SPECIFIC TERMS OF REFERENCE. EU contribution to 2012 Federal PEFA assessment in Pakistan

SPECIFIC TERMS OF REFERENCE EU contribution to 2012 Federal PEFA assessment in Pakistan FWC BENEFICIARIES 2009 - LOT 11: Macro economy, Statistics and Public finance management DCI-ASIE/2011/277245/1 1 BACKGROUND... 2 1.1 Beneficiary country... 2 1.2 Beneficiary...2 1.3 Contracting Authority... 2 1.4 Pakistan background information... 2 1.5 Public Financial Management in Pakistan... 2 1.6 Scope and PEFA methodology... 3 1.7 Proposed approach for 2012 PEFA assessment... 5 2 DESCRIPTION OF THE ASSIGNMENT... 7 2.1 Global objective... 7 2.2 Specific objective... 7 2.3 Requested services... 7 2.4 Required outputs... 8 3 EXPERT PROFILE... 8 3.1 Number of requested experts per category and number of man-days per expert or per category... 8 3.2 Profile... 8 4 LOCATION AND DURATION... 9 4.1 Starting period... 9 4.2 Duration and foreseen finishing date... 9 4.3 Indicative Planning of Assignment... 9 4.4 Location of assignment... 10 5 REPORTING... 10 5.1 Language... 10 5.2 Content, submission, comments and number of copies... 10 6 ADMINISTRATIVE INFORMATION... 11 6.1 Language of the contract... 11 6.2 Administrative and legal information regarding this contract... 11 6.3 Other information... 11 6.4 List of Annexes... 12 1

1 BACKGROUND 1.1 Beneficiary country Islamic Republic of Pakistan 1.2 Beneficiary The Federal Government of Pakistan 1.3 Contracting Authority Delegation of the European Union in Pakistan 1.4 Pakistan background information Pakistan consists of four provinces (Balochistan, Khyber Pakhtunkhwa, Punjab and Sindh) and other territories (Islamabad Capital Territory, Gilgit-Baltistan and Federally Administered Tribal Areas). The Constitution of 1973 confers the executive power to a President with a Cabinet of Ministers headed by the Prime Minister at the Federal Government 1. Provinces have their own provincial assemblies and provincial governments. The Islamic Republic of Pakistan is the world s 7 th biggest country with a population of about 170 million. In 2010, two important milestones changed the legislative, administrative and fiscal structure of the country. Firstly, the new 7th National Finance Commission Award was approved in May 2010, which increases the vertical distribution of fiscal resources of the divisible pool from the Federal Government to the provinces from 47.0 % (6th Award) to 57.5%. Secondly, the Constitution was modified with the 18 th Amendment by which the Concurrent List containing the subjects on which both the Parliament and the Provincial Assemblies can legislate has been omitted with effect from 1 July 2011. Thereafter, most of these subjects have become provincial subjects except those which have been transferred to the Federal List. With the 18 th Amendment, provinces have been transferred functions that relate to service delivery. Finally, each province will develop its own system of local government that will replace the suspended system introduced in 2001. Administration of funding for local development and basic services has always remained highly centralised. The Fiscal Responsibility and Debt Limitation (FRDL) Act 2, adopted in June 2005, is one of the main financial and economic tools of the Government and aims at elimination of revenue deficit and reduction of public debt to a prudent level. 1.5 Public Financial Management in Pakistan The enabling overarching legislative framework for public financial management in Pakistan is embedded in the 1973 Constitution. While there is no separate and distinct public finance law in place, the Constitutional provisions provide the enabling operational basis for public finance management in the Federation. Together with the Appropriation Law that is promulgated annually to cover aspects relating to public expenditures in pursuance of the annual budget, the requirements of a legal framework for public finance are largely in place. In respect of the revenue side of the budget, however, an annual Act, called the Finance Act, 1 Federal Government: http://www.pakistan.gov.pk/. Most public institutions have their own website in English. 2 Fiscal Responsibility and Debt Limitation (FRDL) Act: http://www.finance.gov.pk/publications/frdlo.pdf 2

is promulgated, and this covers the raising of public revenues in pursuance of the annual budget. The government has implemented several reforms including the Project for Improvement in Financial Reporting and Auditing (PIFRA) 3 which began assisting with PFM reforms in 1995. Another important reform is DFID funded project for implementation of Medium Term Budgetary Framework (MTBF) 4. To enhance effectiveness of external audit, a risk-based audit methodology compliant with international standards has been introduced and is being applied. Efficiency has improved through the application of systems-based audit methodology. Legislative oversight has also seen marked improvements over the last few years with regular meetings of the PAC and significant reduction in the back log of un-reviewed audit reports. In respect of Procurement, a Public Procurement Regulatory Authority (PPRA) was set up through an Ordinance in May 2003 to regulate and take such actions as may be required to provide efficiency and transparency in public procurement. In May 2004, a set of Public Procurement Rules (PPR) was prepared by the PPRA and notified. Although these rules conform to good practice in most areas, there remain some in which improvements need to be made. An assessment of the performance of PFM systems in place was conducted in 2009. This 2009 PEFA assessment provided the initial performance benchmark for the Federal government s PFM strategy. With the many actions taken in recent years, it is anticipated that improvements have been made and the Federal government and the World Bank have agreed to carry out an update in the current fiscal year to provide a clear picture of changes in performance since the 2009 assessment. The assessment will provide a common information pool with establishment of new baselines against which further progress in PFM development can be assessed. Finally, it will be a valuable input for the Federal government and donor partners for the development of priority interventions and reforms to address areas of weakness. Further, this assessment would be a highly valuable input for development partners in their country system assessment for development programs. 1.6 Scope and PEFA methodology The assessment, as did the 2009 assessment, will use the PFM Performance Measurement Framework (the Framework) 5 which has been developed by the PEFA partners, in collaboration with the OECD/DAC Task Force on PFM. The Framework is a tool which enables the identifying information for measurement and monitoring of PFM performance progress over time, and a common platform for dialogue. It supports the development of a shared information pool thus avoiding duplicative and inconsistent analytical work. It also 3 Official website: http://www.pifra.gov.pk/; PIFRA I: http://www.worldbank.org.pk/external/projects/main?pagepk=64283627&pipk=73230&thesitepk=293052&menupk=293 086&Projectid=P036015; PIFRA II: http://www.worldbank.org.pk/external/projects/main?pagepk=64283627&pipk=73230&thesitepk=293052&menupk=293 086&Projectid=P076872; PIFRA II extension: http://www.worldbank.org.pk/external/projects/main?pagepk=64283627&pipk=73230&thesitepk=293052&menupk=293 086&Projectid=P122635 4 MTBF website: http://www.mtbfpakistan.gov.pk/ 5 PEFA Secretariat: http://www.pefa.org 3

forms part of a strengthened approach to supporting PFM reform, which emphasizes countryled reform, donor harmonization, alignment around the country strategy, and a focus on monitoring and results. This approach seeks to mainstream the best practices that are already being applied in some countries. The Framework draws on the HIPC expenditure tracking benchmarks, the IMF Fiscal Transparency Code and other international standards. It has been developed by the PEFA partners, in collaboration with the OECD/DAC Joint Venture on PFM. The information provided by the framework would also contribute to the government reform process by determining the extent to which reforms are yielding improved performance and by increasing the ability to identify and learn from reform success. It would also facilitate harmonization of the dialogue between government and donors around a common framework measuring PFM performance and therefore contribute to reduce transaction costs for partner governments. Critical dimensions of performance of an open and orderly PFM system as identified by the Framework are as follows: a) Credibility of the budget - The budget is realistic and is implemented as intended. b) Comprehensiveness and transparency - The budget and the fiscal risk oversight are comprehensive and fiscal and budget information is accessible to the public. c) Policy-based budgeting - The budget is prepared with due regard to government policy. d) Predictability and control in budget execution - The budget is implemented in an orderly and predictable manner and there are arrangements for the exercise of control and stewardship in the use of public funds, including transparency in procurement. e) Accounting, recording and reporting Adequate records and information are produced, maintained and disseminated to meet decision-making, management control, and reporting purposes. f) External scrutiny and audit - Arrangements for scrutiny of public finances and follow up by executive are in place and operating. Against the above core dimensions, a set of 28 high-level indicators measures the operational performance of the key elements of the PFM systems, processes and institutions of a government. In addition, the indicator-based analysis is used to develop an integrated assessment of the PFM system and evaluate the likely impact of PFM weaknesses on the three levels of budgetary outcomes in terms of aggregate fiscal discipline, strategic allocation of resources, and efficient service delivery. The indicators are structured into three categories as follows: A. PFM system out-turns: these capture the immediate results of the PFM system in terms of actual expenditures and revenues by comparing them to the original approved budget, as well as level of and changes in expenditure arrears. B. Cross-cutting features of the PFM system: these capture the comprehensiveness and transparency of the PFM system across the whole of the budget cycle. C. Budget cycle: these capture the performance of the key systems, processes and institutions within the budget cycle of the central government. In addition to the indicators of country PFM performance, the framework also includes 3 donor performance-related indicators: 4

D. Donor practices: these capture elements of donor practices which impact the performance of country PFM system. Revisions have recently been made in the Framework to reflect the experience gained during 5 years of application. The following three indicators have been revised for assessments conducted after February 2011 and detailed guidance is available on their application as well as for comparison with scores available from previous assessments: PI-2: Composition of expenditure out-turn compared to original approved budget PI-3: Aggregate revenue out-turn compared to original approved budget PI-19: Transparency, competition and complaints mechanisms in procurement Good practice guidance is available from the PEFA Secretariat regarding repeat assessments. Main elements of this guidance include: a) For each indicator, the previous assessment should serve as a starting point when explaining the trajectory of changes. The narrative should identify for each indicator the factors that impact a change in rating and the performance change; b) Cognizance should be taken of possible reasons contributing to change in scores such as change in definitions, improved access to information, different sampling and aggregation etc. Moreover, while overall rating for an indicator may remain unchanged, individual dimensions may change differently. c) Consistent application of the methodology may be compromised and should be clearly explained. Access should be provided to previous task team and draft versions of previous assessments in addition to the final version. To ensure that there is comparison of like with like, the task team will strive to verify the basis on which the earlier score was assigned and identify any indicators for which inadequate information was or is available A detailed overview of progress between previous and current assessment will be included in the annex and a brief overview of changes in performance ratings will form part of the summary. The scope of the current assignment will be comprehensive using the aforementioned PEFA Secretariat guidance for repeat assessments. The impact of Federal Government fiscal relationships with the provincial and lower levels of government, especially the impact of the 18 th Constitutional amendment, would be featured as part of the assessment. Launch of the assessment shall be in the form of an inaugural session between the task team from the World Bank and the members of the Steering Committee of the Government to discuss issues pertaining to the Framework and the working methodology to be adopted. This will help to enhance the understanding of the processes and to mutually agree, up-front, on the outcome of the assessments. It will thus require a high degree of government interaction and ownership of the processes involved to achieve outcomes that support sustainable reforms across all elements of the PFM cycle. 1.7 Proposed approach for 2012 PEFA assessment The World Bank, Asian Development Bank, UK Department for International Development, and the European Union have successfully partnered with the federal government to conduct PFM PEFA assessment in the past. While this exercise is being initiated by the World Bank, 5

development partners have been informed and they have expressed a willingness to participate. The proposed assessment has been discussed with the key counterparts at the Federal Government level (Economic Affairs Division, Secretary Finance, Auditor General of Pakistan and Controller General of Accounts) who all welcome the commencement of the assessment process. As a result, the following proposed institutional and organizational approach has been agreed: The government will set up a high level Steering Committee under the Chairmanship of the Federal Additional Secretary Finance, and having representation from relevant government ministries/ departments / divisions particularly those dealing with audit, accounting, revenue, planning and development, National Assembly, State Bank of Pakistan, and Economic Affairs Division. Representation from professional institutes and civil society will also be encouraged. The role of the Committee will be to coordinate contributions to the assessments from the government as principal partners to the donor team, and steer the course of reform after the assessments are finalized. The Chairman of the Steering Committee will nominate a Lead Focal Person to manage the processes (including the summary diagnostic work) and identify key persons to work with the task team. The Lead Focal Person will facilitate provision of relevant evidential documents like budgets and accounts to the team of consultants who will be collecting these for review and shall also coordinate meetings between the task team members and relevant government officials as well as serve as the Secretary to the government Steering Committee. Initially, an inventory of existing materials will be prepared, identifying the documentation and data. The starting point will be data and documents available from previous assessments. The task team will then follow up with field work, where required, to collect missing information, with special focus on shortcomings in institutional arrangements, systems, and processes in the entire PFM cycle. Based on these, a draft report, including indicator ratings and commentaries will be prepared and discussed with the Steering Committee, and eventually in a stakeholders workshop. The outcome of the workshop will inform on the contents of the final draft report. The final report, to be produced after the stakeholders workshop, shall form the basis for the preparation of a Summary Diagnostic Matrix pertaining to weak performance areas which will mirror a synopsis of the action points aimed at improving the PFM reform environment. The diagnostics matrix will inform on future government reform strategy in devising a prioritized and time-bound action plan aimed at reversing the weaknesses. While PEFA indicators scoring the ratings of C & D will be given particular focus, priority improvement actions will be taken on all defined areas of material weaknesses, including some rating scores of B. Dissemination: The report will be prepared in close consultation with the members of the government Steering Committee before, during, and after the stakeholders workshop on 6

the draft final report. Such a process will ensure that the dissemination of the report becomes a continuous activity. The final report will be printed as joint report and will be delivered to the government and other stakeholders. It will also be posted on the Government and the World Banks websites. 2 DESCRIPTION OF THE ASSIGNMENT 2.1 Global objective The global objective is to assist the Federal Government of Pakistan in the assessment of public financial management performance in accordance with PEFA methodology. 2.2 Specific objective The specific objective is to update the Federal Government PEFA assessment published in June 2009 to provide the Federal government with an objective, indicator-led assessment of the PFM system in a concise and standardized manner, to form an updated understanding of the overall fiduciary environment of the PFM system and to assist in identifying those parts of the PFM systems in need of further reform and development. 2.3 Requested services The requested services for this assignment are to: Update the overview of PFM performance in accordance with PEFA Performance Management Framework June 2005 and three revised indicators effective February 28, 2011. This will provide a snapshot of current PFM conditions which can underpin donor s fiduciary risk assessments, in particular for program and adjustment lending, where there is to be reliance on the Government s financial management systems; Establish and explain the level of improvement in performance based on the PEFA indicators scores by comparison to the results found during the previous assessment to provide a clear picture of specific changes in performance since the 2009 assessment and where weaknesses remain or new gaps are identified: Identify possible short term interventions for safeguard and control which will not undermine current control processes or development of improved control mechanisms; Identify priority PFM reforms which can be developed to enhance and improve the management and control of funds from both taxpayers and donors within a medium to long term period; The PEFA-based assessment efforts will build on the existing body of knowledge where reviews have already been undertaken by the Government, private sector, World Bank and other donors. All services will be done in consultation and with the collaboration of the EU Delegation. The Delegation may require modifications in any of the tasks identified in these Terms of Reference or propose new related services on the initiative of the Delegation, the Government or the World Bank. 7

2.4 Required outputs The Delegation of the European Union will recruit one senior expert who will work under the leadership of a World Bank PEFA assessment team made of staff from World Bank and other consultants hired by World Bank or other donors. The aforementioned senior expert will secure the experience and expertise acquired in similar assignments. The senior expert will be required to work with and assist the Task Team Leader in producing the following outputs: Reviewing the draft indicator write-ups provided by other task team members to ensure that it is adequate, supported by the required evidence, documents and explains the trajectory of change from the previous assessment and the PEFA methodology has been properly applied; Bringing together the individual indicator assessments in a cohesive manner to draft the final report; Responding to comments from peer reviewers, development partners, government and other stakeholders; Stakeholder and workshop discussions. The selected senior expert will also provide all reports specified in these Terms of Reference in accordance with the instructions provided in the Reporting section. 3 EXPERT PROFILE 3.1 Number of requested experts per category and number of man-days per expert or per category One (1) senior expert is requested to carry out this assignment for a period of 60 working days maximum. 3.2 Profile - One senior expert for a period of 60 working days maximum. Qualifications and skills - The expert should hold a full University degree in Economics, Finance, Accounting, Public Policy and Management, Law or related field; - or 15 years of professional experience on PEFA assessments or similar assessments and PFM reforms. General professional experience - Ten years of general professional experience in any the following areas: macroeconomic analysis and reforms; public financial management; debt management; legislation, regulation, law enforcement; institutional and capacity building; PEFA framework: audit (internal and external); revenue collection; taxation; budgeting (policy, planning, preparation, execution, reporting and audit); public procurement (legislation, implementation, procurement assessments); public sector accounting systems; budget support. It is not expected that the expert should have experience in all of the areas specified before but relevant experience and expertise to this assignment will be an asset. The senior expert should have participated in at least 2 PEFA assessments. Specific professional experience 8

- The senior expert should have 5 years of working experience in developing countries. Language skills - The expert should have full working knowledge of English and excellent report writing and good communications skills, adaptability and social awareness Civil servants and other agents of the public administration of the beneficiary country, regardless of their administrative situation, shall not be recruited as experts in contracts financed by the EU in the beneficiary country unless the prior written approval has been granted by the European Union. - Working language: The working language is English. 4 LOCATION AND DURATION 4.1 Starting period Commencement date: The exact commencement date will be decided by the Delegation and communicated to the selected expert once all arrangements have been made. It is advised that the expert should be ready to start the assignment from 28 th November 2011. The overall input for the assignment is estimated at 60 working days over a 5 month period. 4.2 Duration and foreseen finishing date The duration of this assignment will be a maximum of 60 working days. It is expected that the assignment will end with the approval of final report which should take place in March/April 2012. The first visit of one week to Pakistan would take place during the months of November/December. The second visit of two weeks to Pakistan would take place during the months of January/February 2012. The rest of the working days will be performed from the place of residence of the expert with virtual interaction with the PEFA assessment team. 4.3 Indicative Planning of Assignment With delivery of the report planned in March/April 2012, the period of engagement for the international consultant will be during November 2011 to March/April 2012. It will be a combination of virtual and field activities. The senior expert will be required for approximately 60 working days in this period out of which it is estimated that a maximum of 20 working days will be in country (1 week in Nov/December 2011 and 2 weeks in Jan/Feb 2012) while 30 working days of the support can be done from the place of residence with virtual interaction with the PEFA assessment team. Activity Senior Expert 1. Home-based work 40 working days Desk review 10 working days Post first visit to Pakistan 15 working days Post second visit to Pakistan 15 working days 2. Work in Pakistan (including 20 working days travelling) First visit to Pakistan (Nov/Dec) 8 working days Second visit to Pakistan (Jan/Feb) 12 working days TOTAL 60 days max 9

4.4 Location of assignment The location of the assignment will be Islamabad (Pakistan) during 20 working days. The rest of the assignment will be conducted from the place of residence of the expert. 5 REPORTING 5.1 Language The language for reporting will be English. 5.2 Content, submission, comments and number of copies The senior expert will contribute to produce the following reports, under the instructions of the team task leader and EU Delegation: 1. A draft PEFA report to be submitted to Peer Reviewers and Steering Committee before the end of 2011. 2. A revised draft PEFA report based on comments receive to be produced at the beginning of 2012. 3. A draft final PEFA report based on comments received in stakeholders' workshop and from peer reviewers to be produced by March/April 2012. 4. A Summary Diagnostics focusing on the weak areas of overall PFM performance as identified in the PFM-PR. A summary Diagnostics Report will be produced, after the finalization of the PFM-PR to concisely guide the government in determining and defining its own reform strategy at a later stage. Additionally, the senior expert will specifically be in charge of the following reports: 5. A PEFA executive summary, which is an integral part of the PEFA final report. This PEFA executive summary will be included in the revised draft PEFA report and draft final PEFA report mentioned above. 6. The Comments Response Matrix, which will be attached to the PEFA report. The PEFA-based Public Financial Management Performance Report (PFM PR) shall be prepared, providing a comprehensive assessment of PFM performance at the Federal level and shall include an assessment of the extent to which institutional arrangements within government support timely planning and implementation of PFM reforms. It shall be a comprehensive and concise document with a length appropriate to the complexity of issues to be addressed. Information provided by the PFM-PR would feed into the government and donor dialogue. The standard structure of the report is given in the Annex. This will be adjusted where necessary to take account of specific and arising circumstances. The expert will be required to submit electronic copies of all his reports and contributions. In case he needs to provide hard copies of any of these reports, a maximum number of 5 copies will be requested. When drafting these outputs, the consultant will make sure that: - The assessments are objective and balanced, affirmations accurate and verifiable, and recommendations realistic. Attention is drawn to the fact that the EU reserves the right to have reports redrafted by the Contractor as necessary. 10

- The expert acknowledges clearly where changes in the desired direction are known to be already taking place, in order to avoid misleading readers and causing unnecessary irritation or offence. - The expert uses simple and clear language, accessible to both non-native English speakers and non-experts. 6 ADMINISTRATIVE INFORMATION 6.1 Language of the contract The language of the contract will be English. 6.2 Administrative and legal information regarding this contract All administrative and legal rules applicable to this contract can be found in the following link on DEVCO website (Framework contract Beneficiaries 2009): http://ec.europa.eu/europeaid/work/framework-contract/beneficiaries- 2009/index_en.htm The specific contract to be awarded through this request for services shall be a fee-based contract. As stated in the Global TOR of the Framework Contract, the Contractor will make available an appropriate management and backstopping mechanism, quality control system, secretariat and any other support staff (editors, proof readers etc.) that it considers necessary in order to implement the Framework Contract. The support team will provide all the necessary logistical support both prior and during the assignment to allow the expert to concentrate on his/her primary responsibility. No office, secretarial, communication or transport facilities are due to be provided by the EC Headquarters, EC Delegations or the beneficiary. The expert should be equipped with their own laptop computer, mobile phone, suitable software and a printer, and access to the internet. No equipment may be purchased in the context of this assignment. All secretarial costs both in the Contractor s home office and for the expert in the beneficiary country, which may include communications (phone, mail, internet, courier etc.), the production of reports and other documents required in the specific ToRs are considered to be included within the global budget of experts. No cost of this nature may be charged in addition. 6.3 Other information The selected expert will make all necessary arrangements to obtain visa and other required documents as soon as it is notified of its selection with the assistance of the Delegation to avoid unnecessary delays. During all contacts with Pakistani authorities, stakeholders, or any project or organisation, the consultants will clearly identify themselves as independent consultants and not as official representatives of the European Union. All documents and papers produced by the consultants shall carry the following disclaimer: This report has been prepared with the financial assistance of the European Union. The views expressed herein are those of the consultants and therefore in no way reflect the official opinion of the European Union. 11

All documents, reports, or other material acquired during the mission and relevant to EU- Pakistan relations will be submitted to the Delegation at the end of the mission, and will remain available for further missions and/or projects. 6.4 List of Annexes Annex - Structure of the Public Financial Management Performance Report (PFM- PR) 12

Annex - Structure of the Public Financial Management Performance Report (PFM-PR) Executive Summary Assessment 1. Introduction 2. Background information 2.1. Description of economic situation 2.2. Description of budgetary outcomes 2.3. Description of the legal and institutional framework for PFM 3. Assessment of the PFM systems, processes and institutions 3.1. Budget credibility 3.2. Transparency and comprehensiveness 3.3. Policy-based budgeting 3.4. Predictability and control in budget execution 3.5. Transparency, equal opportunity and efficiency of procurement practices 3.6. Accounting, recording and reporting 3.7. External scrutiny and audit 3.8. Donor practices 3.9. Specific issues (if necessary) 4. Government reform process 4.1. Description of recent and on-going reform measures 4.2. Institutional factors supporting reform planning and implementation Annex 1: Performance Indicators Summary Annex 2: Sources of information 13