The World Bank RMI Strengthening Public Financial Management II(P181252) Note to Task Team: The following sections are system generated and changes must be made in Data Sheet(s). Delete this note when finalizing the document. @#&OPS~Doctype~OPS^blank@pidconcoverpage#doctemplate Project Information Document (PID) Concept Stage | Date Prepared/Updated: 29-Oct-2024 | Report No: PIDDC00356 The World Bank RMI Strengthening Public Financial Management II(P181252) @#&OPS~Doctype~OPS^dynamics@pidbasicinformation#doctemplate BASIC INFORMATION A. Basic Project Data Project Beneficiary(ies) Operation ID Operation Name Marshall Islands P181252 RMI Strengthening Public Financial Management II Region Estimated Appraisal Date Estimated Approval Date Practice Area (Lead) EAST ASIA AND PACIFIC 18-Mar-2025 31-Jul-2025 Governance Financing Instrument Borrower(s) Implementing Agency Investment Project Ministry of Finance Ministry of Finance, Financing (IPF) Banking and Postal Services Banking and Postal Services Proposed Development Objective(s) To strengthen the institutional capacity of MOFBPS to carry out core functions of public financial management. @#&OPS~Doctype~OPS^dynamics@pidprojectfinancing#doctemplate PROJECT FINANCING DATA (US$, Millions) Maximizing Finance for Development Is this an MFD-Enabling Project (MFD-EP)? No Is this project Private Capital Enabling (PCE)? No SUMMARY Total Operation Cost 10.00 Total Financing 10.00 of which IBRD/IDA 10.00 Financing Gap 0.00 DETAILS World Bank Group Financing International Development Association (IDA) 10.00 IDA Grant 10.00 Page 1 The World Bank RMI Strengthening Public Financial Management II(P181252) @#&OPS~Doctype~OPS^dynamics@envsocriskclassification#doctemplate Environmental and Social Risk Classification Concept Review Decision Low B. Introduction and Context Country Context 1. The Republic of the Marshall Islands (RMI) is a small and isolated country in the North Pacific Ocean. The country has a total land mass of about 181 km2, with Majuro as its capital. RMI comprises 29 atolls and 5 isolated islands. The atolls and islands are located in two, virtually parallel island chains: 22 of the atolls and 4 of the islands are uninhabited. The population of the RMI was estimated at 41,569 in 2022, with Marshallese and English as the official languages. Following the Second World War, RMI came under United States (US) administration as part of the Trust Territory of the Pacific Islands (TTPI) in 1947. The country subsequently drafted a separate constitution from the rest of the TTPI in 1979 to become self-governing and achieved formal independence in 19861. 2. The RMI Constitution established a mixed parliamentary-presidential system that includes a President, Cabinet, and Legislature (Nitijela or Parliament) with checks and balances with power sharing between the executive, legislature, and an independent judiciary. The President is both the head of State and the head of government, and executive authority of the Marshall Islands is vested in the Cabinet, whose members are collectively responsible to the Nitijela. Under this system there are two houses, the Council of Iroij (Chiefs) and the Nitijela (Parliament). The Council of Iroij does not have legislative or executive power but can make comment on bills in reference to customary law and other traditional practices. Executive power is exercised by the President, the Cabinet, the Attorney General, and the Chief Secretary. The RMI has 24 local governments, each headed by a Mayor who is accountable to an elected Council. 3. The Government of RMI (GoRMI) is highly dependent on international development assistance . Total development assistance accounts for 67% of budget appropriations between FY2021 and FY2024 (including both US Compact of Free Association (“Compact�) funds and other development assistance)2. The country continues to maintain a close relationship with the US through the Compact, which was first signed in 1986 to set out governmental, economic, security, and defense relationships with the US and was meant to strengthen the long-term budgetary self-reliance of the RMI. An updated Compact was signed into law in March 2024, taking effect on June 30, 2024. Between FY2021 and FY2024, the Compact contributed approximately 31 percent to total revenues on average3. 4. The 2023 Pacific Systematic Country Diagnostic (SCD) noted that capacity building to strengthen institutions, as well as addressing the high risk of debt distress and revenue uncertainty, are key enablers and development priorities for RMI. The country faces significant binding socio-economic constraints. Growth has been low relative to peers, averaging 2.5 percent between FY13-FY23, including recessions in FY20 and FY22.4 This reflects vulnerability to the COVID- 19 pandemic, revealing the need for improved governance to strengthen resilience to exogenous shocks. Although poverty is low, government expenditure on education (% of total government expenditure) dropped from 22.9 percent in 2021 to 1 CIA World Factbook,2024; WDI, 2023 2 ibid 3 GoRMI Budget Appropriation Acts 2022-2024 4 https://pitiviti.org/marshall-islands Page 2 The World Bank RMI Strengthening Public Financial Management II(P181252) 11.3 percent in 2022, which is indicative of the need to bridge budget execution gaps to improve service delivery 5. Tax revenue (% GDP) averaged 14.3, which is moderate compared to Pacific peers. GoRMI is additionally dependent on the volatile fishing sector for domestic revenue in the form of fishing license fees. 5. The RMI is fragile and susceptible to the vagaries of climate change, which is aggravated by its geographical remoteness and demographic dynamics. Climate change continues to drive rising sea levels, the frequency of extreme weather conditions, and coastal erosion. The consequences are that copra production and fisheries, which constitute major economic activities, are adversely impacted further resulting in weaker revenue generation. The country’s remoteness and sparse transport linkages to markets also contribute to raising transportation and business costs. This constrains the achievement of economies of scale, raises the cost and complexity of providing public services, and unfavorably impacts the competitiveness of exports of goods and services in global markets. Managing and disbursing funds effectively during climate disaster recovery efforts is crucial in this constrained fiscal space, to carry out activities such as rebuilding infrastructure, providing aid to affected populations, and implementing climate adaptation measures. In addition to these challenges, the provisions of the Compact permit Marshallese citizens to migrate and work in the United States without visas in return for financial assistance and other benefits. This has resulted in a decline in the population by more than 22 percent between 2000-21, whereas Pacific Island Countries (PICs) as a group experienced a nearly 28 percent increase over the same period (IMF Article IV, 2023). A shortage of skilled labor creates dependency on foreign experts and aid, as well as weak institutional capacity leading to limited opportunities for domestic revenue generation and economic growth. Sectoral and Institutional Context 1. The regulatory framework for Public Financial Management (PFM) in the RMI is well established. The RMI Constitution sets out the fiscal roles of the executive, legislative, and judicial branches and provides the basis for raising resources and expenditure. The Nitijela (legislature) is responsible for passing the annual Appropriation Act and has two committees concerned with public finance. The Public Financial Management Act (PFMA) 2023 provides for public financial management within a fiscal responsibility framework and the Procurement Code Act 2023 establishes the framework for public procurement of goods, services and works. Further revisions to the procurement framework are anticipated to be made in early 2025 with support from technical assistance provided under the WB Project to Strengthen Budget Execution and Financial Reporting Systems (“PFM I� hereafter). The Fiscal Responsibility and Debt Management Act 2020 was introduced to provide for enhanced fiscal responsibility and debt management. The Auditor-General Act 1986 sets out the duties, powers, and functions of the Office of the Auditor-General and the Ethics in Government Act 1993 set out a code of ethics for government officials and employees and established a Government Ethics Board. 2. The Ministry of Finance Banking and Postal Services (MOFBPS)6 is the central agency responsible for PFM. Other central agencies responsible for PFM include the President’s Office, the Office of the Chief Secretary, the Office o f the Auditor General (OAG), and the Public Service Commission (PSC). The MOFBPS is responsible for administering all revenue and fiscal functions of the GoRMI, including revenue, tax and duty collection and accounting; fund and treasury maintenance, security, and accounting; disbursement, accounts receivable, and expenditure accounting; budget control; and all data processing and other assets related to the foregoing. The MOFBPS consists of four divisions and one office: (a) Division of Accounting and Administration; (b) Division of Budget, Procurement and Supply; (c) Division of Customs, 5 New surveys show extreme poverty ($1.90 per capita per day) is nearly non-existent in RMI and about 6.5% at the $ 3.2-a-day poverty line for LMICs (Pacific Islands SCD, 2023). 6 The Ministry of Finance (now known as the Ministry of Finance Banking and Postal Services) was established under the Financial Management Act 1990 (later superseded by the PFMA 2023.) Page 3 The World Bank RMI Strengthening Public Financial Management II(P181252) Treasury, Revenue, and Taxation; (d) Division of International Development Assistance and the Ebeye Finance Office located in Ebeye Island7.. Several other agencies within GoRMI also have responsibilities for PFM8. 3. The capacity constraints arising from acute skilled labor shortages and elevated levels of outbound migration adversely impact GoRMI’s ability to effectively manage its public finan ces. RMI suffers from a shortage of accounting, finance and procurement skills which impacts its ability to carry out the core functions of public finance. Limited tertiary and professional education programs are available locally to develop these skills. As a result, GoRMI is largely dependent on expatriate consultants for public finance expertise. Preparation of GoRMI’s annual financial reports in accordance with standards issued by the US Government Accounting Standards Board (US GASB), which GoRMI has adopted as its national accounting framework9, has been a particular challenge and has resulted in significant delays. The issue is compounded by long delays in recruitment due to the shallow pool of qualified candidates in RMI, resulting in key posts often remaining vacant10 for months or years at a time. Despite relatively modest employee turnover11, this challenge of attracting skilled workers has the potential for a long-term negative impact on the public financial management capacity of GoFSM. 4. A Public Expenditure and Financial Accountability (PEFA) assessment completed in 2012 indicated weaker performance in the RMI compared with Pacific, income group and global averages. The RMI’s performance was assessed as particularly weak in Comprehensiveness and Transparency, Predictability and Control in Budget Execution, and Accounting, Recording and Reporting (see Figure 1.) The RMI received the lowest scores in the Pacific Region on PEFA indicators most closely related to transparency and accountability. PEFA indicators for Timeliness and Regularity of Accounts Reconciliation, Competition and Complaints Mechanisms in Procurement, Effective Internal Audit Function, Public Access to Key Fiscal Information, and Transparency and were all assessed at a D level. It should be noted that while PEFA provides useful insights into performance, capacity constraints in the smaller PICs limit their potential to meet “best or good practice�.12 7 Ebeye is an island in the north of the Marshall Islands with the largest population outside of Majuro. There are several line ministries with offices operating out of Ebeye, including the Ministries of Education, Health, and others. MOFBPS has a division in Ebeye to support these other line ministries in core financial management functions and collect revenues from customs, taxes, and other sources. 8 These agencies include the Economics Policy, Planning and Statistics Office (EPPSO), the Chief Secretary with responsibilities for procurement policy and supervision of government procurement and inventories, the OAG, and the PSC as the employing authority for the Public Service. 9 GoRMI has adopted as US GASB as its national financial reporting framework to support accounting and auditing requirements of the Compact and other US assistance. 10 The current MOFBPS vacancy rate is 11%. Source: MOFBPS. 11 MOFBPS employee turnover in FY 24 is 8%. Source: MOFBPS. 12 Haque, Knight, and Jayasuriya - 2015 Page 4 The World Bank RMI Strengthening Public Financial Management II(P181252) Figure 1: RMI PEFA Scores 2012 (by Pillar) Compared with Figure 2: Relevant CPIA Indicators 2023 – RMI, Pacific, Income Pacific, Income Group and Global Averages Group and Global 5. More recent assessments of governance indicators measured in the World Bank’s Country Policy and Institutional Assessments (CPIA) also show weaker performance for RMI when compared with Pacific, Income Group and Global Averages. The most recent CPIA scores from 2023 highlight weaker performance for RMI across indicators related to Efficiency of Revenue Mobilization, Quality of Budgetary and Financial Management, Quality of Public Administration, and Transparency, Accountability, and Corruption in the Public Sector (see Figure 2.) Additionally, the 2023 GovTech Maturity Index placed RMI in the lowest quartile of the global distribution (D-group) in the Digital Citizen Engagement dimension, with a score of 0.11 out of 1 (the maximum attainable score.) 6. A PFM Reform Roadmap was developed in 2014 in response to the 2012 PEFA Assessment. The roadmap was developed to respond to the key constraints identified in the assessment, setting out the institutional arrangements for leadership and coordination of its implementation. The roadmap was ambitious, including 147 planned reform activities to be implemented over a three-year period. While there was a sequencing of the proposed reforms, it was unclear which reforms would have the most significant impact on achieving development outcomes, which reforms should be prioritized and what capacity gaps existed13. Progress against the PFM Reform Roadmap was reported by the National PFM Steering Committee in 2017 and 2018, but there have been no formal updates from MOFBPS since. While the roadmap expired in 2017 and the GoRMI has not issued progress updates for some years, MOFPBS is tracking progress of reforms supported by each development partner and provides these updates to the PFM Steering Committee. There a strong spirit of collaboration between development partners working on the ground in RMI, including bilateral collaboration to ensure that activities are aligned with the RMI PFM Reform Roadmap and avoid duplication. The MOFBPS considers the roadmap as the guiding document for PFM reforms for RMI, considering that many of the activities have not yet been completed14. 7. In recent years, GoRMI has taken a number of steps to strengthen institutional capacity to carry out core public finance functions through the PFM I project. PFM I supported GoRMI to modernize the PFMA and Procurement Code Act in 2023, strengthen the internal control environment with the development of procedural manuals to support implementation of the PFMA, establish an internal audit unit, and develop an internal audit charter and manual which are awaiting approval from the Minister of Finance. PFM I also supported the procurement and rollout of a new Financial 13 These are outlined as key factors for success in the World Bank Guidance Note on “Planning Public Financial Management Reforms in Pacific Island Countries� (2013). 14 Work on the activities set out in the roadmap didn’t commence until around 2018 when both the RCU and PFM I projects started. Page 5 The World Bank RMI Strengthening Public Financial Management II(P181252) Management Information System (FMIS) and establishment a Unified Chart of Accounts (UCoA). A system review was recently conducted to assess and recommend measures to improve the FMIS US GASB reporting functionality. A MOFBPS website was established under PFM I to provide a central point for publishing key GoRMI fiscal information15. Furthermore, innovative approaches have been adopted for citizen engagement, with the development of a PFM awareness campaign and a Citizen Friendly Budget developed in an audio-visual format. 8. In coordination with these efforts, GoRMI has taken additional steps to strengthen institutional capacity to carry out core public finance functions with the support of development partners. The Reform Coordination Unit (RCU)16 has been instrumental to the successful transition from the former 4Gov system to the new FMIS, and other key information systems under implementation by GoRMI include ASYCUDA17 and a Legal Management System. With the support of development partners, a tax reform roadmap has been prepared through 2027 to revise tax tables on wages and salaries, and introduce a consumption tax, excise taxes, and a business profits tax. GoRMI is taking steps to improve budgeting practices and the quality of budget documentation submitted to the Nitijela.18 It also established a State-Owned Enterprise Monitoring Unit (SOEMU) under MOFBPS in 2018 to provide oversight of SOEs and developed an SOE Reform Roadmap and training to SOEs on basic accounting. 19 9. To address challenges in institutional capacity, GoRMI has approved a competency framework for PFM roles, and MOFBPS has partnered with education providers to train officials across government. PFM I supported the development of a competency framework for PFM roles, which has now been endorsed by the Public Service Commission (PSC). PFM I also supported the delivery of training programs linked to the framework, covering a broad range of technical and core competencies, including planning and budgeting, leadership, time management, communication and information technology. The RCU developed and delivered a targeted US GASB training program to MOFBPS participants in partnership with the College of Marshall Islands (CMI). Further efforts are required to build on these efforts and establish a sustainable program of capacity building in GoRMI to address the acute skills shortages in PFM disciplines. The absence of a professional accounting qualification in the country has presented a particular challenge with respect to US GASB reporting, as well as reporting and auditing requirements of the Compact and donors, while the lack of procurement expertise has led to significant delays in undertaking public investments in infrastructure and systems development. 10. Despite significant progress made by GoRMI, further support is required to strengthen core PFM practices. Annual financial reporting for the GoRMI, 11 SOEs and 13 other Component Units (CUs)20 are currently outsourced due to a lack of in-house capacity to generate US GASB financial statements. Outsourcing the preparation of the annual financial statements has become unsustainable and, for the past several years, has resulted in delays. While the FMIS can be leveraged to produce financial reports, year-end adjustments require sophisticated judgements and estimates, the narrative disclosures cannot be fully automated, and the FMIS has not yet been fully rolled out to decentralized users. Training and guidance will be required to support the implementation of the new procurement framework, currently under finalization, and to increase transparency in procurement. Tenders, contract awards and annual procurement reports are not published online. Further strengthening is required for the internal audit function including a review of 15 The MOFBPS website has gone offline in recent years, has undergone redesign and is expected to be relaunched in December 2024. 16 The RCU was established under the ADB Project �50295-001: Public Financial Management Project�. The project is aimed at enhancing the institutional capacity of the Ministry of Finance (MOF) to effectively implement PFM and state-owned enterprise (SOE) reforms. 17 Automated System for Customs Data designed by the United Nations Conference on Trade and Development (UNCTAD). 18 Supported by the Pacific Technical Assistance Center, International Monetary Fund. 19 Supported by the Asian Development Bank (ADB). 20 Under US GASB, a governmental component unit is defined as a legally separate organization for which the elected officials of the primary government are financially accountable. Page 6 The World Bank RMI Strengthening Public Financial Management II(P181252) the scope and responsibilities of the unit and the audit resolutions committees, which were not defined in the PFMA, as well as continued support in implementing the new risk-based internal audit methodology. While some transparency over public finance exists, including parliamentary hearings broadcast on radio and social media, there is no formal mechanism for two-way engagement with citizens. In-year financial reports and a citizen friendly budget are expected to be published under PFM I, however other key fiscal and procurement documents are generally not available to the public. Relationship to CPF 1. The proposed project is aligned with the FY17-21 Regional Partnership Framework (RPF), which has been extended to FY23 by the Board of Executive Directors on February 6, 2020. The RPF defines focus areas relevant to this project, including Focus Area 4 (Cross-cutting: Strengthening the enablers of growth and opportunities, including macro- economic management, infrastructure development and addressing knowledge gaps). 2. Supporting Focus Area 4, the project will build capacity and strengthen public expenditure management . The proposed project will involve the development of HR capacity to sustainably close knowledge gaps within PFM and improve public expenditure and macroeconomic management via the expanded rollout of core public finance systems leveraging the use of the digital infrastructure in RMI. Additionally, by improving procurement expertise, existing delays in undertaking public investments in infrastructure and systems development can be minimized. 3. The proposed project supports achievement of the country’s PFM Reform Roadmap 2014-2016, which continues to be the guiding document for PFM reform in RMI. The project supports the reform roadmap’s objective of strengthening accounting systems and financial reporting for GoRMI and SOEs, strengthening procurement management and capacity to build a more effective and efficient procurement system, strengthening internal audit and increasing transparency. The proposed project further supports the reform roadmap’s objectives of increasing the level of automation of key PFM functions and the integration between systems, as well as individual and institutional capacity building. 4. The proposed project is consistent with the country’s Nationally Determined Contribution (NDC). In 2018, the RMI was the first country to submit an enhanced NDC with a more ambitious binding target of reducing greenhouse gas emissions to at least 32% below 2010 levels by 2025 and to at least 45% below 2010 levels by 203021. It also launched the Tile Til Eo ("lighting the way") 2050 Climate Strategy in 2018 which established a vision to reach net-zero emissions and 100 percent renewable energy by 2050. With the updated NDC, RMI developed its National Adaptation Plan to support implementation of the climate targets. It highlights key actions in mitigation and adaptation and sets out four additional outcome areas focusing on key cross-cutting areas including climate finance, capacity building, gender, human rights, global advocacy, education, youth, outer island engagement, and health. While there are no specific targets or goals in the subsectors the project supports, the proposed project addresses the urgent need identified in the updated NDC to address capacity and resource constraints of GoRMI that limits its access to much needed climate finance and climate related ODA, and the project does not hinder the achievement of the country’s mitigation or adaptation commitments specified in the updated NDC. C. Proposed Development Objective(s) To strengthen the institutional capacity of MOFBPS to carry out core functions of public financial management. 21 https://ndcpartnership.org/country/mhl and https://unfccc.int/sites/default/files/NDC/2022-06/RMI%20NDC- UpdateUPDATED_01.20.2021.pdf Page 7 The World Bank RMI Strengthening Public Financial Management II(P181252) Key Results (From PCN) 6. PDO-level results indicators. Progress toward the achievement of the PDO will be assessed using the following PDO-level results indicators: PDO Outcomes PDO Indicators • Improved public financial management • Number of internal audit recommendations practices. identified and addressed. • Increased timeliness and reliability of financial • US GASB compliant consolidated financial statements produced by MOFBPS. statements prepared with disclosures by • Strengthened human resource capacity to MOFBPS with 6 months after year end. carry out public financial management. • Number of MOFBPS staff holding accreditations in PFM disciplines. D. Concept Description 1. Project description. The Project builds on the achievements of PFM I to further support key strategic areas defined in GoRMI’s PFM Reform Roadmap (defined in par. 9), by addressing challenges in core institutional public finance capacity. Specifically, the project supports: i) strengthened PFM practices in accounting, financial reporting, procurement, internal audit, fiscal transparency and citizen engagement, ii) the continued modernization of PFM systems with continued FMIS support and expansion, and iii) strengthened human resource capacity in PFM. This will include targeted technical training and certification programs and strengthening technical competencies in MOFBPS. The project will thereby strengthen overall institutional capacity by ensuring consistent guidance to foster policy coherence, decreasing reliance on scarce human resources by increasing automation, and a comprehensive program of capacity-building. The primary project beneficiary is the MOFBPS. Line ministries, SOEs and other CUs will also benefit from the project. 2. The project design considers the lessons learned from PFM I to strengthen project oversight and incorporate a stronger focus on strengthening institutional capacity to carry out the core functions of PFM. The implementing agency’s human resources constraint and limited technical capacity pose challenges to project implementation. Building institutional capacity will be achieved through a focus on strengthening PFM practices, continued automation of PFM systems and building sustainable human resource capacity in PFM. All three of these areas are required for reforms to be successful and to ensure sustainability over the longer term. A dedicated Change Management Team will be established to manage and coordinate change activities. During PFM I implementation, a Project Steering Committee (PSC) was not created, instead the existing National PFM Steering Committee and a PFM Working Group were relied on for project oversight. The absence of a dedicated PSC presented challenges in carrying out project oversight effectively and resulted in a valuable lesson learned. The PFM II project will establish a PSC consisting of MOFBPS leadership and relevant development partners. Building on the strong coordination with development partners on PFM, project activities will continue to be closely coordinated with activities supported by other development partners to enhance efficiency, increase leverage, avoid duplication, and optimize resource allocation by harmonizing efforts and aligning methodologies. Lessons from PFM I also demonstrate that coordination improves monitoring and evaluation, and enhances risk management, transparency, and accountability, while promoting broader stakeholder engagement and collaboration, ultimately leading to more effective, sustainable development outcomes. 3. Project Components. The project’s main components are: (i) strengthening PFM practices (ii) modernization of PFM systems; (iii) strengthened human resource capacity in PFM; and (iv) project management. Page 8 The World Bank RMI Strengthening Public Financial Management II(P181252) 4. Component 1: Strengthening PFM practices (US$3,800,000): The enactment of the Public Financial Management Act 2023 has resulted in a stronger PFM environment across a range of PFM functions. To sustain reform momentum, this component will support the continued improvement of PFM practices through the development of implementation guidance aligned with the new policy framework, as well as technical support to implement reforms. The activities are further designed to address the weaknesses noted in accounting, financial reporting and procurement, which have been identified as priority areas by MOFBPS, and strengthen transparency, citizen engagement, and the recently established internal audit unit. 5. Sub-component 1.1: Enhanced accounting and financial reporting practices. The objective of this subcomponent is the enhancement of accounting and financial reporting capacity within MOFBPS, including support to the 11 SOEs and 13 other CUs. The subcomponent is aimed at developing in-house capacity to prepare Annual Financial Statements (AFS) compliant with US GASB standards, in accordance with the GoRMI policy framework. Activities will be supported by advisors and will include: (i) reviewing, developing or updating, as needed, procedures, manuals, guidelines and templates for accounting and financial reporting; (ii) technical advisory support related to in-year recording, reporting and preparation of US GASB AFS; (iii) on-the-job learning to transfer knowledge and build capacity within MOFBPS, SOEs and other CUs; and, (iv) the delivery of a formal learning and certification program for US GASB in coordination with the human resource development activities under Component 3. The subcomponent is envisioned to establish a pool of national accounting experts to build sustainable technical capacity in this area. 6. Sub-component 1.2: Strengthened procurement capacity. The objective of this sub-component is to improve the capability of MOFBPS and other line ministries to carry out procurement aligned with the promulgated Procurement Code, Act 2023 and subsidiary regulations, which are expected to be finalized in February 2025. The project would recruit an external Procurement Advisor who will support the following activities: (i) conduct scoping assessments for automated procurement reporting and publication of tenders and awards and consider the risks and benefits of centralizing the procurement function; (ii) implementation of an online procurement tendering tool which is integrated with MOFBPS webpage and will produce statistics via subscription on the number of contracts signed, number of procurement plans published, and number of tenders advertised annually which will be available publicly (iii) support GoRMI in developing a Procurement manual and training procurement officers on the new procedures. These activities will be closely coordinated with the training and certification of national procurement officers through the human resource development activities under Component 3. 7. Sub-component 1.3: Strengthen internal audit. The objective of this subcomponent is to continue support for the internal audit unit that was established under PFM I to further enhance the capability of the unit to carry out internal audit of MOFBPS, strengthen risk management and the internal control environment, and recommend process improvements. Strengthened internal audit is expected to bolster efforts to strengthen accounting, reporting, and procurement capacity by promoting adherence to policies, accuracy, compliance, and efficiency. These activities will be supported by an Internal Audit Adviser, who will: (i) provide technical advisory support and on-the-job learning and mentoring, and (ii) support the delivery of internal audits carried out in accordance with the risk-based audit approach laid out in the IA manual; and (iii) support a review of the scope and responsibilities of the IA unit and the audit resolution committees. The activity will be closely coordinated with the human resource development activities under Component 3. 8. Sub-component 1.4: Enhanced transparency and citizen engagement. The subcomponent will be aimed at enhancing transparency over public finance and procurement information and increasing two-way engagement with citizens on public finance. The activities envisaged under this sub-component include: (i) development and implementation of an MOFBPS strategy for enhanced transparency and citizen engagement, including partnerships with Community Service Organizations to support these efforts; and (ii) publication of additional fiscal and procurement documents. Enhancing transparency in public finance and procurement, along with increasing citizen engagement through implementation of the strategy, is envisioned to promote accountability, including around borrowing decisions, Page 9 The World Bank RMI Strengthening Public Financial Management II(P181252) build public trust, and help citizens, civil society and the media better understand public finances. The sub-component will primarily be supported by a communication adviser, in coordination with technical advisers supporting other components of the project. 9. Component 2: Modernization of PFM systems (US$3,400,000): This component will support the continued modernization of PFM systems, including the continued support and configuration of the FMIS implemented under PFM I. The component is expected to contribute to improved operational efficiency through the continued automation of processes and decreased reliance on scarce human resources, enhanced transparency and accountability through real- time access to financial data and transactions, and more timely reporting over public finances. To mitigate risks associated with RMI’s significant vulnerability to natural disasters and climate change, the FMIS strategy and system leverage a cloud based and local disaster recovery solution designed to recover and protect financial data, ensure the continuity of financial operations, and support the rapid resumption of services after a climate-related event. The FMIS additionally provides for electronic document management to digitally secure data and documents, thereby securing data in the event of a climate disaster such as a flooding event or a fire during times of drought, as well as decreasing the use and waste of paper. The proposed activities include: (i) continued FMIS system support, maintenance and annual licenses; (ii) in-house (MOFBPS) IT technical advisory and information security support: (iii) continued customization of FMIS to meet MOFBPS functional and reporting needs, including development of Application Programming Interfaces (APIs) with other key systems; (iv) establishment of a super user group and Training of Trainers (ToT) for sustained delivery of user training; and (v) continued decentralized rollout of FMIS to blended component units22, embassies and consulate missions. The sub-component will mainly be supported by an FMIS Specialist who will work alongside ICT assistance and US GASB advisory support provided in subcomponent 1.1, as well as through engaging services of the FMIS vendor, ensuring dedicated support services and optimized use of the FMIS. This subcomponent is envisioned to include providing mentoring and on-the-job learning for FMIS and IT staff in MOFBPS. 10. Component 3: Strengthened human resource capacity in PFM (US$1,800,000): This component aims to build on the human resource capacity, strengthen communications and change management established under PFM I. The component will support capacity building for core PFM functions and processes within MOFBPS, as well as continued change management and communications. 11. Sub-component 3.1: PFM skills enhancement. The objective of this sub-component is to strengthen human resource capacity for public finance by continuing competency development activities initiated under PFM I, with a focus on strengthening technical capability to carry out accounting, financial reporting, procurement and internal audit. The subcomponent will leverage existing external training partnerships and establish new partnerships to deliver targeted training in priority areas and include measures to attract and retain staff, including nationally and internationally recognized certifications and support for recognizing these within the renumeration framework of GoRMI. The proposed activities encompass: (i) updating the gender-informed competency framework to capture the competencies needed to support the reform areas identified in Component 1; (ii) continuation and update of gender informed recruitment practices established in PFM I; (iii) introducing targeted training to support the development of competencies in these areas, with a focus on US GASB, accounting technician, internal audit, and procurement certification programs, with gender and retention targets; and (iv) establishment of a national accreditation body to establish certification requirements, recognize and issue certifications. These activities will be supported by a Human Resource Development Adviser. Formal training will be complemented by on-the-job learning under Component 1 to maximize learning outcomes. 12. Sub-component 3.2 Change management and communications. The objective of this subcomponent is to carry out effective change management and communications to support the management of change associated with the 22 US GASB defines blended component units as component units that are so intertwined with the primary government that they are, in substance, the same as the primary government and are presented as part of the primary government. Page 10 The World Bank RMI Strengthening Public Financial Management II(P181252) reform. The activities under this subcomponent include an update the Gender-Sensitive Change Management and Communications Strategy, unconscious bias training, continuous support of the MOFBPS website ensuring this continues to enable citizen feedback and responses from GoRMI, the establishment of a change team to manage and coordinate change activities. The subcomponent will also support a diaspora survey, conducted in coordination with the Economic Policy, Planning and Statistics Office to gather information about the RMI diaspora community, including education levels, skill sets, and potential plans for return, with an objective of assessing interest and suitability for certification programs and employment opportunities offered by MOFBPS. These activities will be supported by the communications specialist in coordination with the activities under subcomponent 1.4. 13. Component 4: Project Management (US$1,000,000): The objective of this component is to support overall project management and coordination. The implementation agency for the project will be MOFBPS. The project implementation arrangements envisage a Project Implementation Unit (PIU) to support MOFBPS in daily activities and the financial management and procurement responsibilities of the PIU. The PIU will include a project manager and a project officer. The project will finance the required office equipment and IT facilities at MOFBPS to enable and facilitate implementation. Specifically, the project will fund the purchase of computers, printers, and other required office furniture or equipment related to project management. It will also finance external audit fees for the project, if necessary, as required by the legal agreement. @#&OPS~Doctype~OPS^dynamics@legalpolicyandscreeningrisk#doctemplate Legal Operational Policies Policies Triggered? Projects on International Waterways OP 7.50 No Projects in Disputed Area OP 7.60 No Summary of Screening of Environmental and Social Risks and Impacts The project is assessed to have low environmental and social risks. Project activities are expected to have positive and beneficial impacts through the strengthened institutional capacity of the Ministry of Finance, Banking and Postal Services to carry out the core functions of public financial management. This would be achieved through strengthened PFM practices, continued automation of PFM systems, and building sustainable human resource capacity in PFM. All the activities of the project are technical assistance type of activities. The project is not expected to support any physical infrastructure activities, or feasibility studies/technical design for future investment projects. These technical assistance activities are expected to have minor or negligible environmental and social impacts. The project is not expected to have any direct impact on natural habitats or cultural heritage sites, nor will it undertake any activity that results in physical or economic displacement. Key risks relate labor management of professional office-based staff and stakeholder engagement, which can be easily mitigated via inclusion of labor management and stakeholder engagement requirements in the ESCP. Environmental and social considerations will be integrated into Terms of Reference for all project activities. ESCP will be developed to ensure the implementation of these commitments. @#&OPS~Doctype~OPS^dynamics@contactpoint#doctemplate CONTACT POINT Page 11 The World Bank RMI Strengthening Public Financial Management II(P181252) World Bank Bonnie Ann Sirois Senior Financial Management Specialist Elena Georgieva Georgieva-Andonovska Senior Public Sector Mgmt. Specialist Borrower/Client/Recipient Ministry of Finance Banking and Postal Services Implementing Agencies Ministry of Finance, Banking and Postal Services Ayako Yamaguchi-Eliou Secretary of Finance yamaguchieliou@gmail.com FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects @#&OPS~Doctype~OPS^dynamics@approval#doctemplate APPROVAL Task Team Leader(s): Bonnie Ann Sirois, Elena Georgieva Georgieva-Andonovska Approved By Practice Manager/Manager: Patricia Mc Kenzie 20-Sep-2024 Country Director: Stephen N. Ndegwa 29-Oct-2024 Page 12