1 Document of The World Bank Report No: 74325-IQ RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF 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. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
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World Bank Document...Task Team Leader Arun Arya Sector Manager/Director Guenter Heidenhof/ Manuela Ferro Country Director Ferid Belhaj Original Board Approval Date 06/26/2009 Original
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1
Document of
The World Bank
Report No: 74325-IQ
RESTRUCTURING PAPER
ON A
PROPOSED PROJECT RESTRUCTURING OF
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.
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ABBREVIATIONS AND ACRONYMS
BCC Budget Call Circular
BETF Bank Executed Trust Fund
BORR Borrower
BSA Board of Supreme Audit
COTS Commercial Off-the Shelf
EA Environmental Assessment
GFS Government Financial Statistics
ICT Information and Communications Technologies
IFMIS Integrated Financial Management Information System
IG Inspector General
IPSAS International Public Sector Accounting Standards
ISDS Integrated Safeguard Data Sheet
ITF Iraq Trust Fund
MOF Ministry of Finance
MOFATC Ministry of Finance Accounting Training Center
MOPDC Ministry of Planning and Development Cooperation
PAD Project Appraisal Document
PDO Project Development Objective
PFM Public Financial Management
PMT Project Management Team
PRA Procurement Regulatory Agency
TA Technical Assistance
Regional Vice President: Inger Andersen
Country Director: Ferid Belhaj
Sector Manager:
Sector Director:
Guenter Heidenhof
Manuela Ferro
Task Team Leader: Arun Arya
3
Restructuring
Restructuring Type: Level II
1. Basic Information Project ID & Name P110862: IQ-Public Financial Mgmt Reform
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.
15
Annex 1: Results Framework and Monitoring
REPUBLIC OF IRAQ: Public Finance Management Reforms Project – Restructuring
Results Framework
Revisions to the Results Framework Comments/
Rationale for Change
PDO
Current (PAD) Proposed
The Project Development
Objective is to support
the Government of Iraq's
efforts to develop more
effective, accountable
and transparent public
financial management.
Continued
PDO indicators
Current (PAD) Proposed change*
1. Capital budget
execution rate increases
by at least 10 percentage
points
Continued
2. Outstanding balances
in Spending Units decline
by 30 percentage points,
as a share of the budget
Continued
3. At least 50% of
contracts above threshold
awarded competitively
Dropped 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.
4. Ministry of Finance
training institute
providing training in all
operational aspects of
Continued
16
Revisions to the Results Framework Comments/
Rationale for Change
PFM project
Intermediate Results indicators
Current (PAD) Proposed 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
PAD.
2. New procedures in
place for project
preparation and appraisal
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.
3. New macro-economic
and fiscal “team‟
established within MoF
Economic Policy
Division
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.
4. New budget
instructions approved and
guidelines ready
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.
5. New Budget Call
Circular (BCC) in use
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.
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
17
Revisions to the Results Framework Comments/
Rationale for Change
accordingly to reflect the
targets as per the original
PAD.
2. National Procurement
Manual finalized
Dropped 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.
3. Procurement Bulletin
board being fully
implemented, and housed
within Procurement
Regulatory Agency
Design of single portal website for
public procurement notices
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
PAD.
4. Training Needs
Assessment completed,
training curriculum
developed and first round
of „Train-the-trainers‟
completed
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.
Intermediate Results (Component 3): Strengthening Budget Execution and
Implementation
1. First round of training
on new cash release
system completed with
selected pilot ministries
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.
2. Detailed rules and
regulations for new
commitment control
system developed
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
18
Revisions to the Results Framework Comments/
Rationale for Change
PAD.
3. New financial/fiscal
performance system
developed, and tested in
three ministries
Dropped 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
4. Training materials
developed for
financial/fiscal
performance system, and
training of Master
Trainers carried out
Dropped 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.
5. Assessment of IG
system completed, and
documentation provided
clarifying mandate of
internal controllers
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.
6. Website being
regularly updated
Website of Ministry of Finance
upgraded for enhancing citizen’s
access of fiscal data.
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.
7. IT assessment
completed, and functional
requirements for
upgraded system
developed
Dropped 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
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
New As per goals and deliverables
of new component
2. Prototype for IFMIS
tested
New As per goals and deliverables
of new component.
20
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*
Co
re
D=Dropped
C=Continue
N= New
R=Revised
Unit of
Measure Baseline
Cumulative Target Values**
Frequency Data Source/
Methodology
Responsibility for
Data Collection YR 1
YR 2
YR 3 YR4
Indicator One:
Capital budget execution rate
increases by at least 10
percentage points
C % 75 82.5 Annual Capital Budget
Execution
Reports of the
MOPDC
MOPDC
Indicator Two:
Outstanding balances in
Spending Units decline by 30
percentage points, as a share of
the budget
C % 38 8 Annual Budget
Execution and
Cash Balance
Reports of the
MOF
MOF
Indicator Three:
At least 50% of contracts above
threshold awarded competitively
D % Not Known 50 Annual Monitoring
Reports of
Procurement
Regulation
Authority
MOPDC,
Procurement
Regulation
Authority
Indicator Four:
Ministry of Finance training
institute providing training in all
operational aspects of PFM
project
C Y/N Y Annual MOFATC
Reports,
Physical
Inspection
MOF, MOFATC
21
INTERMEDIATE RESULTS
Intermediate Result (Component One): Strengthening Budget Formulation and Implementation
Revised Intermediate Result (Component One): Strengthening Budget Formulation
Intermediate Result indicator
One:
Draft sector strategies
prepared
R Y/N N N N N Y Annual Strategy
documents
MoF, MoPDC,
PMT
Intermediate Result indicator
Two:
New procedures in place
for project preparation
and appraisal
C Y/N N N N N Y Annual GoI revised
regulations on
project
preparation
and appraisal
MoF, MoPDC,
PMT
Intermediate Result indicator
Three:
New macro-economic
and fiscal „team‟
established within MoF
Economic Policy
Division
C Y/N N N N N Y Annual Consultant
reports
GoI
regulations as
published
MoF, MoPDC,
Ministry of Oil,
IG and other
internal controls
Intermediate Result indicator
Four:
New budget instructions
approved and guidelines
ready
C Y/N N N N N Y Annual GoI new
budget
instructions
regulations as
MoF, MoPDC,
Intermediate Result indicator
Five:
New Budget Call Circular
(BCC) in use
C Y/N N N N N Y Annual GoI new
Budget Call
Circular
MoF, PMT
22
Intermediate Result (Component Two): Strengthening Public Sector Procurement
Revised Intermediate Result (Component Two):
Intermediate Result indicator
One:
Sector specific Standard
Bidding Documents
finalized for ministries of
health, education,
electricity and public
works.
R Y/N N N N N Y Annual Standard
Bidding
Documents
MoF, PRA,
PMT, Ministries
of health,
education,
electricity and
public works.
Intermediate Result indicator
Two:
National Procurement
Manual finalized
D Dropped
Intermediate Result indicator
Three:
Design of single portal
website for public
procurement notices
prepared
R Y/N N N N N Y Annual Website PRA, PMT,
MoPDC
Intermediate Result indicator
Four:
Training Needs
Assessment completed,
training curriculum
developed and first round
of ‘Train-the-trainers’
completed
C Y/N N N N N Y Annual Consultant
reports
Training
evaluations
PRA, MoF,
PMT, MoPDC
23
Intermediate Result (Component Three): Strengthening Budget Execution and Implementation
Revised Intermediate Result (Component Three): Strengthening Budget Execution
Intermediate Result indicator
One:
First round of training on
new cash release system
completed with selected
pilot ministries
C Y/N N N N Y Y Annual Consultant
reports
Training
evaluations
MoF, PMT, line
ministries
participating in
pilot
Intermediate Result indicator
Two:
Detailed rules and
regulations for new
commitment control
system developed
C Y/N N N N Y Y Annual Consultant
reports
GoI regulations
as published
Training reports
MoF, PMT
Intermediate Result indicator
Three:
New financial/fiscal
performance system
developed, and tested in
three ministries
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
Semi-
annually
Consultant
reports
GoI regulations
as published
GoI financial
performance
reports
MoF, PMT, line
agencies
Intermediate Result indicator
Four:
Training materials
developed for
D Training
Needs
Assessme
nt carried
Ongoing
training
Ongoing training Training reports MoF, PMT, line
agencies
24
financial/fiscal
performance system, and
training of Master
Trainers carried out
out
Intermediate Result indicator
Five:
Assessment of IG system
completed, and
documentation provided
clarifying mandate of
internal controllers
C Y/N N N N Y Y Annual Consultant
reports
IG evaluation
reports
MoF, MoPDC,
IG, PMT,
Intermediate Result indicator
Six: Website of Ministry of
Finance upgraded for
enhancing citizen’s
access of fiscal data.
R Y/N N N N Y Y Annual Website MoF, PMT
Intermediate Result indicator
Seven: IT assessment completed,
and functional
requirements for
upgraded system
developed
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
Semi-
annually
Consultant
reports
Technical
specifications
MoF, PMT
25
Intermediate Result (Component Four): Capacity Development and Project Management
Revised Intermediate Result (Component Four):
Intermediate Result indicator
One:
Training program fully in
place in MoFATC
R Y/N N N N Y Y Annual Twinning
institute reports
(particularly
Training Needs
Assessment)
Training
evaluations
MoF (training
institute)
Intermediate Result (Component Five): Development and Testing of IFMIS Prototype
Revised Intermediate Result (Component Five):
Intermediate Result indicator
One: Prototype for IFMIS
developed
N Y/N The
Government
has agreed on the scope
of IFMIS
design on which,
prototype
needs to be developed.
IFMIS
Prototype is
developed after
conducting a
SRS study involving all
stakeholders
Monthly, after
February 2013
onwards
Approval of the
prototype by the
Ministry of Finance
MOF
Intermediate Result indicator
Two:
Prototype for IFMIS tested
N Y/N Prototype is
yet to be developed.
Testing will
be done after it is
developed.
IFMIS
Prototype is tested in the
Ministry of
Finance, 3 pilot
Ministries
and the Board of
Supreme
Audit.
Monthly, after April
2013 onwards
Physical
inspection and testing of the
system by running
it on live data of pilot agencies
MOF, BSA, Pilot
Ministries, Bank Consultants
26
ANNEX 2: Reallocation of Proceeds
REPUBLIC OF YEMEN — IRAQ FINANCE MANAGEMENT PROJECT
P110862
{GRANT}
Restructuring Paper
1. Proceeds for REPUBLIC OF IRAQ PUBLIC FINANCE MANAGEMENT
PROJECT, [Trust Fund No. 094552], P110862 will be reallocated as follows:
Category of Expenditure Allocation % of Financing
Current Revised Current Revised Current Revised
(1) Goods (1) Goods 1,250,000 2,050,000 100 100
(2) Consultants’
services, including
audit, and Training
(2) Consultants’
services,
including audit,
and Training
12,850,000 13,600,000 100 100
(3) Incremental
Operating Costs
(3) Incremental
Operating Costs
300,000 350,000 100 100
Unallocated Unallocated 1,600,0001 0.00
TOTAL 16,000,000 16,000,000 100 100
2. The Iraq PFM project was started in July 2009 and has to be completed by June
2013. 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.”
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 2013. 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 2011. 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
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
April – June 2013
(iv) Establishment of ICT
infrastructure
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 2013
7. At best, the above implementation schedule could be reduced to 8 months by
doing activities (v) and (vi) in parallel, during July-August 2013. The task team,
therefore, recommends extension of the project closure date until 31 August 2013. 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.