RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) Special Purpose Project Financial Statements together with Independent Auditor’s Report for the Year Ended 31 December 2023 Loan No. 9239-GE TABLE OF CONTENTS STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023………………………………………3 INDEPENDENT AUDITOR’S REPORT ........................................................................................................................ 4 STATEMENT OF CASH RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 ................................. 7 STATEMENT OF EXPENDITURE BY COMPONENT FOR THE YEAR ENDED 31 DECEMBER 2023................................... 8 STATEMENT OF FINANCIAL POSITION AS OF 31 DECEMBER 2023 ........................................................................... 9 1. GENERAL INFORMATION .................................................................................................................................. 10 2. SUMMARY OF ACCOUNTING POLICIES ............................................................................................................. 12 3. SUMMARY OF SOURCE OF FUNDS .................................................................................................................... 13 4. STATEMENT OF DESIGNATED ACCOUNTS ......................................................................................................... 14 5. CASH AND CASH EQUIVALENTS ........................................................................................................................ 14 6. PROJECT EXPENDITURES IMPLEMENTATION PROGRESS ................................................................................... 15 7. FINANCING UNDER THE LOAN AGREEMENT ..................................................................................................... 15 8. GEORGIAN OPERATING ENVIRONMENT ........................................................................................................... 16 9. COMMITMENTS AND CONTINGENCIES ............................................................................................................. 16 10. EVENTS AFTER THE REPORTING PERIOD ......................................................................................................... 16 RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 Managements of LEPL ENTERPRISE GEORGIA (“EG”) and THE NATIONAL BANK OF GEORGIA (“NBG”) (collectively referred to as “Management”) are responsible for the preparation of the special purpose project financial statements of RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) (“Project”) for the year ended 31 December 2023 in accordance with International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting (“IPSAS-Cash Basis”). The Project has been financed by the Loan Agreement No. 9239-GE dated 17 May 2021 between Georgia and International Bank for Reconstruction and Development (“IBRD”) (the “Loan Agreement”) and has been implemented by EG and NBG. In preparing the special purpose project financial statements, management is responsible for: • Properly selecting and applying accounting policies; • Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable, and understandable information; • Providing additional disclosures when compliance with the specific requirements in IPSAS –Cash Basis are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Project’s financial position and its sources and uses of funds and movements in the designated account; Management is also responsible for: • Designing, implementing and maintaining an effective and sound system of internal controls related to the Project; • Maintaining adequate accounting records that are sufficient to show and explain the Project’s transactions and disclose with reasonable accuracy at any time the financial position of the Project, and which enable them to ensure that the special purpose project financial statements of the Project comply with IPSAS-Cash Basis; • Maintaining accounting records in compliance with the Georgian legislation and IPSAS-Cash Basis; • Taking such steps that are reasonably available to them to safeguard the assets of the Project; and • Preventing and detecting fraud and other irregularities. The special purpose project financial statements for the year ended 31 December 2023 were approved for issue on 21 June 2024 by the Management. Irakli Gabriadze Giorgi Nasaraia Vakhtang Burkiashvili Andria Manelashvili Project Financial Head of Finance and Acting Director Executive Director Consultant Accounting Department LEPL Enterprise LEPL Enterprise National Bank of National Bank of Georgia Georgia Georgia Georgia 3 Deloitte & Touche LLC Tax ID: 204422240 City Tower Business Center, 70 Vazha-Pshavela Ave., 16th floor, Tbilisi, 0186, Georgia Tel: +995 (32) 224 45 66 Fax: +995 (32) 224 45 69 deloitte.ge INDEPENDENT AUDITOR’S REPORT To the Managements of LEPL ENTERPRISE GEORGIA and THE NATIONAL BANK OF GEORGIA (“Management”) Opinion We have audited the special purpose project financial statements of “RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)” (“Project”) financed by the Loan Agreement No. 9239-GE dated 17 May 2021 between Georgia and International Bank for Reconstruction and Development (“IBRD”) (the “Loan Agreement”) and implemented by LEPL ENTERPRISE GEORGIA (“EG”) and THE NATIONAL BANK OF GEORGIA (“NBG”), which comprise the statement of financial position as at 31 December 2023, and the statement of cash receipts and payments, and the statement of expenditures by component for the year then ended, and notes to the special purpose project financial statements, including material accounting policy information. In our opinion, the accompanying special purpose project financial statements for the year ended 31 December 2023 are prepared, in all material respects, in accordance with International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting (“IPSAS-Cash Basis”) as further detailed in Note 2. 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 Auditor’s Responsibilities for the Audit of the Special Purpose Project Financial Statements section of our report. We are independent of the Project, EG and NBG in accordance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (“IESBA Code”) and we have fulfilled our ethical requirements in accordance with IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Matter Information presented on pages 7 to 16 of the accompanying special purpose project financial statements that are labeled as “Unaudited” have not been audited. The special purpose project financial statements for the period from 17 August 2021 to 31 December 2022 were audited by another auditor who expressed an unmodified opinion on those statements on 27 June 2023. Emphasis of Matter – Basis of Accounting and Restriction on Distribution and Use We draw attention to Note 2 to the special purpose project financial statements, which describes the basis of accounting. The special purpose project financial statements are prepared to assist EG and NBG in complying with the financial reporting provisions of the Loan Agreement. As a result, the special purpose project financial statements may not be suitable for another purpose. Our report is intended solely for use by EG and NBG for reporting to IBRD. This report is not intended for the benefit of any other third parties and we accept no responsibility or liability to any party other than those mentioned above in respect of the report. Should any third party take decisions based on the contents of the report, the responsibility for such decisions shall remain with those third parties. Our opinion is not modified in respect of this matter. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member fir ms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more. © 2024. For information, contact Deloitte Global. Responsibilities of Management and Those Charged with Governance for the Special Purpose Project Financial Statements Management is responsible for the preparation of the special purpose project financial statements in accordance with IPSAS-Cash Basis and for such internal control as management determines is necessary to enable the preparation of special purpose project financial statements that are free from material misstatement, whether due to fraud or error. In preparing the special purpose project financial statements, the managements of EG and NBG are responsible for assessing the ability of EG and NBG, respectively, to continue as going concerns, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless either management intends to liquidate EG/NBG or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Project’s financial reporting process. Auditor’s Responsibility for the Audit of the Special Purpose Project Financial Statements Our objectives are to obtain reasonable assurance about whether the special purpose project financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is 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 and 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 project financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the special purpose project 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 internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on EG’s or NBG’s ability to continue as going concerns. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the special purpose project financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause EG or NBG to cease to continue as going concerns. • Evaluate the overall presentation of the special purpose project financial statements. 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. 5 Report on Compliance with Requirements of the Loan Agreement Management is responsible for the use of the Project funds in compliance with the requirements of the Loan Agreement. Our responsibility is to express an opinion, based on our work and evidence obtained during our audit of the special purpose project financial statements, whether the Project funds have been used in compliance with the provisions of the Loan Agreement. In our opinion, the Project funds have been used, in all material respects, in compliance with the provisions of the Loan Agreement. Shota Nanitashvili On behalf of Deloitte & Touche LLC Tbilisi, Georgia 21 June 2024 6 RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) LOAN NO. 9239-GE STATEMENT OF CASH RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Amounts are presented in EUR) Budget Note Actual Actual Actual Actual Variance (Unaudited)* For the year For the year Cumulative as Cumulative as Cumulative as Cumulative as ended 31 ended 31 of 31 December of 31 December of 31 December of 31 December December 2023 December 2022 2023 2022 2023 2023 TOTAL OPENING CASH 5 138,602 74,228 - - Sources of Funds Loan Number 9239-GE 19,300,000 11,340,907 30,953,407 11,653,407 TOTAL FUNDS 3,7 19,300,000 11,340,907 30,953,407 11,653,407 Project Expenditures Component 1 - Financial relief and 17,168,424 11,005,009 28,173,433 11,005,009 28,212,227 38,794 recovery for MSMEs Component 2 – Digital payments and 47,792 - 47,792 - 196,185 148,393 financial infrastructure upgrading (EG) Component 2 – Digital payments and financial infrastructure upgrading - 40,907 40,907 40,907 40,907 - (NBG)** Component 3 – Project management 449,606 226,733 702,111 252,505 937,246 235,135 and monitoring Front-end Fee - 212,500 212,500 212,500 - TOTAL EXPENDITURES 6 17,665,822 11,272,649 29,176,743 11,510,921 29,599,065 422,322 Foreign exchange gain/(loss) 21,200 (3,884) 17,316 (3,884) TOTAL ENDING CASH 5 1,793,980 138,602 1,793,980 138,602 *The budget figures are updated several times during the year. Planned figures as of 31 December 2023 have not been audited. **The National Bank of Georgia is responsible for carrying out p.2.1 of the Component 2, while the LEPL Enterprise Georgia is responsible for carrying out Component 1, Component 3 and subcomponents p.2.2 and p.2.3 of the Component 2. Approved for issue by the Project Management on 21 June 2024 and signed on its behalf by: Irakli Gabriadze Giorgi Nasaraia Vakhtang Burkiashvili Andria Manelashvili Acting Director Project Financial Consultant Executive Director Head of Finance and Accounting Department LEPL Enterprise Georgia LEPL Enterprise Georgia National Bank of Georgia National Bank of Georgia The notes on pages 10-16 form an integral part of these special purpose project financial statements. 7 RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) LOAN NO. 9239-GE STATEMENT OF EXPENDITURE BY COMPONENT FOR THE YEAR ENDED 31 DECEMBER 2023 (Amounts are presented in EUR) Budget Actual Actual Actual Actual Variance (Unaudited)* For the year For the year Cumulative as Cumulative as Cumulative as Cumulative as ended 31 ended 31 of 31 December of 31 December of 31 December of 31 December December 2023 December 2022 2023 2022 2023 2023 Component 1 - Financial relief and recovery for 17,168,424 11,005,009 28,173,433 11,005,009 28,212,227 38,794 MSMEs (EG) 1.1 - Grants for micro and small firms (EG) 8,961,126 8,611,392 17,572,518 8,611,392 18,224,225 651,707 1.2 - Co-financing of interest payments (EG) 1,104,111 5,214 1,109,325 5,214 1,624,082 514,757 1.3 - Partial credit guarantees (EG) 7,078,107 2,388,403 9,466,510 2,388,403 8,294,277 (1,172,233) 1.4 - Support for COVID-proofing and digitization (EG) 25,080 - 25,080 - 69,643 44,563 Component 2 - Digital payments and financial 47,792 40,907 88,699 40,907 237,092 148,393 infrastructure upgrading 2.1 - Upgrading payments infrastructure (NBG) - 40,907 40,907 40,907 40,907 - 2.2 - e-KYC and Know-Your-Customer registry (EG) - - - - - - 2.3 - Secured transactions reform (EG) 47,792 - 47,792 - 196,185 148,393 Component 3 - Project management and 449,606 226,733 702,111 252,505 937,246 235,135 monitoring (EG) Front-end Fee - - 212,500 212,500 212,500 - Total Project Expenditure 17,665,822 11,272,649 29,176,743 11,510,921 29,599,065 422,322 * The budget figures are updated several times during the year. Planned figures as of 31 December 2023 have not been audited. Approved for issue by the Project Management on 21 June 2024 and signed on its behalf by: Irakli Gabriadze Giorgi Nasaraia Vakhtang Burkiashvili Andria Manelashvili Acting Director Project Financial Consultant Executive Director Head of Finance and Accounting Department LEPL Enterprise Georgia LEPL Enterprise Georgia National Bank of Georgia National Bank of Georgia The notes on pages 10-16 form an integral part of these special purpose project financial statements. 8 RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) LOAN NO. 9239-GE STATEMENT OF FINANCIAL POSITION AS OF 31 DECEMBER 2023 (Amounts are presented in EUR) Note 31 December 2023 31 December 2022 ASSETS Cash Balances 5 1,793,980 138,602 TOTAL ASSETS 1,793,980 138,602 FUNDS RECEIVED LESS PROJECT EXPENDITURES Funds received 3, 7 30,953,407 11,653,407 Project expenditures 6 (29,176,743) (11,510,921) Foreign exchange gains/(losses) 17,316 (3,884) TOTAL FUNDS RECEIVED LESS PROJECT EXPENDITURES 1,793,980 138,602 Approved for issue by the Project Management on 21 June 2024 and signed on its behalf by: Irakli Gabriadze Giorgi Nasaraia Vakhtang Burkiashvili Andria Manelashvili Acting Director Project Financial Head of Finance and Accounting Executive Director Consultant Department LEPL Enterprise Georgia LEPL Enterprise Georgia National Bank of National Bank of Georgia Georgia The notes on pages 10-16 form an integral part of these special purpose project financial statements. 9 RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) LOAN NO. 9239-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Amounts are presented in EUR) 1. GENERAL INFORMATION 1.1. The Project The Loan Agreement No. 9239-GE (the “Loan Agreement” or the “Loan”) was signed on 17 May 2021 between Georgia and the International Bank for Reconstruction and Development (“IBRD”), according to which IBRD agreed to lend to Georgia the amount of 85,000,000 Euros. The Loan Agreement became effective on 21 May 2021. The financing was provided for the implementation of “RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)” (“Project”). The payment currency of the Loan Agreement is Euro (“EUR”). The Closing date of the Loan Agreement was set 30 June 2026. The Project data as of 31 December 2023 and 2022 are as follows: Original Loan Amount EUR 85.0 million Total Disbursements as of 31 December 2023 EUR 30.95 million Total Disbursements as of 31 December 2022 EUR 11.65 million Project Effectiveness Date August 17, 2021 Closing date June 30, 2026 1.2. The Project objectives The objective of the Project is to provide relief to micro, small, and medium-sized enterprises and support their recovery, including by strengthening the enabling environment for access to finance. The Project consists of the following parts: Part A: Financial relief and recovery for MSMEs (Component 1) Provision of assistance to MSMEs to address the economic shock following the COVID-19 pandemic, through: 1. Strengthening of the Micro and Small Entrepreneurship Support Program under the Produce in Georgia initiative, through the provision of financial support to Eligible Firms, through inter-alia: (a) non-consulting services, consulting services, and Training, (b) level-1 Sub-Grants, (c) level-2 Sub-Grants, (d) level-3 Sub-Grants, and (e) level-4 Sub-Grants; 2. Strengthening of Enterprise Georgia’s program for co-financing of interest payments under the Produce in Georgia initiative, through the provision of financial support to MSME Beneficiaries, in collaboration with Selected PFIs, through inter alia: (a) level-1 Interest Co-Payments, (b) level-2 Interest Co-Payments, (c) level-3 Interest Co-Payments, and (d) level-4 Interest Co- Payments; 3. Strengthening of Enterprise Georgia’s Credit Guarantee Scheme for the provision of partial credit guarantees to Selected PFIs for Selected MSME Loans through inter alia: (a) level-1 Partial Credit Guarantees, (b) level-2 Partial Credit Guarantees, (c) level-3 Partial Credit Guarantees, and (d) level-4 Partial Credit Guarantees; and 4. Technical assistance to Enterprise Georgia and MSMEs, to assist MSMEs to adopt managerial, digital, and other practices necessary to better respond to the COVID-19 pandemic. Part B: Digital payments and financial infrastructure upgrading (Component 2) Strengthening Georgia’s financial infrastructure and increasing the usage of digital financial services, through: 1. Establishing an instant payment system, including technical assistance for its development and operations and development of any related infrastructure. 2. Establishing an electronic know-your-customer (“e-KYC”) infrastructure and know-your-customer (“KYC”) registry to facilitate identity verification allowing for increased participation of individuals and MSMEs in the financial sector; and 3. Improving Georgia’s secured transactions framework, including through enhancements in the legal and regulatory framework for secured transactions, upgrading of collateral registry, and capacity building measures for intended users. 10 RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) LOAN NO. 9239-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Amounts are presented in EUR) 1. GENERAL INFORMATION (CONTINUED) Part C: Project management and monitoring (Component 3) Support Project implementation, management, and monitoring, including activities related to financial management, procurement, environmental and social aspects, evaluation, reporting, Incremental Operating Costs, communication, and outreach. Part D: Contingent Emergency Response Component (Component 4) Provision of assistance in response to an Eligible Crisis or Emergency. 1.3. The Project Budget The Project is wholly financed by the Loan Agreement inclusive of all taxes. Amount of the loan Percentage of expenditures to be financed Category allocated, EUR (inclusive of taxes) (1) Sub-Grants under Part A.1 (b) of the Project, Interest Co- Payments under Part A.2 (a) of the Project; Partial Credit 34,000,000 100% Guarantees under Part A.3 (a) of the Project (2) Sub-Grants under: (2.1) Part A.1 (c) of the Project 5,600,000 100% (2.2) Part A.1 (d) of the Project 2,800,000 100% (2.3) Part A.1 (e) of the Project 2,800,000 100% (3) Interest Co-Payments under: (3.1) Part A.2 (b) of the Project 2,600,000 100% (3.2) Part A.2 (c) of the Project 1,500,000 100% (3.3) Part A.2 (d) of the Project 1,500,000 100% (4) Partial Credit Guarantees under: (4.1) Part A.3 (b) of the Project 3,400,000 100% (4.2) Part A.3 (c) of the Project 3,700,000 100% (4.3) Part A.3 (d) of the Project 4,100,000 100% (5) Goods, non-consulting services, consulting services, and Training for Part A of the Project 6,000,000 100% (6) Goods, non-consulting services, consulting services, and Training for Part B.1 of the Project 6,000,000 100% (7) Goods, non-consulting services, consulting services for Parts B.2 and B.3 of the Project 6,000,000 100% (8) Non-consulting services, consulting services, and Incremental Operating Costs for Part C of the Project 4,787,500 100% (9) Emergency Expenditures under Part D of the Project - 100% The Front-end Fee is one quarter of one (10) Front-end Fee 212,500 percent (0.25%) of the Loan amount. Total 85,000,000 11 RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) LOAN NO. 9239-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Amounts are presented in EUR) 1. GENERAL INFORMATION (CONTINUED) 1.4. Project implementation The Project is implemented by LEPL ENTERPRISE GEORGIA (“EG”) and the NATIONAL BANK OF GEORGIA (“NBG”) has been added as a co-implementer of the Project. Enterprise Georgia shall: (i) carry out Parts A and C of the Project; and (ii) carry out procurement and financial management functions to assist and enable Minister of Economy and Sustainable Development of Georgia in carrying out Parts B.2 and B.3 of the Project. EG’s address is: 5/16-18 Marjanishvli Str. (18 Uznadze Str.), 0102, Tbilisi, Georgia The National Bank of Georgia shall carry out Part B.1 of the Project. NBG’s address is: 1, Zviad Gamsakhurdia Embankment, 0114, Tbilisi, Georgia. 2. SUMMARY OF ACCOUNTING POLICIES 2.1. Statement of compliance The special purpose project financial statements are prepared in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting (“IPSAS-Cash Basis”), issued by the International Public Sector Accounting Standards Board (IPSASB). The purpose of these special purpose project financial statements is to provide information to IBRD to assist in evaluating the Project implementation. The principal accounting policies applied in the preparation of these special purpose project financial statements are set out below. These policies have been consistently applied to all the periods presented. 2.2. Cash basis of accounting Project financing is recognized as Sources of Funds when cash is received. Use of project funds are recognised as Project Expenditures when payments are made. 2.3. Designated account Designated account is a designated disbursement account of the Project that is maintained in EUR to ensure the payment of eligible expenditure within defined limits, which do not require individual authorization in accordance with Loan Agreement. 2.4. Reporting currency The reporting currency of these special purpose project financial statements is Euro (EUR). The expenditures made in local currency, Georgian Lari (GEL), are translated into EUR based at the exchange rate prevailing at the date of the transaction as published by the National Bank of Georgia (NBG). The exchange rates defined by NBG as of 31 December 2023 and 2022 are as follows: EUR/GEL Exchange rate as of 31 December 2023 2.9753 Exchange rate as of 31 December 2022 2.8844 2.5. Methods of withdrawals The methods of withdrawal used from the inception of the Loan during reporting period were as follows: Designated account It is allowed to withdraw the eligible amounts from the Designated account and prepare and send replenishment requests to the IBRD with authorized signatures. The replenishment requests and respective documentation are reviewed by the IBRD and an approved amount is transferred to the Designated account. 12 RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) LOAN NO. 9239-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Amounts are presented in EUR) 2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED) Reimbursement IBRD reimburses amounts for expenditures eligible for financing pursuant to the Loan Agreement. It is the standard procedure for a borrower to apply to withdraw funds from an IBRD Loan Account to reimburse funds already paid. 2.6. Taxes According to the Georgian Tax Legislation, EG and NBG pay all the taxes to unified treasury code applicable for all taxes. Taxes are paid in accordance with the tax regulation of Georgia. 2.7. Budget Expenditure budget is created based on actual accumulated expenditures for the last period plus the updated procurement plans for the reporting period. 3. SUMMARY OF SOURCE OF FUNDS Funds requested and received during the year ended 31 December 2023 are presented below: WB/ Date of Date of received Application Reference Sum Trans No application payments 11 Advance 7 (EG) 22/03/2023 31/03/2023 1,500,000 12 Advance 8 (EG) 25/05/2023 08/06/2023 1,800,000 13 Advance 9 (EG) 28/07/2023 04/08/2023 3,000,000 14 Advance 10 (EG) 26/09/2023 05/10/2023 6,000,000 15 Advance 11 (EG) 20/10/2023 03/11/2023 5,500,000 16 Advance 12 (EG) 13/12/2023 22/12/2023 1,500,000 Total Amount Received 19,300,000 Funds requested and received during the year ended 31 December 2022 are presented below: WB/ Date of Date of received Application Reference Sum Trans No application payments 4 Advance 2 (EG) 18/04/2022 26/04/2022 250,000 6 Advance 3 (EG) 03/08/2022 10/08/2022 450,000 7 Advance 4 (EG) 13/09/2022 20/09/2022 8,500,000 8 Advance 5 (EG) 01/12/2022 13/12/2022 700,000 9 Advance 6 (EG) 20/12/2022 27/12/2022 1,400,000 10 Reimbursement 1 (NBG) 22/12/2022 28/12/2022 40,907 Total Amount Received 11,340,907 Withdrawal WB/Trans No 10 - Reimbursement 1 (NBG) - was made based on the Statement of Expenditure (“SOE”) for Subcomponent 2.1 (Upgrading payments infrastructure) by National Bank of Georgia. LEPL Enterprise Georgia has not used a reimbursement method for the disbursements, all withdrawals by EG have been made in advance. 13 RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) LOAN NO. 9239-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Amounts are presented in EUR) 4. STATEMENT OF DESIGNATED ACCOUNTS Information about the account used during the year as a designated account is presented below: Financing Agreement Loan Agreement No. 9239-GE Beneficiary Name LEPL Enterprise Georgia Bank account number GE65NB0331100001150207 Bank National Bank of Georgia Bank location 1, Zviad Gamsakhurdia Embankment, 0114, Tbilisi, Georgia Account Currency EUR Statement of Designated Account as of 31 December 2023 and 31 December 2022 is presented as follows: Cumulative Cumulative For the year ended 31 For the year ended Number Description as of 31 December as of 31 December December 2023 31 December 2022 2023 2022 1 DA Opening balance (EG) 138,602 74,228 - - 2 Add: opening discrepancy (EG) - - - - 3 IBRD advance/replenishment (EG) 19,300,000 11,300,000 30,700,000 11,400,000 4 Less: Refund to IBRD from Designated Account (EG) - - - - 5 Present outstanding amount advanced to DA (EG) 19,438,602 11,374,228 30,700,000 11,400,000 6 DA closing balance as at end of the period (EG) 1,793,980 138,602 1,793,980 138,602 7 Add: Amount for eligible expenditures (EG) 17,665,822 11,231,742 28,923,336 11,257,514 8 Service charges (if debited into DA) (EG) (21,200) 3,884 (17,316) 3,884 9 Less: Interest earned (if credited into DA) (EG) - - - - 10 Total advance accounted for (EG) 19,438,602 11,374,228 30,700,000 11,400,000 11 Discrepancy (5)-(10) to be explained /II (EG) - - - - NBG has not used the designated account method for the disbursements during the years ended 31 December 2023 and 2022. 5. CASH AND CASH EQUIVALENTS Cash and cash equivalents as of 31 December 2023 and 31 December 2022 can be presented as follows: IBRD Loan 9239-GE Underlying Currency 31 December 2023 31 December 2022 Designated Account (EG) EUR 1,793,980 138,602 Designated Account (NBG) EUR - - 1,793,980 138,602 14 RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) LOAN NO. 9239-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Amounts are presented in EUR) 6. PROJECT EXPENDITURES IMPLEMENTATION PROGRESS Project Implementation as of 31 December 2023 and 31 December 2022 are presented below: Cumulative as Cumulative as Utilized as of Utilized as of Project Activities of 31 December of 31 December Budget 31 December 31 December 2023 2022 2023 2022 Component 1 - Financial relief and recovery for MSMEs (EG) 28,173,433 11,005,009 68,000,000 41.4% 16.2% 1.1 - Grants for micro and small firms (EG) 17,572,518 8,611,392 25,200,000 69.7% 34.2% 1.2 - Co-financing of interest payments (EG) 1,109,325 5,214 12,800,000 8.7% 0.0% 1.3 - Partial credit guarantees (EG) 9,466,510 2,388,403 25,000,000 37.9% 9.6% 1.4 - Support for COVID-proofing and digitization (EG) 25,080 - 5,000,000 0.5% 0.0% Component 2 - Digital payments and financial infrastructure upgrading 88,699 40,907 12,000,000 0.7% 0.3% (EG and NBG) 2.1 - Upgrading payments infrastructure (NBG) 40,907 40,907 6,000,000 0.7% 0.7% 2.2 - e-KYC and Know-Your-Customer registry (EG) - - 4,300,000 0.0% 0.0% 2.3 - Secured transactions reform (EG) 47,792 - 1,700,000 2.8% 0.0% Component 3 - Project management and monitoring (EG) 702,111 252,505 4,787,500 14.7% 5.3% Front-end fee 212,500 212,500 212,500 100.0% 100.0% Total Project Expenditure 29,176,743 11,510,921 85,000,000 34.3% 13.5% 7. FINANCING UNDER THE LOAN AGREEMENT Financing provided as of 31 December 2023 and 31 December 2022 are presented below: For the year ended 31 For the year ended 31 December 2023 December 2022 Designated Account 1,793,980 138,602 SOE 28,964,243 11,298,421 Front-end fee 212,500 212,500 Foreign exchange differences (17,316) 3,884 Total Source of Funds 30,953,407 11,653,407 Total financing budget 85,000,000 85,000,000 Percentage of finance provided 36.4% 13.7% 15 RELIEF AND RECOVERY FOR MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) LOAN NO. 9239-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (Amounts are presented in EUR) 8. GEORGIAN OPERATING ENVIRONMENT EG and NBG are located in Georgia and exposed to the economic and financial markets of Georgia, which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in Georgia. The special purpose project financial statements reflect management’s assessment of the impact of the Georgian operating environment on the operations. The future operating environment may differ from management’s assessment. 9. COMMITMENTS AND CONTINGENCIES There were no material legal cases during the years ended 31 December 2023 and 2022 and up to the date of issuance of these special purpose project financial statements. Management is not aware of any commitments and contingencies which would have a material impact on these special purpose project financial statements for the year ended 31 December 2023. 10. EVENTS AFTER THE REPORTING PERIOD Subsequent to the end of the reporting period, funds in the amount of EUR 4,000,000 have been received. 16