PID11636 Rev. March 26, 2003 THE WORLD BANK GROUP InfShop ,TI Vi. :,,ind,k' Updated Project Information Document (PID) Project Name KYRGYZ REPUBLIC-Governance Technical Assistance Credit Region Europe and Central Asia Region Sector Central governm1enit administration (100%) Project ID P071 063 Supplemental Project Borrower(s) THE KYRGYZ REPUBLIC Implementing Agency ADMINISTRATION OF TllE PRESIDENT/MINISTRY OF FINANCE Address Administration of the President Address Government House, Bishkek, Kyrgyz Republic 720003 Contact Person Mr Akmataliev, Deputy Head of the Administration of the President Tel (996) 312 66 61 41 Fax (996) 312 21 86 27 Email Ministry of Finance Address 58 Erkindik Boulevard, Bishkek, Kyrgyz Republic, 720000 Contact Person Mr Abildaev, Minister of Finance Tel (996) 312 22-19-02 Fax (996) 312 22-14-30 Email CSAC TA Project Implementation Unit Address 58 Erkindik Boulevard, Bishkek, Kyrgyz Republic, 720000 Contact Person Mr Artykov, Director of PIU Tel (996) 312 66 40 32 Fax (996) 312 66 60 89 Email PIU TAC@totel kg Environment Category C Date PID Prepared March 26, 2003 Auth Appr/Negs Date March 19, 2003 Bank Approval Date May 15, 2003 1. Country and Sector Background (() Background: The Kyrgyz Republic is a small, land-locked country witlh a population of 4.9 million. Agriculture accounts for about 40 percent of GDP. Gold and electricity are the two most important exports. Following indepenidence, income levels declined by about 60 percent due to discontiniuance of budgetary tranisfers from the Soviet Unioni, disruption of traditional trading relationships, terms of trade silocks and a 50 percent cumulative decliiie in GDP between 1991 and 1995 The country has ulidertaken systemic reforms since 1993 that have helped create the basic fouiidationis of a market-oriented economic system consistinig, inter alia, of a market-based price system, an open, foreign trade regime; and substantive private ownerslhip of key productive assets The Kyrgyz Republic 2 PID was the first in the CIS to joil the WTO The economic reforms contrib6ted to GDP growth in 1996 (7.1 percent) and 1997 (9 9 percent). A large numilber of small and medium enterprises emerged during this period. The regional financial crisis in 1998, however, halted economic recovery It also highlighted continuing vulnerabilities caused by large financial imibalances in the energy sector, fragile public finances, inefficient safety nets and a poorly developed bankilig sector Although these weaknesses have not been fully addressed, the counltry has made significanit progress in attaining macroeconomic stability and restarting economic growtvh. The fiscal deficit fell from about 11 3 percent of GDP in 1998 to an estimated 5.2 percent of GDP in 2002, mostly as a consequence of expenditure cuts - primarily, externally financed public investment expenditures and, to a lesser extent, social transfers. Similarly, efforts have been made to reduce quasi-fiscal deficits since 2000 by steadily increasing power sector tariffs above inflation and taking complementary measures in the sector The current account deficit declined from an average of 18 4 percent of GDP (in 1996-98) to 3.2 percent of GDP in 2002. As a result of the fiscal and monetary tightening, inflation fell to 2 1 percent in 2002 The debt service-flow relief from the Paris Club in early-2001 has also helped authorities move forward with the ongoing fiscal adjustment process. Despite the disrIptions froimi the regional financial crisis, growth has averaged about 4.8 percent In 1999-2001. Although significant disturbances from landslides at the Kumtor gold mine and the reduced external demand for power in 2002 interrupted this progress-with growtlh rate estimated to turn slightly negative in 2002- growth is expected to return to its positive trend from 2003 onwards, barring any unexpected shocks. The Kyrgyz Republic, however, remains the second poorest of the FSU republics and one of the poorest countries in the world. In 2001, per capita income was barely US$300. Macroeconomic Policy Framiework: Maintainiing macroeconomic stability and growth, reducing external debt and achieving further gains in poverty reduction requires contiluationi of fiscal and external adjustment; further progress in structural reforms; and continued support from extemal creditors, both in the forirn of further debt rescheduling and increased granit and concessional financing. An IMF Poverty Reduction and Growth Facility Arrangement (PRGF), approved in December 2001, provides the basic underpinnings for this policy framework The principal elements of the PRGF program are (i) reduction in general Government deficit, primarily througlh restraining the foreign finaniced Public Investimienlt Program (PIP) in order to bring about a balance of paymenit adjustmenit that is adequate enough to support external debt reductioll, (ii) strong tax revenue performance througlh a combination of measures, including reduction in tax rates, broadeninig of the tax base and improvements in tax and customs administrations; (iii) no significant accumulation of domestic and external arrears, (iv) continIued implementation of a de facto, flexible exchange rate policy withi intervenition in the foreign exchanige market only to smooth temporary market fluctuationis and to accumulate reserves; (v) fiscal-deficit financinig mainly througlh external donor assistance on concessionial terms; and (vi) a Paris club debt rescheduling on Naples terms allowing for reduction in the external debt stock. Structural elements of the PRGF program include customs tariff reforni and rationalization of transportation cost of trade; tax policy and administration reforimis, consolidationi of the fiscal institutions; modernization of the treasuiry system; improving public expenditure maniagemiient; increasinig accoLtitability and transparency of the National Bank of the Kyrgyz Republic (NBKR); privatization of the large State monopolies; banking sector reform; and energy sector reform. . The implemenltationi of the PRGF program, which is a three-year arrangement covering the December 2001-2004 period, has so far remained on track and specific bench-marks have generally been met or exceeded. The Government's reforn efforts have also been supported through adjustment lendinig by the World Bank. Seven Bank adjustment operations supported privatization and enterprise reform, agricultural 3 PID privatization, financial sector reform, public sector resource management, pension reform and power and gas sector reform along with improvements in the businiess environment These operations helped the Kyrgyz Republic undertake reforms to orient its policy and institutional framework to market economy principles, although reforms are far from complete. The proposed Governaice Technical Assistance Credit (GTAC) and the accompanying Governance Structural Adjustmenlt Credit (GSAC) will broaden and deepen the progress made so far in public sector reform. These operations complemilenit both the PRGF program and the National Poverty Reduction Strategy (NPRS) (b) Issues Relating to Governance and Public Sector Management The quality of governance will be a key deterninant of the degree of success of the Kyrgyz Republic In achieving sustainable growth and poverty reduction. The State would need to play a major role in the implementation of the National Poverty Reduction Strategy (NPRS). It must develop pro-poor policies that maintain macro-economic stability; spur sustainable growthi; protect the vulnerable, encourage the emergence of a vibrant private sector, and promote a free, open and JUSt society, where citizens have the opportunity to achieve their potential. The State must also muster the requisite financial, human and physical resources needed to put the policies into effect Finally, It must ensure that the policies are implemented effectively and their benefits actually reach the poor. To discharge these responsibilities, the State would need to have the requisite technical and administrative capacity. But even more important, it would need to operate in a maninier that inspires trust and galvanizes the people around the goal of poverty reduction. This would be possible only if the State is sharply focused on promoting the interests of the poor, its policies are formulated and executed in a transparent manner, the voice of the people is heard and the agents of the State are held accoulitable for their actions The government has taken several initial steps in the recent past These include implementation of first generationi reforms in public expenditure management Ltider the World Bank financed Public Sector Resource Management Adjustment Credit (PSRMAC), creation of a Chamber of Accounts, adoption of a modern Public Procurement Law, enactimienit of a Civil Service Law, retrenchment of staff at the central level, reduction In the numiiber of ministries and State bodies, launching of a concerted action plan to remove administrative barriers to investment, establishmelint of elected local self governmients, implementationi of major reforms in the healthi sector, increasing public access to information about the functioniing of the State and efforts to encourage participation of citizens and civil society In public affairs The NPRS provides a candid diagnosis of the problems that continue to limit the effectiveness of the State At the political level, the electoral system needs to be improved, political parties are weak and the communication between the State and the people is ineffective. The legal framework is still In the process of development and suffers from outdated norms, highi frequenicy of chanige, lack of public discussion of proposed laws and regulationis and inadequate public access to normative acts. The judiciary and law enforcement agencies face serious capacity and integrity challeniges, that redtice their ability to uphold the law. At the level of central and local adminiistration, policy making capacity is extremely weak, implementationi of policies is uneven, transparenicy and accountability are inadequate and government interference in business activities is excessive. Local self governments lack adequate functional and fiscal authority, management capacity and comImlunity participation Public expenditure management reforms need to be deepened to strengtheni budget formiulation, budget execution and financial accountability. Substantial improvements are needed In the system of inter-governmental finanice. The level of political interference and instability in the civil service remains higil, while its professional capacity and accountability for performance remain low The structure of governmienlt needs further rationalization Corruption is a major systemic problem that plagues many public agencies, as confirmed by surveys of households and firms (Annex I I summllliarizes of the key findiligs of the suIveys). 4 PID The government recognizes that weaknesses of the State will pose a serious hurdle in the country's developmenit path and in its effort to alleviate poverty For this reason, the NPRS accords a very high priority to the formiation of an effective State and includes a multi-faceted strategy, which is summarized in Figure 1, below. Figure I The Government's Strategy to Increase the Effectiveness of the State Strengthen Democratic iistittitions Raise effectiveness of the IcEislattire Reforn the JudiciarN, and Lass heprose the electoral system Streaeshne the legislative peacess through *: Strengthen political parties reviewv and improvement of existing Agencies Enforcemilent Promote community associations and trade legislation *: Strengthen the instirtinotial capacity of the unions *: tImpro-e coordotatton between different Suare judiciary O EnI ri-er ca-en th-rough bicreased acis hodies engaged in legislation el Ensure access to Justice to all ti in rni"atien ahotia thc ip-rrionm if the U E,ahlte thephh to c-aew,t ran -trft hIs Strengthen implementation of court decisons .Srate and reg latrions *> Promote alternate dispute resolution *> Increase community participation i decision C tLnndntnisessniettiti parrrrf,riiposed mechanisms nahing ha- and r ,,rgnitieirs hefore thetre * Strengthen capacity of las, enforcemen Strengthen communit) control oser State and enacted agencies to fight crime and corruption local bhudgers 01 nre--ahh,e nceii t o logsnla.n. t, ImDros'e Drison administration Reform Central and Local Public Decentralination and Local Self Administration Government U Intensifi thefight igminit cnrinpt,ri Li Clhrify rides and/ rad p-bihI-iiu of ot.l O Ci-rsfirole- iidl re-pei...h... es of h fi ('ert-menw crcunre - iiithori-i atre ir s a i i...s *e Forim ation of i nMrt-e ,nter-(.o..er..n. -eilfintra e O Oprtnizc stn- int-cfpiibhi eannies Improve ass et management 3 lnprp-iea-oi,ntihhil', npndnes and an Effective Enhancelocal Gosemmcnt capacity rnn-p-renoy , Increase openness and accounrabdhlv of O Redace audninwitratie barneri ropn-nie State LSGs -ecti)r { e at Buld cwil socly parnnershnips u Dce elop *ti,ffrec,ar,t, Increase community insolvement in decision Reallocate regulatory functions betiseen making agencies snith priwatimaton of some of the functions Reform mx and customs administration Reform State Financial iNianagcnient Create an Effective Civil Service intensify e-Government O tine rp-e .m.er -ec mnacfnrecasnng O Ipriice civil seniiLe hiioindregnlanons 0 Develop a system to monitor the O lhiproiebhldgetf-rnialutm-n 0 Vcri'ngthe,n cl rei'cC nani-hgemenf implementation of the CDF and NPRS O tinllernize the Treni nry I tnpleineni a nedin term s,d t iaegy te iilnt Increase the use of e-Oosernment techniques *> Restructure the Ministry of Finance the ize ofrthe viit sen sne d nd lnprv iets t o improve efficiency and ititeractioir with the re ni -r-ion public J Upgrridle As/ls f-iisrin Ini -ns -l EJ Refortns whollh orptirtiry wupported bji GSA CIGTA C Source Gosernitment of the Kyrgyz Repubhic National Poveny Reduction Strategy 2003- I 2005 (c) Sector issues to be addressed by thie project and strategic choices: Some of the political reforms proposed under the NPRS to increase effectiveness of the State fall outside the World Bank's manidate. Some of the other reforms are being supported by other donors. For the purpose of the GSAC, the Governmelt has selected a subset of high priority reformis that are indicated in italics in Figure 1. 5 PID The reforms supported by the GSAC fall unider two mutually reinforcing categories. First, reforms designed to improve the transparency and responsiveness of the public sector and enhance the ability of external stakeholders to hold it accountable Second, reforms aimed at increasing efficiency, effectiveness and accountability within the public sector. With regard to the first objective, the GSAC would support reforms aimed at (i) improving personal accoulitability of political officials and civil servants, (ii) strengtheninilg voice and participation by improving public access to official informiation, (iii) improving the interaction between regulatory agencies and business enterprises; and (iv) strengthening external audit. To advance the second objective, the operation would support reforms directed at (i) strengtheninig public expenditure managemilenit, by establishing a more strategic and transparent budget formiulation process, and strengthening accountability and transparency in budget execution; (ii) improving the internal control environment; (iii) improving transparency, value for money and accoulitability in public procurement, (iv) improving service delivery in the healthi and education sectors; (v) enihancing the effectiveness of the civil service; and (vi) streaminning the structure of Government ministries and agencies A detailed diagnosis of issues to be addressed, relating to areas covered by the GSAC, is provided in the accompanying Memorandum of the President for this operation. Actions taken tinder the GSAC would operate to (a) improve rules and restraints, (b) streiigthen voice and participation; and (c) increase competitive pressures. These actions are expected to gradually realign incentives within the public sector and build the State's capability to play its expected role in the achievemenit of the country's strategic objectives. Technical Assistance to be provided by the GTAC to support the GSAC: The primary purpose of the GTAC is to support the design and implementation of the reformis included in the GSAC. Since the government is very keen to maximize grant financing for technical assistance, extensive consultations have been held during the design of the Credit with the IMF, DFID, UNDP, EU-TACIS, USAID, ADB, the Swiss Aid Agency and their consultants, with a view to take into accouLit ongoing initiatives, share knowledge and coordinate and mobilize grant funds for techniical efforts have been made to assistance. As a result, technical assistance (TA) for many of the activities covered by the GSAC will be provided by other donors. In particular, techniical assistance for strengthening external audit, improving the internal control environment, establishing an internal audit functioni in line ministries and agencies, and creating a more strategic and transparent budget formulation process would be provided by the DFID, whicih is also providing assistance for functional reviews of some of the ministries. The USAID would provide TA for amendinig the Law on Normative Legal Acts, preparing a new Adminiistrative Procedure Code and streamlining the structure of Kurgyzstandart. The UNDP may provide assistance in functional review of ministries and agencies, along with the EU-TACiS. Thle World Bank's Health- 1I project would provide assistance for rationalizing the food and drug inspections carried out by the Sanitary and Epidemiology Service (SES) and the Pharm Control Laboratory (PCL), respectively, and for some of the activities to support policy reformis related to the Health Sector. TA for residual activities will be provided by the GTAC. The distributioni of TA support for the GSAC is indicated in Table I below. Table 1: TechnicalAssistantcefor the GSAC GSAC Objective Source of Tlechiicail Assistance GTACOTIIER I ENHANCING TRANSPARENCI' OPENNESS AND A CCOUNTABILITY OF THE PUBLIC SECTOR TO EXTERNAL STAKEHOLDERS (i) Improving Personal Accountability of Political Officials and Civil Servants (n) Strengthen Voice and Participation by Improving Access to Official 6 PID Information. (mi) Improving the Interaction between Reguilatory Agencies and Btisiness Enterprises USAID W'B: Health 11 Project (iv) Strengthicniig External Auidit. DFID If /ItfPROl,VIG EFFiCIENVCYAND EFFECT7I7ENVESS WIT7HIN, 7HE PUBLIC SECTOR (i) Strengthening Public Expenditure Mlanagement (a) Establishing a more Strategic and 'I'ransparent Budget Formulation Process DFII) (b) Improving the Effectiveness of Inter-Governmental Finance (c) Strengthening Accountability and 'I'ransparency in Btidget Execution. I NI F (ii) Improving the Internal Control Lnvironment DFID (mii) Improving Transparency, Value for Mioney and Accountability in Piiblic Procurenieiit (iv) Improving Service Delivery in the lHealth Sector WB- llealth -Il Project (v) Enhancing the Effectiveness of the Civil Service EU-TACIS (vi) Streamlining the Structure of Government Nlinistries and Akgencies DFID UNDP EU-TACIS Modernization of the Treasury: The GSAC contains policy actions to improve budget execution While providing TA for these activities, the GTAC would also support the modernization of the Kyrgyz Treasury. A detailed review of Treasury operations was carried out by a joint IMF-WB mission. The conclusion of the mission was that, while the basic, manual, payment and accounting system of the Kyrgyz Treasury (KT) has stabilized over the last seven years, treasury operations need to be modernized to enable the KT to develop reliable cash flow forecasts and plans; make efficient budget allocations, based on spending priorities and cash flow estimates; effectively control expenditure commitments, deliver efficient finianicial services to the Govermilenit and client Budget Institutionis (Bls); geinerate reliable management reports and accounts of financial operations in real tine; maintaini an exhaustive, high quality database of finanicial information for statistical and macro-fiscal analysis; and provide easily accessible and complete records of all its operations for indepenidenlt audit The mission was of the view that the KT is now ready for a successful transition, within a period of about 3 years, to a fully functional modernized treasury, employing contemporary informationi technology. The findings of the mission and the detailed implementation plan are at Annex 12. Treasury modernization is strongly supported by the Governmeit and fits into the broader objectives of the GSAC to improve transparency accountability and efficiency in public sector operations. Activities in these areas would be carried out in close collaboration with the IMF. 2. Objectives The GTAC will provide technical assistance to facilitate the design and implementation of reforms sougilt ulider the GSAC. In addition, consistenit withi the objectives of the GSAC, it would support modernization of the Kyrgyz Treasury. 7 PID 3. Rationale for Bank's Involvement The Bank has been actively involved, in the Kyrgyz republic, in reforninig key public sector institutionis through various operations, including the Public Sector Resource Managemilenit Adjustment Credit (PSRMAC), Institutional Development Fulid (IDF) Grants for development of public procurement, and projects to reform the Health sector. Recent economic and sector work, especially, the Public Expenditure Review (PER), the Country Financial Accountability Assessment (CFAA), Country Procuremenit Assessment Report (CPAR) have also focused on identifying critical weaknesses in public sector maniagemiienit In the meanitimie, the Government has undertakeni additional reformis on its own, or with the assistance of other donors. The objective of the GSAC is maintain the momentum of the reform process and provide a coherenit framework in which It could be carried forward. The GTAC provides critical technical assistance to support the GSAC Given the Bank's experience in implementing similar reforms in the Kyrgyz Republic and in other countries, its countr-y knowledge and strong relationships with counterparts and stakeholders, it would have a significant positive impact on the quality, pace and realism of the reforms The Bank will also play a key role in coordinating assistance provided by different donors. 4. Description The GTAC will have three componlenits: (a) Technilcal Assistance to support Design and Implementation of Reforms included in the GSAC, (b) Modernization of the Treasury; and (c) Project Management The specific activities to be financed are indicated below The sequencinig of these activities is included in the Project Implementation Plan. Component 1. Technical Assistance to Support Implementation of Reforms included in the GSAC (US$ 2.74 million): This component would provide consulting services, training and goods to support reforms included in the GSAC. While other donors would provide grant assistance for some of these reforms, the GTAC would provide TA for the remaining GSAC measures. The assistance provided by the GTAC would cover a longer time horizon (5 years) than that of the GSAC, in order to facilitate institutionalization and proper implemenitation of the policy measures. This component will have the following sub-components. Details of specific activities covered under each sub-component are indicated in Aniex 2 These are summarized below Sub-Component (i) - Strengthien Voice and Participation (US$ 0.43 million): This subcomponent would support establishimienit of a Public Information Center; disseminiation of key information pertaining to the public sector, and carrying out of Regulatory Impact Assessment (RIA) 5 laws and 5 regulations, to be agreed with IDA, under the amended provisions of the Law on Normative Legal Acts. Sub-component (ii) - Strengthlen Public Expenditure Management (US$ 0.54million): This subcomponent would support improvemenlt of effectiveness of intergoverinimienltal finanlces, througil clarification of functional and expenditure responsibilities and revenue sharing arrangemenits among different levels of government; developmenit of a methodology to define i-niiiiuum service standards; strengthieninig of accountability and transparenicy in budget execution, by development and implemenitation of an improved system for financial planning and cash maniagemenit and a new approach for phasing out off-sets and non-cash transactionls in the budget, includinig the Social Fund; and restructuring of the Ministry of Finance. Sub-Component (iii) - Improve Transparency and Vilueifor Money in Public Procurement (US$ 0.15 million): This subcomponenit would assist in the preparation and implemenltation of a restructuring plan for the State Commission on Public Procuremiienit and Material Reserves (SCPPMR) and the procuremilenit 8 PID functioni in miniistries and agencies. In addition, It WLould support revision and implemenitationi of procuremilenit rules and processes, and carrying out of procuremenlt audits of selected items that affect service quality in the Health and Education sectors. Subcomponient (iv) - Improve Service Delivery in Health and Education Sectors (US$ 0.15 millioni): This subcomponenit would assist in revision of budget managemilent arrangements in the healthi sector in order to ensure consistency with sector reforms and overall PEM reforms; estimationi of costs associated with the rationalization of healthcare-related paymenits in Bishkek city and the other single-payer oblasts; and revision of mechanism for allocating categorical grants to the health and education sectors. In addition, it would support estimation of costs of system-wide textbook provision for pre-university education and efficient delivery of pre-university education for different sizes, configurationis and locations of schools, and development of a cost differentiated capitation formula for pre-university education. Sub-Component (v) -Improve the Effectiveness of the Civil Service (USS 1.2 million): This subcomponenit WLould support establishment of the Civil Service Management Agency (CSMA), development of secondaiy regulations, systems and procedures to improve civil service management, implement of a basic civil service database; strengtheniniig of Personnel Management Departments in Ministries and Agencies; development and implementation of a system for attestation of civil servants; development of a revised salary structure for the civil service; preparation and implementation of an Action Plan for staff reductions; and monitoring of implementationi of provisions of the Civil Service Law pertaining to recruitment and promotion. Sub-Contponent (vi): Streamline the Structiure of Government Ministries and Agencies (US$ 0.lmillion): This subcomponlenit would assist the government in carrying out functional reviews of the oblast and rayon branches of Ministries of Health and Education and two other Ministries, to be agreed with IDA, and implementing consequential organizational adjustments. Sub-Component (vii): Refine the National Poverty Redurction Strategy (NPRS) and Monitor and Evaliuate Progress (USS 0.2million): This sub-component would meet an express request made by the Governimienit to assist it in prioritizing the NPRS and implementing a Monitoring and Evaluation system to measure progress towards achievement of its objectives. Component 2: Modernization of the Treasury (US$ 7.76 million): This component would finanice consulting services, goods and training for the modernization of treasury operations through the implementationi of a Treasutry Managenient Information System (TMIS), restructuring for Treasury General Ledger (TGL) The Treasury General Ledger is a summary book of all the Treasury Accounts and implementation of a new chart of accounts (COA), in full compliance witil the new GFSM200 l The project would provide assistance in (a) preparation of user requiremenits, conceptual design of the system, system architecture and softwvare and hardware specifications for the TIMS; (b) selection, procurement, adaptation and implementationi of an off-the-shelf software package; (c) procurement and implemenitationi of hardware and communiicationi equipmenit; (d) development of the regulations for the implementation of the system, and (e) training of staff. It is expected that the IMF would be closely involved in the implementation of the TIMS and would also be able to provide technical assistance. The system would first be piloted in the Central Treasury and two or three pilot oblasts, before being replicated to all the RTOs. Aninex 12 provides a detailed description of the implemenitationi plan for this componenit Component 3: Project Management (US$ 0.41 million): 9 PID This componienit would finanice consulting services, equipment and training for the Project Managemiient Group, communication of project objectives and activities to stakeholders; surveys to collect data on key performance indicators and obtain stakeholder feedback; and project audits 5. Financing Total (USSm) BORROWER $2.56 IBRD IDA $9 44 Total Project Cost $12 00 6. Implementation limplementation Period The project is expected to be implemented over a five-year period (2003-2008), closing on December 31, 2008. Implementation arrangements- The project would be led by a Coordinatinig Council (CC), which has been established througlh Presidential Order No. 122 of April 9, 2001 The Chairman of the CC is the Deputy Head of the President's Administration. The Deputy Chairman is the Vice Prime Minister for Economiiic Development, Trade and Investment Other members of the CC are drawn from different branches of governm1i1ent and include: the Minister of Finanice, the Head of the Economic Policy Departmenlt (President's Administrationi - PA), the Head of the Legal Dept (PA), the Head of the Social Policy Dept. (PA), the Chairnian of the State Property Fund, the Minister of Justice, the Minister of Municipal Government and Regional Development, the Minister of Labor and Social Protection, the Minister of Health and the Minister of Education and Culture. The CC would provide political support and strategic guidance to both the GSAC and GTAC, support the implemenitation of policy changes, approve and submit draft legislative acts and regulations to the Parliament and the President, respectively; resolve inter-agency coordination issues, and assist in overcoming resistance to reforms The CC would be assisted by a Project Director, who will act as its Executive Secretary The Project Director would be high level professional, with relevant skills and knowledge in the areas of Public Administrationl and public Expenditure Managemnent Fle/she would have the trust of and access to the highest-level of decision-milakinig in the administration. The Project Director would also head the Project Management Group (PMG) Below the Coordination Council, there would be two Technical Committees (TC) consisting of High-Level and Mid-level public officials belonginig to different functionial areas covered by the project Technical Connnillee 1, headed by the Deputy Minister of Finance, would be responsible for reforns in public expenditure managemenit, treasury modernization, external and internal audits, procurement, improvement in the interaction between regulatory agencies and the private sector, health, education and social protection. Technical Connintlee II, headed by a representative of the President's Adminiistration, would be responsible for declarationi of incomne and assets, disseminiationi of inforiimation, civil service reform, streamlininig of the structure of governmnent and monitoring and evaluation of the NPRS. The funlctions of the TCs would include guiding and coordinatinig the technical aspects of the GSAC/ GTAC, approving the Project Implementation Plans, overseeing and facilitating project implementation, reviewing consultant TORs and outputs, developing policy initiatives and resolving emerging problems in their respective areas. Each TC would be supported by an appropriate number of Project Coordinators, who would be a full time members of the PMG. On a day to day basis, project activities would be imiplemented by the Project Managemenit Group, consisting of dedicated, full time staff, wlho may be consultants or serving public servants. As already 10 PID mentioned, the PMG would be headed by the Project Director, who will be assisted by the Project Coordinators. An Information Technology Specialist in the PMG will assist in procurement of IT software and hardware The PMG, working closely with the existing CSAC-TA PIU (Consolidated Structural Adjustment Credit - Technical Assistance, Project implemilenit Unit), would be responsible for developing and updating the consolidated Project Implementation Plan (PIP); ensuring that project activities are implemented according to the PIP; reporting on project progress to the Coordinationi Council, the Technical Committees and the World Bank; ensuring adequate budget provisions for the GTAC in the national budget; facilitating the work of consultanits and working groups; reviewinig consultant outputs; organizinig acceptance testing of IT software and hardware etc . The fact that the Project Director would be member and Executive Secretary of the Coordination Council would ensure that the PMG has access to decision-makers at the appropriate level and can bring emerging impleimenitation or coordination problems to their notice in a timely and proactive manner. This would facilitate project execution. FIGURE 3: PROJECT IMPLEMENTATIONARRANGEMENTS Coordinating Council Techlinical Coinnittee I Techinical Committee 11 Proiject Director Project Coordiiiator(.s) Project Support Funictionts Project Coordinator(;s) CSAC-TA PIU Proc urernent Financial MNianagement Project iNtonitorinig 1 'rSupport Project Manalgemenit Group The existing CSAC-TA PIU will provide procuremenit and financial management services to the PMG 11 PID The PIU will have appropriate Procurement and Financial Managemenit Specialists. The PTU would be responsible for procurement and financial management Llider the project. It would ensure that procurement of goods and services is done in a timely manner, in accordance with World Bank guidelinies, manage project funlds in accordance with agreed financial management arrangemiients, maintain accounts and get fiianlcial statements of the project audited. The project implementation arrangements are illustrated in Figure 3 above Strong donor coordination will be iriaintainied during project implemenitation. This would take the form of joilt review of TORs for important consultanicies with relevant donors, coordination of TA activities to ensure that inter-liiiked activities are completed on time; exchanige of supervisionl reports; joint supervision missions, wherever feasible; and discussiolIs with development partners during each supervision mission. 7. Sustainability The critical factors on whicih the sustainability of project benefits would depend include: continuing public demand for improvemilenits in governance and quality of public services; sustained commitment of the government at the political, managerial and technical levels to project objectives and activities; strict and consistent application of the institutional rules developed with the assistance of the project, regular updating and enhancement of information systems implemented by the project; and increased ability of the public sector to attract and retain skilled staff. 8. Lessons learned from past operations in the country/sector In most of the former FSU coulitries, it is important to complemenit structural adjustment operations with techinical assistance projects. Due to limited capacity, it is very difficult of tile governments to develop and implemenit policy reforms withiout adequate technical assistance Keeping this in view, the GTAC has been designed as a vehicle to support the implemenitationi of the GSAC. Reform of public sector institutions is a long, complex and difficult process, that requires sustained efforts in multiple directions. Progress is often slow and erratic. Notwithstanding this, in-deptil institutional reform is the only way lasting improvements in performiaice can be achieved The challeniges posed by the reforms for the Kyrgyz Republic are recognized both by the governmenit and the Bank However, given what is expected of the public sector for implemenitinig the CDF and INSPR, the project is designed aroulid an integrated approach to address some of the major instititional deficiencies of the public sector. A review Civil Service Reform. A Review of World Bank Assistance. Operations Evaluation Division, The World Bank. Report # 19599, dated August 4, 1999. of Bank-supported Civil Service Reform (CSR) projects found that these projects were largely ineffective in achieving sustainiable results il downsizing, capacity building and institutional reformFor the Europe and Central Asia Region, 80% of completed project involvinig downsizinig and I 00% of projects involving capacity building were rated satisfactory. 50% on ongoing or recently completed project involvinig capacity building were foulid satisfactory. (Annex 6 of report ibid.). This was, in part, due to political difficulties in implemilentinig CSRs and, in palt, due to a technocratic approach that failed to mainstream institutional analysis and develop a coherent framework for intervenilng in adminiistrative systems. The review recommended the followinig measures to improve resutlts in this area (a) capacity bulildig intervenitionis should be systematically linked to job descriptions and monitorable performance of civil servants and their units, (b) reforms should be preceded by institutionial assessment of admiinistrative systems and analyses of labor market trends, in addition to budget scenarios, (c) adequate time should be allowed for implemenitation, (d) a participatory approach should be followed to nurture reform constituencies, and (e) the feasibility of introducing results-based management should be explored. In designing the civil 12 PID service strengthening sub-componenit of the project, these recomimlenidationis have been kept in minld. Refinement of job descriptions and development of a performance evaluationi system will be carried out as part of the project; assessment of civil service deficiencies carried out by the UNDP and EU-TACIS have been taken into accoulit and studies under the PHRD grant for GSAC are being conducted to furthier assess administrative systems and labor market conditions; a five year time horizon has been adopted to facilitate institutionalizationi of the reforms; and broad consultationi withi stakeholders have been carried out and will be continIued durinig project implementationi The project focuses on getting the basic institutionial framework and maniagemilenit systems relating to the civil seivice right. At this stage, introduction of sophisticated results-based managemenit in the Kyrgyz Republic seems premature This could be part of the next phase of reforms. Public sector reforn processes can be very demanding on the organizationis and persons wvho implement them. Therefore, it is important not to overload the reform agenda. Keeping this in view, the scope of the project has been liited by exclusion ofjudicial and tax and customs administrationi reformis, that wvere considered initially Line manager-s are often too busy with urgent Issues, to focus attention on medium term reform efforts Yet their involvemilent in the reform process is critical to success. Therefore, it is important to have project managemiienit personinel who are devoted to the reform process full time and can obtain inputs of line managers at critical points in the reforn process, while maintaininig the momentum of project implementation Project managemenlt arrangemenits have been designed with these considerationis in view. Effective chanige maniagemilenit requires strong stakeholder involvemilenit. For this purpose a continLuous communicationi campaign would be conducted to apprise stakeholders of the intents and purposes of the reform, incorporate their opinions and advice in developing project activities and allay unfounded fears. Information technology (IT), if used effectively, provides an excellent opportunity to improve transparenicy, efficiency, accessibility and service delivery of the public sector. However, investments in IT need to go hand in hanld with more fundamental instititionial refomis The project will use IT to underpin institutionial reforms in budget execution. Since information system procurement can be challenginig, techniical assistance from the IMF would be mobilized for the computerizationl of the Treasury In addition, aii IT Specialist would be recruited in the PMG and support from the Bank's IT experts would be also be mobilized. 9. Environment Aspects (including any public consultation) Issues : The proposed Credit would have no direct ilmpact oil the environment. In accordance with the Association's Operatioiial Di-ective on Environimlental Assessment (OD 4.01, Annex E), the proposed operation has been placed in Category "C" and does not require an environimenital assessment 10. Contact Point: Task Manager Jut Bahadur S. Gill The World Bank 1818 H Street, NW Washington D.C. 20433 13 PID Telephone 202-473-6771 Fax: 202-522-2751 11 For information on other project related documents contact The InfoShop The World Bank 1818 H Street, NW Washington, D C 20433 Telephone (202) 458-5454 Fax (202) 522-1500 Web http 11 www worldbank org/infoshop Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. 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