2010, as amended from time to time). 17. Consulting services. The TA is expected to require 36 person-months of individual consultant services (30 person-months of international consultant and 6 person-months of national consultant services, all intermittent). The consultants will be selected by the first quarter of The consultants will have expertise in fiscal policy, budget management, financial management (international consultants), and publications and video production (national consultant). Consultants will require a track record in training and capacity building. Each consultant will be recruited on an individual consultant selection basis and on output-based contracts. They will be required to submit quarterly progress reports to the MOE for review of their performance; their performance will be evaluated more frequently through assessments conducted as part of annual country programming, International Monetary Fund Article IV consultations and/or staff missions; the Government of Australia s Assessment of national systems; and the next PEFA assessment (scheduled for mid-2018). All consultants will be recruited in accordance with ADB s Procurement Policy and the associated project administration instructions and TA staff instructions). 10 IV. THE PRESIDENT S DECISION 18. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $750,000 on a grant basis to the Government of Fiji for Supporting Public Financial Management Reform, and hereby reports this action to the Board. 10 Terms of Reference for Consultants (accessible from the list of linked documents in Appendix 3).

10 6 Appendix 1 Impact the TA is Aligned with Inclusive socioeconomic development. (National Development Plan ) a DESIGN AND MONITORING FRAMEWORK Performance Indicators Results Chain with Targets and Baselines Outcome By the end of 2020: PFM Improved a. Number of not-rated and D or D+ scores in the next public expenditure and financial accountability assessment falls by 10 or more (2014 baseline: 18 out of 35) Outputs 1. Institutional capacity to implement the Public Financial Management Improvement Programme improved b. Total public debt stays within the government s target of 50% of gross domestic product (2016 baseline: 46% of gross domestic product) By January 2020: 1a. PFM RCU established (2016 Baseline: No RCU exists) 1b. Public expenditure reviews for Health and Education completed (2016 baseline: No reviews conducted) 1c. A medium-term expenditure framework for the Government of Fiji formulated (2016 baseline: Rudimentary use of forward estimates) 1d. At least eight functional training sessions and seminars provided per year by the PFM RCU (2017 baseline: Training provided on ad hoc basis) 1e. At least five training manuals and short training videos produced by the PFM RCU (2017 baseline: None produced) Data Sources and Reporting Mechanisms a. Public expenditure and financial accountability report or equivalent assessment b. International Monetary Fund Article IV reports 1a. Memorandum of understanding establishing the RCU 1b. Completed review reports for health and education 1c. Annual progress reporting by the MOE 1d.1e. Annual progress reporting by the MOE through the PFM RCU Risks Change in government policy or commitment shifts resources away from implementing the program External shocks undermine the fiscal position and growth, and divert political and administrative attention and capacity away from reforms Frequent staff changes compromises coordination and implementation Delays in finding competent and experienced consultants

11 Appendix 1 7 Results Chain 2. Reform coordination between government agencies and development partners strengthened Performance Indicators with Targets and Baselines 2a. At least three PFM development partner coordination meetings held per year (2017 baseline: No coordination meetings) 2b. At least three PFM knowledge products jointly prepared by development partners and the MOE (2017 baseline: No knowledge products) Data Sources and Reporting Mechanisms 2a. Annual progress reporting by the MOE through the PFM RCU 2b. Publications available on the MOE website Risks 2c. At least six PFM reform coordination meetings with line ministries per year (2016 baseline: Three coordination meetings) Key Activities with Milestones 1. Output 1 2c. Annual progress reporting by the MOE through the PFM RCU 1.1 Establish PFM RCU within the MOE through a memorandum of understanding by Q Provide PFM policy and technical advice and capacity development through the PFM RCU (Q to Q4 2019). 1.3 MOE to prepare quarterly progress reports on PFM RCU performance. 2. Output Establish interagency coordination mechanism by Q Establish development partner coordination mechanism by Q MOE to prepare quarterly progress reports on coordination meetings. TA Management Activities Contract TA consultants by Q Prepare prioritized and sequenced implementation plan based on updated Public Financial Management Improvement Programme by Q Continue regular reporting and supervision until Q Manage contracts from Q until Q Ensure the preparation of timely progress and financial reports until Q Inputs Asian Development Bank: $750,000 Note: The government will provide counterpart support in the form of counterpart staff, office accommodation, office supplies, secretarial assistance, domestic transportation, and other in-kind contributions. MOE = Ministry of Economy, PFM = public financial management, Q = quarter, RCU = reform coordination unit, TA = technical assistance a Government of Fiji. National Development Plan Suva. Source: Asian Development Bank.

12 8 Appendix 2 COST ESTIMATES AND FINANCING PLAN ($ 000) Item Amount Asian Development Bank a 1. Consultants a. Remuneration and per diem i. International consultants ii. National consultants 60.0 b. Out-of-pocket expenditures i. International and local travel 30.0 ii. Goods (rental and/or purchase) b 30.0 iii. Training, seminars, and conferences 40.0 iv. Reports and communications Contingencies 40.0 Total Note: The technical assistance (TA) is estimated to cost $825,000, of which contributions from the Asian Development Bank are presented in the table above. The government will provide counterpart support in the form of counterpart staff, office accommodation, office supplies, secretarial assistance, domestic transportation, and other in-kind contributions. The value of the government s contribution is estimated to account for 9.0% of the total TA cost. a Financed by the Asian Development Bank s Technical Assistance Special Fund (TASF-other sources). b Any goods purchased will be turned over to the executing agency upon completion of the TA. Source: Asian Development Bank estimates.

13 Appendix 3 9 LIST OF LINKED DOCUMENTS 1. Terms of Reference for Consultants