Report No: RES00510 INTERNATIONAL DEVELOPMENT ASSOCIATION RESTRUCTURING PAPER ON A PROPOSED PROGRAM RESTRUCTURING OF Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management APPROVED ON 13-JUN-2019 TO THE Islamic Republic of Pakistan Macroeconomic, Public Sector, Trade, and Investment South Asia This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) CURRENCY EQUIVALENTS (Exchange Rate Effective November 5, 2024) Currency Unit = Pakistani Rupees (PKR) PKR 278 = US$1 US$ 1 = SDR 0.75 FISCAL YEAR July 1 – June 30 Regional Vice President: Martin Raiser Country Director: Najy Benhassine Regional Director: Mathew A. Verghis Global Director: Maria Manuela Do Rosario Francisco Practice Manager: Saiyed Shabih Ali Mohib Task Team Leader: Irum Touqeer i The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) ABBREVIATIONS AND ACRONYMS ADP Annual Development Program BOR Board of Revenue DLI Disbursement-Linked Indicator ETNCD Excise, Taxation, and Narcotics Control Department FBR Federal Board of Revenue FD Finance Department FY Financial Year GovKP / GoKP Government of Khyber Pakhtunkhwa GSTS General Sales Tax on Services HDF Hydel Development Fund KP Khyber Pakhtunkhwa KPRA Khyber Pakhtunkhwa Revenue Authority KPRMP Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management NFMIS National Financial Management Information System OBB Output-Based Budgeting OSR Own Source Revenue OSU Operation Support Unit P&DD Planning and Development Department PDO Program Development Objective PFM Public Financial Management PforR Program for Results PIU Project Implementation Unit TMAs Tehsil Municipal Administrations TPV Third-Party Verification TPVA Third-Party Verification Agent TSA Treasury Single Account UIPT Urban Immovable Property Tax @#&OPS~Doctype~OPS^dynamics@pfrrestrhybridbasicdata#doctemplate ii The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) BASIC DATA Product Information Operation ID Operation Name Khyber Pakhtunkhwa Revenue Mobilization and Public P162302 Resource Management Product Operation Acronym Program-for-Results Financing (PforR) KP Revenue and PRM Operation Status Approval Date Active 13-Jun-2019 Does this operation have an IPF component? Yes Original EA Category Current EA Category Not Required (C) (PAD Approval Package-13 Jun 2019) ACCOUNTABILITY Region/Country Who is the primary beneficiary of this operation? Beneficiary country/countries (borrower, recipient) Country or Group of Countries Pakistan Geographical Identifier Pakistan Requesting Unit SACPK (1539) Will regional institutions act as the borrower/implementer? Implementing Unit Responsible Unit (e.g. EECG1) Practice Area (Lead) ESAC1 (10342) Macroeconomics, Trade and Investment Contributing Practice Areas iii The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) Governance @#&OPS~Doctype~OPS^dynamics@pfrrestrhybridoperationstatus#doctemplate OPERATION STATUS Development Objective (DO) Development Objective To increase the collection of Khyber Pakhtunkhwa's own source revenues and improve the management of public resources Disbursement Summary (in USD million) Source of Funds Net Commitment Disbursed Undisbursed % Disbursed IBRD -- -- -- 0 IDA 112.32 94.82 20.86 81.97 Grants -- -- -- 0 Policy Waivers Does this restructuring trigger the need for any policy waiver(s)? No @#&OPS~Doctype~OPS^dynamics@restrhybridmpa#doctemplate Note: Total approved amount of the Program is USD 118 million, including USD 18 million for IPF component. However, since the disbursed and undisbursed amounts are converted from SDR to USD using the prevailing exchange rates, the loan amount may appear different in the data sheet. iv The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) TABLE OF CONTENTS I. PROJECT STATUS ..........................................................................................................................................................1 II. DESCRIPTION OF PROPOSED CHANGES AND RATIONALE FOR RESTRUCTURING .....................................................3 III. PROPOSED CHANGES .................................................................................................................................................4 IV. DETAILED CHANGE(S) .................................................................................................................................................4 ANNEX 1: RESULTS...........................................................................................................................................................7 ANNEX 2: PROGRAM ACTION PLAN ..............................................................................................................................14 ANNEX 3: SUPPORT FOR CASH MANAGEMENT............................................................................................18 ANNEX 4: SHARED SERVICES UNIT AND OPERATIONS SUPPORT UNIT..........................................................19 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) I. PROJECT STATUS 1. Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management Program (KPRMP) is a five- year Program for Results (PforR) of US$ 118 million, with a results-based component of US$ 100 million and an Investment Project Financing (IPF) component of US$ 18 million. The results-based component (or Part 1) disburses against achievement of results and the achievement of the Disbursement Linked Indicator (DLI) targets. These DLIs are linked with two result areas: (i) efficient revenue mobilization, and (ii) effective public resource management. The IPF component (or Part 2) mainly supports technical assistance, ICT investments and capacity building to enhance e- government functionality, complementing key areas under Part 1 of the Program, and providing operational support. 2. The Program is currently rated as Moderately Unsatisfactory against progress towards the achievement of its development objective, however, extension of the closing date and restructuring of the Program are being requested which are expected to lead to an improvement in performance. So far, the Program has disbursed US$ 94.82 million, about 80 percent of the total project amount of US$ 118 million. The Mid-Term Review (held in May 2023) and subsequent implementation support missions have found significant achievements under the results-based component on several DLIs. However, some indicators need to be updated to reflect data availability, align with revised methodology, and provide flexibility. The e-Governance or paperless governance initiative, under the IPF component, requires additional time for implementation, as it was delayed due to COVID related restrictions. 3. Notwithstanding the less than satisfactory rating of the Program, the World Bank’s Country Director for Pakistan has provided exceptional approval for the proposed time extension and restructuring of the Program. 4. Overall progress is summarized below. i. Part 1: Program for Results a) Result Area 1 - Efficient Revenue Mobilization. Khyber Pakhtunkhwa (KP)’s tax revenue has increased from PKR14.3 billion (US$ 51.4 million) in FY19 to PKR 56 billion (US$ 201.4 million) in FY24 – surpassing the Program target of PKR 21.50 billion (US$ 77 million; PDO indicator). The improved revenue performance is mainly supported by General Sales Tax on Services (GSTS) which accounts for 57 percent of the tax revenue of the province. The GSTS Tax base has expanded from 3,938 registered taxpayers in 2018 to 20,275 in June 2023) and improved filing compliance for GSTS (from average 51percent of registered taxpayers in 2018 to 72percent in FY23; DLI 1). The GovKP has approved the tax data integration plan, and KP Revenue Authority (KPRA) has established third party data linkages, which will be helpful for tax intelligence and audit (DLI 2). Another important source of KP’s tax revenue is Urban Immoveable Property Tax (UIPT). The UIPT records of 8 cities in Abbottabad, Nowshera and Mardan districts have been updated (based on survey), digitized and linked with the MIS and GIS map (DLI 3). As a result, the UIPT base in these cities has substantially expanded, which will support increased collections. b) Result Area 2: Effective Public Resource Management. The improvement in mangement of public investment is supported by an increased share of Annual Development Programme (ADP) funds being spent on capital investment (from 47 percent in FY17 to 83 pecent in FY24; PDO indicator). Furthermore, only 16 percent of ADP funds were allocated to unapproved projects in FY24, compared to the 49 percent baseline in FY18 (DLI 5). In addition, more than 120 Tehsil Municipal Authorities (TMAs) are using Centarlized Financial Management System (CFMS) to record their transactions according to the object code of the Chart of Accounts (DLI 6). Page 1 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) Some progress has also been noted in improving cash management (PDO indicator and DLI 4). For example, the KP Public Financial Management Act has been approved, and a Cash Management policy has been adopted. Procedures for the reconciliation of Government accounts have been approved. Going forward, the Government of KP (GovKP) plans to use “sweeping of bank balances approach” to take into account daily cash balances held in commercial banks. This approach has been piloted in the Finance Department and KP Procurement Regulatory Authority (KPPRA), which provides useful lessons for further implementation of this approach. In addition, a cash management module has been developed as part of e-Governance initative, which will support implemenation of the new approach (see Annex 3 for details). ii. Part 2: IPF component a) The e-Governance (e-Gov) or paperless governance initiative aims to facilitate GovKP’s administrative processes in selected departments1. The e-Gov related activities have faced delays due to reasons beyond the control of the Program. These include delay in the delivery of work by consultants due to COVID-19 related restrictions, and recently due to repeated turnover of officials of the GovKP who were assigned to e-Gov related activities, resulting in delays in implementation. With renewed interest in the e-Gov initiative, the GovKP has made significant progress. A draft e-Gov strategy has been prepared. A new Steering Committee for e-Gov initiative, headed by the Additional Chief Secretary (Home Department), has been notified. The business process mapping (BPM) has been completed for selected Business Processes (BPs) which are relevant for all government departments. For the reengineering of BPs, Functional Requirements have been designed, and digital modules have been developed for prioritized BPs (9 out of total 52 major BPs). These modules will be rolled-out after having been reviewed and tested. The modules development is in process for remaining BPs. In addition, required hardware, software and networking facility are being procured2. To support the change management process, trainings and communication activities were conducted. Overall, the government has expanded the scope of rollout of digitized BPs from 7 pilot departments to cover the secretariat of all 34 departments. The e-archiving is also planned to be initiated soon, which will require additional time to complete activities and rollout. b) Operations implementation support: The GovKP has notified the establishment of a Shared Services Unit (SSU), headed by a Director SSU (Grade 18+ government officer), with a revised structure that supports sharing of key project management functions (fiduciary, safeguards and M&E) between KPRMP and KP Spending Effectively for Enhanced Development (SPEED) Program, which are being managed by the Finance Department. The revised structure does not include support for other Bank projects, as the GovKP has already established Project Implementation Units (PIUs) for other Bank projects with required staff. KPRMP’s Operation Support Unit (OSU) will be headed by a Project Director (either hired from market or seconded from the government) who will be assisted by SSU and OSU staff to implement the Program. Relevant information will be updated in Financing Agreement and Operation Agreement. The Finance Department of GovKP plans to maintain the SSU after the closing of KPRMP. 1 It includes Finance, P&D, home, local government, establishment and education departments. 2 The contracts have been signed for BPR of government processes, design of Work-Flow and Document Management System (WDMS), information security and vulnerability assessment, and digital literacy training of govt officials. In addition, procurements have completed or are in process for licenses for Oracle Linux Premier Support (8 licenses), digital screens for change management, IT equipment and licenses for the rollout of tranche 1 of e-Gov, JIRA license for e-Gov, and wireless infrastructure for WDMS. To provide coordination and helpdesk support for e-Gov, a team of IT consultants and associates is on board. Page 2 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) II. DESCRIPTION OF PROPOSED CHANGES AND RATIONALE FOR RESTRUCTURING 5. As per the request of Ministry of Economic Affairs, Government of Pakistan (letter dated: December 19, 2024, No. F.5(2l)WB-lV/2017), this restructuring paper proposes to: (i) extend the duration of the Program to June 30, 2026, to ensure adequate time for the achievements of key results and completion of the IPF component of the Program; (ii) revise selected PDO and DLI indicators and verification protocols to align with the updated methodology of consolidation of government’s cash deposits in commercial banks, reflect developments /methodological approaches not envisioned during the design of the Program, and (iii) reflect the extended Program duration. In addition, as mentioned above, the structure and scope of SSU and OSU have been revised, to be headed by a Director SSU and Project Director (PD), respectively. Relevant changes will be made in the Financing Agreement and Operation Agreement (see Annex 4 for details on SSU and OSU), including definition of the Operating Cost. The changes in results matrix are summarized in Table 1, while detailed revisions are available in the Annex 1. In addition, corrections in Program Action Plan are also made related to risk-based audit of taxpayers and communication campaign (see Annex 2). These revisions are important to improve performance of the Program. 6. There are no changes made to the implementation arrangements, fiduciary management, and environmental and social arrangements of the Program. There are no outstanding, overdue audit reports, or any ineligible expenditure. Table 1: Proposed Changes to PDO indicators and DLIs3 Indicator Proposed Changes PDO Indicators 1. Increase in own source Revised. Considering improved performance in revenue mobilization, OSR targets tax revenues have been added for the extended period of the Program (5percent increase each year), using FY24 as the baseline. The original indicator was in PKR million, which will now be reported in USD. 2. Cash deposits held by Revised. Based on the analysis of available data, the target is revised to focus on Government in commercial bank deposits of autonomous bodies and mainstream departments, commercial banks which amount to RS. 105 billion (in 723 accounts) of total commercial bank deposits of the GovKP (RS. 282 billion) as of December 2023. Overall target is to consolidate at least 50percent of the balances of government accounts held in commercial banks. This is in line with the government’s strategy to adopt sweeping of balance approach for cash consolidation. Disbursement Linked Indicators (DLIs) DLI 1: Registered Revised. Targets are aligned with extended period of the Program. Overall allocated taxpayers who filed amount (US$ 25 M) remains unchanged; however, annual allocations have been GSTS in previous year adjusted to reflect proposed changes. DLI 2: Database Revised. BOR and ETNCD are in process of digitizing their tax databases. integration in tax Therefore, final targets are aligned with extended period of the Program to allow administration additional time to achieve results. Overall allocated amount (US$ 10 M) remains unchanged. DLI 3: Cities with Revised. Indicator name and verification protocol have been changed by removing updated UIPT surveys, updated valuation from the indicator, because new methodology will be piloted after completing the digitization in required number of cities. Updated valuation of at 3 Revised targets are under discussion with Govt of KP; to be finalized soon. Page 3 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) Indicator Proposed Changes valuations and digitized least one city is included as last year target. Overall allocated amount (US$ 15 M) records remains unchanged. DLI 4: Cash management Revised. The indicator is aligned with the government’s revised methodology of based on regular daily consolidation of cash balances of its selected commercial bank accounts, using consolidation of cash sweeping of account balances approach. balances and regular cash plans The end target is submission of monthly cash plans to the Finance Department by at least 4 departments. Total DLI amount (US$ 20 M) remains unchanged, however, annual allocations have been adjusted to reflect proposed changes. DLI 6: TMAs using Revised. The indicator title and targets are revised to include FMIS instead of NFMIS to record NFMIS, as TMAs are using a centralized FMIS, which will be linked with NFMIS. transactions Total DLI amount (US$ 20 M) remains unchanged. @#&OPS~Doctype~OPS^dynamics@restrhybridsummarychanges#doctemplate Summary changes III. PROPOSED CHANGES Operation Information Proposed Changes Operation Information Proposed Changes Results Yes Loan Closing Date Extension Yes Disbursements Estimates Yes Implementation Schedule Yes Program Action Plan Yes Loan Cancellations No Development Objective No Reallocations No Safeguard Policies Triggered No Financial Management No ISDS No Procurement No MFD/PCE No Institutional Arrangement No Risks No Legal Covenants No Conditions No Implementation Modalities No Disbursements Arrangements No Clients No @#&OPS~Doctype~OPS^dynamics@pfrrestrhybriddetailedchanges-disclose#doctemplate IV. DETAILED CHANGE(S) COSTS & FINANCING Page 4 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) Is this an MFD-Enabling Project (MFD-EP)? Is this project Private Capital Enabling (PCE)? LOANS Loan Closing Original Revised Proposed Proposed Deadline Loan/Credit/Trust Status Closing Closing(s) Closing for Withdrawal Fund Applications IDA-64210-001 Effective 31-Dec-2024 31-Dec-2024 30-Jun-2026 30-Dec-2026 DISBURSEMENTS Operation Dates & Projection Details Reasons to change the full Disbursement date and/or the projection Restructuring, Change in Pace of Implementation Implementation Start Date Operation Closing Date 13-Jun-2019 31-Dec-2024 Projected Date for Full Disbursement 30-Jun-2026 Expected Disbursements (in US $) (Absolute) Original Estimation at Preparation Actual Year Revised Estimation (Approval Package – 13 Jun 2019) FY2019 238,360.00 12,000,000.00 11,987,323.80 FY2020 7,461,022.00 16,590,000.00 24,015,065.91 FY2021 9,972,652.00 15,160,000.00 21,056,305.80 FY2022 17,001,322.00 14,300,000.00 16,107,007.76 FY2023 27,990,780.00 10,250,000.00 15,652,861.80 FY2024 38,573,020.00 8,360,000.00 6,005,565.00 FY2025 15,480,892.00 20,800,000.00 0.00 FY2026 0.00 20,540,000.00 0.00 Page 5 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) LEGAL Environmental Assessment (EA) Category Change in EA Category? No Safeguard Policies Triggered Triggered Explanation (required if rating Current changes) Policies Projects on International Waterways (OP) (BP 7.50) Projects in Disputed Area (OP) (BP 7.60) Page 6 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) ANNEX 1: RESULTS COUNTRY: Pakistan Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management @#&OPS~Doctype~OPS^dynamics@pfrrestrannexpolicyandresult#doctemplate PDO Indicators by PDO Outcomes Increase in KP Own Source Revenue Indicator Name Baseline Actual (Previous) Actual (Current) Closing Period Result Month/Year Result Date Result Date Result Month/Year Revise Increase in own source tax 52 Jun/2019 202 28-Jun-2024 202 29-Jun-2024 223 Jun/2026 revenues (USD million) Comments on achieving targets Revision: Considering improved performance of KP Government in revenue mobilization, OSR targets included (Amount(USD)) for extended period of Program (5% increase each year), using FY24 as baseline (USD 202mn). Improved Cash Management Indicator Name Baseline Actual (Previous) Actual (Current) Closing Period Result Month/Year Result Date Result Date Result Month/Year Rs. 105 billion in 723 Jun/2024 Not achieved. PKR 29-Dec-2023 Not achieved. PKR 26-Sep-2024 Consolidating at Jun/2026 accounts of 282 billion cash 282 billion cash least 50% (over autonomous bodies balances held in balances held in baseline) of the and mainstream commercial banks. commercial banks. balances of government 52% increase over 52% increase over government Revise Cash deposits held by departments, held baseline. baseline. accounts held in Government in commercial banks in commercial banks Government is commercial banks. (Text) (Dec 2023) working on new approach of sweeping account balances. Comments on achieving targets Rationale: Targets revised to align with government’s revised methodology of balance sweeping arrangement for daily consolidation of cash balances. Improved Management of Public Investments Page 7 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) Indicator Name Baseline Actual (Previous) Actual (Current) Closing Period Result Month/Year Result Date Result Date Result Month/Year 47% Jun/2017 83% 28-Jun-2024 83% 28-Jun-2024 >65% Jun/2024 Share of ADP funds spent on capital Comments on achieving targets In FY2022/23, total Annual Development Plan (ADP) was PKR 283 billion (excluding foreign funded projects) and investment (Text) the amount for capital share was PKR 230.23billion or 81.35% of total ADP. In FY2023/24 this share has increased to 83% based on total ADP of PKR 71billion and capital share of PKR 59 billion Intermediate Results Indicators by Results Areas Efficient Revenue Mobilization Indicator Name Baseline Actual (Previous) Actual (Current) Closing Period Result Month/Year Result Date Result Date Result Month/Year Revise 51.00 Jun/2017 72 30-Jun-2023 72 01-Jul-2023 75.00 Jun/2026 Registered taxpayers who filed GSTS in previous year (Percentage) Comments on achieving targets TPV report is being finalized for FY24 achievement. No linkages among Nov/2018 Year 4 and 5 targets 28-Jun-2024 A firm is hired to 26-Sep-2024 A shared data May/2026 KP tax authorities’ are being reviewed develop data warehouse for KP databases or with by third party. A integration tax authorities is third-parties firm is hired to framework. operational, develop data Accordingly, data providing shared integration will be stored in data access to KP tax framework. warehouse, and authorities, Revise Database integration in tax Accordingly, data data management accessible through administration (Text) will be stored in and access protocols taxpayers name, warehouse, and will be designed. CNIC number or data management other defined fields. and access protocols will be designed. Comments on achieving targets Revision: BOR and ETNCD are automating their taxes. The targets are revised to align with extended period of the Program. Key tax Apr/2019 Action plan has 28-Jun-2024 Action plan has 27-Sep-2024 Taxpayer May/2026 administration been prepared for been prepared for registration, filing or processes are not business process business process invoicing, payment, Page 8 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) simplified and simplification and simplification and monitoring of digitized for main harmonization. Year harmonization. BoR arrears and appeals taxes 4 and 5 targets not and ETNCD are in processes of key ReviseBusiness processes for tax achieved. the process of taxes digitized administration simplified and automating their tax digitized (Text) databases. Comments on achieving targets Revision: Updated indicator title to focus on simplification and digitization of business processes. Target is updated by replacing litigation process with tax filing and invoicing process, as litigation in courts is out of control of tax authority. None Apr/2019 12 TFCs not 28-Jun-2024 12 TFCs not 26-Sep-2024 6 TFCs (cumulative) May/2026 established established. Govt plans to establish Revise Taxpayer facilitation centers facilitation centers functional (Text) at divisional level. Comments on achieving targets Revision: Targets are revised to align with the plan of the government to establish citizen facilitation center or tax facilitation center at divisional level. No recent survey Apr/2019 1 additional city 22-Nov-2023 1 additional city 22-Nov-2023 Update property Jun/2026 conducted; partial (total 8 cities) (total 8 cities) valuations in at least digitization of tax completed. completed. one city records in some Additional work in Additional work in Revise Cities with updated UIPT surveys cities. two cities is being two cities is being and digitized records (Text) reviewed by TPV reviewed by TPV firm. firm. Comments on achieving targets Revision: Included updated valuation indicator for last year for at least one city. Valuation methodology will be piloted after completing the digitization in required number of cities. No asset maps of Apr/2019 Act on 28-Jun-2024 BOR is verifying the 27-Sep-2024 A pilot for May/2026 government-owned establishment of digitized record of commercial real estate. holding company asset maps. But utilization of public Revise not drafted, its establishment of real estate Improved capacity for revenue board members not holding company for successfully generation from public property approved, and commercial use of completed (Text) performance properties for framework and revenue generation targets not set for is not achieved. the company. Page 9 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) Comments on achieving targets Revision: Changed the title of indicator to reflect expected outcomes. Targets revised to provide flexibility in approach (e.g. using holding company or existing institutional setup) for commercial utilization of public property to generate revenue. Effective public resource management Indicator Name Baseline Actual (Previous) Actual (Current) Closing Period Result Month/Year Result Date Result Date Result Month/Year Cash management May/2019 Year 5 target being 28-Jun-2024 Government is 26-Sep-2024 At least 4 Govt Jun/2026 not based on regular reviewed by third working on cash Departments, whose consolidation of party consolidation using cash balances are cash balances and new approach daily consolidated, regular cash plans. (sweeping of have prepared balances), designed monthly cash plans Revise Cash management based on cash management and submitted to FD regular consolidation of cash module and balances and cash plans (Text) developed plan to provide cash forecasting and planning training to departments. Comments on achieving targets Rationale: Targets revised to align with government’s revised methodology of balance sweeping arrangement for daily consolidation of cash balances. 0.00 May/2019 3.00 28-Jun-2024 3.00 28-Jun-2024 9.00 May/2024 Sectors with public investment plans Comments on achieving targets Total 3 departments (Social welfare, Relief & Rehabilitation and Education departments) have submitted their (cumulative) (Number) sector plans. To support development of sector plans for remaining 4 departments, consultant is to be hired. Govt of KP has implemented PAMframes tool across all departments to track the output and outcome of Public Investment Management Allocated funds to May/2019 16.07% 28-Jun-2024 16.07% 28-Jun-2024 DLR 5.5: Allocated May/2024 unapproved projects funds to are 49% of total Unapproved ADP funds allocated to unapproved ADP(excluding Projects have not projects (except foreign project Foreign project exceeded 20% of assistance) (Text) assistance)in FY18. total ADP (excluding Foreign Project Assistance) in FY24 Page 10 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) Comments on achieving targets Percentage of ADP funds allocated to new projects that have not been approved by the competent authority (District Development Working Party, Provincial Development Working Party, Central Development Working Party) except projects awaiting approval by ECNE*. *The Executive Committee of the National Economic Council (ECNEC) is the federal entity in charge of sanctioning public sector developmet schemes costing ˃ PKR 3 billion. Limited and uneven Apr/2019 Year 4 and 5 targets 28-Jun-2024 BPR, procurement 26-Sep-2024 Implementation of e May/2026 functionality of e- are not achieved. of software and archiving/indexing Government design of modules of government for selected records in at least business processes three targeted Revise E-Government functionality completed. After departments strengthened in selected government review, these will be departments (Text) rolled-out to selected departments. Comments on achieving targets Revision: The targets are revised and includes rollout of automated administrative processes to seven departments, and e-archiving to at least three departments to allow flexibility. No FMIS Apr/2019 Year 5 target is 28-Jun-2024 As per draft TPV 30-Aug-2024 Provided that the 30 May/2024 decentralization being reviewed by report, 127 TMAs TMAs continue to plan. third party are using FMIS. use FMIS to record payments:20 Revise TMAs using FMIS to record additional TMAs transactions (Text) have used the FMIS to record payments throughout Year 5 Comments on achieving targets Revision: NFMIS is replaced with FMIS in title and targets of the indicator, as Local Government has rolled out a Centralized FMIS to TMAs, which will be linked with NFMIS. 0.00 May/2019 26 28-Jun-2024 26 28-Jun-2024 32.00 May/2024 OBB departments with measurable Comments on achieving targets Year 1: 25%, 8 out of 32 departments; Year 2, 3, and 4: 28%, 9 out of 33 departments; and Year 5: 26%, 9 out of gender KPIs, reporting number of 34 departments (recently the Govt of KP increased the number of departments from 32 to 34). These 9 females reached by their services departments have gender based KPIs (55 KPIs) and they report number of females reached by their services. (Percentage) Currently, the government is reviewing these KPIs to make them quantifiable and outcome oriented. It is important to develop KPIs for and build capacity of additional departments in this area so that relevant reporting can be done on regular basis. No reports currently Apr/2019 Year 5 target not 28-Jun-2024 KP funds reports are 27-Sep-2024 Annual reports for May/2026 published; No achieved. not published. KP Funds published Page 11 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) estimate of pension Revise Improved management of liabilities dedicated funds (Text) Comments on achieving targets Revision: Updated indicator targets to remove HDF, which has been abolished by the government, and provided flexibility for the publication of fund reports. Disbursement Linked Indicators (DLI) Actual (Previous) Actual (Current) DLI Name Baseline End Target Result Date Result Date Revise1 Registered Value 51.00 75 taxpayers who filed GSTS in previous year Allocated 72 30-Jun-2023 72 30-Jun-2023 (Percentage) 0.00 2,000,000.00 Total Amount Allocation:25,000,000.00 No linkages among KP Year 4 and 5 targets tax authorities’ being reviewed by A shared data warehouse databases or with third party. A firm is A firm is hired to for KP tax authorities is third partiesData hired to develop develop data operational, providing Revise 2 Database Warehouse Pilot in data integration integration framework. shared data access to KP Value integration in tax the Department of framework. Accordingly, data will tax authorities. Accessible administration (Text) Science and Accordingly, data 28-Jun-2024 be stored in 27-Sep-2024 through taxpayers name, Total Technology and will be stored in warehouse, and data CNIC number or other Allocation:10,000,000.00 Information and warehouse, and management and defined fields. Technology (ST&IT) data management access protocols will be and access designed. Allocated protocols will be 0.00 2,200,000.00 Amount designed. No recent survey Update property Value conducted; partial 8 cities 22-Nov-2023 total 8 cities 22-Nov-2023 valuations in at least one digitization of tax city Page 12 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) Revise 3 Cities with updated records in some UIPT surveys and digitized cities. records (Text) Allocated Total 0.00 1,000,000.00 Amount Allocation:15,000,000.00 Government is working At least 4 Govt Cash management on cash consolidation Departments, whose cash Revise 4 Cash management not based on regular using new approach balances are daily based on regular Value consolidation of cash (sweeping of balances), consolidated, have consolidation of cash balances and regular designed cash prepared monthly cash Year 5 target not balances and cash plans cash plans 28-Jun-2024 management module 27-Sep-2024 plans and submitted to achieved. (Text) and developed plan to FD Total provide cash Allocation:20,000,000.00 Allocated forecasting and 0.00 planning training to 9,000,000.00 Amount departments. Allocated funds are 5 ADP funds allocated to 49 percent of total unapproved projects Value ADP excluding foreign (excluding foreign project project assistance assistance) (Text) 16.07% 28-Jun-2024 16.07% 28-Jun-2024 (FY17/18 ADP) Total Allocation:10,000,000.00 Allocated 0.00 Amount Revise 6 TMAs using FMIS No FMIS Value to record transactions decentralization plan Year 5 target is as per draft TPV report, (Text) being reviewed by 28-Jun-2024 30-Aug-2024 Allocated 127 TMAs using FMIS. Total 0.00 third party. Amount Allocation:20,000,000.00 Page 13 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) ANNEX 2: PROGRAM ACTION PLAN . @#&OPS~Doctype~OPS^dynamics@pfrrestrannexprogramactionplan#doctemplate PROGRAM ACTION PLAN PAP_CHANGE_TBL Completion Action Description Source DLI# Responsibility Timing Measurement Action Develop annual Fiduciary NA FD Recurrent Submission of annual internal audit plan Systems internal audit plan and and conduct internal internal audit report to audits of KPRA; KPITB; the Association Yearly No change ETNCD; FD; PD&D and LGD in a manner and substance satisfactory to the Association Conduct inclusive Technical NA FD, KPRA, ETNCD, Recurrent At least two communication and BoR communication awareness campaigns campaigns per year to be on tax compliance, included in the Program Taxpayer Facilitation Reports submitted by the Centers (TFCs) and on PIU to the Association. the benefits of Semi-Annually Revised commercialization of government properties, with a special focus on reaching women and vulnerable groups. Page 14 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) All commitments Technical NA P&DD Recurrent All commitments entered in NFMIS in available in NFMIS in four targeted the four targeted provincial provincial government government Continuous departments No change departments (Communication and Works, Education, Health and Irrigation) Conduct Environmental NA P&DD Due Date Survey report infrastructure survey and Social submitted to the based on inclusion Systems Association and equity for Provincially 27-Dec-2019 No change Administered Tribal Areas and (PATA) and of former Federally Administered Tribal Areas (FATA) districts Adopt multi-year Environmental NA P&DD Due Date Investment plan investment plan for and Social 30-Jun-2020 notified by GoKP No change former FATA districts Systems At least 100 DDOs in Technical NA FD Due Date List of Drawing and participating Disbursing Officers departments, TMAs, 30-Jun-2020 (DDOs) certified in No change and former FATA PFM and trained in districts have PFM Page 15 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) certification and FMIS FMIS submitted to the training Association Simplification of the Technical NA FD Due Date Reduction in number tax system evidenced of OSR tax instruments by the reduction of from 13 to 8 30-Dec-2020 No change the number of Own Source Revenue (OSR) tax instruments Develop annual audit Technical NA KPRA Recurrent Submission of annual plan and conduct audit plan and annual Yearly Revised annual risk-based audit report to the audit of taxpayers Association Analyze impact of Environmental NA P&DD Due Date Report with General Sales Tax on and Social recommendations Services (GSTS) and Systems 30-Jun-2020 No change property tax on women Proposed Action Description Source DLI# Responsibility Timing Completion Measurement Conduct inclusive Technical NA FD, KPRA, ETNCD, BoR Recurrent Semi-Annually At least two communication communication and campaigns per year to be awareness campaigns included in the Program on tax compliance, Reports submitted by the PIU Taxpayer Facilitation to the Association. Centers (TFCs) and on the benefits of Page 16 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) commercialization of government properties, with a special focus on reaching women and vulnerable groups. Develop annual audit Technical NA KPRA Recurrent Yearly Submission of annual audit plan plan and conduct and annual audit report to the annual risk-based audit Association of taxpayers . . . . . Page 17 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) ANNEX 3: SUPPORT FOR CASH MANAGEMENT 1. Significant progress has been made in implementing the Treasury Single Account (TSA) as discussed below. a. The GovKP has approved KP Public Financial Management Act in June 2022 and adopted a cash management policy. The Finance Department (FD) has established a treasury help Desk and Liquidity Management Committee for consolidation of cash balances and reporting of cash plans. A revised methodology for TSA has been agreed (notified by Controller General of Accounts) – called as Balance Sweeping arrangement. b. The reconciliation procedure and GL heads have been approved and accounting procedures shared with SBP. c. The balance sweeping arrangement has been piloted with KP FD and KP Procurement Regulatory Authority (KPPRA). Learning from this pilot, there are two approaches that GovKP may adopt for rolling out above arrangement: (i) Signatories of bank account holding departments shall sign standard debit instructions which will be provided to the commercial bank and one copy to SBP. (ii) FD will issue a standard notification, mentioning the new arrangement of bank balance management related to these accounts, which will serve as the authority to conduct balance sweeping of all such accounts. Second approach (FD’s notification) is more convenient and effective mechanism, but it needs to be tested to see how it works. d. The GovKP has closed about 750 multiple Designated Accounts (DAs) of Tehsil Municipal Authority (TMAs) by limiting the number of DAs to 04 per TMA and converted numerous DAs of various departments to Asaan (Easy) Assignment Accounts. As a special arrangement, SBP is providing statistical quarterly consolidated balances report of designated accounts in commercial banks – but this report is available with a delay4. e. A computer application for balance reporting has been developed under KPRMP (e-Gov initiative). This application can help with reconciliation of cash balances, and manage/present data from SBP in usable form (since these balances are maintained district-wise, and not department-wise with SBP). 2. A recent review of government’s accounts in commercial banks has provided further insights. As per SBP report of December 2023, there are total 1099 accounts of the government in commercial banks, with the total balance of Rs. 282 billion (US$ 1 billion). If we exclude the accounts that are exempt from consolidation5, and in first phase, consider the accounts with the balance of > Rs.20 million (US$ 72 million), then we will have 723 accounts of autonomous bodies and mainstream departments with the total balance of Rs. 105 billion (US$ 378 million) - that can be brought into cash consolidation plan. In addition, after completion of investment term of Fixed Term Deposit Accounts of mainstream and autonomous bodies should also be transferred to consolidated DAs. Next steps: 3. Taking into account the progress so far, and futher discussions with FD about above methodolgy for TSA and cash management, relevant indicators in KPRMP are proposed to be revised (as noted in revised results matrix), and support for following areas to be provided under IPF component: 4 These statistical balances report require about 75 days after the end of a quarter. Latest available report is of December 2023, and March 2024 report is still awaited. 5 As per cash management policy, funds, public accounts, and business enterprises related accounts are exempt from consolidation. Page 18 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) a. Preparing a cash management plan, including cash consolidation by sweeping approach, relevant measures and policy changes (if needed), establishment of Cash Management Unit (CMU) and capacity building of line departments in preparing cash plans and forecasting. b. Completing accounts balance sweeping activities at least up to the 60percent of the accounts, identified through review of accounts based on SBP report, which are crucial for strengthening cash management (this may be done in phased manner as suggested above). c. Issuing notifications to halt further fund transfers to commercial banks, and imposing restrictions on opening new accounts. d. Existing budget management system to undergo thorough risk analysis to identify measures for mitigating risks. ******************** ANNEX 4: SHARED SERVICES UNIT AND OPERATIONS SUPPORT UNIT Objectives ➢ The Shared Services Unit (SSU) and an Operation Support Unit (OSU), established in the Finance Department (FD) of the Government of KP, aims to support the management of the World Bank-financed projects/programs for which FD is the main implementing agency. Currently, FD is the main implementing agency of KPRMP and KP SPEED. ➢ The SSU, in coordination with OSU, will carry out financial management, procurement and manage environmental and social safeguards of above ongoing programs. These services (and guidance to new PIU staff) will also be provided to help with initial implantation phase of other Bank projects – as needed. The OSU will be responsible for the implementation of the KPRMP (in coordination with the SSU). Structure of the unit, roles and responsibilities of key positions ➢ Shared Services Unit (SSU): The SSU will comprise the Director, Procurement Specialist, Financial Management Specialist, Environmental and Social Safeguards Specialist/s, and Monitoring and Evaluation Specialist. The Director SSU will be appointed from the government (of Grade 18 and above), with qualification and experience and under Terms of Reference (TORs) satisfactory to the World Bank. In case the government official draws salary from the project, then the government’s PISP policy will be applicable. The Procurement Specialist, Financial Management Specialist, and Environment and Social Safeguards Specialist will be hired from the market based on TORs approved by the World Bank. The Bank’s procurement rules will be applicable for the hiring of these staff under Investment Project Financing (IPF) component of KPRMP. The SSU staff will report to the Director SSU. ➢ The SSU will prepare annual budgets based on the annual work plans (developed by OSU) of the projects/programs and will submit them to the World Bank at least one month before the beginning of the Program’s fiscal year for review and “no objection.” During the fiscal year, the budgets will be monitored semiannually using Interim Unaudited Financial Reports, which are to be submitted to the Bank within 45 days after the end of each six-month period. With inputs from relevant program implementing agencies (and support of SSU & OSU staff), the Director SSU will prepare sustainability plan for program implementation before their closing, and identify areas for future support. ➢ Operation support unit (OSU): To support implementation and day to day management of KPRMP, the OSU will comprise a Project Director (PD), ICT Specialist, Communications Specialist, and technical specialists to support different areas of the Program. Page 19 The World Bank Khyber Pakhtunkhwa Revenue Mobilization and Public Resource Management (P162302) o The PD will be responsible to monitor implementation of the Program, including (i) coordinating with program implementing agencies, (ii) monitoring progress and results indicators (including design of tools for gathering data for verification and program monitoring), work of Third Party Validation Agency (TPVA) and implementation of Program Action Plan, (iii) carry out capacity building activities and communication and stakeholders outreach; (iv) coordinating TA component, and preparing Annual Work Plan (AWP) covering all the components of the TA and onward submission to the World Bank for “no objection”, before the approval of the Reform Working Group / Program Steering Committee; (v) working with SSU to ensure that approved activities (under AWP) are reflected in the procurement plan /STEP; (vi) submit withdrawal applications together with bi-annual TPVA report on DLIs achievement to the World Bank for approval; (vii) monitoring compliance with fiduciary obligations; and (viii) submit to the FD and World Bank quarterly reports on progress achieved in the implantation of the operation (P4R and TA components). o The PD may be assigned from the civil service. In case hired from market, he/she will work with the Director SSU and Additional Secretary Finance. Other staff of OSU and technical specialists, hired for KPRMP, will report to the PD KPRMP. These staff will also support KP SPEED – as needed. o The establishment of OSU will be financed under IPF component of KPRMP – including staff salaries, and office expenditure, etc. Page 20