West Bank and Gaza – Implementation Support Mission Public Financial Improvement (PFMI) Phase 2 Project (P177742) Aide Memoire July 15-19, 2024 INTRODUCTION 1. A World Bank team conducted a mission in West Bank & Gaza from July 15, 2024 to July 19, 20241. The objectives of the mission were to a) discuss implementation progress achieved so far with the Ministry of Finance (MOF) and the Project Management Unit (PMU); b) agree on the implementation workplan going forward; c) provide guidance to the MOF on the project technical aspects as needed; d) meet with the High Council for Public Procurement Policies (HCPPP) to review progress on component 4 of the project; e) meet with the State Audit and Administrative Control Bureau (SAACB), the Palestinian Central Bureau of Statistics (PCBS) and the Palestinian Anti-Corruption Commission (PACC) on the implementation progress on their sub-components. A summary of next steps and actions to be taken is listed on page 6. 2. The team met with representatives from the MOF, HCPPP, SAACB, PCBS, and PACC. A full list of individuals met during the mission is provided in Annex 1. The mission wishes to express its appreciation for the courtesy with which it was received and the constructive dialogue that it enjoyed with all parties. This Aide-Mémoire summarizes the main findings and recommendations of the mission. IMPLEMENTATION PROGRESS OVERVIEW 3. PFMI Phase 2 project is progressing well. The Project Management Unit (PMU) and the High Council for Public Procurement Policies (HCPPP) have followed the agreed implementation plan. The World Bank mission focused on better coordinating the cross-cutting work between the MOF and the HCPPP to ensure that there is no duplication of efforts and that all agree to the implementation plan. A meeting will be held in August, focused on the e-government procurement (e-GP) system and the system that is being developed by the MOF’s General Supplies Department (GSD) to ensure that there is no duplication in the two systems. PROGRESS SUMMARY & RATINGS 4. Overall project rating for progress towards achievement of Project Development Objectives (PDO) is Satisfactory, and the Overall Implementation Progress is maintained as Satisfactory. The disbursement rate is at 34% of the total grant of USD 8 million. 1 Mission members included Riham Hussein, Senior Governance Specialist; Basheer Jabr (Procurement Specialist); Mohammad Jaber, Financial Management Specialist; David Bernstein (Lead Public Sector Specialist); Francesca Recanatini (Lead Economist); Manal Taha (Environment Specialist); Abeer Mashni (Social Development Consultant), and Rana Kassis, Senior Program Assistant. 1 PFMI Phase 2 Project Data PFMI Phase 2 Project Ratings Data Amount Previous Current Total amount of Project USD 8 million Progress towards achievement S S Financing of PDO Effectiveness date 29 June 2022 Overall Implementation S S Progress (IP) Project Closing date 30 April 2027 Financial Management S S Total amount disbursed USD 2.73 million Procurement Management S S Disbursement rate 34% Overall Safeguards Rating S S 5. The team held several meetings with various departments at the MOF. The mission reviewed progress under project management and fiduciary performance. The following is a summary of the key issues: Component 1. Improving Budget Expenditure Management and Control Budget Expenditure Management and Control PFMI Project Phase 2 is continuing the work on the commitment control system and supporting its implementation. The system has been rolled out to most line ministries. The remaining issue in fully implementing the system is the procurement process and ensuring that the procurement is integrated so that the purchase order is captured by the IFMIS, instead of manually. The mission reviewed the draft TORs prepared for the automation of the MOF’s General Supplies Department (GSD) processes, and it was noted that the draft TORs propose duplication of several functions already included in the scope of the e-GP system currently under development by HCPPP. The mission made it clear that the draft TORs cannot be accepted by the Bank until the duplication is removed. A meeting is being planned to ensure that the all parties agree to the implementation plan for the e-GP and ensure that there is no duplication in the two systems. Transparency of Intergovernmental Transfers (net lending) The mission noted the progress on rolling out the net lending portal to support the automation of the system for managing reconciliations between Local Government Units (LGUs) and the MOF. The system was piloted in one municipality and is now being rolled out to two municipalities and one district electricity company. This will ensure that the LGUs are aware of their debt levels at all times and will help with reconciliations between the MOF and the LGUs so that transfers to LGUs occur at regular intervals as required. Payroll System PFMI I Project supported the technical design of a payroll system. The system was later procured with funding from the EU but with continued support from the project to ensure that the technical design is accurately reflected in the new system. The system has been in use since October 2023 and the Project will continue the technical support to ensure the last functionalities of the payroll system are implemented and ensure the link with the General Personnel Council (GPC). 2 Component 2. Financial Accountability Improving Debt Management The Project funded the new debt management IT system (DEMFAS) from UNCTAD. The Debt Management unit at the MOF are highly satisfied with the new system which has improved their accuracy and efficiency. The linkage with the IFMIS has not yet been done and this will be assessed and implemented by a consultant that has been hired. Aligning Accounting and Reporting with International Standards The mission commended the MOF in clearing the backlog of financial statements. The MOF is up to date. However, the 2023 financial statements were due to be submitted to the SAACB by June 30, 2024 and this deadline was missed. The MOF has explained that the delay is due to the fiscal crisis (where employees are only working 2-3 days per week) and the change in government. The financial statements have been finalized and are awaiting the endorsement of the Minister of Finance. The MOF expects that they will be submitted to SAACB by August 15. The mission discussed the audit with SAACB, and they have started the preparation of the audit. The mission also discussed addressing recurrent issues of the State Audit and Administrative Control Bureau’s (SAACB) yearly management letter with the head of the General Accounting Department. Some resources can be requested from the Project in order to clear old suspense accounts. The General Accounting Department has also been giving training to the line ministries to issue financial statements. Three ministries have successfully issued financial statements for year-end 2022. The plan for year-end 2023 includes 11 additional ministries. The three ministries will also continue to issue financial statements and will help with training the new ministries. The process to contract a firm to reconcile the arrears with the Pension Fund was delayed due to the change in government. The firm has been selected and will be contracted to start the work in August. State Audit and Administrative Control Bureau The mission commended SAACB on the good progress on financial statements and the continued cooperation with the MOF on clearing the backlog and improving the reports. SAACB noted the difficulty in recruiting highly qualified, certified auditors due to the low wages in the government sector and requested further support from the World Bank project in order to keep the employees hired under the Project who are filling a need at SAACB. The World Bank project will continue the support the two auditors at the SAACB. The mission also noted that it is good practice to have World Bank projects audited by the State Audit. Currently only one project is audited by SAACB, the PFMI Project, Phase 2. The mission will provide a list of potential projects to the SAACB to expand the audit of the World Bank portfolio. Palestinian Anti-Corruption Commission The PACC noted the good cooperation with the Bank over the past few years. The World Bank has provided support to the PACC for the design and implementation of their strategy and delivered a set of capacity building courses on asset declaration systems and conflict of interest legislation. Over the past 12 months the World Bank team has provided direct technical assistance to the PACC team creating the National Observatory on Corruption Indicators. The Bank team provided guidance on selection and use of indicators and on the terms of reference for selected corruption experts. 3 The PACC currently has the presidency of the Association of Anticorruption Commissions in the Middle East; its most recent meeting was held in Cairo in May 2024. The World Bank attended the meeting and made a presentation at the panel on the use of technology to improve corruption assessment and prevention. In term of areas for future collaboration, the dialogue during the mission helped identify the following PACC requests. First, the PACC would like continued training and capacity building for those working in its National Observatory on corruption indicators. Second, the PACC would welcome the Bank team’s continued comments and guidance on the selection and use of different corruption indicators. The PACC also noted the need for capacity building across departments. The World Bank will provide a list of trainings that are already available in Arabic developed for other anticorruption agencies and that could be adapted and delivered soon. It will further discuss with PACC their needs and the development of additional training material. Component 3. Enhancing Revenue Mobilization Revenue Mobilization and Administration A consultant has completed the assessment of the Revenue Management System (RMS) to allow the MOF to take over the system's maintenance and operation. Two IT consultants were hired to help with managing the system. There is a recommendation to replace the system but due to the high costs involved, this matter is still being considered by the MOF. Component 4. Improving Public Procurement Management High Council on Public Procurement Policies The implementation of Component 4 on improving procurement management is on track, however, a delay is noted in the implementation due to the prevailing security situation and the part-time work of ministries’ staff. The Procurement Professionalization Regulation was submitted to the Ministers’ Cabinet for approval on June 02, 2024. A ministerial committee was formed to discuss the Regulation and submit its recommendations to the Cabinet. The HCPPP is following up on the work of this committee in order to expedite the process and obtain the Cabinet approval shortly. A contract worth EURO 331,507 for a consulting firm to provide technical assistance to HCPPP for the implementation of the Procurement Professionalization Strategy was signed on July 30, 2024. An implementation roadmap for Improvement of Efficiency in Procurement of Medicine was prepared. HCPPP is leading a discussion with all relevant stakeholders to finalize the roadmap. Moreover, the finalization of the standard bidding document (SBD) of pharmaceuticals is underway after consultation with all relevant stakeholders. HCPPP intends to obtain the Cabinet approval on the final SBD by August 31, 2024. Component 5. Closing Critical Data Gaps and Modernizing Statistics Production The survey conducted by the Palestinian Central Bureau of Statistics (PCBS) on the informal sector in over 260 localities has been completed and the report finalized. The next set of activities with PCBS will include improving data sharing between PCBS and MOF. 2023 macro data will be updated based on economic surveys. 4 Component 6. Project Implementation Support and Management The project finances costs related to project management and capacity building at the MOF throughout the life of the Project. The mission commended the Project Management Unit (PMU) on a job well done under the leadership of the Director of International Cooperation. Due to the change in the PA, the Director of International Cooperation will move to the Ministry of Planning. The Project will remain under the leadership of the Minister of Finance. Financial Management Status The mission reviewed the Project’s Financial Management (FM) arrangements undertaken by the Project Management Unit (PMU), virtual supervision meetings were performed and concluded that the PMU maintains a sound FM systems and solid internal controls. Both MOF PMU and HCPPP team follow the PA financial procedures for approving payments. Proper segregation of duties exists to sign off on all documents. The project IFR for Q2 2024 was submitted in a timely manner on July 9, 2024. The project audited financial statements for the year ended December 31, 2023, were submitted on time on June 27, 2024, an unmodified audit opinion was issued by the State Audit and Administrative Control Bureau- SAACB, the accompanying management letter included minor observations related to the project audited financial statements, those observations were discussed with the PMU. An action plan is prepared to address those observations. Total disbursements by the Bank are approximately USD 2.73 million which represents 34.07% of the total project funds, and total expenditures by the PMU are USD 1.87 million with the remaining balance as cash at designated accounts at both MOF and HCPPP. The FM risk rating is Moderate, and the FM ISR rating is Satisfactory. Conclusion is based on the Project FM performance during the period from January 23, 2024, to July 15, 2024. Procurement Status The mission discussed with the implementing agencies (MOF & HCPPP) the progress made under each relevant component. For the components carried out by the MOF, The PMU is in the process of hiring 5 individual consultants, in addition to a direct contract with Bisan for support and maintenance (estimated USD 145,000). The final award of the IT equipment package (estimated USD 200,000) was approved by the Minister before the expiration of the bids’ validity on 31 July 2024. The latest procurement plan was approved by the Bank on 18 July and STEP is updated and reflect the actual status of each contract. For the procurement component carried out by HCPPP, the contract for the “Support of the Implementation of the National Public Procurement Capacity Building and Professionalization Strategy in Palestine ” was signed on July 30, 2024. The HCPPP is also in the process of hiring a procurement specialist and a procurement advisor. The HCPPP is requested to share the shortlist of the procurement specialist position with the Bank for review and clearance before finalizing the selection process. The latest procurement plan was approved by the Bank on 18 July and STEP is updated and reflect the actual status of each contract. The procurement performance under the project is rated Satisfactory, and the procurement risk is rated Substantial. 5 Environmental and Social Safeguards Status The mission highlighted the presence of E-waste management plan cleared by the Bank, and should be followed, and reported upon in case of disposal of any electronic devices, the PMU confirmed no device disposal was identified yet. The mission notified the PMU to ensure safety of workers during installation of the electronic devices (i.e., the servers). The PMU confirmed that no incidents occurred during the project implementation. The contract for the part-time social officer at the PFMI project expired. The PMU did not renew the contract, requesting the Bank’s team to cancel this requirement for the project. As such, the PMU needs to assign a social focal point for the project to follow up on the implementation of the social requirements, in line with the project’s ESCP, including the implementation of the SEP, LMP, GM and reporting. Following the identification of the social focal point, the PMU shall update the ESCP and submit it for Bank’s review and clearance. The updated ESCP shall be disclosed on the MoF and the Bank’s webpages. The MoF did not conduct any public consultations during the reporting period. A survey of the informal sector in Gaza, to be conducted with the support of the Palestinian Central Bureau of Statistics, has been postponed until further notice due to the political situation. No complaints were received during the reporting period. The Project environmental and social risk rating remains low; (low environmental and social risk ratings), and the performance is Satisfactory. NEXT STEPS AND ACTIONS TO BE TAKEN Action By Whom By When IFMIS SLA to be signed MOF August 2024 RMS SLA to be signed MOF August 2024 List of trainings to be shared with PACC World Bank August 2024 The HCPPP is requested to share the shortlist of the procurement HCPPP August specialist position with the Bank for review and clearance before 2024 finalizing the selection process The Pharmaceuticals Standard Bidding Documents to be approved HCPPP August by the Cabinet 2024 Focal point for social requirements and update of ESCP MOF August 2024 6 ANNEX 1: List of People Met Ministry of Finance Laila Sbaih, Director General, International Cooperation Mohammad Rabea, Accountant General Ahmad Thuminat, General Manager, Accounting Tarek Mustafa, Director General of Budget Firas Khanfar, Department Head of Public Debt Iman Hawamdeh, Head of Final Account Preparation Department Fahid Al-Sheikh, Project Director, World Bank Project Management Unit Sami Khalifa, Project Manager, World Bank Project Management Unit Rana Kamal, Procurement Specialist, World Bank Project Management Unit Mahmoud Shantaf, Financial Manager, World Bank Project Management Unit State Audit and Accounting Control Bureau Amal Faraj, President of SAACB Jaffal Jaffal, SAACB Manager Ismat Abu Rabe’, Director General of Financial and Administrative Affairs Muawiyyah Almousa, Department Head of Economical Control Lana Assi, Head of Public and International Relations Palestinian Anti-Corruption Commission Said Shehadeh, General Director, Palestinian Anti-Corruption Commission Sireen Awawdeh, Head of International & local Cooperation Unit/ Palestinian Anti-Corruption Commission High Council of Public Procurement Policies Moayad Odeh, Chairman of HCPPP Diyaa Awad, EGP project manager Anas Samhan, Director of Procurement Polices Department Mahmoud Nazzal, Capacity Building Specialist 7