29-Nov-2021 ______________________, 2021 Honorable Abdirahman Duale Beileh Minister of Finance Ministry of Finance and Planning Villa Somalia Mogadishu, Somalia Somalia: Additional Financing to Recurrent Cost and Reform Financing Project Grant No. D378-SO Amendment to the Financing Agreement Excellency: We refer to the Financing Agreement (“Agreement”) between the Federal Republic of Somalia (“Recipient”) and the International Development Association (“Association”), dated October 31, 2018, as amended, related to above mentioned Project. We also refer to your letter dated November 1, 2021, requesting the Association to amend certain provisions of the Agreement. The capitalized terms used in this amendment letter (“Amendment Letter”) and not defined herein have the meaning ascribed to them in the Agreement, as applicable. We are pleased to inform you that the Association agrees to your request and proposes to amend the Agreement as follows: 1. The table set forth in Section III.A of Schedule 2 to the Financing Agreement is amended as set forth in the Annex 1 to this Amendment. 2. The table (Disbursement Linked Indicators) set forth in Schedule 3 to the Financing Agreement is amended as set forth in the Annex 2 to this Amendment. All the other provisions of the Agreement, except as herein amended, shall remain in full force and effect. -2- Please indicate agreement to the foregoing, on behalf of the Recipient, by countersigning and dating the form of confirmation on the two original copies of this letter and returning one original, as countersigned, to us. Upon receipt by the Association of the copy of this letter countersigned by the Recipient, this Amendment shall become effective as of the date of its countersignature. Sincerely, INTERNATIONAL DEVELOPMENT ASSOCIATION By: ____________________________ Keith Hansen Country Director for Kenya, Rwanda, Somalia and Uganda East and Southern Africa Region CONFIRMED: FEDERAL REPUBLIC OF SOMALIA By: ________________________________ Authorized Representative Abdirahman Duale Beileh Name: __________________________ 04-Dec-2021 Date: __________________________ -3- ANNEX 1 Category Amount of the Percentage of Financing Allocated Expenditures to be (expressed in SDR Financed (inclusive of Taxes) (1) Salaries of Eligible Civil 8,355,104.16 Servants and eligible Staff and Young Graduates, Eligible Non-Salary Recurrent Costs, goods, non- consulting services, consultants’ services, Training and Operating Costs under Parts A.1 and A.2 of the Project (2) Eligible Expenditure 17,400,000.00 100% of amounts spent Programs under Part A.3 of in compliance with DLI the Project and DLR amounts set out in Schedule 3 of this Agreement as reported under the EEP Spending Reports for each Withdrawal (3) Goods, non-consulting 1,964,583.08 100% services, consultants’ services, Training and Operating Costs under Parts B and D of the Project (4) Subproject Grants for 15,080,312.76 100% Salaries of Eligible Civil Servants, Eligible Staff and Young Graduates, Eligible Non-Salary Recurrent Costs, non-consulting services, consultants’ services, Training and Operating Costs under Part C of the Project TOTAL AMOUNT 42,800,000 -4- ANNEX 2 Disbursement Action to Be Completed Amount of the Amount Allocated per Linked Indicator Financing DLR for the Allocated Per DLI Disbursement (expressed in SDR) Calculation (expressed SDR) DLI 1. DLR 1.1. DLI 1. DLR 1.1. Strengthen customs Customs modernization 2,048,850 1,025,000 administration as per road map and action plan the customs reform tabled, discussed and action plan adopted at intergovernmental technical committee, including agreement on common goods classification DLR 1.2. DLR 1.2. Implementation of interim 0 information technology system at Mogadishu, Bosaso and Kismayo ports, including common goods classification, customs practices and procedures and valuation of goods. DLR 1.3 DLR Functional specifications 1,023,850 for the new customs IT system developed and approved by Federal Ministry of Finance. DLI 2. DLR 2.1. DLI 2. DLR 2.1. Strengthen tax Tax identification number 2,050,000 1,025,000 administration systems (TIN) and TCC mandatory and staffing when bidding for government contracts and valid TIN required to have invoice paid. DLR 2.2 DLR 2.2 Review existing business processes ‘as-is’ and new 1,025,000 business processes developed and approved by FGS for the following revenue streams (sales tax, excise duty, road tax, stamp duty, registration tax (fees and levies). DLR 2.3 DLR 2.3 Targeted automation for 0 collection of sales tax, excise duty, road tax, stamp duty, and registration tax deployed. DLI 3. DLR 3.1. DLI 3. DLR 3.1. Strengthen cash Somalia financial 3,075,000 1,025,000 management and management information treasury single account system (SFMIS) (TSA) incorporates: (i) End-of-day balances of all TSA -5- accounts and (ii) monthly balances of all MDA accounts held at the CBS. DLR 3.2. DLR 3.2 SFMIS incorporates: (i) 1,025,000 end-of-day reconciled balances of all government accounts for revenue and expenditure, and (ii) all outstanding commitments made DLR 3.3 DLR 3.3 SFMIS incorporates cash 1,025,000 forecasting model, to inform management about commitments, available balances and expected revenues with regular monthly management reports produced by the Accountant General through SFMIS DLI 4. Reduce cash advances to DLI 4 DLR 4.1. Strengthen payment MDAs for non-salary 3,075,000 1,025,000 process for operational recurrent costs from 56.4% expenditures baseline at end-March 2018 to 26.4% [value-based] DLR 4.2. DLR 4.2. Reduce cash advances to 1,025,000 MDAs for non-salary recurrent costs from 56.4% baseline at end- March 2018 to 16.4% [value-based] [value- based] DLR 4.3. DLR 4.3 All government payments 1,025,000 for salaries, transfers and capital expenditures to be executed as payments to Bank accounts directly to vendors, with the exception of: petty cash, travel advances, security sector, and contingency (per Appropriation Act) DLI 5 DLR 5.1 DLI DLR 5.1 Strengthen Policy paper outlining 3,075,000 intergovernmental policy framework for 1,025,000 fiscal policy Intergovernmental Fiscal framework Transfers agreed at Finance Ministers Fiscal Forum covering: Budget timetable, reporting, accountability and disbursement conditions. -6- DLR 5.2. DLR 5.2 Draft policy paper including: (i) principles to 1,025,000 guide FGS transfer allocations to Federal Member States and/or Benadir Regional Authority; (ii) comparative analysis, reflecting regional context, and; (iii) long-term views, tabled at Finance Ministers Fiscal Forum DLR 5.3. DLR 5.3 Fiscal transfer allocations in 1,025,000 draft 2021 Federal Government budget reflect policy paper principles DLI 6 DLR 6.1. DLI DLR 6.1 Strengthen Federal Federal Government fiscal 1,025,000 0 Government transfers transfers execution rate to to Federal Member Federal Member States States equal to or greater than the outturn rate for domestic revenues (Year 1) DLR 6.2. DLR 6.2 Federal Government fiscal 1,025,000 transfers execution rate to Federal Member States equal to or greater than the outturn rate for domestic revenues (Year 2) DLR 6.3. DLR 6.3 FGS fiscal transfers 0 execution rate to Federal Member States equal to or greater than the outturn rate for domestic revenues (Year 3) DLI 7 DLI 7.1. DLI DLR 7.1 Strengthen teacher Teacher proficiency test 3,050,000 1,025,000 proficiency testing piloted in at least one eligible Federal Member States, and/or Benadir Regional, Administration, establishing minimum competency level of teachers (Year 1) DLI 7.2. DLR 7.2 Proficiency testing of 1,025,000 teachers conducted in at least two eligible Federal Member States, and/or Benadir Regional Administration as an annual -7- exercise, establishing minimum competency level of teachers (year 2) DLI 7.3. DLR 7.3 Proficiency testing of 1,000,000 teachers conducted in at least three eligible Federal Member States and/or Benadir Regional Administration as an annual exercise, establishing minimum competency level of teachers (year 3)