The World Bank Report No: ISR10040 Implementation Status & Results Lao People's Democratic Republic Public Finance Management Strengthening Program MDTF (P108787) Public Disclosure Copy Operation Name: Public Finance Management Strengthening Program MDTF Project Stage: Implementation Seq.No: 6 Status: ARCHIVED Archive Date: 17-May-2013 (P108787) Country: Lao People's Democratic Republic Approval FY: 2008 Product Line: Recipient Executed Activities Region: EAST ASIA AND PACIFIC Lending Instrument: Technical Assistance Loan Implementing Agency(ies): Key Dates Board Approval Date 15-Nov-2007 Original Closing Date 31-Oct-2011 Planned Mid Term Review Date 15-Nov-2010 Last Archived ISR Date 10-Oct-2012 Effectiveness Date 06-Nov-2008 Revised Closing Date 31-Aug-2013 Actual Mid Term Review Date 15-Nov-2010 Project Development Objectives Project Development Objective (from Project Appraisal Document) The overall objective of the proposed Trust Fund is to support the Government of Lao PDR to enhance the public sector effectiveness to the socio-economic development of its population. The purpose of the proposed activities is to improve the effectiveness of public finance management in Lao PDR through support to the Government#s Public Financial Management Strengthening Program Has the Project Development Objective been changed since Board Approval of the Project? Yes No Component(s) Component Name Component Cost Revenue Sharing, Fiscal Planning and Budget Preparation 0.85 Treasury Centralization, Budget Execution, Accounting and Financial Reporting 2.48 Revenue Policy&Administration 1.40 Local Government Financial Management 0.20 Public Disclosure Copy Human Resource Management 0.12 Program Management 0.30 External Oversight and Audit 0.32 Overall Ratings Previous Rating Current Rating Progress towards achievement of PDO Satisfactory Moderately Satisfactory Overall Implementation Progress (IP) Moderately Satisfactory Moderately Satisfactory Overall Risk Rating Page 1 of 7 The World Bank Report No: ISR10040 Implementation Status Overview While the overall high level objective of the PFMSP MDTF is to support the GoL to enhance the public sector effectiveness to socio-economic development of its population, the immediate objective of the MDTF is to improve the effectiveness of the public finance management in Lao PDR through support to the Government's Public Financial Management Strengthening Program. The ultimate goal of the PFMSP are: improved policy consistency, efficiency, transparency and accountability in public expenditure and revenue Public Disclosure Copy management by strengthening institutional systems and capacity and making progress towards appropriate international financial management standards and effective use of foreign financing. MDTF is expected to contribute to progress in four outcome areas of the PFSMP ( (i) improved Macro-Fiscal Discipline and Management, (ii) improved financial management and control, (iii) Improved revenue management and control, and (iv) improved sectoral and local allocation and management) which are critical to achieving the goal of the PFM reform. The PFMSP MDTF has just been extended for four months until end-August 2013 with funding reallocated from the BETF and allocation from interest income and exchange rate gains to provide continuous support to the PFMSP and support to the recently introduced school block grant scheme as well as the consultation process for preparation of the local administration law and civil service law. The PFMSP MDTF is now entering the fifth year of implementation. So far the activities supported by the MDTF financing have contributed to improved budget credibility and transparency, better control of government cash balances, improved tax payer registration and effective administration of VAT, improved public financial legal drafting process through wider consultations. Progress for most of immediate result indicators seem to indicate that Lao PDR PFM system is improving, albeit the progress may not be sufficient enough to raise scores for all the associated PEFA indicators. Key achievements include: completion of centralization of the treasury, tax and customs functions; adoption and implementation of the Treasury Single Account Framework; expended budget coverage through consolidating technical revenue and major off-budget funds into the budget and disbursed through the National Treasury and its provincial offices; improved timing and content of budget circular; completion of implementation of the External Debt Management System (DMFAS) with all data inputted into the system, completion of the business process mapping and proposed changes for implementation of a full function treasury system; successful VAT introduction, putting in place a technical foundation for the strengthening of taxpayer service, compliance management and audit, and completion of the new VAT law draft. Some planned works such as development of budget allocation norms and revenue sharing formula, issuance of budget ceilings could not be achieved due to the lack of understanding and capacity to design an inter-governmental transfer system, weaknesses in coordination between central government agencies and provinces, and lack of clarity in the roles between central government, provinces, and districts. Nevertheless, the GoL's decision to implement the school block grant from FY2010-2011 to transfer funding directly the primary schools on the basic of a per pupil formula is an encouraging development and a step in a right direction to help reduce inequality in education service provision. Locations No Location data has been entered Results Public Disclosure Copy Project Development Objective Indicators Indicator Name Core Unit of Measure Baseline Current End Target PEFA-PI-1: Stability and credibility of the Text Value B B B budget Date 30-Jun-2009 11-Apr-2013 31-Oct-2013 Comments Deviation of FY07/08 out- Deviation of FY10/11 out- Target is the aggregate turns to the budget estimates turns to the budget estimates budget out-turns are within is by 13.8% is by 5.7% 5%-10% of the estimates approved by the National Assembly Page 2 of 7 The World Bank Report No: ISR10040 PEFA-PI-8: Transperency of Inter- Text Value D (To be updated with final ISR C governmental fiscal relations in August) Date 30-Jul-2009 11-Apr-2013 31-Oct-2013 Public Disclosure Copy Comments Budget allocation to provinces The work on Budget Norm Non-wage recurrent budget and districts is not based on has be abolished but the MoF norms for at least education transparent rules has been started and health sectors and capital implementing the school block budget norms are in grant to channel funding operation. Work under way to directly to primary school on a develop non-wage recurrent per capita basic. Final PEFA budget norm for other sectors. score for this will be assessed in August with the last ISR PEFA-PI-11: Orderliness and participation in Text Value C+ To be updated with final ISR B the annual budget process in August Date 30-Jun-2009 11-Apr-2013 31-Oct-2013 Comments Budget Calendar exist but not Budget Circular for FY13-14 Stable Budget calendar and followed rigorously, no budget is yet to be issued. It is ceilings issued circular issued, budget expected that school block approved before start of fiscal grant will continue to be year implemented in FY13-14 PEFA-PI-17: Recording and Management of Text Value D+ (to be updated with final ISR C+ cash balances, debt and guarantee in August) Date 30-Jun-2009 11-Apr-2013 31-Oct-2013 Comments Debt data lack accuracy, Technical revenue bank Completion of the spending unit accounts not account consolidation has yet consolidation of technical been consolidated into to be fully completed. TSA revenue accounts into Treasury, lending by BOL and has been implemented fully at Treasury and TSA is rolled provincial debt guarantee BOL and its branches.TSA out to commercial banks. outside budget framework roll out to commercial banks completed for LDB, and underway in ABP and yet to start at BCEL. Final PEFA Public Disclosure Copy score for this will beassessed in August with the last ISR PEFA-PI-24 Quality and timeliness of in-year Text Value C+ (C,A,C) (To be uddated with final ISR C+ (C,A,B) budget execution reports in August) Date 30-Jun-2009 31-Dec-2012 31-Oct-2013 Comments As of Dec 2012, MOF Improvement in sub- reported that 683 technical dimensions of the PI-24 but revenue accounts have been overall score will not be opened with the NT for increased due to lack of transaction and 219 accounts commitment control which Page 3 of 7 The World Bank Report No: ISR10040 out of 982 to- be-closed may not be implemented accounts are still active in the within the time-frame of the commercial banks. Amount of MDTF technical revenue included in Public Disclosure Copy FY12-13 budget was doubled compared with last FY. GFIS is now used by all cen-tral agencies and provinces, the system is also rolled out to a number of tier 2 agencies of MOE and MOH. PEFA-PI-14 Tax registration and tax Text Value C+ (D,B,D) (To be updated with final ISR B (B,B,C) assessment is effective in August) Date 30-Jun-2009 11-Apr-2013 31-Oct-2013 Comments Tax Identification System Significant progress has been 4000 VAT tax payers should (TIN) piloted in three made on registration of VAT be registered provinces, limited tax tax payers. So far 4200 VAT education efforts tax payers have been registered. Lao TIS tax registration module continues to be used for registration. Testing of tax return processing and payment module of LaoTIS has been completed but it is not clear when roll out will be started. PEFA PI-25 Quality and timeliness of annual Text Value D+ (To be update with final ISR in C+ financial statements August) Date 30-Jun-2009 11-Apr-2013 31-Oct-2013 Comments Incomplete coverage and Process of consolidation of Progress in TSA and non-compliant with IPSAS technical revenue into complete GFIS coverage will Treasury is on-going. GFIS help to improve rating for this has been rolled out to some indicator. Public Disclosure Copy tier-2 big spending unitsof Ministry of Education and Ministry of Health. MOF will submit this month the draft Decree to Prime Minister on government accounting for adopting IPSAS-cash basis. Intermediate Results Indicators Page 4 of 7 The World Bank Report No: ISR10040 Indicator Name Core Unit of Measure Baseline Current End Target Budget Allocation Norms are developed to Text Value Budget allocation to provinces While no formal budget Non-wage recurrent budget guide the budget preparation process and districts is not based on allocation norms were norms for at least education Public Disclosure Copy transparent rules approved and issued, MOF and health sectors and capital reported that some allocation budget norms are in opera- norm for educa-tion sector tion. Work under way to based on the ESDF were develop non-wage recurrent used in allocating edu-cation budget norm for other sectors budget. In addition, starting from FY2011-2012, the Gov- ernment has implemented a school block grant scheme to channel the resources direct- ly to primary schools on a per student formula Date 30-Jun-2009 11-Apr-2013 30-Sep-2013 Comments Taxpayers are properly identified and Number Value 0.00 4200.00 4000.00 registered with the tax authorities through the Date 05-Mar-2013 30-Sep-2013 number of tax payers registered with the TaxIT Comments No unique TIN exists. 6,500 Tax Payers are system (LaoTIS) Lao TIS under de-velopment registered, out of which 4200 for VAT tax payer registration are VAT Tax Payers. Deviation of out-turn to budget Percentage Value 13.80 5.70 10.00 Date 30-Jun-2009 11-Apr-2013 30-Sep-2013 Comments between 5% to 10% Annual Budget Calendar is adhered to and Text Value Budget Calendar exists but Budget circular was issued in Stable Budget Calendar and Budget Ceilings are issued to ensure an not followed rigorously, no April 2012 for FY12-13 (one budget ceilings are issued orderly budget process budget circular was issued moth earlier than in 2011). Budget Circular for FY2012-13 instructed minis- tries and prov-inces to include Public Disclosure Copy technical revenue in the budget and revenue collecting agen-cies to break down non- resource and resource revenue (mining and hydropower separately. No ceilings are yet issued. Date 30-Jun-2009 11-Apr-2013 30-Sep-2013 Comments Page 5 of 7 The World Bank Report No: ISR10040 Technical revenue bank accounts are Text Value Debt data lack accu-racy, Technical reve-nue bank Completion of the consol- consolidated into Treasury and Treasury Single spend-ing unit accounts not account consolidation is idation of technical revenue Account Framework is fully implemented to been consolidated into progressing well. TSA has ac-counts into Treasury and allow for more active cash management. Treasury, lending by BOL and been implemented at BOL TSA is rolled out to com- Public Disclosure Copy provincial debt guar-antee and its branches, as well as at mercial banks out-side budget framework two commercial banks (LDB and APB). Roll out to final com-mercial bank (BCEL) is ex-pected to com-plete in 2013 Date 30-Jun-2009 11-Apr-2013 30-Sep-2013 Comments Improved quality of in- year budget execution Text Value Budget execution report cov- As of Dec 2012, MOF report through expanded coverage (to include erage was not com-pleted reported that 683 technical all technical revenue)and utilization of up- and no report on expenditure revenue accounts have been graded GFIS financed by technical opened with the NT for revenue. Up-gradated GFIS is transaction and 219 accounts yet out of 982 to- be-closed accounts are still active in the commercial banks. Amount of technical revenue included in FY12-13 budget was dou-bled compared with last FY. GFIS is now used by all cen-tral agencies and provinces, the system is also rolled out to a number oftier 2 agencies of MOE and MOH. Date 30-Jun-2009 31-Dec-2012 30-Sep-2013 Comments Improved quality of annual financial Text Value Incomplete coverage and Work to design the future Financial statement will statements through en-hanced completeness non-compliant with IPSAS IPSAS compliant financial include reve-nue and ex- and ac-counting standard disclosure report-ing framework for the penditure from charges for Public Disclosure Copy public sector at both national services and the IPSAS is and sub national levels has adopted for phased begun with IMF TA and is implementa-tion. expected to continue under the new WB funded PFM project/MDTF2 Date 30-Jun-2009 11-Apr-2013 30-Sep-2013 Comments Data on Financial Performance (as of 10-Apr-2013) Page 6 of 7 The World Bank Report No: ISR10040 Financial Agreement(s) Key Dates Project Ln/Cr/Tf Status Approval Date Signing Date Effectiveness Date Original Closing Date Revised Closing Date P108787 TF-91192 Effective 06-Nov-2008 06-Nov-2008 06-Nov-2008 31-Oct-2011 31-Aug-2013 Public Disclosure Copy Disbursements (in Millions) Project Ln/Cr/Tf Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P108787 TF-91192 Effective USD 3.86 5.91 0.00 4.47 1.44 76.00 Disbursement Graph Key Decisions Regarding Implementation MOF to submit the Budget Plan for the extension period of the MDTF (April-August 2013). Public Disclosure Copy MOF to submit the Audit Report for FY2011-2012 (by April 25, 2013). MOF to appoint the new chairperson of the PFMSP Steering Committee to replace the former one who has been promoted to be the Head of the State Audit Organization. Restructuring History Level two Approved on 14-Oct-2011, Level two Approved on 22-Mar-2012 Related Projects There are no related projects. Page 7 of 7