The World Bank Somalia Enhancing Public Resource Management Project (P177298) REPORT NO.: RES59412 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF SOMALIA ENHANCING PUBLIC RESOURCE MANAGEMENT PROJECT APPROVED ON DECEMBER 14, 2022 TO FEDERAL REPUBLIC OF SOMALIA GOVERNANCE EASTERN AND SOUTHERN AFRICA Regional Vice President: Victoria Kwakwa Country Director: Keith E. Hansen Regional Director: Hassan Zaman Practice Manager/Manager: Manuel Antonio Vargas Madrigal Task Team Leader(s): Rafika Chaouali, Alma Nurshaikhova, Vikram Menon The World Bank Somalia Enhancing Public Resource Management Project (P177298) ABBREVIATIONS AND ACRONYMS SERP Somalia Enhancing Public Resource Management Project IDA International Development Association FGS Federal Government of Somalia FMS Federal Member States SL Somaliland RETF Recipient Executed Trust Fund TF Trust Fund PFM Public Financial Management DRM Domestic Revenue Mobilization PSM Public Sector Management ITAS Integrated Tax Administration System MDA Ministries, Departments, and Agencies HRMIS Human Resource Management Information System BISAN Budget Information System for African Nations IPSAS International Public Sector Accounting Standards TOR Terms of Reference The World Bank Somalia Enhancing Public Resource Management Project (P177298) BASIC DATA Product Information Project ID Financing Instrument P177298 Investment Project Financing Environmental and Social Risk Classification (ESRC) Substantial Approval Date Current Closing Date 14-Dec-2022 31-Dec-2027 Organizations Borrower Responsible Agency Federal Republic of Somalia Project Development Objective (PDO) Original PDO To strengthen accountability, transparency and institutional capacity in public resource management, across participating entities OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-E1360 14-Dec-2022 10-Mar-2023 30-Oct-2023 31-Dec-2027 60.00 0 61.39 TF-B9920 25-Feb-2023 10-Mar-2023 30-Oct-2023 31-Dec-2023 5.00 1.00 4.00 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Somalia Enhancing Public Resource Management Project (P177298) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. The Somalia Enhancing Public Resource Management Project (SERP), was approved on December 14, 2022, in the amount of US$60.00 million equivalent, under IDA Grant No E136-SO. It is co-financed by a grant from the Somalia Multi-Partner Fund 2 (SMPF 2) in the amount of US$15.00 million (Grant No. TF0B9920). The SERP became effective on October 30, 2023, and was subsequently launched on November 1 and 2, 2023 in Mogadishu and Hargeisa respectively. The inaugural workshop reaffirmed the project’s important role in strengthening Institutions in Somalia to deliver services, positioning it as a fundamental instrument for state building. 2. The Project Development Objective (PDO) is to strengthen accountability, transparency, and institutional capacity in public resource management across participating entities. The project will achieve the PDO through an innovative design that will implement interdependent reforms in public resource management in an integrated manner, across the whole of Somalia. The SERP is framed around five components: (i) Public Financial Management (PFM); (ii) Domestic Revenue Mobilization (DRM); (iii) Public Sector Management (PSM); (iv) Integrated Governance Support; and (v) Project Management, Coordination, and Support in Delivery. Expected key outcomes of the project encompass enhanced independent oversight of public finances, strengthened transparency in fiscal and procurement information, and improved capacity in public resource management and civil service administration. Furthermore, the project will contribute to improved cash flow to health and education sectors for service delivery, improved citizen engagement in budgeting and citizen awareness in taxation laws and procedures, modernized and data driven tax administration, and enhanced availability of integrated data for decision making across PFM and DRM. 3. Currently, Progress towards achievement of PDO and Overall Implementation Progress (IP) are rated as Moderately Satisfactory. Following the project launch events in Somalia, two technical workshops were held in Nairobi, Kenya, on November 6-8 and November 10-12 for the Federal Government of Somalia (FGS) and Federal Member States (FMSs), and for Somaliland (SL) respectively. These measures swiftly kicked off project implementation and verified that the results indicators and the scope of the five project components, as designed in the Project Appraisal Document (PAD), remain relevant. Work and procurement plans have been developed to highlight the priority technical assistance and activities necessary to support the achievement of results for each component in the first 12-18 months post-effectiveness. The implementation of the agreed-upon project activities will commence in January 2024. A number of activities have already started under both DRM and Civil service components (see details below). Other notable progress achieved under each component include: Component 1: Public Financial Management (PFM) 4. An agreed list of priority technical assistance activities for the first 12 to 18 months was developed and formed the basis for the first-year plan and budget. The plan covers TAs at both FGS and FMSs: (i) business process review and updating of legal framework and procedures manuals as well as training; (ii) Assessment of the various IFMIS platforms (SFMIS, PLFMIS, and BISAN); (iii) fiscal disclosure and reporting including roadmap towards IPSAS adoption, updating accounting policies and procedures; (iv) updating internal audit manuals and related training; (v) establishment and support to the public procurement authority; development of procurement portal; documentation; and training curricula, and reporting; (vi) support the budget preparation and execution including The World Bank Somalia Enhancing Public Resource Management Project (P177298) the MTFF and sectors planning in Health and Education; (vii) strengthen cash management; and (viii) external audit support (twinning arrangement, institutional strengthening, and training). 5. For Somaliland, discussions also covered the results framework, subcomponents, and the detailed PFM activities with a focus on the first 12 to 18 months of the workplan and budget. Component 2. Domestic Revenue Mobilization (DRM) 6. Several activities have been launched, namely the procurement of the Quality Assurance (QA) firm for FGS Integrated Tax Administration System (ITAS) and implementation of the scholarship program. A consensus was reached on the first set of activities to proceed as follows: (i) joint procurement on the FMS Business Review and Assessment of Revenue Information Systems; (ii) FGS and FMS to prepare and submit for the World Bank team’s review and No Objection taxpayer identification and registration campaign proposals indicating the baseline and costs of the activities; (iii) FGS and FMS to prepare and submit for the World Bank team’s review and No Objection the costed list of activities for 2023-2024 in the area of tax policy, tax administration, taxpayer communication and training, including Taxpayer Forums. 7. For Somaliland, an agreement was reached on the first set of activities to proceed as follows: (i) recruit a domestic revenue adviser; (ii) consultancy firm to support Inland Revenue Department on preparation of ITAS technical specifications and bidding documents; taxpayer registration; taxpayer communication; strengthening Large Taxpayers Office; planning for Revenue Authority; (iii) consultancy firm for capacity building; (iv) individual consultant to support tax policy and legislation. It was also emphasized that Somaliland should adopt the scholarships manual embedded into the SL Project Operations Manual (POM) and advertise the scholarship opportunities early in 2024. Component 3. Public Sector Management (PSM) 8. The results indicators and scope of the component was discussed, and it was confirmed that all activities designed in the project documents remain relevant. Structural challenges in achieving the PDO indicator related to recruitment of women to high level positions were noted. Specific activities to be undertaken at both FGS and FMS levels were identified including (i) functional Reviews of key ministries at the FGS level including key ministries critical to growth and development; (ii) continued work on Pay and Grading and expansion of reforms to FMS’s; (iii) the development of a Human Resource Management Information System ( HRMIS) at the FGS and upgrades to the BISAN system at the FMS’s while ensuring interoperability with payroll; (iv) developing a customized legal framework for pensions at the FMS including hiring in skills, developing actuarial analysis to inform Pension Policy and establishing a Pension Fund along with developing a Pension Management Information System; (v) undertaking comprehensive Training Needs Assessment for selected MDA’s. Given the complexity of the agenda and the substantial need for coordination, it was agreed that the Government will establish an Intergovernmental Forum on Public Administration which will have a rotating chair and meet as needed. 9. For Somaliland agreement was reached on key activities needed to achieve results. The most critical amongst these was the establishment and functioning of Citizen Service Centers. Component 4: Integrated Governance Support 10. Initial activities have started including agreement on the assessment of IT platforms to identify gaps and priority activities in line with project objectives. An overall plan for IT development supported by development partners The World Bank Somalia Enhancing Public Resource Management Project (P177298) is under preparation to ensure complementarity between different funding. Work is under way to develop TORs with the different stakeholders and launch the assessment in the coming months. Component 5: Project Management, Coordination, and Support in Delivery 11. The project teams are on board (except for the PCU coordinator for SL which is under recruitment) and have started working on project procurement activities and development of the work plan. They participated in the November 1 and 2 technical discussions to launch the project implementation. FGS signed most subsidiary agreements with FMSs to start the implementation of the project, setting up of the PIU office is at an advanced stage with procurement plan for furniture and equipment under consideration, procurement plan for the planned activities has been submitted for the Bank NO. B. Rational for Restructuring 12. A Level 2 restructuring of the project is proposed to address the closing date of the Recipient Executed Trust Fund (RETF) and the IDA loan disbursement estimates at project design. 13. Firstly, it aims to extend the closing date of the RETF Grant No. TF0B9920, which co-finances the project. Although the SERP was approved in December 2022, project effectiveness was delayed due to changes in senior leadership in ministries, which resulted in a pause in implementation. Consequently, as of December 2023, the project disbursed only US$ 1 million from the first tranche grant allocation of US$ 5 million. Leaving an outstanding grant balance of US$ 4 million, uncommitted in the RETF, with a closure date of December 31, 2023. 14. Secondly, the restructuring seeks to align the IDA loan disbursement estimates with the recently agreed-upon work and procurement plans. Due to delays in effectiveness and the consequent slow start of project implementation, the estimated disbursement was not achieved. At project design, the estimated loan disbursement for year 2023 is US$8 million, against which there was zero disbursement. The discrepancy between the estimated and actual loan disbursement is shown in Table 1 below. The World Bank Somalia Enhancing Public Resource Management Project (P177298) Table 1: Original Estimated Disbursement vs Actuals Original Estimated Disbursement Current Actuals Disbursement Year (US$) (US$) 2022 0 0 2023 8,000,000.00 0 2024 9,000,000.00 0 2025 19,000,000.00 0 2026 19,000,000.00 0 2027 5,000,000.00 0 Total 60,000,000.00 0.00 15. The Government has formally requested an extension of the RETF Grant No. TF0B9920 in a letter with the reference number MOF/OM/0049/2023, dated December 5, 2023. The extension of the RETF Grant is necessary to allow the Government to optimize project implementation and achieve its development objectives. By accessing the grant balance of US$ 4 million, the project will have adequate financing available to support planned project interventions and prevent potential financing gaps. Additionally, aligning project disbursement estimates with the procurement plan is crucial for financial management, risk mitigation, and overall project success. The proposed revision to the disbursement schedule can be found in Table 2. Table 2: Revised Project Disbursement Estimates Year Current (US$) Proposed (US$) 2022 0 0 2023 8,000,000.00 0 2024 9,000,000.00 19,000,000.00 2025 19,000,000.00 19,000,000.00 2026 19,000,000.00 17,000,000.00 2027 5,000,000.00 5,000,000.00 Total 60,000,000.00 60,000,000.00 16. The Government is committed to the successful execution of the endorsed work and procurement plans, aiming to achieve the desired reforms. The World Bank and Project Coordinating Unit (PCU) teams will convene bi-weekly to assess progress on the work and procurement plans and discuss challenges that have potential to cause further delays in the implementation process. Also, given the delays in effectiveness and to speed up the implementation of the project and related reforms, disbursement of both IDA funding and TF will be concurrent. II. DESCRIPTION OF PROPOSED CHANGES 17. The proposed changes to the project are as follows: The World Bank Somalia Enhancing Public Resource Management Project (P177298) 18. Change in RETF closing date. The closing date of the REFT Grant TF0B9920 is proposed to be extended from December 31, 2023, to December 31, 2027. This extension will align the timeline of the TF and IDA financing to the project new implementation timetable following the delayed effectiveness and will enable the government to utilize the approved grant funds effectively to complete the planned activities within the revised timeframe. 19. Change in original project disbursement estimates. The original disbursement estimates for the project is being revised to align with the approved work and procurement plans. The World Bank Somalia Enhancing Public Resource Management Project (P177298) III. SUMMARY OF CHANGES Changed Not Changed Loan Closing Date(s) ✔ Disbursement Estimates ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE The World Bank Somalia Enhancing Public Resource Management Project (P177298) LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IDA-E1360 Effective 31-Dec-2027 31-Dec-2027 30-Apr-2028 TF-B9920 Effective 31-Dec-2023 31-Dec-2027 30-Apr-2028 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2022 0.00 0.00 2023 8,000,000.00 0.00 2024 9,000,000.00 19,000,000.00 2025 19,000,000.00 19,000,000.00 2026 19,000,000.00 17,000,000.00 2027 5,000,000.00 5,000,000.00 .