Page 1 1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB5907 Project Name Public Financial Management Reform II Region SOUTH ASIA Sector Public administration- Finance (100%) Project ID P120427 Borrower(s) ISLAMIC REPUBLIC OF AFGHANISTAN Implementing Agency Ministry of Finance Environment Category [ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) Date PID Prepared October 26, 2010 Estimated Date of Appraisal Authorization December 9, 2010 Estimated Date of Board Approval March 22, 2011 1. Key development issues and rationale for Bank involvement According to independent assessments, Afghanistan has demonstrated better than average public financial management (PFM) outputs. Maintaining this well functioning PFM framework, despite the volatile social and security environment, is a prerequisite to Government of the Islamic Republic of Afgh anistan’s (GIRA) and donors’ objective of putting 50% of donor assistance on budget as proposed to the donors at the London and Kabul Conferences on Afghanistan assistance. This good performance, however, is being overshadowed, to some extent, by citizens’ clamor for a more transparency and accountability and less patronage by public officials. The poor development budget execution rate and the need to improve service delivery, particularly in the provinces, also require attention. To address these continuing concerns, the Government must meet three challenges in PFM: · preserving the current good performance in controlling and reporting on public finances; · raising the PFM competency of service delivery units and accountability, particularly in the provinces through use of the AFMIS, and improvements in internal and external audit; · establishing sustainability through specialized training, supplemented by staff incentive remuneration, to develop and retain qualified civil servants to operate the PFM systems. The Government developed a clear, detailed reform plan for public financial management known as the PFM Roadmap. This document aims at reforms that enable effective on-budget aid and supports the new IMF program and Afghanistan Reconstruction Trust Fund Incentive Program through four key themes. The approach continues to support the PFM arrangements which were put in place over the reconstruction period with the national budget as the main vehicle of policy implementation and the Treasury Department providing cash management, accounting and payments services for the entire Government. Page 2 2 The World Bank has gained unique insight into public financial management in Afghanistan and has established a record of providing successful technical assistance on PFM so it is well positioned to lead the targeted reforms. IDA has supported the GIRA through a first generation of technical assistance operations which first focused on assuring basic treasury and audit functions through operations support, with some attention to training and developing the legal framework. This support later expanded to include the development of internal audit and procurement policy and regulation as well as human resource management reforms in MOF. Donors have agreed that support for the next round on PFM reforms should be funded through the multi- donor mechanism – the Afghanistan Reconstruction Trust Fund and that the new operation should encompass the policy and operations support to the Budget Department. 2. Proposed objectives MOF would realize two broad development objectives through the project: (i) develop an efficient and effective public financial management system; and (ii) develop the capacity of human resources performing PFM functions throughout government and of the CAO to ensure more sustainable public financial management. 3. Preliminary description The project would finance consultants, training and equipment to assist with policy formulation, systems development, operations support and human capacity development for public procurement, budgeting, treasury and audit functions across government. Particular emphasis is placed on these functions in line ministries. 1. Budget Reform Builds on reforms and development attained by the Budget Department over the reconstruction, with the support provided by the Making Budgets Work and Strengthening Afghanistan’s Budget projects funded by DFID. It would support improved planning in the line ministries but also improved policy content of the budget and multi-year fiscal planning. 2. Procurement Reform Services of a Procurement Facilitation Consultant would be financed to work to provided centralized oversight although with some deployment of staff to the line ministries. Under the Procurement Policy Unit in MoF advisors would complete the development and implementation of a procurement management system and continue to roll-out training in procurement, both centrally and in provinces for all line ministries. 3. Financial Management Reform Operations and policy assistance would be provided in the Treasury Department to assure high quality performance; the focus will be to mainstream these functions in the civil service staff. The consolidation of the roll-out of AFMIS to the provinces will be financed as well as support for the development of administrative systems for the service delivery units and capacity development in the financial management functions throughout the public sector. Additionally, a government led effort on education and training in accounting and Page 3 3 auditing and the creation and operation of a National Steering Committee for the establishment of an accounting profession in Afghanistan will be financed. 4. Audit Reform and Performance Internal Audit - The services of a consultants to lead key internal audits and provide on-the-job training will be financed as well as basic training to all internal audit staff. More advanced training will be provided to all staff who have completed the basic training. External Audit - A ssistance will be provided to the CAO to develop its knowledge, expertise and practices in using the services and results of other auditors and experts in line with International Auditing Standards in particular for project audits. Separately, support will continue to strengthen the CAO through staff training set out in the CAO Learning, Training and Development Strategy . 5. Reform Management. The Reform Management Unit in the Ministry of Finance will monitor technical assistance and report on benchmarks of the PFM Roadmap to stakeholders within the MOF, cabinet, legislature and civil society. Support will also be provided for a remuneration scheme for civil servants in specific posts under strict qualification criteria so as to retain individuals with skills. 4. Safeguard policies that might apply 5. Tentative financing Source: ($m) Borrower 0 Afghanistan Reconstruction Trust Fund 70 Total 70 6. Contact point: Contact: Paul Edwin Sisk Title: Lead Financial Management Specialist Page 4 4 Tel: 5232+301 Fax: Email: Psisk@worldbank.org Location: Kabul, Afghanistan (IBRD)