SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN Special Purpose Combined Financial Statements and Independent Auditors' Report For the year ended December 31, 2019 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 1 INDEPENDENT AUDITORS' REPORT 2-3 SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019; Special purpose combined balance sheet 4-5 Special purpose combined statement of sources and uses of funds 6-9 Notes to the special purpose combined financial statements 10-21 STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 The following statement is made with a view to distinguishing respective responsibilities of the management and those of the independent auditors in relation to the Special Purpose Combined Financial Statements of the Social Fund for the Development of Internally Displaced People ("SFDI"). Management is responsible for the preparation of the Special Purpose Combined Financial Statements of the SFDI that present fairly the Special Purpose Combined Balance Sheet as at December 31, 2019 and the Special Purpose Combined Statement of Sources and Uses of Funds, for the year then ended, in accordance with the International Public Sector Accounting Standards ("IPSAS") "Financial Reporting under the Cash Basis of Accounting" issued by the International Public Sector Accounting Standards Board of the International Federation of Accountants ("IFAC-IPSASB") and for such internal control as management determines is necessary to enable the preparation of the Special Purpose Combined Financial Statements that are free from material misstatement, whether due to fraud or error. In preparing the Special Purpose Combined Financial Statements, management is responsible for: * Selecting suitable accounting principles and applying them consistently; * Making judgments and estimates that are reasonable and prudent; * Stating whether the IPSAS has been followed, subject to any material departures disclosed and explained in the Special Purpose Combined Financial Statements; and * Preparing the Special Purpose Combined Financial Statements on a going concern basis. Management is also responsible for: * Designing, implementing and maintaining an effective and sound system of internal controls, throughout the SFDI; * Maintaining proper accounting records that disclose, with reasonable accuracy at any time, the financial position of the SFDI, and which enable them to ensure that the Special Purpose Combined Financial Statements of the SFDI comply with the IPSAS; * Taking such steps as are reasonably available to them to safeguard the assets of the SFDI; and * Detecting and preventing fraud and other irregularities. The Special Purpose Combined Financial Statements for the year ended December 31, 2019 were authorized for issue on June 1, 2020 by the Management of the SFDI. Mahir Abbaszade Lata Shikhaliyeva General Manager Chief Accountant June 1, 2020 Baku. the Republic of Azerbaijan 1 bbakertiLly City Point Baku, 9 ' floor Jall Mammadguluzdeh str, 102A Baku, AZ1022, Azerbaijan T:+994(12)4047 666 F: +994 (12) 404 7 667 office@bakertiIy.az INDEPENDENT AUDITORS' REPORT www.bakertilly.az To the Supervisory Board and Management of the Social Fund for the Development of Internally Displaced People of the Republic of Azerbaijan (the "SFDI"): Opinion We have audited the Special Purpose Combined Financial Statements of the Social Fund for the Development of Internally Displaced People (SFDI"), which comprise the Special Purpose Combined Balance Sheet as at December 31, 2019, and the related Special Purpose Combined Statement of Sources and Uses of Funds for the year then ended and a summary of significant accounting policies and other explanatory notes (collectively referred to as the "Special Purpose Combined Financial Statements'). In our opinion, the accompanying Special Purpose Combined Financial Statements present fairly, in all material respects, the financial position of the SF01 as at December 31, 2019, and the cash receipts and disbursements on behalf of the SFDI and transactions passed through the SFDI's Special Accounts for the year then ended in accordance with the basis of accounting described in Note 2 to the Special Purpose Combined Financial Statements. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Special Purpose Combined Financial statements section of our report. We are independent of SFDI in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter Expiration of the Project Without qualifying our opinion, we also draw attention to Note 1, which describes that in December 12, 2019 the IBRD acknowledged the cancellation request by the Borrower and cancelled the undisbursed loan amount equal to USD 51,195,614 as of July 6, 2019. The loan agreement number 8627-AZ was amended to reflect the effects of the cancellation. As part of the amendment, the closing date for the loan agreement number 8627-AZ was set to December 31, 2019. Responsibilities of Management and those charged with governance for the Special Purpose Combined Financial Statements Management is responsible for the preparation and fair presentation of the Special Purpose Combined Financial Statements in accordance with IPSAS and for such internal control as management determines is necessary to enable the preparation of Special Purpose Combined Financial Statements that are free form material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the Project's financial reporting process. ASSURANCE ADVISORY TAX LEGAL Baker Tilly Audit Azerbaijan CJSC trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd.. the members of which are separate and independent legal entities. 0 bekerti(ly Auditor's Responsibilities for the Audit of the Special Purpose Combined Financial Statements Our objectives are to obtain reasonable assurance about whether the Special Purpose Combined Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Special Purpose Combined Financial Statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the Special Purpose Combined Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the SFDI's internal control; * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. June 1, 2020 Baku, the Republic of Azerbaijan SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN SPECIAL PURPOSE COMBINED BALANCE SHEET AS AT DECEMBER 31, 2019 (Amounts expressed in US dollars, unless otherwise indicated) December 31, December 31, 2019 2018 ASSETS AND CUMULATIVE EXPENDITURE Cash and bank - World Bank Project Bank account - Government of Azerbaijan - - Project Bank account - Community 12,413 92,210 Project Bank account - Micro-credit (interest) 8096-AZ 569,736 559,826 International Development Association ("IDA") Special Account - - International Bank for Reconstruction and Development ("IIBRD") Loan No. 8096 - AZ special account -- International Bank for Reconstruction and Development ("IBRD") Loan No. 8627 - AZ special account 994,109 1,314,757 1,576,258 1,966,793 Cash and bank - State Oil Fund of the Republic of Azerbayian ("SOFAZ") Project Bank accounts 1,599 1,611 Bank accounts operated through the Treasury of the Ministry of Finance 192 707 Petty cash 1 1 1.792 2.319 Cash and bank - State Oil Company of the Republic of AzerbaUjan ("SOCAR-) Project Bank account - Bank accounts operated through the Treasury of the Ministry of Finance Cash and bank - Islamic Development Bank ("IDB') Project Bank accounts - - Cash and bank - Micro-credits Bank accounts 154,137 147,431 154,137 147, 431 Cash and bank - Tender Bank accounts 57 201 57 201 Cash and bank - Japan Social Development Fund (-JSDF') Project Bank account - - Cash and bank - the Government of AzerbaUan ("GoA") Bank accounts operated through the Treasury of the Ministry of Finance - - Cash and bank - "Fuji Optical Co. Ltd. Bank account 1,499 1,499 1,499 1,499 Total Assets 1,733,743 2,118,243 Cumulative Project expenditure - World Bank Projects* 132,320,284 123,504,273 Cumulative Project expenditure - SOFAZ 2,566,465,815 2,448,819,034 Cumulative Project expenditure - SOCAR 9,444,872 9,444,872 Cumulative Project expenditure - IDB 13,321,101 13,321,101 Cumulative Project expenditure - Micro-credits 3,795,542 3,795,542 Cumulative Project expenditure - Tender 280,906 270,171 Cumulative Project expenditure- JSDF 1,943,224 1,943,224 Cumulative Project expenditure - Fuji Optical Co. Ltd. 44,444 44,444 Cumulative Project expenditure - GoA 136,011,212 117,481,801 Total Cumulative Project Expenditure 2,863,627,400 2,718,624,462 4 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN SPECIAL PURPOSE COMBINED BALANCE SHEET AS AT DECEMBER 31, 2019 (Continued) (Amounts expressed in US dollars, unless otherwise indicated) December 31, December 31, 2019 2018 Accumulated foreign exchange difference -World Bank Projects* 359,538 359,541 Accumulated foreign exchange difference - SOFAZ 1,245,776 1,245,776 Accumulated foreign exchange difference - SOCAR 28,500 28,500 Accumulated foreign exchange difference - lDB (513) (513) Accumulated foreign exchange difference - Micro-credits 234,718 234,718 Accumulated foreign exchange difference - Tender 12,118 12,119 Accumulated foreign exchange difference - JSDF - Accumulated foreign exchange difference - Fuji Optical Co. Ltd. - - Accumulated foreign exchange difference - GoA 36,457 36,457 TOTAL ASSETS AND CUMULATIVE EXPENDITURE 2,867,277,737 2,722,659,303 SOURCES OF FUNDS Cumulative sources of funds - World Bank Projects* 134,256,080 125,830,607 Cumulative sources of funds - SOFAZ 2,567,713,384 2,450,067,130 Cumulative sources of funds - SOCAR 9,473,372 9,473,372 Cumulative sources of funds - IDB 13,320,587 13,320,587 Cumulative sources of funds - Micro-credits 4,184,397 4,177,691 Cumulative sources of funds - Tender 293,081 282,491 Cumulative sources of funds - JSDF 1,943,224 1,943.224 Cumulative sources of funds - Fuji Optical Co. Ltd. 45,943 45,943 Cumulative sources of funds - GoA 136,047,669 117,518,258 TOTAL SOURCES OF FUNDS 2,867,277,737 2,722,659,303 *World bank projects include funds received and expenditures (including front end fee) incurred under IBRD and IDA loarn which inclUde Government of Azerbaijan share as well. Mahir Abbaszade Lala Shikhaliyeva General Manager Chief Accountant June 1. 2020 Baku, the Republic of Azerbaijan The notes set out on pages 10-21 form an integral part of these special purpose combined financial statements. 5 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN SPECIAL PURPOSE COMBINED STATEMENT OF SOURCES AND USES OF FUNDS FOR THE YEAR ENDED DECEMBER 31, 2019 (Amounts expressed in US dollars. unless otherwise indicated) December 31, December 31, 2019 2018 OPENING BALANCES World Bank Project Bank accounts - International Bank of Azerbaijan Republic ('IBAR") OJSC 652,036 639,119 IDA Special account - "IBAR" OJSC - - International Bank for Reconstruction and Development ("IBRD") Loan Agreement number 8096 - AZ special account - - International Bank for Reconstruction and Development ("IBRD") Loan Agreement number 8627 - AZ special account 1,314,757 1,341,481 1,966,793 1,980,600 SOFAZ Project Bank accounts - "IBAR" OJSC 1,611 1,610 Treasury accounts - "IBAR" OJSC 707 82,635 Petty cash I I 2,319 84,246 SOCAR Project Bank account - "Kapital Bank" OJSC Bank accounts operated through the Treasury of the Ministry of Finance IDB Project Bank accounts- "Kapital Bank" OJSC Micro-credits Project Bank accounts - "IBAR" OJSC 130,310 131,422 Project Bank accounts - "Kapital Bank" OJSC 17,121 17,368 147.431 148,790 JSDF Project Bank account - "IBAR" OJSC - - Japanese grant ("Fuji Optical Co. Ltd.") 1,499 - Project Bank account - "IBAR" OJSC 1,499 - Tender Project Bank account - "IBAR" OJSC 201 2,504 201 2.504 GoA Bank accounts operated through the Treasury of the Ministry of Finance - TOTAL OPENING BALANCES 2,118,243 2,216,140 6 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN SPECIAL PURPOSE COMBINED STATEMENT OF SOURCES AND USES OF FUNDS FOR THE YEAR ENDED DECEMBER 31, 2019 (Continued) (Amounts expressed in US dollars, unless otherwise indicated) December 31, December 31, Cumulative 2019 2018 ADD: FUNDS RECEIVED BY SOURCES World Bank Projects IDAfunds - - 26,344,394 IBRD Loan Agreement number 8627-AZ 7,186,098 660,327 15,504,387 IBRD Loan Agreement number 8096-AZ - - 49,999,388 Government 1,229,389 - 39,390,512 Community 941 2,019,194 Micro-credits (interest) 8096-AZ 9,986 11,941 998,205 8,425,473 673,209 134,256,080 SOFAZ 117,646.254 117,634,883 2,567,713,384 117,648,254 117,634,883 2,567,713,384 SOCAR - - 9,473,372 - 9,473,372 IDB Government funds - 3,936,617 IDB funds - - 9,383,970 - 13,320,587 Micro-credits 6,706 - 4,184,397 6,706 - 4,184,397 Tender 10,590 23,226 293,081 10,590 23,226 293,081 JSDF - - 1,943,224 - 1,943,224 Fuji Optical Co. Ltd. - 45,943 45,943 - 45,943 45,943 GoA 18,529,411 - 136,047,669 18,529,411 - 136,047,669 TOTAL FUNDS RECEIVED 144,618,434 118,377,261 2,867,277,737 LESS: EXPENDITURE World Bank Projects Works and goods 2,428,273 - 59,621,502 Housing renovation 2,225,155 - 35,448,972 Youth support 2,774,077 - 10,449,440 Income generating activities 265,958 - 7,293,127 Integrative Economic Support Pilot 227,601 - 356,468 Consultant services and training 222,859 6,254 5,300,709 Operating costs 672,012 681,211 9,157,224 Micro-credit financed by WB-8096 76 - 4,401,092 Front end fee - - 291,750 8,816,011 687,465 132,320,284 SOFAZ Engineering structures 27,892,103 25,846,992 779,991,630 Public service objects 15,050,639 13,329,029 233,504,739 Private houses 71,685,897 76,254,987 1,465,552,359 Other 3,018,142 2,285,808 87,417,087 117,646,781 117,716,816 2,566,465,815 SOCAR Construction - - 9,061,778 Office - 107,997 Project - 249,638 Other - - 25,459 - 9,444,872 7 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN SPECIAL PURPOSE COMBINED STATEMENT OF SOURCES AND USES OF FUNDS FOR THE YEAR ENDED DECEMBER 31, 2019 (Continued) (Amounts expressed in US dollars, unless otherwise indicated) December 31, December 31, Cumulative 2019 2018 Civil Works - - 12,900,762 Consultants' services - 244,724 Project - 148,076 Salaries and office - - 27,539 - 13,321,101 Micro-credits Micro-credits 1,366 3,495,170 Salaries and office - - 300,372 - 1,366 3,795,542 Tender 10,735 25,526 280,906 10,735 25,526 280,906 JSDF - - 1,943,224 - 1,943,224 Fuji Optical Co. Ltd. - 44,444 44,444 - 44,444 44,444 GoA 18,529,411 - 136,011,212 18,529,411 - 136,011,212 TOTAL EXPENDITURE 145,002,938 118,475,617 2,863,627,400 ADD/(LESS): FOREIGN EXCHANGE DIFFERENCE World Bank Projects 3 449 SOFAZ - 6 SOCAR IDB - Micro-credits 7 Tender 1 (3) JSDF - - Fuji Optical Co. Ltd. GoA -- Total foreign exchange difference for the year 4 459 8 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN SPECIAL PURPOSE COMBINED STATEMENT OF SOURCES AND USES OF FUNDS FOR THE YEAR ENDED DECEMBER 31, 2019 (Continued) (Amounts expressed in US dollars, unless otherwise indicated) December 31, December 31, 2019 2018 CLOSING BALANCES World Bank Project Bank accounts - "IBAR" OJSC 582,149 652,036 IBRD Loan Agreement number 8627-AZ Special account 994,109 1,314,757 IBRD Loan Agreement number 8096-AZ Special account - 1,576,258 1,966,793 SOFAZ Project Bank accounts- "IBAR" OJSC 1,599 1,611 Bank accounts operated through the Treasury 192 707 Petty cash 1 1 1,792 Z319 SOCAR Project Bank account - "Kapital Bank" OJSC - Bank accounts operated through the Treasury - - Micro-credits Project Bank accounts - "IBAR" OJSC 137,023 130,310 Project Bank accounts - "Kapital Bank" OJSC 17,114 17,121 154,137 147,431 Tender Project Bank accounts - "IBAR" OJSC 57 201 JSDF 57 201 Project Bank accounts - "IBAR" OJSC - - Fuji Optical Co. Ltd. Project Bank accounts - "IBAR" OJSC 1,499 1,499 1,499 1,499 GoA Bank account operated through the Treasury - - TOTAL CLOSING BALANCES 1,733,743 2,118,243 Mahir Abbaszade Lala Shikhaliyeva General Manager Chief Accountant June 1,2020 Baku, the Republic of Azerbaijan The notes set out on pages 10-21 from an integral part of these special purpose combined financial statements. 9 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN NOTES TO THE SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 (Amounts are expressed in US dollars, unless otherwise indicated) NOTE 1. BACKGROUND The separatist action in Upper Garabagh together with external aggression resulted in about 900,000 Internally Displaced People ("IDP") and refugees living in the Republic of Azerbaijan. Facing the declining international support for humanitarian assistance and unrealistic prospects for early peace settlement that would permit the return of IDP's to their former homes, the Government of Azerbaijan ("the Government") has decided to take steps that would reduce dependence of IDP on humanitarian aid and at the same time improve their living conditions and living standards. This involved the development of a system of realistic arrangements and the organisation of new possibilities for the destitute families in an adequate socio-economic situation with provision of conditions for self-life support based on attraction of donors by the Government. For the achievement of these goals the Government has started the construction of new "compact" settlements with the required infrastructure and repatriation to these settlements of IDP's living in the worst conditions. The strategy of the Government was officially sanctioned by issuance of the Presidential Decree # 895 of September 17, 1998 and confirmed with the international organisations in a Memorandum of Understanding signed by the Government of Azerbaijan and UNDP, UNHCR and the World Bank on February 23, 1999. Subsequently, the Government has issued a number of orders for the realisation of the new strategy. Objectives of the state strategy were detailed by the Decree #298 of July 1, 2004 of President of Azerbaijan. The accepted strategy targets transition from humanitarian assistance to the development programmes. However, this problem cannot be solved in a conventional way within a short time and consequently innovative and realistic methods are required. To address these issues the Government of Azerbaijan has decided to set up the Social Fund for the Development of ID P's (--SFDI") with the assistance of the World Bank and other donors by Presidential Decree on December 6, 1999. SFDI is an integral part of the Government of Azerbaijan's strategy to improve the living conditions of IDP's. It is a social development agency that manages funds allocated for needs of ID P's in a sustainable manner. SFDI is an autonomous organisation reporting to a Supervisory Board which is headed by the Chairman of the State Committee for Affairs of Refugees and Internally Displaced Persons of the Republic of Azerbaijan consists of the representatives of various state agencies such as the Deputy Minister of Finance and representatives from various international agencies. SFDI has an independent financial and management system and is a non-profit organisation. The legal address of SFDI is 57 Tbilisi Avenue, Baku, Azerbaijan; the actual address is 65 Fuzuli Street, Baku, Azerbaijan. According to its Charter SFD1 has two key objectives: i. raising the living standards of IDP's by providing required funding for the rehabilitation of small-scale social and economic infrastructure; 11. implementation of actions ensuring creation of new work places, increasing the employment rate of the population and providing opportunities for income-generating activities through the financing of various community micro-projects and the implementation of microfinance programmes. SFD1 finances the programmes in two main directions: Community Micro - Projects (CMP) CMPs address community needs rather than individual needs. CMPs subdivide into (i) infrastructure and (ii) services (non-infrastructure) micro-projects. Infrastructure micro-projects (IMP) include rehabilitation/construction of various infrastructures. Service micro-projects (SMP) consist of cleaning of garbage, waste disposal or support to cultural centres or community activities. Micro - Finance Programmes (MFP) MFPs are income generating programmes for the assistance to the poor IDP's directed to overcome poverty, improve their living standards, increase their income and provide assistance in employment generation in their micro-enterprises through participation of financial intermediaries. 10 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN NOTES TO THE SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 (Continued) (Amounts are expressed in US dollars, unless otherwise indicated) The main sources of finance for SFDI activities are described below: World Bank To finance this Project, in August 1998 the World Bank approved a USD 20 million equivalent IDA credit (cr,31 090-AZ) for a "Pilot Reconstruction Project". The credit was complemented by the World Bank financing from different sources such as the United Nations Development Programme ("UNDP"), the United Nations High Commissioner for Refugees ("UNHCR") and the European Union ("EU") and supported by a Government contribution of USD 9.5 million. The purpose of the Programme was to help Azerbaijan rebuild economic and social infrastructure in the war ravaged regions and allow as many IDP as possible to return to their places of origin. To address the needs and help improve the living conditions of IDP from other regions, the World Bank agreed in June 1999 to provide a USD 10 million equivalent "Supplemental Credit" to the "Pilot Reconstruction Project" (Cr.31091-AZ). The Supplemental Credit was to finance the Programme micro-projects with social and economic objectives and to provide micro-credits to enhance the economic opportunities of IDP, The "Pilot Reconstruction Project" closed on June 30, 2005. On June 3, 2005, the World Bank and the Government signed the Project Agreement and the Development Loan Agreement "IDP Economic Development Support Project" ("IDP-EDS") with loan agreement number 4034-AZ whereby IDA agreed to lend to the Government an amount in various currencies equivalent to SDR 7.5 million (seven million five hundred thousand Special Drawing Rights) or USD 11.5 million. This is a "repeater project" that replicates part of the "Pilot Reconstruction Project" (Cr. 31090/31091-AZ), and its objective, like that of its predecessor is to help improve the living conditions of IDP's and enhance their economic opportunities and prospects for social integration. On May 15, 2008, IDA and the Government signed the Project Agreement and the Additional Financing Agreement (loan agreement number 4395-AZ) for the purpose of providing additional financing for the activities related to the Original Project - lDP Economic Development Support Project. IDA agreed to extend a credit of SDR 9.6 million (USD 15.5 million). The loan agreement number 4395-AZ provides that the Project is financed by the proceeds received from IDA in the following proportions: Category Amount of credit Percentage of allocated Expenditure to be (SDR) Financed (%) (1) Works and Goods 8,250,000 72% (2) Consultants' services including audit 575,000 75% (3) Training 10,000 75% (4) Operating Costs 765,000 75% (5) Unallocated - - 9,600,000 On November 16, 2011, BRD and the Government signed the Project Agreement and the Financing Agreement (loan agreement number 8096-AZ) for the purpose of providing financing for activities related to the IDP Living Standards and Livelihoods Project. IBRD agreed to extend a credit for an amount equivalent to USD 50 million. The closing date is December 31, 2016. The Project consists of the following parts: Part A: Micro-Proiects Provision of works, goods and services for: (1) community mobilization and outreach for micro-project proposal development; (2) repair or rehabilitation of basic infrastructure (e.g. water supply, power supply, access roads, drainage systems); and (3) repair or rehabilitation of social infrastructure such as schools and community centres. 11 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN NOTES TO THE SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 (Continued) (Amounts are expressed in US dollars, unless otherwise indicated) Part B: Housing Renovation Provision of works, goods and services for the rehabilitation and full scale repair of about 95 lDP collective accommodation centers including improvement of common space areas (bathrooms, corridors, kitchens, etc.), enhancement of structural features (such as sewerage, roofing and water systems) as well as improvement of conditions in individual apartments such as replacement of windows, doors, and electricity to improve the overall living conditions including safety and efficiency. Part C: Livelihood Support 1. Provision of vocational training and financial and technical support for small business development to IDP youth. 2. Provision of: (a) technical support and mobilization in selected communities leading to the establishment of about 200 self-help groups and formulation by such self-help groups of proposals for income generating activities; and (b) Small Grants to eligible self-help groups with approved proposals for income generating activities to set up small businesses and micro-enterprises. 3. Financing of Micro-credits for IDP through eligible credit unions. Part D: Project Management and Capacity Building Provision of goods. consultants' services and training for the proper management, implementation, supervision and monitoring and evaluation of the Project and capacity building of the Project Implementing Entity. The following table specifies the categories of Eligible Expenditures that may be financed out of the proceeds of the loan agreement number 8096-AZ ("Category"), the allocation of the amounts of the Loan to each Category, and the percentage of expenditures to be financed for Eligible Expenditures in each Category: Percentages of. Amount of the Loan .pentaes of Category Allocated Expen.es financed (expressed in USD) (Net of VAT) 1) Goods, works, non-consulting services, and consultants' services including audit, Small Grants, Micro-Credits Training and Operating Costs for the Project 2) Front-end fee 125,000 3) Interest Rate Cap or Interest Rate Collar premium 50,000,000 IBRD Loan Agreement number 8627-AZ On June 23, 2016, IBRD and the Government signed the Project Agreement and the Financing Agreement (loan agreement number 8627-AZ) for the purpose of providing financing for activities related to the IDP Living Standards and Livelihoods Project. IBRD agreed to extend a credit for an amount equivalent to USD 66.7 million. in December 12, 2019 the IBRD acknowledged the cancellation request by the Borrower and cancelled the undisbursed Loan amount equal to USD 51,195,614 as of July 6, 2019. The loan agreement number 8627-AZ was amended to reflect the effects of the cancellation. As part of the amendment, the closing datefor the loan agreement number 8627-AZ was set to December 31, 2019. The Project consists of the following components: 12 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN NOTES TO THE SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 (Continued) (Amounts are expressed in US dollars, unless otherwise indicated) Component A: Micro Projects This component will continue to finance demand-driven economic and social infrastructure investments in communities with a significant proportion of IDP. Micro projects may include (a) repair or rehabilitation of physical infrastructure (for example, water supply, power supply, access roads, drainage systems) and (b) repair or rehabilitation of social infrastructure, such as schools and health centers. The component will also continue to finance community mobilization and outreach for micro-project proposal development. Component B: Housing Renovation and Social and Economic Infrastructure for IDP Settlements Component B will undergo most changes in scope during the AF stage. In the parent project, the component financed the renovation of IDP collective centers that were in a state of disrepair. The GoA, however, is now aiming to resettle a large number of people currently living in IDP collective centers to "New Settlements" and has therefore asked for this component to change focus. The GoA will be financing the "New Settlements" using other financing but has stated that there is a great need to rehabilitate social and economic infrastructure in the "New Settlements" built before 2005. Component B under the AF will therefore finance multiple small to medium-size infrastructure investments in each of approximately 30 locations, as contrasted with Component A where only one investments possible at any one time. Component C: Livelihood Support This existing component will be scaled up and expanded geographically. Targeting for the component will also be modified to be more integrated with Components A and B - the component will specifically target communities benefitting from infrastructure investments. In addition, a new subcomponent will be added to Component C that will focus on providing integrated economic support to beneficiaries. The component will, therefore, comprise four subcomponents (a) Youth Training and Business Development; (b) income generating activities; (c) Provision of Micro-credit for IDP; and (d) (new) Integrative Economic Support Pilot. Component D: Project Management, Implementation Support and Capacity Building This component will finance project management and capacity building as well as monitoring and evaluation activities. The only change expected under this component is the financing of an impact evaluation. Currently, the project has successfully gathered data on outputs, but there are indications that broader outcomes and impacts of the project are not being successfully captured. Because of this, a firm will be competitively selected to carry out an impact evaluation, The following table specifies the categories of Eligible Expenditures that may be financed out of the proceeds of the loan agreement number 8627-AZ ("Category"), the allocation of the amounts of the Loan to each Category, and the percentage of expenditures to be financed for Eligible Expenditures in each Category: Original amount Original Revised Revised of the Loan Percentages of amount of the Percentages of Category Allocated Expenditures to be Loan Allocated Expenditures to (expressed in financed (expressed in be financed USD) (Net of VAT) USD) (Net of VAT) (1) Goods, works, non- consulting services, and consultants' services including audit, Small Grants, Micro-Credits Training and Operating Costs for the Project 66,533,250 100% 15,337,636 100% (2) Front-end fee 166,750 - 166,750 - (3) Interest Rate Cap or Interest Rate Collar premium - - 66,700,000 15,504,386 13 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAJAN NOTES TO THE SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 (Continued) (Amounts are expressed in US dollars, unless otherwise indicated) Effective from 2008 the funding of international financial institutions is subject to the Value Added Tax ("VAT") and customs duties. This is applicable to the both financings received under loan agreement number 4395 - AZ and 8096-AZ. Japan Social Development Fund ("JSDF") On August 13, 2007 IDA, as administrator of grant funds provided by Japan Government under the Japan Social Development Fund Grant for IDP Youth Support Project provided the grant in an amount not exceeding USD 1,945,800 (JSDF Grant No. TRO90489). The objective of the funding is to enhance the social inclusion of, and promote economic opportunities for young IDP. The Funding consists of the following parts: - Component A: Community Grants for Youth in New Settlements; - Component B: IDP Youth Skills and Business development; - Component C: Partnerships between Municipal/IDP Schools in Major Urban Settlements to Increase Social Inclusion among Students; - Component D: Management, Monitoring and Evaluation. The allocation of the amounts of the Grant to each category and the percentage of expenditure to be financed for eligible expenditure in each category is as follows: Category' Amount of grant Percentage of allocated Expenditure to be (USO) Financed (%) (1) Works a0,000 100% (2) Goods 222,200 100% (3) Services including audits 317,800 100% (4) Operational costs 135,800 100% (5) Small grants 1,190,000 100% 1,945,800 "Fuji Optical Co. Ltd.", has donated 5 million yen to the SFD1, according to the long-term and valuable relationship between the Republic of Azerbaijan and Japan in December 11, 2017. State Oil Fund of Azerbaijan ("SOFAZ") The implementation of the works on raising the living standards and rehabilitation of social infrastructure of IDP communities has been carried out through the Programme since 2002 based on the following Presidential Decrees: 1. Decree #577 of September 7, 2001 "Accommodation of IDP's from the occupied regions of Agdam and Fuzuli living in temporary camps": 2. Decree #700 of May 13, 2002 "Improvement of the living standards of IDIP's living in temporary camps in the Bilasuvar region"; 3. Decree #80 of February 4, 2004 "Improvement of living standards and employment of IDP's living in temporary camps and railway carriages in Barda and Agjabadi regions"; 4. Decree #298 of July 1, 2004 "State Programme on the improvement of living conditions of IDP and refugees and employment promotion". In the frameworks of Decrees #577 and #700 the State Refugees Committee (the "Committee") has been appointed as the state agency responsible for the supervision of the construction of buildings in 500 districts in the Agdam region, 800 districts in the Fuzuli region and 19 districts in the Bilasuvar region. To finance the works under each of the Decrees the State Oil Fund transferred Azerbaijani old manats ("AZN") 84 billion and AZN 192 billion to the bank account of the Committee respectively. The detailed work plan was issued by the Resolution of the Cabinet of Ministers #171 on September 27, 2001. SFDI was,selected to act as the main Executor under the Decree. The contractors were selected by a bidding Committee which included the Programme Director and representatives of the Ministry of Finance and other State Agencies. All payments to the contractors were made through Project bank accounts. The completed construction works were accepted by a special State Committee comprising the representatives of SFDI, the Cabinet of Ministers, the State Refugees Committee and other State agencies. 14 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN NOTES TO THE SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 (Continued) (Amounts are expressed in US dollars, unless otherwise indicated) For the execution of Presidential Decrees #80 and #298 the State Oil Fund has elected to process all payments to contractors through the bank accounts of the State Treasury regulated by the Ministry of Finance. The construction of buildings under the Decree started in 2004 and continued through 2007. The bidding and final acceptance procedures remained similar to those followed at the time of the execution of previous Decrees. On October 9, 2007 Ministry of Finance issued Resolution # 303 to improve living conditions of IDP's in different districts of Baku, Absheron, Qabala and Goy Go] (ex. Xanlar) regions by construction of new buildings and repair of existing ones. The amounts of AZN 200 million were allocated by State Oil Fund of Azerbaijan for improving living conditions of internally displaced people in 2019 and 2018 year. State Oil Company of Azerbaijan ("SOCAR") Following the Resolution of the Cabinet of Ministers of Azerbaijan # 197s dated July 18, 2005, the State Oil Company financed the renovation of 77 dormitories for the accommodation of IDP's located in Baku. At the inception of these works in 2005 SFDI acted as the main Executor and received funds via the State Refugees Committee. Subsequently and throughout 2007, the Programme bank account in "Kapital Bank" OJSC was used for processing of all the settlements under this source of funding. On June10, 2008, the Cabinet of Ministers of Azerbaijan issued resolution # 211 where the State Oil Company finances the renovation of 130 dormitories for the accommodation of IDP's located in Baku. Islamic Development Bank ("DB") The construction of social infrastructure facilities for IDP's is financed through a Loan Agreement signed between the Government of Azerbaijan and the Islamic Development Bank (1IDB^") on December 10, 2005 corresponding to 8 Dhu al-Qi'dah 1426H The main objective of the financing arrangement was to improve the living standards of IDP's by contributing to the construction of the education and health systems as well as the drinking water supply in new settlements for IDP's in the Bilasuvar region. Education infrastructure for all schooling levels was provided through construction of 5 schools and provision of basic furniture and laboratory equipment. The financing arrangement also aims at the construction of 5 medical units to provide health facilities for the new settlements and provision of modern medical equipment which facilitates quality diagnosis of health conditions of IDP's. The drinking water supply system comprises boring of wells, water storage and a distribution network. The overall scope of the financing arrangement includes civil works for schools, health facilities and water supply network, procuremeht and installation of the latest medical equipment, furniture, consultancy services, financial auditing and a Project Management Unit. The total cost was estimated at US$ 14.543 million. The Fund financing was for an amount not exceeding Islamic dinars (ID) 7 million (approximately equivalent to USD 10.272 million). According to the terms of the Loan Agreement between the Government and the Islamic Development Bank, the Programme is financed by proceeds in the following proportions for relevant programme components (in millions US dollars): SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN NOTES TO THE SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 (Continued) (Amounts are expressed in US dollars, unless otherwise indicated) A. Civil works, furniture & equipment IDB IDB% GOA GOA%1Total i. Education facilities School type -A (198 students) 1.955 70 0.838 30 2.793 School type - B (150 students) 1 1.450 70 0.621 30 2 071 1 1.955]4-864i i. Health facilities Hospital (25 beds) 0.336 70 0.144 30 0,480 Health clinics 0.383 70 0.164 30 0,547 Health centres 0.294 70 0.126 30 0.420 1.447 iii. Drinking water supply 4.095i 70 1.755 30 [ 5.850 Sub-Total (A) 8.513 70 3.648 1 12.161 B. SITE DEVELOPMENT i - 0.100 100 0.100 C, CONSULTANCY SERVICIES Detailed design & tender document - - 0.060 100 0.060 Design review & supervision 0.610 100 _ - 0.610 D. FINANCIAL AUDITING 0.045 100 - 0045 E. PROJECT IMPLEMENTATION UNIT Furniture, office expenses - - 0.075 1Ol 0.0751 Salaries & office equipment 0.150 100 - - 0.150 Familiarisation visits of EA & start-up workshop 0.020 100 - - 0.020 Sub-Total 9.338 3.883 13.221 F.CONTINGENCIES (10%) 0.934 - 0.388- 1.322 GRANT TOTAL 10.272 70.60% 4.271 29.40% 14.543 The Government of Azerbaijan ("GoA") In the frameworks of Presidential Decree #298 dated July 1, 2004 and the resolution of the Cabinet of Ministers of Azerbaijan # 44s dated February 6, 2008, Appendix #1, SFDI was granted additional funds for the remaining construction works at the SFDI administrative building of AZN 1 million (USD 1.2 million). Presidential Decree #298 dated July 1, 2004 and the resolution of the Cabinet of Ministers #211s dated June 10, 2008 SFDI was appointed as the state agency responsible for urgent repair of 130 hostels in Baku, Sumgait and other cities and regions; construction of a sports complex in the Fuzuli region and construction of an administrative building for the Executive Government of Jabrail region. A resolution of the Cabinet of Ministers of Azerbaijan #356s dated October 3,. 2008 appointed SFDI an Executor of the construction of 58 buildings in Baku (Sabunchu region and Azadlig metro station). For the construction of these buildings the Government granted AZN 2 million (USD 2.5 million). Presidential Decree #2707 dated March 6, 2008 and the resolution of the Cabinet of Ministers of Azerbaijan #325s dated December 4, 2009 appointed SFDI as the state agency responsible for construction of a 5-storey building in Goranboy city. Presidential Decree# 37 dated December 10, 2008 and the resolution of the Cabinet of Ministers of Azerbaijan # 22 dated February 2, 2009 granted SFDI AZN 0.5 million for the remaining construction works at the SFD1 administrative building, equivalent to USD 0.6 million; AZN 3 million for the construction complex in Fizuli region, (USD 3.7 million) and; AZN 1 million for the construction works at the administrative building of the Executive Government in Jabrail region, (USD 1.3 million). Presidential Decree # 2613 dated January 24, 2017 granted SFDI AZN 4.0 million for the building of private houses for 50 individuals, schools and construction of infrastructures in Cocug Merjanli region. 16 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN NOTES TO THE SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 (Continued) (Amounts are expressed in US dollars, unless otherwise indicated) Presidential Decree #2984 dated June 15, 2017 granted AZN 9.0 million to SFDI for the construction-restoration and renovation works in Cocug Merjanli region, as well as building of private houses for 100 individuals, nursery schools, medical centres and construction of infrastructures in that region. Presidential Decree #890 dated January 15, 2019 granted AZN 31.5 million to SFDI within allocation of funds provided for state capital investments (investment expenditures) on other projects in the state budget of the Azerbaijan Republic for 2019. NOTE 2. ACCOUNTING POLICIES Basis of Accounting These special purpose combined financial statements are prepared in accordance with the International Public Sector Accounting Standard ("IPSAS") Financial Reporting under the Cash Basis of Accounting issued by the International Public Sector Accounting Standards Board ("IPSASB"), an independent standard-setting body within the International Federation of Accountants ("iFAC") and incorporate the following principal accounting policies, which have been consistently followed in all material respects. These special purpose combined financial statements have been prepared under the historical cost convention. Programme financing is recognized as a source of funds when the cash'is received. Programme expenditure is recognized as a use of funds when payment is made. Transactions in foreign currency The SFDI is domiciled in the Republic of Azerbaijan where the local currency is the Azerbaijani manat ("AZN"). Because the majority of the SFDI's transactions are funded in the United States dollars and in accordance with the requirements of the Fund providers, these special purpose combined financial statements are presented in the United States dollars ("US dollar", "USD' or "US$"), which is the reporting currency of the SFDI. Transactions in other currencies are treated as transactions in foreign currencies. Cash receipts and payments arising from transactions in a foreign currency are recorded in the SFDI's reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of receipt and payment. Cash balances held in a foreign currency are reported using the closing rate. which is the spot exchange rate at the reporting date. Unrealised gains and losses arising from changes in foreign currency exchange rates are not cash receipts and payments. However, the effect of exchange rate changes on cash held in a foreign currency is reported in the special purpose combined statement of sources and uses of funds and other statements in order to reconcile cash at the beginning and the end of the period. These amounts are presented separately from cash receipts and payments and include the differences, if any, had those cash receipts and payments and balances been reported at end-of-period exchange rates. At December 31, 2019 and 2018 the official AZN/USD exchange rate set by the Central Bank of Azerbaijan ("CBAR") was 1.7000. NOTE 3. METHODS OF WITHDRAWAL The methods of withdrawal for each component are as follows: World Bank component (a) IBRD account Certain disbursements were made directly to third parties following the submission of an Application for Withdrawal, with the relevant supporting documents. (b) Special account Available amounts were drawn down within the limits determined by the relevant loan agreements for the direct payment of eligible expenditure for sub-projects from the Special Account. (c) Statement of expenditure (SOE) Under the SOE method, the IDP-EDS Project forwards to the Bank an application for reimbursement of payments already made using an Applicatidn for Withdrawal, with SOE forms as the only documentation. 17 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN NOTES TO THE SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 (Continued) (Amounts are expressed in US dollars, unless otherwise indicated) (d) Programme account IDP-EDS project maintains a separate account where the Government funds are accumulated. The funds are further disbursed to sub-contractors based on its share of the expenditure incurred. SOFAZ component (a) Programme accounts The SOFAZ funds extended through the State Refugees Committee are accumulated on the Programme bank accounts in AZN The funds are further disbursed to contractors based on the results of the bids and further construction work performed. (b) Bank accounts operated through the Treasury of the Ministry of Finance These accounts are used to accumulate funds provided by SOFAZ for financing the Programme activities. Disbursements from the Treasury accounts are initiated by SOFAZ with the Programme acting as an intermediary between SOFAZ and the contractors. SOCAR component (a) Programme accounts The Programme bank account is used to accumulate the funds provided by SOCAR for financing of the rehabilitation of dormitories. (b) Bank accounts operated through the Treasury of the Ministry of Finance These accounts are used to accumulate funds provided by SOCAR for financing the Programme activities. Disbursements from the Treasury accounts are initiated by SOCAR with the Programme acting as an intermediary between SOCAR and the contractors. Islamic Development Bank component (a) Programme bank account in USD Available amounts are drawn from this account for payment of the portion of expenses financed by IDB in accordance with the terms of the Loan Agreement. (b) Programme bank account in AZN The Programme maintains a separate account where the Government funds are accumulated. The funds are further disbursed to sub-contractors based on the share to be financed by the Government in accordance with the terms of the Loan Agreement. Micro-credits and tender components The Programme maintains several accounts in AZN for these Programme components. The accounts are used for the accumulation of funds reimbursed by the micro-credit institutions in the form of repayment of principal and interest amounts of previously issued loans. The accumulated funds are then repeatedly extended by the Programme to the loan institutions for further lending to IDP communities. A separate bank account is maintained by the Programme to accumulate tender fees received from the bid participants. The Government of AzerbaiTan component This component uses bank accounts operated through the Treasury of the Ministry of Finance, which are used to accumulate funds provided by the Government of Azerbaijan for financing the Programme activities. Disbursements from the Treasury accounts are initiated by SFDl, SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN NOTES TO THE SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 (Continued) (Amounts are expressed in US dollars, unless otherwise indicated) NOTE 4. EXPENSES BY SOURCE OF FINANCE World Bank component: For the year ended December 31, 2019: Expenses by Works & Consultants' Operating Housing Youth Income Integrative Total source of goods services and costs Renovation Support Generating Economic Micro- finance training Activities Support credit Pilot IBRD 8627-AZ 2,000,731 191.226 668,269 1,870,766 2,355,563 226,927 193,264 - 7,506,746 Government 366,465 31,633 3,672 335,737 418,514 39,031 34,337 - 1,229,389 Community 61,077 - 71 18,652 - - - 79,800 % of Micro- credit - - - - - - - 76 76 Total 2,428,273 222,859 672,012 2,225,155 2,774,077 265,958 227,601 76 8,816,011 For the year ended December 31, 2018: Expenses by Works & Consultants' Operating Housing Youth Income Integrative Provision of Total source of goods services and costs Renovation Support Generating Economic Micro-credit finance training Activities Support for IDP Pilot IBRD 8627-AZ - 6,254 681,211 - - - - - 687,465 Government - -- - -- Community - -- - - - -- Total - 6,254 681,211 - - - - - 687,465 NOTE 5. LIABILITIES ACCRUED AS AT DECEMBER 31, 2019 AND 2018 The standard terms of contacts signed by SFDI for undertaking construction works or purchasing equipment under the Works & Goods and Housing Renovation category of the World Bank Loan Agreement are such that 5% of the total contract fee is paid to a supplier subsequent to the expiration of a three and twelve months period respectively, provided that no deficiencies were revealed in connection with the works done or goods supplied. As a result, the Programme's total amount outstanding as payable to suppliers under World Bank Component at December 31, 2019 was USD447.621 (2018: USD 5,583,286). The same structure is applied to the SOFAZ component and the total outstanding as at December 31, 2019 was USD 20,397,083 (2018: LJSD 3,752,152). NOTE 6. OPERATING ENVIRONMENT The Social Fund for the Development of Internally Displaced People ("SFDI") operations are conducted in the Republic of Azerbaijan. Azerbaijan continues economic reforms and development of its legal, tax and regulatory frameworks. The future stability of the Azerbaijan's economy is largely dependent upon these reforms and developments and the effectiveness of economic, financial and monetary measures undertaken by the Government as well as crude oil prices and stability of Azerbaijani Manat. The Azerbaijan's economy has been negatively impacted by decline of oil prices and devaluation of Azerbaijani Manat during 2015. This resulted in reduced access to capital, a higher cost of capital, inflation and uncertainty regarding economic growth. In response to these challenges, Azerbaijani government announced plans to accelerate reforms and support financial system. On December 6, 2016 President of the Republic of Azerbaijan approved "Strategic road maps for the national economy and main economic sectors of Azerbaijan". The road maps cover 2016-2020 development strategy, long-term outlook up to 2025 and vision beyond. Furthermore, during 2018 the government continued its monetary policy with respect to stability of Azerbaijani Manat as well as allocated foreign currency resources which stabilized Azerbaijani Manat. This policy continued in 2019 with the aim of maintaining macroeconomic stability. 19 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN NOTES TO THE SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 (Continued) (Amounts are expressed in US dollars, unless otherwise indicated) International credit rating agencies regularly evaluate credit rating of the Republic of Azerbaijan. Fitch and S&P evaluated rating of the Republic of Azerbaijan as "BB1+". Moody's Investors Service set "Ba2" credit rating for the country. The future economic growth of the Republic of Azerbaijan is largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the Government, together with tax, legal, regulatory and political developments. NOTE 7. POST BALANCE SHEET EVENTS In late 2019 the coronavirus outbreak occurred in Wuhan, China. The situation at December 31, 2019 was limited in number of reported cases and geography and therefore this event was considered as non-adjusted event for the financial reporting purposes under IFRS. However, after January 2020 the situation changed drastically, and in March 2020 the World Health Organization (WHO) announced that the coronavirus outbreak can be characterized as a pandemic. Many governments, including the government of the Republic of Azerbaijan have introduced various measures to combat the outbreak, including travel restrictions, quarantines, closure of business and other venues and lockdown of certain area. These measures have affected the global supply chain as well as demand for goods and services and resulted in significant disruption to business operations and a significant increase in economic uncertainty, with more volatile asset prices and currency exchange rates, and a marked decline in long-term interest rates in developed economies. These government responses and their corresponding effects are still evolving. In addition to slowdown in world economy, oil prices have declined dramatically after OPEC and Russia were unable to agree on production cuts at their March 2020 meeting. These events and conditions create a level of uncertainty and risk that companies may not have encountered before, and may result in significant financial reporting implications. After the reporting period, on January 28, 2020 Government and on January 31, 2020 and February 24, 2020 Community has transferred the amount of USD 79,479 and USD 1,815 to settle commitment, respectively. The bank balances in IBRD Loan Number 8627-AZ Designated Account and the following table shows subsequent disbursements and fund receipts under the Project during five month period ended May 31, 2020: Note May 31, December 31, 2020 2019 OPENING BALANCES Project bank accounts 582,149 652,036 IBRD Loan Agreement number 8627-AZ special account 994,109 1,314,757 1,576,258 1,966,793 ADD: FUNDS RECEIVED BY SOURCES IBRD Loan Agreement number 8096-AZ - - IBRD Loan Agreement number 8627-AZ - 7,186,098 Government 79,479 1,229,389 Community 1,815 - Microcredit (interest) 8096-AZ 5,588 9,986 86,882 8,425,473 LESS: EXPENDITURE Works and goods 74,359 2,428,273 Housing renovation 369,358 2,225,155 Youth support 29,739 2,774,077 Integrative Economic Support Pilot - 227,601 Income generating activities - 265,958 Consultant services and training 9,459 222,859 Operating costs 492 672,012 Micro-credit financed by WB-8096 - 76 483,407 8,816,011 20 SOCIAL FUND FOR THE DEVELOPMENT OF INTERNALLY DISPLACED PEOPLE OF AZERBAIJAN NOTES TO THE SPECIAL PURPOSE COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 (Continued) (Amounts are expressed in US dollars, unless otherwise indicated) Note May 31, December 31, 2020 2019 ADDI(LESS): FOREIGN EXCHANGE DIFFERENCE Government & community 3 IBRD Loan Agreement number 8627-AZ - 3 Refund to community (5,590) CLOSING BALANCES Project bank accounts 586,100 582,149 IBRD Loan Agreement number 8627-AZ special account 588,043 994,109 1,174,143 1,576,258 The standard terms of contracts signed by the Project for undertaking construction works or purchasing equipment under the Works & Goods and Housing Renovation category of the loan agreement number 8627- AZ are such that 5% of the total contract fee is paid to a supplier subsequent to the expiration of a three and twelve months period respectively, provided that no deficiencies were revealed in connection with the works done or goods supplied. As a result, the Project's total amount outstanding as payable to suppliers at May 31, 2020 was equal to USD 47,161 (2019: USD 447,621). 21