Program Appraisal Document (PAD) - World...

DOCUMENT OF THE WORLD BANK

FOR OFFICIAL USE ONLY

Report No: PAD3096

PROGRAM APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT IN THE AMOUNT OF SDR 72.3 MILLION

(US$100 MILLION EQUIVALENT)

TO THE

PEOPLE’S REPUBLIC OF BANGLADESH

FOR A

STRENGTHENING PUBLIC FINANCIAL MANAGEMENT PROGRAM TO ENABLE SERVICE DELIVERY PROGRAM-FOR-RESULTS (P167491)

December 29, 2018

Governance Global Practice South Asia Region

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.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective November 30, 2018)

Currency Unit = Bangladeshi Taka (BDT)

BDT 85 = US$1

US$1 = SDR 0.723

FISCAL YEAR

July 1 – June 30

ABBREVIATIONS AND ACRONYMS

ADP Annual Development Program BACS Budget and Accounting Classification System BMC Budget Management Committee BWG Budget Working Group CAO Chief Accounts Officer CGA Controller General of Accounts CPF Country Partnership Framework CPTU Central Procurement Technical Unit DDO Drawing and Disbursing Officer DLI Disbursement-linked Indicator DLR Disbursement-linked Result DP Development Partner EFT Electronic Funds Transfer EBF Extra Budgetary Fund e-GP Electronic Government Procurement ESSA Environmental and Social Systems Assessment EU European Union FD Finance Division FSA Fiduciary Systems Assessment GDP Gross Domestic Product GHG Greenhouse Gas GPF General Provident Fund JICA Japan International Cooperation Agency iBAS++ Integrated Budget and Accounting System IFMIS Integrated Financial Management Information System IPF Investment Project Financing IMED Implementation Monitoring and Evaluation Division ISP Implementation Support Plan

The World Bank Bangladesh Strengthening PFM Program to Enable Service Delivery (P167491)

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IT Information Technology KRA Key Results Area M&E Monitoring and Evaluation MDAs Ministries, Departments, and Agencies MDTF Multi-Donor Trust Fund MoF Ministry of Finance MTBF Medium-Term Budget Framework MTMF Medium Term Macroeconomic Framework OC&AG Office of the Comptroller and Auditor General OPRC Operational Procurement Review Committee PAO Principal Accounting Officer PAP Program Action Plan PDO Program Development Objective PECT Program Execution and Coordination Team PEFA Public Expenditure and Financial Accountability PEMSP Public Expenditure Management Strengthening Program PER Public Expenditure Review PforR Program-for-Results PFM Public Financial Management PIT Program Implementation Team SAE Self-Accounting Entity SC Steering Committee SDC Swiss Agency for Development and Cooperation SEIP Skills for Employment Investment Program SOE State-Owned Enterprise SPFMS Strengthening Public Financial Management Program to Enable Service Delivery SPEMP Strengthening Public Expenditure Management Program ToR Terms of Reference TSA Treasury Single Account

Regional Vice President: Hartwig Schafer Practice Group Vice President: Ceyla Pazarbasioglu-Dutz

Practice Senior Director: Deborah L. Wetzel Country Director: Qimiao Fan

Practice Manager: George Addo Larbi Task Team Leader: Furqan Ahmad Saleem

Co-Task Team Leader: Zahid Hussain

https://intranet.worldbankgroup.org/people/profile?id=000135413&profiletitle=Vice%20President


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BASIC INFORMATION

Is this a regionally tagged project? Financing Instrument

No Program-for-Results Financing

Bank/IFC Collaboration Does this operation have an IPF component?

No No

Proposed Program Development Objective(s) The Program Development Objective (PDO) is to improve fiscal forecasting, budget preparation and execution, financial reporting and transparency to enable better resource availability for service delivery in selected Ministries, Departments, and Agencies.

Organizations

Borrower :

People’s Republic of Bangladesh

Implementing Agency : Ministry of Finance

COST & FINANCING FIN_SUMM_WITH_IPF SUMMARY (US$ Millions)

Government program Cost 356.50

Total Operation Cost 170.00

Total Program Cost 170.00

Total Financing 170.00

Financing Gap 0.00

Financing (US$ Millions)

Counterpart Funding 70.00

Borrower 70.00

International Development Association (IDA) 100.00

IDA Credit 100.00


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Expected Disbursements (US$ Millions)

Fiscal Year 2019 2020 2021 2022 2023 2024

Absolute 20.00 12.00 15.00 15.00 18.00 20.00

Cumulative 20.00 32.00 47.00 62.00 80.00 100.00

INSTITUTIONAL DATA

Practice Area (Lead)

Governance

Contributing Practice Areas

Macroeconomics, Trade and Investment

Climate Change and Disaster Screening

Yes

PRI_PUB_DATA_TBL Private Capital Mobilized

No

Gender Tag Does the program plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF Yes b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment Yes c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes


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SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT)

Risk Category Rating

1. Political and Governance Substantial

2. Macroeconomic Moderate

3. Sector Strategies and Policies Moderate

4. Technical Design of Project or Program Moderate

5. Institutional Capacity for Implementation and Sustainability Moderate

6. Fiduciary Fiduciary rating from IRT:

Substantial as of 19-Jun-2018

Substantial

7. Environment and Social Environmental Risk rating from Specialist:

Low as of 19-Jun-2018 Social Risk rating from Specialist:

Low as of 08-Oct-2018

Low

8. Stakeholders Moderate

9. Other

10. Overall Moderate

COMPLIANCE

Policy

Does the program depart from the CPF in content or in other significant respects?

[ ] Yes [✔] No

Does the program require any waivers of Bank policies?

[ ] Yes [✔] No

Safeguard Policies Triggered

Safeguard Policies Yes No

Projects on International Waterways OP/BP 7.50 ✔

Projects in Disputed Areas OP/BP 7.60 ✔

Legal Covenants

By no later than one (1) month after the Effective Date, the Recipient shall establish and thereafter maintain,


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throughout Program implementation, a steering committee, responsible for providing policy guidance and strategic oversight, monitoring Program implementation, and serving as the highest-level coordinating entity participating ministries and implementing entities under the Program. By no later than three (3) months after the Effective Date, the Recipient (through MoF) shall establish and thereafter maintain throughout Program implementation, a Program execution and coordination team, as the leading implementing directorate. By no later than three (3) months after the Effective Date, the Recipient (through MoF) shall and thereafter maintain throughout Program implementation, Program implementation teams within the relevant divisions of MoF leading the implementation of the Program. By no later than three (3) months after the Effective Date, the Recipient shall appoint and enter into verification agreements or other appropriate arrangements with the Independent Verification Agencies.

Conditions - N/A

TASK TEAM

Bank Staff

Name Role Specialization Unit

Furqan Ahmad Saleem Team Leader(ADM Responsible)

Governance GGOES

Zahid Hussain Team Leader Economics GMTSA

Arafat Istiaque Procurement Specialist(ADM Responsible)

Procurement GGOPZ

Mohammed Atikuzzaman Financial Management Specialist(ADM Responsible)

Financial Management GGOES

Hocine Chalal Environmental Specialist(ADM Responsible)

Environment GEN06

Ignacio Urratia Team Member Climate Change GSU18

Jun Zeng Social Specialist(ADM Responsible)

Social Development GSU06

Shingira Masanzu Counsel Legal LEGES

Clay Wescott Team Member M&E Specialist GGOES

Luiza A. Nora Team Member Citizens Engagement GSU06

Nazmus Sadat Khan Team Member Economist GMTSA

Nikeisha Anthonett Russell Team Member Program Coordination GGOES

Nusrat Mehzabeen Team Member Program Coordination SACBD


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Rizwana Tabassum Team Member Data Analysis GGOES

Robertus Cornelis Johannes Van Kippersluis

Team Member Change Management GGOES

Satish Kumar Shivakumar Team Member Loans WFACS

Saw Young Min Team Member SOEs GGOES

Suraiya Zannath Team Member Pensions GGOES

Talajeh Livani Team Member Gender GSU06

Winston Percy Onipede Cole

Team Member IFMIS & Financial Reporting GGOES


BANGLADESH

BANGLADESH STRENGTHENING PFM PROGRAM TO ENABLE SERVICE DELIVERY

TABLE OF CONTENTS I. STRATEGIC CONTEXT ...................................................................................................... 1

A. Country Context .................................................................................................................. 1

B. Sectoral (or Multi-Sectoral) and Institutional Context ........................................................ 2

C. Relationship to the Country Partnership Framework (CPF) and Rationale for Use of Instrument ............................................................................................................................. 5

II. PROGRAM DESCRIPTION................................................................................................. 7

A. Government Program ......................................................................................................... 7

B. The Program Scope ............................................................................................................. 8

C. Program Development Objective(s) (PDO) and PDO Level Results Indicators ................. 12

D. Disbursement Linked Indicators and Verification Protocols ............................................ 12

III. PROGRAM IMPLEMENTATION ...................................................................................... 15

A. Institutional and Implementation Arrangements ............................................................. 15

B. Results Monitoring and Evaluation ................................................................................... 16

C. Disbursement Arrangements ............................................................................................ 17

D. Capacity Building ............................................................................................................... 18

IV. ASSESSMENT SUMMARY .............................................................................................. 19

A. Technical (including program economic evaluation) ........................................................ 19

B. Fiduciary ............................................................................................................................ 23

C. Environmental and Social .................................................................................................. 26

D. Risk Assessment ................................................................................................................ 27

ANNEX 1. RESULTS FRAMEWORK MATRIX ........................................................................... 28

ANNEX 2. DISBURSEMENT LINKED INDICATORS, DISBURSEMENT ARRANGEMENTS AND VERIFICATION PROTOCOLS .................................................................................................. 38

ANNEX 3. TECHNICAL ASSESSMENT ..................................................................................... 57

ANNEX 4. SUMMARY FIDUCIARY SYSTEMS ASSESSMENT ..................................................... 77

ANNEX 5. SUMMARY ENVIRONMENTAL AND SOCIAL SYSTEMS ASSESSMENT ....................... 85

ANNEX 6. PROGRAM ACTION PLAN ..................................................................................... 89

ANNEX 7. IMPLEMENTATION SUPPORT PLAN ...................................................................... 92


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I. STRATEGIC CONTEXT

Introduction

1. This Program Appraisal Document describes the context, rationale, and objectives of the World Bank’s support to a new government program for strengthening public financial management (PFM) in Bangladesh. A PFM Action Plan (2018–23) has recently been approved by the Finance Minister for effective implementation of the Bangladesh PFM Reform Strategy, 2016. This PFM Action Plan provides the implementation road map for priority actions. The Government has requested the proposed IDA Program-for-Results (PforR) operation (US$100 million) to support the Ministry of Finance (MoF) in implementing selected components of the PFM Action Plan. The Program Appraisal Document also summarizes the relevant assessments, including the technical aspects such as the best-fit, program Results Framework, cost-benefit, and fiduciary and social and environmental safeguard risks.

A. Country Context

2. Bangladesh is one of the world’s most populous countries, with an estimated 165 million people in a geographical area of about 144,415 km2 and per capita income of US$1,670 (World Bank Atlas method) in 2018, well above the lower-middle-income country category threshold which it crossed in FY14. During recent years, economic conditions have improved in the country. However, headline inflation increased to 5.8 percent in FY18, from 5.4 percent in FY17, reflecting increases in food prices because of supply shocks. Fiscal deficit was contained at around 4.5 percent of gross domestic product (GDP) in FY18. The FY18 budget targets 5 percent deficit with 26.2 percent growth in expenditures. The current account deficit increased to 3.5 percent of GDP in FY18. The GDP grew well above the average for developing countries in recent years, averaging 6.5 percent since 2010, with an officially estimated growth of 7.86 percent in FY18, driven by manufacturing and construction. Progress on reducing extreme poverty and boosting shared prosperity through human development and employment generation has continued. The poverty incidence based on the international poverty line of US$ 1.90 per capita per day (measured based on the purchasing power parity exchange rate) declined from 44.2 percent in 1991 to 14.8 percent in 2016 (latest available poverty data). In the World Bank’s Human Capital Index 2018, Bangladesh performed better than the South Asian average and the lower-middle-income average in all criteria except stunting. With the current education and health conditions, a child born today in Bangladesh will be 48 percent as productive as s/he could have been. Bangladesh’s performance against the Millennium Development Goals was impressive relative to the South Asia region average for most of the indicators. Such progress notwithstanding, the pace of poverty reduction and the rate of job creation has slowed since 2010. Bangladesh needs stronger efforts in making growth more inclusive and sustainable to meet its target of eliminating poverty by 2030 and attaining the upper-middle-income status by 2031. For accelerating private sector-led growth with improved investment climate, the key challenges are addressing deficits in infrastructure and power, with much improved quality in spending public resources, better regulations, and enhanced skills of its vast and rapidly increasing labor force.

3. Bangladesh’s vulnerability to climate change represents a growing economic and fiscal risk. Bangladesh is one of the most climate-vulnerable countries in the world. The country’s emissions are less

https://www.worldbank.org/en/news/press-release/2018/10/11/New-World-Bank-Human-Capital-Index-Bangladesh-Has-Done-Well-Can-Do-Better




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than 0.35 percent of global emissions.1 The economic losses because of climate change over the past 40 years were estimated at US$12 billion.2 Growth and stability in Bangladesh is subject to extreme forms of climate risks through both ex post and ex ante channels. Ex post macro effects include the direct effects of climate impacts such as sea-level rise, changes in crop yields, and floods after they occur. Over the next decade, growth could be lower, depending on the frequency and magnitude of flooding.3 Ex post impacts include depression of labor demand, particularly for low-skilled workers. Ex ante impacts derive from households altering their behavior in anticipation of a climate risk, which affects productivity and growth.

B. Sectoral and Institutional Context

4. Bangladesh has improved on most governance indicators in the past 10 years; however, the overall scores are still lower than the regional averages. The world governance indicators show steady improvement on most accounts (see figure 1) that indicates the success of earlier reforms to strengthen PFM, transparency, anticorruption, and rule of law. The biggest achievement has been to maintain tight fiscal management for stable economic growth. A lean public sector (roughly a million public servants including those in state-owned enterprises [SOEs]) has helped the country keep the establishment cost below 25 percent of budget, leaving sufficient space for development expenditures. The Right to Information Act (2009) provides the Government an opportunity to facilitate greater disclosure of information and become more open and accountable. However, more work is needed both on the supply side, to strengthen its ability to effectively implement the act, and on the demand side, to raise public awareness. Key public oversight institutions—audit, judiciary, anticorruption, parliamentary committees, and election commission—also need further strengthening. Finally, domestic resources mobilization needs to be significantly improved to achieve the broad development goals.

Figure 1. World Governance Indicators

Source: The World Bank - World Governance Indicators.

1 Bangladesh’s Intended Nationally Determined Contributions, page 2. 2 Nationally Determined Contribution of Bangladesh Implementation Roadmap, page 1. 3 World Bank. 2016. Helping Bangladesh Become Resilient to Climate Change Threats. Available at http://www.worldbank.org/en/news/feature/2016/10/10/helping-bangladesh-become-resilient-climate-change-threats; Germanwatch e.V. 2017. Global Climate Risk Index 2017. Available at: https://germanwatch.org/en/12978; and World Bank. 2009. Bangladesh - Policy Note on Climate Change. Available at: http://documents.worldbank.org/curated/en/691511468208161047/Bangladesh-Policy-note-on-climate-change.

http://www.worldbank.org/en/news/feature/2016/10/10/helping-bangladesh-become-resilient-climate-change-threats

http://www.worldbank.org/en/news/feature/2016/10/10/helping-bangladesh-become-resilient-climate-change-threats

https://germanwatch.org/en/12978



http://documents.worldbank.org/curated/en/691511468208161047/Bangladesh-Policy-note-on-climate-change


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5. Over the past two decades, Bangladesh has improved the PFM systems as a key ingredient of the overall governance, yet bottlenecks exist. The Public Expenditure Review (PER) 2015 validated the Government’s then prudent fiscal management—low fiscal deficits (3.1 percent of GDP), improved sustainability of public debt (debt reduced to 31 percent of GDP at the end of FY17), and increased proportion of development expenditures (41 percent, FY17). At the same time, the PER identifies the key concerns—low tax-to-GDP ratio (around 9 percent, FY17, one of the lowest in the region), limited budget absorption capacity, decreasing quality of the public investment portfolio resulting in implementation delays (80 percent of projects), cost overruns, low return on investments, and increasing debt service costs. The PER also raises budget allocation issues—rapid asset erosion because of lack of maintenance and repairs,4 limitations in the design and targeting of agriculture subsidies, and low per capita health expenditures. The Public Expenditure and Financial Accountability (PEFA) assessment (2016) shows that despite considerable improvements, Bangladesh’s overall PFM performance is below average for six out of seven pillars. The individual performance indicators revealed improvements in 7 areas, while 14 remained the same and 7 deteriorated. The lack of reliability in the revenue forecast and expenditure budgets, insufficient oversight, lack of alignment between development and operating budget, weaknesses in controls, lack of fiscal and performance monitoring of SOEs, and lack of timeliness for preparation of fiscal reports and audit are key PFM bottlenecks affecting the timely availability of resources for service delivery.

Figure 2. Trajectory of PEFA Scores (averaged over 2006, 2010, and 2015)

6. These PFM bottlenecks affect the efficient allocation, availability, and use of resources for social service delivery in several ways. Multiyear planning becomes less effective as the annual budget ceilings are not sufficiently aligned with the ambitions in the five-year national plans5 and strategy documents. The annual budgets are mostly incremental within tight envelopes with limited flexibility for equitable resource allocation geographically or among different programs. Delay in budget releases is often cited as one of the biggest bottlenecks to smooth and efficient service delivery. Budget release for health sector development funds (especially reimbursable project aid for the third and fourth quarters) often takes more than two months,6 primarily because of ministry-level internal approval processes. This delays the implementation of critical activities and the payment to contracts for goods and services. In addition,

4 The Global Competitiveness Report 2014–15 ranks Bangladesh’s overall infrastructure at 130 out of 144 countries. 5 Analysis shows that the annual social sector expenditures have been significantly below what was planned in the fifth or sixth five-year plans. 6 World Bank. In press. Diagnostic Study of PFM for Strengthening Health Financing and Service Delivery in Bangladesh.


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social sector budgets are fragmented because of the vertical programs and externally financed interventions that pose several management challenges at the level of the budget holders and frontline service providers. Slow procurement processes delay the provision of necessary goods and services. For example, it takes an average of 15–18 months for drugs to reach the Upazila Health Complex and below, while it should not take more than 9 months in procuring and distributing these. Sector ministries often advocate for the need for flexible cash resources at the health and education facilities. While cash handling is not considered a good practice and is risky, there is sufficient evidence from the field of how public service delivery suffers because of the lack of resources for minor repairs, petty purchases, or paying the travel allowance for maternity patients. In some health sector programs, the issue has been addressed on an ad hoc basis. Finally, inadequate audit follow-up and delayed resolution of audit queries could affect aid disbursement and civil servants’ terminal benefits, thereby negatively affecting the motivation of service providers.

7. The Government of Bangladesh has been a pioneer in introducing a climate-responsive PFM system. In 2014, the Government adopted a Climate Fiscal Framework, providing a road map to link national climate strategies with the resource allocation system. The Climate Fiscal Framework prompted more specific interventions to make the budgeting exercise under the medium-term budget framework (MTBF) climate inclusive. This was first initiated in a pilot of six ministries in the FY17–18 budget. In June 2018, the Bangladesh Climate Financing for Sustainable Development: Budget Report 2018–19 was rolled out, covering all 20 line ministries that have programs and projects of significant climate relevance. The assessment shows that 8.82 percent of the FY19 budget of the 20 ministries (covering around half of the total national budget) was targeted to climate mitigation or adaptation. It also illustrates the evolution of the Government’s financing response over time through the national budget and the growing importance of this response. Complementing this technical report, the Government—with support from United Nations Development Programme—published, for the first time, in August 2018, a Citizen’s Climate Budget, which translates the technical report into a set of simplified infographics for the general public. Together, these reports enhance transparency and help stakeholders identify areas of opportunity to leverage public expenditure to strengthen climate resilience.

8. A PFM Action Plan (2018–23) has been recently approved to support effective implementation of the PFM Reform Strategy (2016–21).7 The strategic goals of PFM reforms are to (a) maintain aggregate fiscal discipline compatible with macroeconomic stability and pro-poor growth, (b) allocate resources consistent with Government priorities as reflected in the National Plan, (c) promote the efficient use of public resources and delivery of services through better budget execution, (d) promote accountability through external scrutiny and transparency of the budget, and (e) enhance the enabling environment for improved PFM outcomes. Within these goals, the PFM Action Plan provides the implementation road map for some priority actions with clear institutional responsibilities among 13 thematic reform components, cost-benefit analysis of sub-activities, and results indicators to monitor the successful implementation. The PFM Action Plan also elaborates on the governance structure for reforms and the change management approach through a specific component devoted to these nontechnical issues. As a cross-cutting issue, climate change financing has been addressed in several components of the PFM Action Plan. In addition, the Prime Minister has approved the road map for merger of the administrative and economic cadres, which will enable better alignment between the development and recurrent budgets.

7 The PFM Action Plan has been approved by the Minister of Finance.


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9. With the proposed IDA financing, the Strengthening Public Financial Management Program to Enable Service Delivery (SPFMS), will support implementation of part of the PFM Action Plan. The Government’s internal Program Document for the SPFMS received the approval of the Honorable Prime Minister on November 12, 2018. The SPFMS includes components directly led by the Finance Division (FD), including the macro-fiscal forecasting, debt management, budget preparation and execution, integrated financial management information system (IFMIS), treasury single account (TSA), SOE monitoring, pensions, internal audit, and financial reporting. The program boundaries are further clarified in section 2-A and 2-B of this document.

10. The SPFMS builds on the Government’s efforts to establish a climate-responsive PFM system, partly supported by the First Bangladesh Jobs Programmatic Development Policy Credit.8 A prior action under the jobs program was the rollout of climate budgeting across 20 ministries with climate-relevant expenditures and the approval by the Cabinet of the National Environmental Policy 2018, which will enable leveraging public expenditure for investments in climate resilience and climate change mitigation. This PforR operation will aim at ensuring the effective operation of this climate-responsive PFM system and ensure that climate considerations are adequately taken into account during (ex ante) budget preparation that leads to a higher spending on climate mitigation and adaptation.

C. Relationship to the Country Partnership Framework (CPF) and Rationale for Use of Instrument

11. Promoting good governance and curbing corruption are among the development goals of the Government’s Seventh Five-Year Plan (2016–20). The plan describes an approach to good governance that has a key pillar on reforming budgetary processes and further elaborates the key priorities for PFM reforms in the areas of public investment management, revenue mobilization, accounting classification and IFMIS, financial reporting, TSA, pensions, SOEs, debt management, MTBF, budget transparency, and audit and accountability. Building on the Five-Year Plan, a PFM Reform Strategy (2016–21) was approved. The strategy is being operationalized through the recently approved PFM Action Plan 2018–23.

12. The CPF (2016–20) also highlights the importance of supporting Government efforts to strengthen governance systems. It recognizes that it is a long-term agenda that demands sustained effort through upstream and downstream interventions. The CPF states that the World Bank will continue to provide lending and technical assistance to support policies and systems aimed at improving transparency and efficiency in service delivery, including on PFM. Both the Seventh Five-Year Plan and the CPF have opened opportunities for the World Bank’s engagement in PFM reforms.

13. The current context provides a unique window of opportunity to strengthen Bangladesh’s PFM institutions and systems. The World Bank has a well-recognized comparative advantage among development partners (DPs) in improving PFM systems, given its broad international experience. This is also a critical time to intervene in Bangladesh, given the heightened need for prudent use of resources under the current fiscal pressures, the call from DPs for the World Bank to take a leadership role and the greater appetite among authorities for committing to difficult reforms toward achieving upper-middle-income status.

8 Expected to be approved by the World Bank in December 2018.


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14. The PforR is the most suitable World Bank instrument to advance key systems reforms and build institutional capacity. The proposed PforR draws from recent experience with results-based financing in Bangladesh and those supporting the PFM reforms in other countries. The observed advantages of the PforR include the following:

(a) Focus on results. The PforR focuses attention on results which reflect genuine change to the strengthening and functioning of PFM systems developed in the past and making the relevant connections to support service delivery outcomes through better functioning systems. The long iterative consultations on disbursement-linked indicators (DLIs) with the Government has allowed a more active questioning of paper commitments and enabled realism of reform goals.

(b) Ownership. PforR would transform the generalized high-level support for PFM reforms into specific actions with ownership required to achieve these results. The PforR has supported a framework for monitoring, reporting, and accountability, especially to avoid significant investments primarily driven by information technology (IT) ambitions but with insufficient utility. As part of the preparation, technical assessments conducted with client counterparts have identified key challenges and opportunities for change that could be addressed through DLIs and steps toward achieving these DLIs have been documented in a detailed technical note for each DLI.

(c) Country systems. The Government will follow its own rules and experience of the PFM processes and systems, thus bringing an additional impetus for these reforms. This will also ensure that work processes are suitable for the local context while providing adequate fiduciary oversight, for example, smaller output-based contracts instead of time-based contracts sourced under an overall management contract. Finally, it will allow the necessary flexibility to course-correct as needed to achieve the reform targets.

15. Other instruments such as Investment Project Financing (IPF), Development Policy Operation,

and Technical Assistance and Advisory Services have been considered not to be as good a fit to the

current challenges, relative to the PforR instrument, for the following reasons:

• Many PFM and governance challenges go significantly deeper than a need for policy changes and require a multiyear, more granular engagement. This makes a Development Policy Operation a less suitable instrument than a PforR.

• The need is not so much for outside technical assistance as for structuring and focusing organizational and leadership attention on key reforms. An IPF would therefore be a less perfect fit than a PforR. As the Government has been implementing the Public Expenditure Management Strengthening Program (PEMSP) since 2015 through its own funds as a recurrent budget scheme, it has built significant capacity of using mainstream country systems to undertake PFM reforms and demonstrated a prudent use of public funds. Hence, an IPF with DLIs does not seem to be good option to continue the mainstream use of country systems.

• Related to the above, small-scale technical advice alone will not deliver the incentives needed to bring forward reforms. In addition, such support has been provided by the DPs in recent years and will be available to complement the implementation of the Government PFM Program, as mentioned earlier.


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II. PROGRAM DESCRIPTION

A. Government Program

16. The Government’s PFM Action Plan (2018–23) includes 14 reform components, of which the new SPFMS will support 8. The Government has requested World Bank support for the PFM Action Plan components directly led by the FD—including the macro fiscal forecasting, debt management, budget preparation and execution, IFMIS, TSA, SOE monitoring, pensions, internal audit, and financial reporting. Government resources have not been sufficient to maintain the reforms’ momentum in these areas after the closure of the Strengthening Public Expenditure Management Program, package A (SPEMP-A) in 2014. This also impeded the FD’s ability to lead the overall PFM reforms in Bangladesh.

Figure 3. Program Boundary

17. The selection of eight PFM Action Plan components for the Program is driven by several factors:

(a) They are closely related to the PFM bottlenecks to service delivery, as explained in box 1.

(b) These components are closely interconnected: (i) the use of improved fiscal projections for budgeting binds the multiyear perspective with annual allocations and ensures improved budget quality and enhanced social sector allocations, (ii) improving IFMIS will lead to timely financial reporting and better use of financial information by the budget holders, (iii) improving IFMIS also entails automating and speeding up pensions and other payments through electronic funds transfer (EFT) and online bill submission, (iv) an effective internal audit and SOEs monitoring are important for efficient expenditure control (including subsidies to SOEs), and (v) government debt management and information on SOE debt and contingent liabilities are an integral part of risk analysis for fiscal projections.

(c) These components are primarily under the control of the FD that will facilitate coherent implementation of the Program.

(d) This block of PFM reforms is unfunded while other components are already supported by the World Bank and DPs—public investments (Japan International Cooperation Agency [JICA], US$5 million); procurement (IDA, US$55 million); revenue mobilization (IDA, US$60 million and European Union [EU] EUR 4 million); and external audit (EU, EUR 6 million).


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18. The total cost of PFM reforms laid out in the PFM Action Plan exceeds US$350 million for the next five years (table 1). This includes reform activities led by the National Board of Revenue (US$49.6 million), Planning Commission (US$20.1 million), Cabinet Division (US$40.2 million), Comptroller and Auditor General (US$10.2 million), Parliament Secretariat (US$6.4 million), and Central Procurement Technical Unit (CPTU) (US$60 million), in addition to the components led by the FD (US$170 million). Out of this, US$115 million is already provided by the World Bank and other DPs. The proposed IDA PforR is financing US$100 million, or 28.1 percent of the total. Table 1. Overall PFM Action Plan Program: 2018–23a

Component Institution Amount (US$, millions)

% of Total

PFM Action Plan Components 1, 3, 4, 7–10, and 14 (the Program)

Finance Division and Controller General of Accounts (CGA)

170.0 47.7 (IDA 28.1)

C-2: Revenue Mobilization National Board of Revenue 49.6 13.9

C-5: Public Investments Planning Ministry 20.1 5.6

C-6: Performance Management Cabinet Division 40.2 11.3

C-11: Audit Office of the Comptroller and Auditor General (OC&AG)

10.2 2.9

C-12: Parliamentary Oversight Parliament Secretariat 6.4 1.8

C-13: Procurement CPTU 60.0 16.8

Total 356.5 100.0

Note: a. Estimates for C-2, 5, 6, 11, 12, and 13 from PFM Action Plan approved by the Minister of Finance.

B. The Program Scope

19. As described earlier, the Program supported by the PforR comprises eight components of the PFM Action Plan to strengthen fiscal forecasting, budget preparation and execution, financial reporting, and transparency. This will make significant contributions for improved fiscal discipline, budget credibility, and accountability. Specific reform activities will include improving fiscal forecasting supported by better IFMIS data and reduced SOE fiscal risks, strengthening the budget management committees (BMCs) for budget credibility, ensuring timely budget releases to support improved budget out-turn, and enhancing use of the TSA. The accountability reforms will include strengthening the monitoring of the performance of SOEs, ensuring the timely submission of central government financial statements for auditing, and strengthening the internal audit function and audit committees.

20. The Program is aimed at ensuring that the improved PFM performance enables better resource availability for social service delivery in selected Ministries, Departments, and Agencies (MDAs). While the SPFMS will gradually cover all the key sectors in Bangladesh, social sectors are prioritized to pilot the PFM improvements. Examples include (a) improving the functioning of BMCs in the line ministries, (b) reducing the current 2.3 months taken to 1 month for the release of budget from departments to frontline service delivery units, (c) using financial information by the budget controlling officers, (d) monitoring performance of SOEs, (e) user group endorsing the Integrated Budget and Accounting System (iBAS++) improvement plan, (f) budget holders submitting payment bills online, (g) connecting iBAS++ with other applications/systems for direct bank transfer to pensioners or beneficiaries, (h) launching a portal to push the boundaries for fiscal transparency by disseminating key fiscal datasets (disaggregated revenue/expenditure and output) in user-friendly accessible formats, and (i) using smartphones to access


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real-time budget information for decision making to enhance service delivery. Box 1 elaborates how these Program interventions will help to solve the PFM bottlenecks to service delivery.

Box 1. PFM Bottlenecks and Program Interventions to Enable Service Delivery (a) Ambitious five-year national plan, other strategic planning documents, and MTBF

• Improving the realism of the fiscal projections through an improved forecasting model and with due regard to fiscal risks.

• Allowing a steady growth of the social sector spending as a percentage of the total public sector spending. These resources will partly come from improving the performance of the SOE sector.

• Improving, over time, the alignment of the annual budgets with the multiyear plans and enabling quicker completion of the new development schemes and provision of additional resources for service delivery to existing facilities.

(b) Allocation of health and education resources with inadequate consideration of the need

• Improving the performance of the BMCs to lead consultations in each ministry to improve the quality of the annual budget and its execution over time.

• Annual budget allocations will be made after due regard to the fiscal need (to be separately worked out for development and operating expenditures) and better aligned to prioritize the programs and cost categories in accordance with the sector strategy.

• Better budget allocation could only be achieved over time by making incremental changes each year. This requires significant deliberation and stakeholder consultations.

(c) Fragmentation of budget primarily because of externally financed programs

• Strengthening the BMCs to progressively consolidate various programs into the annual budget and bring them in to the TSA to avoid the use of any exceptional procedures

• Discouraging the use of the special project bank accounts outside of treasury

• Ensuring timely budget releases to the drawing and disbursing officers (DDOs) to remove one key obstacle often cited

(d) Long time taken in procurement

• This PFM Program does not directly attempt to improve procurement as there is a separate World Bank project dealing with the public procurement (on e-Government Procurement [e-GP]). Nevertheless, the interface between iBAS++ and e-GP, improved payment mechanisms of the EFT, and online bill submission will expedite the payment for procurements and make them more transparent, thereby enhancing the market confidence.

(e) Delayed budget releases of development expenditures to the budget holders (especially for third and fourth quarters)

• Addressing the issue of timely budget releases through two key actions. First, this Program seeks to delink the budget releases from the need to submit a statement of expenditures as the budget execution data are now in iBAS++. Second, it seeks to ensure timely distribution of budget to the DDOs by the budget holders by establishing a monitoring mechanism through iBAS++.

(f) Lack of flexible resources at health and education facilities

• Conduct quarterly PFM field inspections by multi-institution teams to identify such challenges and then devise exceptional regulations and procedures for specific circumstances. For example, in case of the health sector, such consultations could lead to allowing the facilities to retain user fees as flexible cash and complement this with what could be collected through community support committees, and if and how a part of these resources could be used for bonuses.

(g) Inadequate audit follow-up affecting DP disbursements • Expediting the audit follow-up by establishing well-functioning audit committees. Well-functioning audit

committees on the one hand resolve the pending audit observations, and on the other hand, they provide useful feedback to auditors to improve audit quality.


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21. This Program complements other ongoing World Bank-financed social sector operations which aim to improve service delivery outcomes directly (table 2).

Table 2. World Bank-financed Projects in Social Sectors

Project Name PDO Key Results Area (KRA)

1. Transforming Secondary Education for Results Operation (P160943) US$510 million - FY18–23

The PDO is to improve student outcomes in secondary education and the effectiveness of the secondary education system.

• Enhanced quality and relevance of secondary education

• Increased equitable access and retention to secondary education

• Strengthened Governance, Management, and Administration

2. Quality Learning for All Program (P162619) US$700 million - FY18–23

The PDO is to improve the quality of and enhance equitable access to education from pre-primary to grade 5.

• Learning outcomes in Grades 3

• Number of contact hours

• Primary cycle completion rate (up to grade 5 and grade 8)

• Primary net enrollment rate

• Percent of out of school children aged 6–14

3. Health Sector Support Project (P160846) US$565 million - FY18–23

The PDO is to strengthen the health, nutrition, and population (HNP) sector's core management systems and delivery of essential HNP services with a focus on selected geographical areas.

• Planning, budgeting, financing flows, and resource allocation

• Improving sector governance

• Procurement, supply chain management, and asset management

• Human resource management - Health management information system

• Underserved areas

• Adolescent health and nutrition

• Maternal and child nutrition

• Communicable disease control including tuberculosis

• Urban primary healthcare

4. Cash Transfer Modernization Project (P160819) US$300 million - FY19–24

The PDO is to improve the transparency and efficiency of selected cash transfer programs for vulnerable populations by modernizing service delivery.

Cash transfer programs coverage

• Lowest two quintiles based on poverty score

• Vulnerable persons in lowest two quintiles Modernizing service

• Payment using digital payments

• Efficient withdrawals

5. Income Support Program for the Poorest (P146520) US$300 million - FY16–21

The PDO is to provide income support to the poorest mothers in selected Upazilas, while (i) increasing the mothers’ use of child nutrition and cognitive development services, and (ii) enhancing local level government capacity to deliver safety nets.

• Cash transfers to bottom two quintiles with pregnant women and/or mothers of children below the age of 60 months/conditioned on maternal and child health services

• Capacity building

• Monitoring and evaluation (M&E)

Total: US$2.375 billion


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22. The total SPFMS expenditures are estimated at US$170 million, out of which IDA will finance US$100 million (table 3). The PforR will be implemented over five years. Tables 4 and 5 provide a breakdown of the SPFMS expenditures by PFM Action Plan components and economic budget codes, respectively. The SPFMS incremental expenditures are estimated to be around US$110 million. An additional US$60 million of recurrent expenses of the FD are closely related to the implementation of these reforms, taking the total estimated cost to US$170 million.

Table 3. SPFMS Financing

Source Amount (US$, millions)

% of Total

Counterpart Funding 70.00 41.18

Borrower 70.00 41.18

International Development Association (IDA) 100.00 58.82

IDA Credit 100.00 58.82

Total SPFMS Financing 170

Table 4. SPFMS Program Expenditures

PFM Reform Action Plan

Expenditures (US$, millions)

C-1 Revenue and Expenditure Forecasting 7.15

C-3 Debt Management 5.85

C-4 Planning and Budget Preparation 28.23

C-7 iBAS++ /Budget and Accounting Classification System (BACS) 44.85

C-8 Pension Management 15.08

C-9 SOE Governance 25.23

C-10 Financial Reporting 19.23

C-14 PFM Reforms Leadership, Coordination, and Monitoring 24.38

Total SPFMS Program Expenditures 170.00 Table 5. SPFMS Expenditure Framework (under organizational code 1090101)

(Figures in US$, Thousands)

Note: Tax deductions are recorded under the economic code 3821125.

23. Finally, the Program is complemented by a compact, but important, change management/enabling environment technical assistance to support, anchor, deepen, and sustain the reform processes. A separate World Bank-executed technical assistance (approximately US$10–12 million

Nature of expenseEconomic

Code

Program

cost %

Total

Program cost

Recurrent

cost

Incremental

cost

Year 1

(2018-2019)

Year 2

(2019-2020)

Year 3

(2020-2021)

Year 4

(2021-2022)

Wages and salaries 3111 16% 27,904 26,705 1,199 6,433 6,740 7,126 7,604

Administrative expenses 3211 14% 23,983 2,609 21,374 5,038 7,425 6,409 5,110

Training 3231 18% 30,797 7,989 22,808 9,367 8,841 8,109 4,480

Petrol, oil and lubricants 3243 0% 420 319 101 94 137 92 97

Travel and Transfer 3244 2% 2,552 998 1,554 472 913 663 505

Printing and stationery 3255 2% 3,921 3,216 705 938 913 1,015 1,056

Professional services 3257 33% 55,419 2,611 52,808 14,369 18,352 14,149 8,549

Repairs and maintenance 3258 7% 11,355 11,355 2,608 2,738 2,903 3,106

Machinery and equipment 4112 7% 11,682 3,724 7,958 3,424 4,341 2,694 1,224

Other fixed assets 4113 1% 2,040 2,040 402 1,238 248 152

Total (Components 1,3,4,7,8,9,10 & 14) 100% 170,073 59,527 110,546 43,145 51,638 43,407 31,882

35% 65% 25% 30% 26% 19%


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over the lifetime of the Program) under the SPEMP Multi-Donor Trust Fund (MDTF) will support selected PFM reforms. It will ensure the provision of timely and quality technical assistance and advice in cash management, commitment control, TSA expertise, budgeting, and MTBF, as well as produce several discrete studies to help enhance understanding of key public resource management constraints at the central or sectoral levels. The technical assistance will help the Government identify relevant actions to address challenges faced as they evolve, broker solutions to collective action problems, and help ensure that reform processes are informed and adapted as implementation progresses.

C. Program Development Objective(s) (PDO) and PDO Level Results Indicators

24. The PDO is to improve fiscal forecasting, budget preparation and execution, financial reporting, and transparency to enable better resource availability for service delivery in selected Ministries, Departments, and Agencies.

25. PDO-level results indicators are:

• Use of improved fiscal projections for budget making;

• Improved budget alignment with development strategy through better performance of BMCs (average BMC’s performance improves by 20 percent);

• Reduced number of days for DDOs to receive budget in selected Ministries, Departments, and Agencies (MDAs) (60 percent of DDOs receive budget by July 31);

• Timely, reliable payments of salaries and vendor invoices with strengthened treasury single account and automated payment system in selected MDAs (40 percent EFT and 30 percent DDOs submitting online bills and 40 percent reduction in new special accounts outside TSA); and

• Budget holders effectively use financial information (50 percent budget holders).

D. Disbursement Linked Indicators and Verification Protocols

26. The Program will remove PFM bottlenecks and enable efficient availability of resources to frontline service providers. The Program is composed of four mutually reinforcing KRAs that are priorities of the government program (PFM Action Plan) and contribute to achieving the PDO. The link of KRAs is shown with the five strategic goals of PFM reforms in table 6.

Table 6. PforR KRAs and DLIs

PforR KRAs DLIs Amount

(US$, millions)

Type Responsible Entity

KRA 1: Improve fiscal forecasting and resource allocation consistent with Government priorities for spending in service delivery

DLI 1: Use of improved fiscal projections for budget making

• Fiscal forecasting (US$8 million)

• Debt management (US$2 million)

DLI 2: Improved budget alignment with development strategy and

10

14

Outcome Outcome

• MacroEconomic Wing, FD

• Treasury and Debt Management Wing, FD, ERD

• Budget Wing, FD


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sectors (Contribution to the PFM Strategy Goal 1 and 2)

gender, social, and climate considerations through better performance of BMCs

• Budget quality and BMC performance (US$8.5 million)

• Increased social sectors’ spending (US$5.5 million)

DLI 3: Reduced number of days for DDOs to receive budget in selected MDAs

6

Outcome

• FD, CGA, line ministries

KRA 2: Improve budget execution in service delivery MDAs (Contribution to PFM Strategy Goal 3)

DLI 4: Timely and reliable payments of salaries and vendor invoices with a strengthened TSA and automated payment system

• TSA (US$4 million)

• EFT (US$3 million)

• Online bill submission (US$2 million)

DLI 5: Improved pension service (disaggregated by gender) through facilitation of payments through EFT no later than the following pension payment cycle after retirement

• Pensions (US$6.5 million)

• GP Fund (US$3.5 million) DLI 6: SOE and autonomous bodies’ debt and contingent liabilities statement prepared and submitted to policy makers DLI 7: Improved performance of the SOE sector and reduced subsidies as a percentage of total public sector spending

• SOE Performance monitoring (US$6 million)

• Reduced subsidies (US$5 million)

9

10

7

11

Outcome Outcome Output Output/outcome

• iBAS++ program office

• CGA, FD

• SOE Wing, SOE Monitoring Cell FD

• SOE Wing, SOE Monitoring Cell FD

KRA 3: Promote enhanced transparency of the budget execution and enable timely accountability (Contribution to the PFM Strategy Goal 4)

DLI 8: Budget holders in selected MDAs effectively and transparently use financial information

• iBAS++ (US$6 million)

• Financial reporting, public disclosure, and use of information (US$6 million)

DLI 9: Action taken on internal and external audit reports in selected MDAs and procurement post reviews in Finance Division

• Internal audit (US$2.5

12

7

Outcome Output

• iBAS++ program office, Budget Wing, line ministries

• Expenditure Management Wing FD, line ministries


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27. Each of the abovementioned 10 DLIs involve one or more actions to remove PFM bottlenecks and have been jointly selected from the PFM Action Plan. All DLIs represent critical milestones to achieve the PDO, provide adequate financial incentives to support underlying reform activities, and facilitate measurability and ease of verification. There are additional (non-DLI) indicators in the Government-owned Program Document and DLI technical notes and program action plan to ensure continued momentum of reform activities toward achievement of the DLIs and PDO.

28. The pricing of the DLIs was based on the following principles:

• Front-loading. DLIs have higher prices in the first two years to provide strong incentives, stimulate the program interventions and build up momentum for reforms. The experience of other results-based programs suggests that even the difficult results are achieved in outer years once the reform momentum is attained.

• Effort intensity. DLIs which are considered more difficult because of the adaptive challenge involved or would require more effort to complete the activities have higher price allocations. Within DLIs, a combination of process-, output-, and outcome-level disbursement-linked results (DLRs) enable incentivizing reform achievements as soon as they occur. Reform experience has been that the initial process-level results (when incentivized) enhance stakeholders’ confidence to achieve more difficult output-level targets.

• Scalability. DLIs are formulated as ‘scalable’ whenever possible (instead of ‘all-or-nothing’) to reward partial achievement proportionately, subject to a minimum threshold of 30 percent.

• Rollover. Because the DLI annual targets are ambitious, undisbursed amounts of financing for a DLI not achieved or partially achieved in a given year will be rolled over for use in the next year and so on up till the Program closing on June 30, 2024.

29. The combination of frontloading, scalability, and rollover has enabled limiting the total number of DLRs. While assigning DLRs to a particular year of the Program implementation is merely indicative, frontloading has enabled setting ambitious targets for earlier years, scalability allows rewarding partial performance, and rollover allows continued pursuit of achieving the higher target next year. In this way some DLRs will take more than a year to be fully achieved. Hence, for those DLRs there was no need to have progressive targets. The DLR prices and target years have been carefully calibrated through several rounds of consultations based on the assessed level of ambition involved.

million)

• Audit and procurement post-review follow-up (US$4.5 million)

KRA 4: Establish an enabling environment for improved PFM outcomes (PFM Strategy Goal 5)

DLI 10: PFM Action Plan implementation is effectively led through an adequate governance structure and an effective change management approach

14 Process/output • Program execution and coordination team (PECT), Budget Wing, FD

100


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30. Separate DLIs will be subject to a different verification process based on their nature and the type of data involved. Of the ten, five DLIs will be verified by an independent verification agent to be appointed by the FD. Four DLIs, that involve financial data, will be verified by the Supreme Audit Institution—OC&AG. Finally, one DLI on the improved budget quality through better performing BMCs will be verified by the Cabinet Division as part of their support to other ministries on annual performance agreements. Using multiple verification entities elsewhere had improved the quality because of the existence of corroborated information and healthy competition among those entities. Using independent government institutions such as the OC&AG and Cabinet Division strengthens country-owned monitoring systems in a more sustainable manner.

III. PROGRAM IMPLEMENTATION

A. Institutional and Implementation Arrangements

31. The PFM reform process has a two-tier governance structure comprising a Steering Committee (SC) and a PECT according to the PFM Action Plan. The SC headed by the Finance Secretary will comprise senior representatives from major spending ministries, Cabinet Division, CGA, Comptroller and Auditor General, National Board of Revenue, Economic Relations Division, and Planning Commission. The SC will oversee implementation progress, provide policy guidance, and ensure an enabling environment for reforms to succeed and sustain. The FD, through a PECT, will lead the coordination of the reforms with active support from the line ministries and DPs. The PECT will consist of six members from the FD and two from other PFM institutions responsible under the PFM Action Plan. The PECT can invite observers to their meetings and is expected to invite selected DPs for inputs and advice. The PECT will also be responsible for establishing a forum for institutional collaboration—PFM Reform Learning Hub at the Institute of Public Finance—for areas requiring collective action and mutual learning and accountability and for more systematic capturing, sharing, and replication of reform lessons.

Figure 4. Program Governance Structure

32. The SPFMS will use existing formal country systems structures to ensure that responsibility for meeting the DLIs is within the mandate of the assigned implementing agencies. The attitudinal barriers to achieving the objectives of the PFM reform program will be addressed through behavioral and change

Steering Committee

Program Execution & Coordination Team

Program Implementation Team

(MacroEco)


(Budget)


(SOEs)

Program Implementation

Team ( -- - )

PFM Learning Hub

(IPF) Team


Page 16

management interventions. These will include strategic communication about the reform benefits with the political leadership to solicit commitment and ‘buy-in’ to better manage resistance; participatory engagement with stakeholders—citizens, beneficiaries, and DPs; and recognizing and rewarding of agencies and individuals for good PFM performance. This will help provide a conducive authorizing environment for sustaining the deep institutional reforms that require ownership and support by multiple stakeholders.

33. The Program implementation structure will be as follows:

(a) SC. The SC will be chaired by the Finance Secretary and will provide general strategic oversight and direction to program implementation. The SC will also monitor the program’s implementation.

(b) PECT. The PECT will be anchored at the Budget Wing, FD. The PECT will consist of eight members, while the head of the Budget Wing will be ex officio Program Director. To ensure a broad-based representation and coordination for the overall PFM reforms, at least two members of the PECT will represent PFM institutions other than the FD.

(c) PITs. Every lead institution for each of the seven components of the PFM Action Plan will nominate a three- to five-member PIT from among their staff. There will be a total of seven PITs. The PIT will be accountable for implementation of the respective reform interventions and achieve the relevant performance targets and DLIs.

(d) Focal points in counterpart institutions. The lead institution for each component has identified around three to four focal points in their counterpart institutions to ensure smooth institutional collaboration for the implementation of respective PFM reform activities. These counterpart institutions include the Bureau of Statistics, Planning Ministry, OC&AG, Cabinet Division, line ministries, and so on.

B. Results Monitoring and Evaluation

34. The SPFMS will use existing systems within the Government whenever possible to carry out results-based monitoring. The monitoring will be a continuous process of gathering data and comparing actual results of DLRs and other key indicators with expected results. The goal will be to measure how well the Program is being implemented and to ascertain when specific targets have been met. The monitoring will also provide feedback on progress achieved so that decision makers can make necessary changes to improve performance. The change management and M&E activities described in this section would complement the independent DLI verification arrangements described above in paragraph 30.

35. Technical assistance for coordination, capacity development, and M&E have been built into the implementation arrangements of the PFM Action Plan, supported through DLI 10. This will include capacity strengthening of the governance arrangement for PFM reforms and adequate enabling environment, including the establishment of the PECT that will function as a secretariat to coordinate implementation and provide technical oversight of the Program. The PECT will be led by a program coordinator who will provide technical guidance and overall management and will also include specialists in the areas of monitoring and evaluation. Besides establishing a clear governance structure, DLI 10 also includes specific M&E and change management activities to be performed as DLRs. These include establishing and functioning of a Learning Hub in the Institute of Public Finance which will produce at least three research papers on PFM reforms in Bangladesh. In addition, preparation and review of semiannual


Page 17

program performance reports in broad-based program retreats is a key trigger for mutual accountability. The engagement of implementation facilitators and PFM innovation awards will also catalyze the Program’s performance. Finally, it is intended that the Government will adopt the same arrangements used by the SPFMS to carry out capacity building and monitoring of other components of the PFM Action Plan that are outside of the SPFMS.

36. In addition, annual performance assessments of the PFM Action Plan will be carried out. The assessment will review, among others, whether the targets and expected outcomes are still relevant, how effectively and efficiently they are being achieved, what unanticipated effects are evident, and whether the program represents the most sustainable and cost-effective means for achieving the intended outcomes. It will also look at the continuing relevance of the Program’s theory of change, including the extent to which the performance-based allocations and capacity development supported by the program is helping to successfully drive the reforms. The DPs are requested to join the annual performance assessments of the PFM Action Plan and make a positive contribution in a more harmonized manner.

C. Disbursement Arrangements

37. Disbursement will be based on achievement of the DLIs. Annex 3 shows the proposed annual financial allocations across DLIs. On verification, the FD will communicate the achievement of the DLIs to IDA and, on the basis of IDA’s approval letter, disbursement requests will be processed using IDA’s e-Business platform. An advance limit of 20 percent of the Credit will apply, which is needed to finance program activities for first year’s results. Disbursement is expected to happen twice in a fiscal year.

38. The IDA funds in US$ will be disbursed to the TSA (consolidated fund) and the Program expenditures will be through the Government’s operating budget schemes. The Government would ensure timely budget allocation for the program expenditures to be made from the TSA. Each component of the Program will be established as a budgetary scheme in the Government’s operating budget. This is similar and, to an extent, an expansion of the ongoing PEMSP.9 Table 7 provides the indicative disbursement schedule for IDA funding.

Table 7. Bangladesh SPFMS – Disbursement Schedule

No. Estimated Date

Estimated Amount

(US$, millions)

Disbursement Basis

FY19

1. February 15, 2019 20 • Advance against DLRs to be met by June 2019 (20% of credit amount)

FY20

2. August 15, 2019 12 • Price of FY19 DLRs met netted with February advance

• Advance against DLRs to be met by June 2020

FY21

3. August 15, 2020 15 • Price of FY19 DLRs met after August 15, 2019

9 After the closure of the SPEMP-A in 2014, the Government continued to sponsor the IBAS++ development through its own resources provided through a recurrent (non-Annual Development Program [ADP]) scheme—PEMSP. This has led to several successes, including the development of several new functionalities, managing the rollout of budget preparation module to the budget-holder levels, capturing all government expenditure data in IBAS++, and designing and using the new BACS. In addition, the PEMSP has been closely supporting the FD in the preparation of annual budget each year.


Page 18

No. Estimated Date

Estimated Amount

(US$, millions)

Disbursement Basis

• Price of FY20 DLRs met netted with August 2019 advance


FY22




FY23




FY24



7. June 30, 2024 10 • Final settlement based on Program expenditures (the World Bank disbursement cannot be more than Program expenditures)

100

D. Capacity Building

39. The interventions of this Program (systems, processes, and human) will build on the capacity of key PFM institutions and line ministries. Each component of the PFM Action Plan has built in capacity-building activities ranging from the upgrading of systems and processes to several types of individual trainings, certification, and education. Establishment of a Learning Hub at the Institute of Public Finance and engagement of implementation facilitators are some of the innovative capacity-building and change management interventions planned under the Program based on the initial understanding of the political economy context (see box 2).

40. In addition, the Program is also complemented by a compact, but important, change management/enabling environment technical assistance to support, anchor, deepen, and sustain the reform processes. A separate World Bank-executed technical assistance of approximately US$10–12 million over the lifetime of the Program under the SPEMP MDTF (financed by the Governments of Canada and the United Kingdom, and the EU) will support selected PFM reforms. It will ensure the provision of timely and quality technical assistance and advice as required and include the engagement of expertise to support the Government in niche areas (such as cash management, commitment control, TSA expertise, budgeting, and MTBF), as well as several discrete studies to help enhance the understanding of key public resource management constraints at the central or sectoral levels. The technical assistance will help the Government identify relevant actions to address challenges faced as they evolve, broker solutions to collective action problems, and help ensure that reform processes are informed and adapted as implementation progresses. This is a continuation of the ongoing engagement, for example, the development of the PFM Action Plan. This included DPs’ provision of time, comments on the PFM Action Plan, and contributions on specific analytical inputs, as well as financing for engagement of technical and secretarial assistance through the SPEMP. DPs will continue to support the technical assistance required for the SPFMS’ success.


Page 19

Box 2. Political Economy and PFM Reform Political economy provides the perspective that powerful groups in society may seek to achieve degrees of influence or control over the state, often using its systems for some form of personal advantage. People in Government can, therefore, be gatekeepers preventing change because the status quo of the system they have developed in their own interest suits them well. Understanding the specific relationships of power between relevant stakeholders, as well as the incentives and disincentives for behaviors that are influencing (driving or hindering) the reform agenda implementation are, therefore, vital for PFM reform. As PFM focuses on the management and use of resources and increasing the transparency of decisions and resource utilization, PFM reform programs intervene directly in the distribution of power and benefits within a system. Interest groups likely to lose out following reforms, either through loss of access to influence or resources, or reduced opportunity to act in self-interest (because of improved control and transparency), may seek to block or delay reforms or subvert their implementation. The Bangladesh SPFMS addresses political economy challenges in different ways:

• First, the Program has a transparent governance structure with strong government ownership. While the lead is with the MoF, coordination and communication with major spending ministries and other government agencies, divisions, and stakeholders are well anchored through an SC at high level and through a PECT at the technical level. This will provide the authorizing environment for change to happen and for stakeholders to align and inform.

• Second, a political economy assessment study was commissioned by the World Bank during the finalization of the PFM Action Plan, providing additional insight in (a) predominantly technical versus political economy related challenges, (b) specific activities of high impact change that can create momentum, and (c) most significant (other) stakeholders involved and potential interests. Reform coordination between stakeholders will be a key attention point for the PFM SC, as reform coordination is not just across ministries but also across divisions within the same ministries. Further, the Cabinet, Prime Minister’s Office, and the Parliament and its standing committees are to be key alignment partners. The study, which looked at these stakeholders and at the reform actions proposed, confirmed the value of the suggested change management approach and led to various refinements in the approved version of the action plan and agreed technical notes. It also includes specific recommendations for involving stakeholders in relation to the particular political economy context of certain reform issues.

• Third, course-correction, reflection, and adaptation during implementation are key parts of the program design and will help surface and address political economy challenges during implementation. Facilitation/coaching of implementation teams will include, for example, simple stakeholder analysis and force field analysis exercises and create further ownership for finding solutions to issues that may come up and involve different stakeholders. The addition of the Institute of Public Finance to the governance structure further confirms this ambition to systematically learn during implementation.

• Finally, the results-based financing mechanism through which the World Bank will disburse to the Government—based on achieving pre-agreed targets for DLIs—shares risk between the World Bank and the client and shifts responsibility for access to resources to the latter. The specific DLI (DLI 10) on governance and change management (and its weight in pricing) further emphasizes the importance of the Program for effective governance and change management attention throughout the implementation.

IV. ASSESSMENT SUMMARY

A. Technical (including program economic evaluation)

41. The technical risk of the PforR is rated ‘Moderate’ considering the context and technical preparations. The Government has the readiness to implement the approved PFM Action Plan that has been prepared with the required analytical underpinning. The Program design, as outlined in the Program


Page 20

Document and approved by the Honorable Prime Minister, provides the institutional framework and incentives for continued focus and prioritization of PFM reforms to have a clear impact on social service delivery. There is strong technical preparation with the DLI technical notes prepared by the relevant government teams. Finally, the appropriate attention given to adaptive challenges has raised stakeholders’ understanding of the PFM challenges and thereby procured the necessary appetite for the changes needed.

42. The Program is strategically relevant and technically sound for the following reasons: (a) it is directly aligned with the Bangladesh PFM Reform Strategy and PFM Action Plan, (b) it builds on previous PFM reform efforts and is selective by focusing on a subset of critical foundational reforms that are directly under the FD’s control, and (c) it considers the implementation capacity and adaptive behavioral change management needs for the reforms to be successful.

43. The PFM Action Plan provides a robust evidence base and operational framework to advance key PFM reform priorities for strengthening PFM institutions and systems. The PFM Action Plan was formulated to operationalize the Government’s PFM Reform Strategy. Both the PFM Reform Strategy and PFM Action Plan build on the lessons learned from the long reform history in the country. The PFM Action Plan was produced through a consultative process led by the FD, involving other PFM institutions and DPs. The development of the PFM Action Plan also benefited from the knowledge exchanges with other countries and expert advice on technical and adaptive aspects.

44. Within the boundaries of the PFM Action Plan, the Program focuses on key priority activities led by the FD itself and aims to scale up already tested interventions. Both the Program interventions and DLIs focus heavily on the aforementioned PFM challenges. These include interventions to support improvements in both process and service delivery. Many of these interventions have been piloted and proven successful with a promise for progressive scale-up, such as expansion of the iBAS++ and use of the EFT. Because these are proven interventions building on the ongoing reform activities with a high level of stakeholder ownership, the technical risk is not considered significant.

45. There is a logical connection linking KRAs to DLIs and in turn to intermediate objectives, elements of the PDO, and the overall outcome of enabling better resource availability for the service delivery. DLI 1 supports the adoption of an improved macroeconomic model leading to improved fiscal forecasting. DLI 2 supports improved budget alignment with development strategy, leading to better budget preparation and execution in line ministries. DLI 3 supports timely budget releases. DLI 4 supports automation to enable timely payments of salaries and invoices. DLI 5 supports improved pension service, including timely payments to pensioners. DLIs 6 and 7 support improved M&E of and reporting by SOEs. DLI 8 supports better reporting on budget execution linked to BACS and IBAS++. DLI 9 supports improved audit procedures, reporting, and resolution of audit recommendations. DLI 10 supports appropriate governance and change management processes for the Program. The DLIs and intermediate objectives feed into the PDO elements of improved fiscal forecasting, improved budget preparation and execution, enabling of better resource availability for service delivery, and improved financial reporting and transparency. In turn, these elements contribute to the intended outcome of improved service delivery.

46. The Program has an adequate governance structure and implementation arrangements. Learning from the experience of PFM reforms in Bangladesh and globally, a sound institutional setup has been devised that leverages the existing structures and capacity. This has led to effective stakeholder engagements as stakeholders can understand how the reforms are going to benefit them in performing


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their day-to-day responsibilities with greater efficiency and effectiveness. This has led to the elaboration of the DLI technical notes indicating the high degree of readiness for implementation. For each DLI, an elaborate technical note describes how to surmount the anticipated challenges through the reform sub-activities. These technical notes are prepared by formally notified teams within the government institutions through an iterative process facilitated by experts. The preparation of the technical notes also validated the political feasibility of the reforms through the tacit knowledge of the participants.

47. The expenditure framework is adequately structured to achieve the Program’s objective. As indicated in annex 3, individual national consultants account for 22 percent of the Program’s expenditure. This is primarily driven by the iBAS++ component which is staffed by non-civil servant IT professionals. Consultancy for international firms accounts for 7 percent while local firms account for 8 percent. Wages and salaries account for 14 percent; this is mostly from the Government’s recurrent cost, salaries for the PECT are also included. In keeping with SPFMS’ change management approach, 13 percent is allocated to domestic training and 5 percent for knowledge exchange programs to facilitate capacity building of staff within the implementing wings of the FD as well as training of field office staff and key stakeholders. Additionally, 6 percent is allocated for seminars and conference to facilitate communications and consultations with key stakeholders. Other expenses include IT equipment, logistics, rent and building cost, and awards and rewards, among others, accounting for the remaining 25 percent.

48. The economic, gender, and social rationale for this Program is compelling. According to the described PFM bottlenecks, Bangladesh pays a significant price for delayed and inefficient resource availability for service delivery. The Program is expected to add more than US$1 billion in economic gains for an overall program cost of US$170 million which more than justifies the public investment. Listed below are some of the justifications, with details provided in annex 3.

• Strengthened TSA saves bank fees, commissions, and interest charges by consolidating all government cash in a single account.

• Timely and predictable budget releases speed up the completion time for capital investments and improve infrastructure utilization through timely payment of recurrent costs. These reforms, in turn, help projects deliver economic benefits faster and more reliably, thus improving value added as measured by net present value.

• Strengthened BMCs will effectively incorporate the Government’s policy commitments on gender, children, and climate in the annual budget. Currently, these are pulled out ex post in the gender, child, and climate budgets, respectively, but what really matters is the ex-ante consideration as part of the annual budget deliberations and negotiations.

• The reform program is likely to improve the quality of the MTBF and this in turn will lead to more efficient allocation of resources.

• Using human resource management systems and the EFT for payroll and pension payments improves the incentive structure, encouraging public officials to work harder and deliver greater economic benefits.


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• These systems also reduce opportunities for ghost workers and pensioners. Using the EFT for paying vendor invoices can lead to more timely and reliable payment and potentially enable vendors to offer lower bids for future government contracts.

• The use of online bill submission and EFT will significantly reduce paper use and back and forth transportation of DDOs to the accounts office and contractors to DDOs and their banks, respectively. Given the traffic congestions in Bangladesh, this will be a great contribution to reduce the carbon footprint. The economic benefit quantified for the reduction in greenhouse gas (GHG) emissions because of transport alone is around US$31 million.

• Better reporting and M&E of SOEs can lead to more efficient and effective operations, reducing the need for government subsidies or increasing dividends accruing to government shareholdings.

• Improved transparency in public finance increases the confidence of citizens that they can expect that public resources are used to improve services and thus improve their willingness to pay taxes.

• Expansion and improvements of IBAS++ will allow strengthened controls that can better support the audit process to uncover financial irregularities and enable improved expenditure management going forward.

• Well-functioning audit committees both help resolve pending audit observations and provide useful feedback to auditors to improve audit quality. Improved audit quality and follow-up is expected to reduce the prevalence of costly, inappropriate behavior and incentivize more efficient and effective spending that delivers greater value for money.

Climate Co-Benefits

49. The Program will bring climate co-benefits in several ways. This Program is also designed to contribute to Bangladesh’s climate change mitigation and adaptation efforts to the extent possible. First on mitigation, through DLIs 3, 4, 5, and 8, the Program will promote the use of online bill submissions and EFT for payments to government staff, pensioners, and vendors. This will greatly reduce the use of paper and transportation back and forth from 36,000 DDOs to the accounts office and from thousands of vendors to DDOs and their banks for check collection and deposit. This will be able to reduce the transport demands of the government staff, pensioners, and vendors who would normally travel over 10 km on average by car, bike, and bus to complete one public service transaction, leading to savings of approximately 518,055 tons of carbon dioxide.10

50. On the adaptation side, the FD has completed climate tagging for the top 20 climate spending ministries as part of the climate budget preparation. The Program will ensure the tracking of these pro-climate expenditures and continued alignment of public spending with pro-climate considerations by improving the performance of the BMCs as part of DLI 2—a 15 percent weightage is proposed for climate in the BMCs scorecard. Where applicable, the BMCs will ensure that budget programs set out and reflect policy goals in full compliance with the strategic goals of achieving gender equality, climate change, and citizens’ participation set out in the five-year plans and cross-cutting and sectoral strategies, clearly

10 The Program team made calculations based on data from Bangladesh Road Transport Authority and the United States Environment Protection Agency’s GHG calculator.


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identifying the respective performance indicators. Finally, the Program will finance maintenance and replacement of solar panels as a secondary electricity source for several upazila accounts offices.

Citizen Engagement

51. Citizen engagement and access to information is a key precondition in improving accountability. The Program will support the preparation and testing of a prototype of the citizen budget. A citizen’s budget is a simpler and less technical version of the Government’s Executive’s Budget Proposal or Enacted Budget, designed to convey key information to the public. For this purpose, the Budget in Brief can be built on and improved with infographics and citizen-friendly terminologies to start publishing a citizen’s budget. The Program will also support publishing of the quarterly budget execution reports. The citizen’s budget will augment the existing series of documents that include the gender budget, child budget, and climate budget that are regularly produced by the Government. Finally, the Program design has a special emphasis on the outreach activities and engagement with beneficiaries and citizens.

Gender Development

52. The Program will have a positive contribution to gender development in the country. First, DLI 2 is focused on improved budget alignment with development strategy and gender, social, and climate considerations. The BMCs’ scorecard also proposes a 15 percent weight for gender and social issues to ensure ex ante deliberations for increased pro-women and pro-children expenditures. Second, the Program aims at improving gender equality in terms of easy access to pensions. Having an automated system (EFT) will reduce hurdles which women commonly face and thus facilitate easier access to pension benefits. This will particularly benefit family pension recipients as widows of pensioners have to undergo a number of additional processes to claim family pensions—something that often results in surrendering of the pension claims of the deceased. Having the analysis of delayed pension cases by gender will also enable focusing on expediting resolution of cases for women pensioners. This is expected to benefit women disproportionately by helping overcome information access and mobility barriers while enabling women to circumvent gender bias and discrimination. Establishing a separate women’s counter at the pension office will also be considered. A few indicators will measure progress in gender equality in access to pensions. For example, the Program aims to ensure that 90 percent of new female pensioners (as well as 90 percent of new male pensioners) are paid through the EFT. Another indicator will measure progress on widows’ access to pensions by targeting a 60 percent reduction in delayed family pension cases (compared to a 50 percent reduction in all delayed pensions cases). Finally, the Program has a gender-disaggregated indicator on the number of civil servants who have completed specialized courses. The gender action on training courses includes additional efforts to ensure that women staff are well informed about the courses in which they can enroll as well as tailored outreach activities targeted to women staff. Courses will be customized in some way to support a high participation by women staff (for example, the location/time the training is held). As a result, a minimum of 30 women out of 100 civil servants are expected to complete these courses. Over the medium term, this will help reduce the gender disparity in the skills and career opportunities of government employees.

B. Fiduciary

53. A fiduciary system assessment has indicated the Program fiduciary risk as ‘Substantial’. The assessment was carried out according to the World Bank’s PforR Financing policy (November 2017) with an objective to determine whether the Program fiduciary systems provide reasonable assurance that the


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financing proceeds will be used for intended purposes. Annex 4 provides details of the fiduciary system assessment. The fiduciary and anticorruption systems for relevant program expenditure boundary was assessed for the Budget Wing, Expenditure Wing, Macroeconomic Wing, SOE Monitoring Cell and SOE Wing, and Treasury and Debt Management Wing of FD. Lessons were considered from the recently carried out Fiduciary Systems Assessments (FSAs) by the World Bank for PforR operations such as the Transforming Secondary Education for Results Operation (P160943) and the recently completed Bangladesh PEFA 2015. Furthermore, the assessment has also considered fraud and corruptions risks and their potential mitigation measures.

54. The legal and regulatory framework for the proposed Program’s fiduciary systems appears to be comprehensive. The Constitution of Bangladesh (Articles 81-92) lays down the legal framework of the basic financial procedures to be followed in managing public finance. The Public Money and Budget Management Act 2009 further elaborates these procedures and brings specificity in certain areas by defining core PFM elements. In addition, there are financial rules (General Financial Rules, Treasury Rules, Subsidiary Rules); Account Codes; Public Expenditure Management Manual; Internal Control Manual; and executive orders to guide the operation of a PFM system. Specific procedures for formulation and approval of development projects are issued by the Planning Commission. The Rules of Business (2012) issued by the Cabinet Division specify how the Government transacts its business and the Allocation of Business made thereunder determine the functions of each ministry/division. The PFM legal and regulatory framework is in line with international principles and standards for public procurement and financial management. Nonetheless, the assessment has identified a few deficiencies in the current systems and procedures: (a) lack of response to audit observations for more than 12 months, (b) weak capacity of the internal audit department and delays in taking actions on external audit observations, and (c) insufficient data on budgetary allocation by implementing wings of FD.

55. There are several procurement-related shortcomings:

(a) Absence of distinct procurement unit in the FD and lack of proficient procurement experts.

(b) Ineffective contract management resulting in time and cost overruns.

(c) Absence of strategic procurement analysis and planning to determine the optimum procurement package size, procurement method, contracting modality, and duration of the contract. This leads to non-attainment of the development outcomes within the optimum cost and time.

(d) A few provisions in the procurement laws and regulations that are less consistent with international good procurement practices and the spirit of the open tendering method; for instance, tenders are invited or rejected based on percentage above or below the estimated cost and use of lottery systems.

(e) Inadequate complaint-handing system to register procurement-related complaints and monitor their resolution status.

56. The normal government budgeting process will determine the Program’s fund allocations and expenditures. Program funds will be directly disbursed to the Government’s treasury upon achievement and verification of results. The CGA will be responsible for maintaining the Program’s accounts and reporting through iBAS++. The new BACS is robust to capture and report on the Program. The overall budget for the FD can be clearly identified under Grant 07 of the MTBF 2018–19 to 2020–21. Together


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with the new integrated budget preparation and execution modules and functionalities, the planning and budget preparation process promotes better linking between policy formulation, planning, and budget allocation to enhance service delivery in a transparent and accountable manner.

57. The Chief Accounts Officer (CAO), FD currently uses the iBAS++ mainly for payment processing, accounting, and limited reporting purposes. To improve budget management of the Program and monitor progress to take corrective action, the format for budget execution reports will be improved to disclose spending against the approved and released budget disaggregated (sliced/diced) departmentwise, schemewise, sector/subsectorwise, fundwise, and other BACS elements supplemented with output data for release to decision makers, service delivery managers, and publications in a user-friendly format.

58. The OC&AG will carry out the Program audits. The audit report will be submitted to IDA within nine months after the end of the fiscal year. The new organization reform at the OC&AG will allow the respective directorate to be more focused on entity audit whereby the entity’s financial statement expenditure (which will include the Program and entity expenditure) will be audited annually and the report submitted within nine months of the end of the fiscal year. An audit report of the FD’s statement of expenditure covering 2009–16 was completed in April 2017. It is the practice of the OC&AG to audit the FD once every two years. The most recent audit observations were responded with the delay of 18 months. Such delay in addressing audit observations undermines the usefulness of audit reports and leads to cynicism toward audits, which in turn reduces the effectiveness of the Program’s external audit. Going forward from FY18, the OC&AG has plans to conduct the audit of the FD annually.

59. The Program will only support eight expenditure items. Annex 4 (FSA) provides the details of the items. An expenditure reconciliation will be done at the end of the Program, which will decide whether a refund is necessary or not. If there is an underutilization of total program budget on the closing of the program period, that results in the total program expenditures being less than the amount disbursed under the credit, the Government will be required to refund the difference to the Bank, even if all DLIs have been achieved. Professional services and training together represent 40 percent of the program cost estimate. In addition, around 11 percent will be spent on systems development, programming, data entry, and training for iBAS++ enhancements. iBAS++ is an in-house developed (Bespoke) software running on Oracle 11g database and MS.NET MVC 4.0. Development of iBAS++ commenced under the SPEMP-A to replace iBAS++. Following the closure of that project in 2014, the FD continued this initiative under a program called the PEMSP. The other cost items are wages and salaries 16 percent; administrative expenses 14 percent (including rent of program office); machinery and equipment 7 percent; and the rest includes software development, survey and study, repair and maintenance, travel, printing, and fuel and oil. There is no contract in the Program which is close to the Operational Procurement Review Committee (OPRC) clearance thresholds. The OPRC threshold per high-risk contract of goods, IT, and non-consulting services is US$30 million. Goods contracts under the Program include computer hardware and accessories, software, office equipment, fixtures, and others. The OPRC threshold for high-risk contracts of consulting services for firms and individual consultant is US$15 million. Consulting services (firms) under the Program include identifying of software for the macroeconomic model, data transfer from the existing macroeconomic forecasting model, survey, variance analysis, assessment of fiscal risk and contingent liabilities, creation of a debt database, and carrying out of debt sustainability analysis. Individual consultants under the Program include IT consultants, economists, accountants, statisticians, public administrators, social sector specialists, and sociologists. There are no works contracts for any new


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construction under the Program and only repair, maintenance, and rehabilitation of existing facilities are included.

60. The World Bank’s Guidelines on Preventing and Combating Fraud and Corruption in Program-for-Results Financing, dated February 1, 2012, and revised July 10, 2015, will apply to the Program. The Government will use its own country systems to take appropriate measures to prevent fraud and corruption connected with the Program and to remedy or prevent its recurrence. If specific instances of fraud and corruption are identified, it will be reported to the Anticorruption Commission. The commission will take necessary actions for investigations and prosecutions in accordance with Bangladesh’s laws and regulations. The Government will use the World Bank’s easily accessible, procurement debarment list before awarding contracts. Moreover, information on allegations of fraud and corruption in the Program will be shared with the World Bank.

61. The Program has incorporated fiduciary risk mitigation measures as DLIs or activities under the Program Action Plan (PAP). Efforts are needed to mitigate fiduciary risks covered by the assessment. The World Bank’s governance team will work closely with Government counterparts as part of the PFM dialogue and program implementation support to further strengthen the fiduciary and governance systems of the program, as contained in the PAP.

C. Environmental and Social

62. The Program has an environmental and social risk rating assessed as ‘Low’. Given the scope of the Program, its types and scale of investment, geographic focus, institutional capacity and previous experience of the FD with World Bank projects, the risk is rated ‘Low’ from the environmental and social perspectives. Overall, the Environmental and Social Systems Assessment (ESSA) (annex 5) found that the Program is compatible with the core principles of PforR. The FD has adequate capacity to run the Program. However, the ESSA recommends bolstering institutional capacity through recruiting environmental and social safeguard consultants for the program duration. This recommendation is summarized as actions and incorporated in the PAP.

63. The Program does not pose any environmental or social risk because all the activities of the Program are aimed at the SPFMS. There are no new physical facilities construction, civil works, or any activities that can pose any environmental risk. Nevertheless, all citizens of the country, including the vulnerable, the poor, disabled, women, children, the elderly, and indigenous people at large will directly benefit from the Program because of service delivery improvements.

64. Specific environmental and social benefits expected of the Program are as follows:

(a) DLI 2 is aimed at improving budget alignment with development strategy and gender, social, and climate considerations through better performance of the BMCs. This indicates that there will be an increased focus on allocating funds to environmentally sustainable projects and the capacity of BMCs will be increased to better screen such projects. This will encourage the inclusion of environmental sustainability concepts while submitting proposals for projects as added emphasis is assigned in the screening process.

(b) DLIs 1, 2, 3, and 8 will help improve the efficiency of the present PFM system at the macro level with its positive effect felt at the micro level. As such, these will directly and indirectly benefit all including the women, children, elderly, marginalized people, vulnerable groups, and indigenous people.


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(c) DLI 4 on the EFT and online bill submission will go a long way to directly benefit all government employees including the vulnerable, poor and disabled, women, and the elderly. Presently the system is manual, and clerical staff prepare the salary demand in a paper bill format on a monthly basis and the process is slow, cumbersome, and at risk of errors. This creates bottlenecks in the process. Any error in the salary bill leads to resubmission, and the process takes time and the affected recipient suffers. The EFT will make the ‘salary’ matter paperless and efficient. Similarly, the social safety net payments to widows, freedom fighters, and the elderly will improve.

(d) DLI 5 focuses on improved pension service (disaggregated by gender) through the EFT no later than the following pension payment cycle after retirement.

(e) DLI 10 is aimed at developing skills of the persons employed for PFM reform implementation and monitoring at the FD and recipient ministries. Such improved workforce skills will have a positive effect on the overall PFM Program. Thus, all including the vulnerable, poor, disabled, women, the elderly, and indigenous people at large will indirectly benefit from DLI 10. In addition, DLI 10 will provide post-graduation courses/certifications to 100+ staff and the Program will track them by gender to promote women among participants.

D. Risk Assessment

65. The overall risk rating for the proposed operation is ‘Moderate’. The moderate risk is based on several considerations. This includes the considerable readiness and commitment to PFM reforms that have become evident from the PFM dialogue with the leadership and technical levels and also from the recent accomplishments on iBAS++ development and adoption of the new BACS. While the general elections are planned for December 30, 2018, the outcome is unlikely to affect the implementation of the PFM Reform Strategy and PFM Action Plan that have a strong ownership of executives and other stakeholders given the broad-based consultative approach followed for developing these. However, the PforR approach significantly relies on the existing implementation agencies whose capacities are known to be limited. The World Bank is working closely with the Government and DPs to ensure that fiduciary systems are strengthened (for example, internal and external controls and reinforced links between spending and results). The Government’s commitment and capacity to recruit and apply adequate resources for technical assistance and M&E will be critical for successful implementation and for achievement of DLIs. The availability of MDTF resources to complement the program implementation provides an additional safeguard. Finally, the OC&AG, Cabinet Division, and a third-party agency will be engaged to carry out verification primarily because of the differing nature of the DLIs. This will not only strengthen the country’s own institutions but also promote a healthy competition among verification agencies and provide corroborative evidence for the program performance.

.


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RESULT_FRAME_T BL_ PD O

PDO Indicators by Objectives / Outcomes DLI CRI Unit of Measure

Baseline End Target

Improve fiscal forecasting and resource allocation consistent with Government priorities

Use of improved fiscal projections for budget-making DLI 1 Yes/No No Yes

Improved budget alignment with development strategy through better performance of BMCs

DLI 2 Percentage

0.00 20.00

Reduced number of days taken for DDOs to receive budget in selected MDAs

DLI 3 Percentage

0.00 60.00

Improve budget execution in service delivery MDAs

Timely and reliable payments of salaries and vendor invoices with a strengthened TSA and automated payment system

DLI 4 Text

EFT used for officers’ salaries only. No online bills submission. Stock take of special accounts & EBFs will be done.

- 40% EFT

- 30% DDOs submitting online bills

- Number of new (outside TSA) special accounts opened annually reduced by 40%

Promote enhanced transparency of the budget execution and enable timely accountability

Budget holders in selected MDAs effectively and transparently use financial information

DLI 8 Percentage

0.00 50.00

.

ANNEX 1. RESULTS FRAMEWORK MATRIX


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. RESULT_FRAME_T BL_ IO

Intermediate Results Indicators by Results Areas

DLI CRI Unit of Measure

Baseline End Target

Improve budget execution in service delivery MDAs

SOE and autonomous bodies' debt and contingent liabilities statement prepared and submitted to policy makers

DLI 6 Text

- SOE debt and contingent liabilities are not effectively controlled

- Partial data of SOEs profitability published in the annual Economic Survey of Bangladesh

- Fiscal risks assessments have not been conducted

- Policy and procedures to regulate SOEs’ debt and contingent liabilities (including an upgraded framework for reporting by SOEs to the Finance Division) have been drafted and issued by MoF.

- 100 SOEs and autonomous bodies have published their audited financial statements (covering the relevant Fiscal Year for which the DLR is being assessed).

- SOE debt and contingent liabilities statement (covering the relevant Fiscal Year for which the DLR is being assessed) has been prepared by MoF for all SOEs and submitted to policy makers.

Improved performance of the SOE sector and reduced subsidies as a percentage of total public sector spending

DLI 7 Text

SOEs are not classified as commercial and non-commercial.

There is some performance monitoring of SOEs but not systematic and independent.

Grants to SOEs are not divided into different categories.

Partial data of SOEs profitability published in the annual Economic Survey of Bangladesh.

- SOE performance evaluation guidelines have been developed by the Finance Division with clear scoring criteria.

- A policy and procedures manual that enables an effective review of grants to SOEs has been drafted and issued by the Finance Division.

- At least 10 SOEs have undergone an independent performance evaluation in accordance with the SOE performance evaluation guidelines developed.

- Turnaround strategies have been developed for at least 10 non-performing SOEs.

- The ratio of SOE transfers to total public spending (in the relevant Fiscal Year in which the DLR is being assessed) has been reduced by 15%.

Promote enhanced transparency of the budget execution and enable timely accountability

Improved Pension Service (disaggregated by gender) through

DLI 5 Text - Long process often results in a significant delay after retirement to

- The GP Fund Module and the Pension Service Module of iBAS++ have been implemented and are operational.


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facilitation of payments through EFT no later than the pension payment cycle following retirement

prepare a Pension Payment Order

- All pension and GP fund records are manual and prone to human errors

- A centralized pension roll with EFT payment capability has been established and is operational.

- A government-wide annual GPF and Pension Service report has been produced.

- The number of cases of delayed pension payments is reduced by 50%.

- 90% of new pensioners are paid through EFT no later than the pension payment cycle following their retirement.

Action taken on internal and external audit reports in Selected MDAs and post-procurement reviews in the Finance Division

DLI 9 Text

Internal audit units are not effective.

Internal audit activities consist primarily of ex-post reviews focused on financial compliance.

- The Model Internal Audit Charter and the Risk-based Internal Audit Manual have been issued by the Finance Division.

- A system for annual procurement planning and post-review has been established by the Finance Division and training on the system has been conducted.

- Internal audit reports prepared in accordance with the Model Internal Audit Charter and the Risk-based Internal Audit Manual issued have been issued to the heads of departments and principal accounting officers of any two departments in any of the Selected MDAs.

- The relevant Audit Committees resolve 50% of: (i) audit recommendations for each of the Selected MDAs other than the Finance Division and (ii) audit recommendations and procurement post-reviews in Finance Division based on the stock of total audit recommendations and procurement post-reviews as applicable pending for each of the relevant Selected MDAs and the Finance Division respectively at the beginning of the relevant Fiscal Year in which the DLR is being assessed.

Establish an enabling environment for improved PFM outcomes

PFM Action Plan implementation is effectively led through an adequate governance structure and an effective change management

DLI 10

Text

PFM reform implementation monitoring and course-correction are not adequately coordinated and a comprehensive change management

- Two PFM Action Plan progress reports (prepared on a semi-annual basis in a Fiscal Year) have been submitted by the PECT to the Steering Committee.

- Two PFM Action Plan stakeholder retreats conducted to review


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.

approach approach needs to be implemented the respective semi-annual PFM Action Plan progress reports prepared under DLR 10.1 in a Fiscal Year.

- The PFM Learning Hub has produced at least 3 research papers on PFM reform lessons and published the said reports through its website.

- 6 field inspections to government service delivery centers to identify PFM-related issues have been carried out.

- The PECT has prepared a report evaluating the performance of coaches facilitators and/or implementation support consultants engaged to support the implementation of the PFM Action Plan.

- 100 civil servants (with data disaggregated by gender) have completed specialized PFM-related courses/certifications.


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.

Indicator Name Use of improved fiscal projections for budget-making Frequency Annual

Data Source - Documentation of the macro model - Reports produced by the model - Annual budget brief submitted to the Budget Monitoring and Resource Committee - Medium Term Macro-economic Policy Statement

Methodology for Data Collection

Source economic data will be obtained from various entities and publications responsible for maintaining those datasets, such as Bureau of Statistics, Planning Ministry, Bangladesh Bank, Economic Relations Division, TDM wing FD, Controller General of Accounts, National Board of Revenue, etc. This database is already there but would be further updated and cleaned as needed for economic modelling. Other documentation regarding the development and use of the model will be prepared and kept by the MacroEconomic Wing of FD, which would include the minutes of the Budget Coordination Council meetings etc.

Information regarding the DSA, debt bulletin, and MTDS would be provided by the TDM wing FD. Responsibility for Data Collection Macroeconomic Wing and Treasury & Debt Management Wing

Indicator Name Improved budget alignment with development strategy through better performance of BMCs

Frequency Annual

Data Source - BMC performance monitoring framework - Inter-ministry peer-review reports - Minutes of BMCs - Ministry budget proposals - Budget execution reports


The Budget Wing will prepare the scoring methodology for assessment of the BMC functioning and guidance for the peer-review process. The Budget Wing will also be responsible for arranging the capacity building of BMCs and the peer review process, hence, the data on these activities will be provided by the Wing. These will include various reports and summaries including the peer reviews carried out by multi-institution teams. For the purposes of increased social sector spending, the CGA data as recorded through iBAS++ will be used.

Responsibility for Data Collection Budget Wing

Monitoring & Evaluation Plan: PDO Indicators


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Indicator Name Reduced number of days taken for DDOs to receive budget in selected MDAs Frequency Annual

Data Source - Delinking circular/ amendment to rules or procedure. - Budget release information from iBAS++.


Budget release is enabled in the iBAS++ once the budget is finally distributed to DDOs. iBAS++ system will be upgraded/ configured to produce these process reports to present how many DDOs have their budgets released to them with a time stamp on the report. This will enable monitoring and follow-up by the Expenditure Management Wing of FD and to pursue with the selected ministries so that the budget should be distributed to DDOs and such release is enabled in iBAS++ by the budget holders in respective ministries.

Responsibility for Data Collection Budget Wing

Indicator Name Timely and reliable payments of salaries and vendor invoices with a strengthened TSA and automated payment system

Frequency Annual

Data Source - Data on the new special accounts and EBFs - iBAS++ process/log data on use of EFTs and online bills submission.


A TSA and EBF stock take exercise will be commissioned by FD that would inform the number and amounts of public funds held in commercial bank accounts outside the TSA. For other DLRs, iBAS++ data would be used and special reporting functionality will be devised as needed.

Responsibility for Data Collection Budget Wing and iBAS++ Project Office


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Indicator Name Budget holders in selected MDAs effectively and transparently use financial information Frequency Annual

Data Source

- Annual budget - iBAS improvement plan duly endorsed by a user group - iBAS reports generated by SAEs - System logs on use of iBAS reports by the budget-holders - Published budget execution reports - Citizen engagement in monitoring service improvements enhanced by public finance improvements - IPSAS adoption by OCAG - IPSAS compliant annual financial statements


Budget and expenditure data will be available in iBAS++. The iBAS++ unit will provide documentation on the development of new modules and interfaces and implementation of these and iBAS++ system data will further validate the continued operation of these systems improvements. Disclosure of expenditure reports will be on the FD's website.

Responsibility for Data Collection iBAS project office and Budget Wing

.


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. Monitoring & Evaluation Plan: Intermediate Results Indicators

Indicator Name SOE and autonomous bodies' debt and contingent liabilities statement prepared and submitted to the policy makers

Frequency Annual

Data Source - Policy & procedures for SOE debt and contingent liabilities - SOE debt and contingent liabilities statement - Published audited financial statements of SOEs - Fiscal risk assessments


FD will issue a simple reporting templates for SOEs to share their debts and contingent liability related information in coordination with their parent ministries. The SOE Monitoring Cell will follow-up on collection of this data. A database will be configured to compile such information for all SOEs and preferably SOEs will be given an option for the online entry into this database. The output of that database will be the SOE Debt and Contingent Liability Statement. SOEs Audited Financial Statements will be found on the websites they would be published on and data will be kept by SOE Wing.

Responsibility for Data Collection - SOE Monitoring Cell - SOE Wing - Budget Wing

Indicator Name Improved performance of the SOE sector and reduced subsidies as a percentage of total public sector spending

Frequency Annual

Data Source - SOE performance evaluation guidelines - SOE grants policy & procedures manual/circular - SOE performance evaluation reports - SOE rewards ceremony report - Grants/subsidies to SOEs - Turnaround/exit strategies for non-performing SOEs

Methodology for Data Collection SOE Monitoring Cell and SOE Wing will maintain and provide all the data regarding the performance evaluations of SOEs, turnaround and exit strategies, and government subsidies to SOEs. Subsidy data will also be in iBAS++ but the gross values will be kept by the SOE wing.

Responsibility for Data Collection - SOE Monitoring Cell - SOE Wing - Budget Wing

Indicator Name Improved pension service (disaggregated by gender) through the EFT no later than the following pension payment cycle after retirement


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Frequency Annual

Data Source - GP Fund reports from iBAS++ - Action plan for delayed pension cases - Centralized monthly pension roll.


CGA will commission a stock take of delayed pension cases in line ministries and institute a follow-up process to expedite such delayed pension cases. CGA will also provide necessary notifications and other operational information regarding the functioning of the Central Pension Office. iBAS++ project office will provide necessary documentation for the development and deployment of GP Fund and Pension modules and related systems data including monthly pension roll. Ministry of Public Administration will provide information on the public functionaries retiring in any fiscal year.

Responsibility for Data Collection Controller General of Accounts

Indicator Name Action taken on internal and external audit reports in Selected MDAs and post-procurement reviews in the Finance Division

Frequency Annual

Data Source - Internal Audit Charter - Organograms and working files of the internal audit departments - Internal audit reports - Audit committee notifications - Minutes of the audit committee meetings

Methodology for Data Collection Expenditure Management Wing of FD will maintain the internal and external audit reports of selected entities, minutes of the audit committee meetings, and audit follow-up status with the help of respective internal audit units.

Responsibility for Data Collection CGA and Expenditure Management Wing

Indicator Name PFM Action Plan implementation is effectively led through an adequate governance structure and an effective change management approach


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Frequency Annual

Data Source - Program progress reports - Program retreat reports - Field inspection reports - Facilitator deployment orders - Facilitation evaluation report - PFM research papers - Updated competency framework - Professional certificates - PFM innovation awards ceremony


PECT will maintain all documentation related to it's operations including the program progress reports, assessments, retreat reports, field inspection reports and facilitation reports to ascertain that they meet the requirements as set out in DLI 10 Technical Note. PECT will also obtain copies of certifications to ascertain that 100 civil servants completed the required professional courses. IPF will support keeping the documents related to learning activities and develop a database of skillsets of FD personnel.

Responsibility for Data Collection Program Execution & Coordination Team

.


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.

. .

Disbursement Linked Indicators Matrix

DLI 1 Use of improved fiscal projections for budget-making

Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount

Outcome Yes Text 10,000,000.00 5.88

Period Value Allocated Amount (USD) Formula

Baseline Static revenue and expenditure estimates restrict effective policy making.

FY2019 DLR 1.1 The requirements for the Macro-Economic Model have been finalized

2,000,000.00 -

FY2020 DLR 1.2 The software application to operationalize the Macro-Economic Model has been procured and configured with relevant data

DLR 1.3 An updated medium-term debt strategy (including a Debt Bulletin and DSA) has been developed

4,000,000.00 500,000 debt bulletin

500,000 DSA

1mil MTDS

FY2021 DLR 1.4 The Macro-Economic Model has been completed including the use of updated databases

2,000,000.00 -

ANNEX 2. Disbursement Linked Indicators, Disbursement Arrangements and Verification Protocols


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FY2022 DLR 1.5 Projections from the upgraded Macro-Economic Model have been used for MTMF and budget preparation.

2,000,000.00 -

DLI 2 Improved budget alignment with development strategy and gender, social, and climate considerations through better performance of BMCs




Baseline BMCs are not fully functional and require additional capacity and empowerment.

Gender disaggregated budget summary is produced.

Average spending on the Social Infrastructure for last two years is 28.87%.

FY2019 DLR 2.1 A monitoring framework (including a performance scorecard) for the BMCs has been drafted consulted on and issued

3,000,000.00 $1mil each on Framework drafted, consulted & issued

FY2020 DLR 2.2 15% of BMCs have undertaken inter-ministerial peer-reviews in accordance with the protocols established pursuant to the monitoring framework development under DLR 2.1 ($3mil)

DLR 2.3 The Government's expenditure on Social Sectors has increased to 29% of total actual public expenditure ($3mil)

Scalability Formula X1: DLR Allocated Amount × [Actual Achievement up to the relevant scalable DLR- Higher

6,000,000.00 Scalability formula X1


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of the baseline or earlier rewarded result]/[relevant scalable DLR – Baseline]

FY2021 0.00 -

FY2022 DLR 2.4 The average performance score of BMCs evaluated through inter-ministerial peer-reviews has improved by at least 25% ($2.5m)

DLR 2.5 The Government’s expenditure on Social Sectors has increased to 29.25% of total actual public expenditure ($2.5m)

5,000,000.00 DLR 2.4 baseline is from DLR 2.2

DLI 3 Reduced number of days taken for DDOs to receive budget in selected MDAs




Baseline Currently the budget release and distribution to DDOs takes around 2 months for the first quarter.

Budget release from the MoF to line ministry is no longer required from this year.

Average budget release delay for quarter 3 and 4 is 2.3 months for health sector

FY2019 DLR 3.1 The Finance Division has drafted and issued a circular mandating the de-linkage of Budget Releases from Fund Utilization Report submission

3,000,000.00 $1mil for drafting & 2mil for issuance

FY2020 0.00 -


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FY2021 DLR 3.2 80% of DDOs have had their budget released and distributed by July 31

3,000,000.00 The baseline is zero. Formula X1

FY2022 0.00 -

DLI 4 Timely and reliable payments of salaries and vendor invoices with a strengthened TSA and automated payment system




Baseline EFT used for officers’ salaries only

No online bills submission

FY2019 DLR 4.1 A stock-take of special accounts (including an assessment of the number of special accounts opened per year in prior years) EBFs (outside the TSA) has been completed.

2,000,000.00

FY2020 DLR 4.2 50% of government payment transactions are made through EFT

3,000,000.00 Just started. Baseline assumed zero.

FY2021 DLR 4.3 40% of DDOs submit all bills (payment requests) online

2,000,000.00 The baseline is zero.

FY2022 DLR 4.4 The number of new special accounts (outside the TSA) opened (in the relevant Fiscal Year in which the DLR is being assessed) has been reduced by 50%

2,000,000.00 The baseline is from DLR 4.1 stock take.


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DLI 5 Improved pension service (disaggregated by gender) through the EFT no later than the following pension payment cycle after retirement




Baseline Long process often results in a significant delay after retirement to prepare a Pension Payment Order

All pension and GP fund records are manual and prone to human errors

FY2019 DLR 5.1 The GP Fund Module and the Pension Service Module of iBAS++ have been implemented and are operational

3,000,000.00 $1.5mil each GP Fund Module and Pension modules

FY2020 DLR 5.2 A centralized pension roll with EFT payment capability has been established and is operational

2,000,000.00 The baseline is zero

FY2021 DLR 5.3 A government-wide annual GPF and Pension Service report has been produced ($1mil)

DLR 5.4 The number of cases of delayed pension payments is reduced by 50% ($2mil)

3,000,000.00 DLR 5.4 - baseline will come from DLR 5.1 for Formula X1

FY2022 DLR 5.5 90% of new pensioners are paid through EFT no later than the pension payment cycle following their retirement

2,000,000.00 The baseline is zero.

DLI 6 SOE and autonomous bodies’ debt and contingent liabilities statement prepared and submitted to policy makers



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Output Yes Text 7,000,000.00 4.12


Baseline SOE debt and contingent liabilities are not effectively controlled

Partial data of SOEs profitability published in the annual Economic Survey of Bangladesh

FY2019 DLR 6.1 Policy and procedures to regulate SOEs’ debt and contingent liabilities (including an upgraded framework for financial reporting by SOEs to the Finance Division) have been drafted and issued by MoF

2,000,000.00 $1mil each on drafting & issuance

FY2020 DLR 6.2 100 SOEs and autonomous bodies have published their audited financial statements

2,000,000.00 Baseline is 47 SOEs for X1

FY2021 DLR 6.3 SOE debt and contingent liabilities statement has been prepared by MoF for all SOEs and submitted to policy makers

3,000,000.00 Exception of up to 5 SOEs in a given year in case no data

FY2022 0.00

DLI 7 Improved performance of the SOE sector and reduced subsidies as a percentage of total public sector spending




Baseline - SOEs are not classified as commercial and non-commercial


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There is some performance monitoring of SOEs but not systematic and independent

Grants to SOEs are not divided into different categories

Partial data of SOEs profitability published in the annual Economic Survey of Bangladesh

FY2019 - DLR 7.1 SOE performance evaluation guidelines have been developed by the Finance Division with clear scoring criteria ($2mil)

DLR 7.2 A policy and procedures manual that enables an effective review of grants to SOEs has been drafted and issued by the Finance Division ($2mil)

4,000,000.00 $1mil each for drafting & issuance

FY2020 DLR 7.3 At least 10 SOEs have undergone an independent performance evaluation in accordance with the SOE performance evaluation guidelines developed under DLR 7.1

2,000,000.00 The baseline is zero Scalability formula X1

FY2021 DLR 7.4 Turnaround strategies have been developed for at least 10 non-performing SOEs

2,000,000.00 The baseline is zero Scalability formula X1

FY2022 DLR 7.5 The ratio of SOE transfers to total public spending has been reduced by 15%

3,000,000.00 Formula X1 - Baseline will be the average ratio of SOE transfers to total public spending for FY16, FY17 & FY18

DLI 8 Budget holders in MDAs effectively and transparently use financial information




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Baseline The previous classification chart limits financial reporting and analysis; and budget controllers do not use financial reports effectively

As at June 2018 the monthly report (in pdf. format) on fiscal position available on FD website was for December 2017 (six months behind)

Annual Accounts are produced with a significant delay and follow the old templates of finance and appropriation accounts

FY2019 DLR 8.1 The FY2018/2019 budget (or if the DLR is rolled over the budget for the relevant Fiscal year for which the DLR is being assessed) has been released on the Recipient’s new BACS

2,000,000.00

FY2020 DLR 8.2 3 Priority iBAS++ Interfaces have been implemented and are operational ($2mil)

DLR 8.3 Government-wide unaudited annual financial statements including annual financial statements of SAEs have been submitted to OCAG within six months of the Fiscal Year-end ($2mil)

4,000,000.00 DLR 8.2 Formula X1 with zero baseline.

DLR 8.3 $1mil if within 9 mon

FY2021 DLR 8.4 4 SAEs are using iBAS++ ($2mil)

DLR 8.5 Detailed budget execution reports published by the Finance Division on MoF’s official website on a quarterly basis i.e. four reports published in the relevant year ($2mil)

4,000,000.00 Formula X1 with zero baseline


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FY2022 DLR 8.6 60% of Budget Holders generate 10 or more monthly iBAS++ reports for budget execution decisions

2,000,000.00 Formula X1 with zero baseline

DLI 9 Action taken on internal and external audit reports in Selected MDAs and post-procurement reviews in the Finance Division


Output Yes Text 7,000,000.00 4.12


Baseline Internal audit units are not effective. -Internal audit activities consist primarily of ex-post reviews focused on financial compliance

Audit follow-up takes long time

FY2019 DLR 9.1 The Model Internal Audit Charter and the Risk-based Internal Audit Manual have been issued by the Finance Division ($1mil)

DLR 9.2 A system for annual procurement planning and post-review has been established by the Finance Division and training on the system has been conducted ($1mil)

2,000,000.00

FY2020 DLR 9.3 Internal audit reports prepared in accordance with the Model Internal Audit Charter and the Risk-based Internal Audit Manual issued under DLR 9.1 have been issued to the heads of departments and principal accounting officers of any two departments in any of the Selected MDAs ($1.5mil)

1,500,000.00 Scalability formula X1 & baseline is zero.

FY2021 DLR 9.4 The relevant Audit Committees resolve 50% of: (i) audit recommendations for each of the Selected MDAs other than the Finance Division and (ii) audit

3,500,000.00 Scalability formula X1 & baseline is zero.


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recommendations and procurement post-reviews in Finance Division based on the stock of total audit recommendations and procurement post-reviews as applicable pending for each of the relevant Selected MDAs and the Finance Division respectively at the beginning of the relevant Fiscal Year in which the DLR is being assessed ($3.5mil)

FY2022 0.00

DLI 10 PFM Action Plan implementation is effectively led through an adequate governance structure and an effective change management approach


Output Yes Text 14,000,000.00 8.24


Baseline PFM reform implementation monitoring, and course-correction are not adequately coordinated, and a comprehensive change management approach needs to be implemented

FY2019 DLR 10.1 Two PFM Action Plan progress reports (prepared on a semi-annual basis in a Fiscal Year) have been submitted by the PECT to the Steering Committee

2,000,000.00 The baseline is zero. Scalability formula X1

FY2020 DLR 10.2 Two PFM Action Plan stakeholder retreats conducted to review the respective semi-annual PFM Action Plan progress reports prepared under DLR 10.1 in a Fiscal Year ($2mil)



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DLR 10.3 The PFM Learning Hub has produced at least 3 research papers on PFM reform lessons and published the said reports through its website ($2mil)

FY2021 DLR 10.4 6 field inspections to government service delivery centers to identify PFM-related issues have been carried out ($2mil)

DLR 10.5 The PECT has prepared a report evaluating the performance of coaches, facilitators and/or implementation support consultants engaged to support the implementation of the PFM Action Plan ($2mil)


FY2022 DLR 10.6 100 civil servants (with data disaggregated by gender) have completed specialized PFM-related courses/certifications.


.


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.

Verification Protocol Table: Disbursement Linked Indicators

DLI 1 Use of improved fiscal projections for budget-making

Description Currently, static revenue and expenditure estimates restrict effective policy making. Through DLI 1, the Macro Economic Wing will develop a new macro-economic model compatible with Bangladesh’s country context. The model will be used to inform budget preparation and the medium term macro-economic framework (MTMF).

Data source/ agency

- Documentation of the macro model

- Reports produced by the model

- Annual budget brief submitted to the Budget Monitoring and Resource Committee

- Medium Term Macro-economic Policy Statement

Verification Entity Third party Validation

Procedure

Review the requirements specification approved by all key stakeholders to ascertain that the new model will add value relative to existing Excel based flow of funds approach

Review the model configuration indicators set and ascertain that they are likely to meet the essential requirements as set out in the model requirements documentation

Review the model's forecasts to ascertain they add value beyond forecasts produced by the excel-based flow of fund

Review the Annual budget brief submitted to the Budget Monitoring and Resource Committee for inclusion of data from the model

Review the updated medium tem debt strategy and Debt Sustainability Analysis and ascertain that they add value beyond that from previously available debt management tools

DLI 2 Improved budget alignment with development strategy and gender, social, and climate considerations through better performance of BMCs

Description

DLI 2 is aimed at improving budget alignment with development strategy and gender, social, and environmental considerations through better performance of Budget Management Committees (BMC). This indicates that there will be an increased focus on allocating funds to low-carbon and climate resilient projects and the capacity of BMCs will be increased to better screen such projects. This would encourage the inclusion of climate change mitigation and resilience


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concepts while submitting proposals for projects as added emphasis is assigned in the screening process. As part of the climate budget preparation, the FD has completed climate tagging for the top twenty climate spending ministries. The Program will ensure the tracking of these pro-climate expenditures and continued alignment of public spending with ex ante consideration of enhancing pro-climate expenditures under this DLI by specifically including 15% weight to the BMCs' scorecard.

Data source/ agency

- BMC performance monitoring framework

- Inter-ministry peer review reports

- Minutes of BMCs

- Ministry budget proposals

- Budget execution reports

Verification Entity Cabinet Division

Procedure

Review framework including scorecard to ascertain they give appropriate indication of quality of work of BMCs and BWGs in line with the ToRs

Review peer review reports to ascertain the proportion that were correctly prepared

Review budget execution reports and other relevant documents to ascertain that such spending comprises at least 29.25% of total spending

DLI 3 Reduced number of days for DDOs to receive budget in selected MDAs

Description

Delay in budget releases is often cited as one of the biggest bottlenecks to smooth and efficient service delivery. Budget release for health sector development funds (especially reimbursable project aid for the 3rd and 4th quarters) often takes more than two months, primarily due to ministry-level internal approval processes. DLI 3 seeks to expedite the budget release process by delinking the statement of expenditure from the requirement. To facilitate effective budget execution DLI 3 also seeks to release and distribute the budget to 80% to DDOs by July 31 with a focus on the social sectors of health, education and roads. Delinking budget release from the fund utilization report submission will remove travel needs hence reducing GHG emissions. System generated fund utilization report will be considered for fund release and there will be no such requirement of submission of report. This automated system will ultimately reduce travel needs, and also increase in the spending levels (including pro-climate expenditures).

Data source/ agency Delinking circular/ amendment to rules or procedure


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Budget release information from iBAS++

Verification Entity OC&AG

Procedure

Review circular, and amendment to rules to ascertain that budget release is delinked from fund utilization report submission

Review budget release information to ascertain that at least 80% of DDOs have budget released and distributed by July 31

DLI 4 Timely and reliable payments of salaries and vendor invoices with a strengthened TSA and automated payment system

Description

One of the benefits of improving cash management through the Treasury Single Account is that the impact on the determination of borrowing requirements will be improved by consolidating cash balances. Reduction in costs of borrowing to the government will increase fiscal space for allocation to service delivery and prompt settlement of government obligations will increase confidence in the payment system. DLI 4 will enable the reduction of cash held outside of the Treasury Single Account (TSA) and modernize payment processes. By promoting the use of online bill submissions and EFT for payments to government staff and venders, the use of paper and transportation back and forth from 36,000 DDOs to accounts office and from thousands of venders to DDOs and their banks for cheque collection and deposit. This will be able to directly address climate change vulnerabilities by reducing, if not eradicating, the transport demands of the government staff and vendors.

Data source/ agency Data on the new special accounts and EBFs

iBAS++ process/log data on use of EFTs and online bills submission


Procedure

Review the stock take report and ascertain comprehensive coverage of all bank accounts held by all MDAs and SOEs outside TSA, including special accounts, EBFs and EBCGs

Review CGA’s evidence on iBAS++ payment listings and ascertain that at least 50% of transactions were made through EFT

Review FD’s evidence on iBAS++ system logs and payment listings to ascertain that at least 40% of DDOs use exclusively online bills submission

Review evidence prepared by FD and ascertain that number of new special accounts outside of TSA reduced by at least 50%


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DLI 5 Improved pension service (disaggregated by gender) through the EFT no later than the following pension payment cycle after retirement

Description

Pension processing is cumbersome for both the Government of Bangladesh (GoB) and the pensioners, there is an urgent need to modernize the system through (i) establishment of a dedicated pension office (ii) the use of electronic funds transfer (EFT) and (iii) strengthened accounting and monitoring systems by linking with (iBAS++), DLI 5 seeks to streamline pension processing and payment system by undertaking immediate priority and interdependent actions which are necessary for improved service delivery concerning civil servant pension. Improved service delivery will contribute to protecting the women and elderly who are generally vulnerable to natural hazards including weather extremes. In terms of resolving the delayed pension cases, women will be given a preference with a 60% target. As like DLI 4, this DLI will likewise pursue the electronic procedure and ensure less transport and paperless jobs which will eventually empower the reduction in corresponding carbon footprint and energy consumption. This will be able to directly address climate change vulnerabilities by reducing, if not eradicating, the transport demands of the pensioners.

Data source/ agency

- GP Fund reports from iBAS++

- Action plan for delayed pension cases

- Centralized monthly pension roll


Procedure

Using data from iBAS++ ascertain that the system integrates at least minimum valid data on each civil servant needed to feed into GP Fund and pension modules to process pension at retirement

Verify that the pension role includes all required information to effect EFT payments and that EFT is working to agreed standard

Review the annual GPF and Pension report to ascertain that the report is produced to agreed standard and publicly available

Review the centralized pension payment report to verify the reduction in pension cases

DLI 6 SOE and autonomous bodies’ debt and contingent liabilities statement prepared and submitted to policy makers

Description Currently, financial information on a few number of SOEs is published in the annual Economic Survey of Bangladesh, SOE fiscal risks are not assessed and debt and contingent liabilities are not effectively controlled. DLI 6 seeks to strengthening the SOE monitoring by enhanced disclosure and monitoring of SOE information (including debt and contingent liabilities)


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and fiscal risks.

Data source/ agency

- Policy & procedures for SOE debt and contingent liabilities

- SOE debt and contingent liabilities statement

- Published audited financial statements of SOEs

- Fiscal risk assessments

Verification Entity Third party

Procedure

Review the approved policy and procedures to ascertain that a credible process is defined to derive a debt and contingent liabilities statement

Review the audited financial statements to ascertain that they are in line with approved policy and procedure and confirm the total number of SOEs that has published the financial statements

Review the fiscal risks assessment to ascertain that 10 SOEs are included

DLI 7 Improved performance of the SOE sector and reduced subsidies as a percentage of total public sector spending

Description

While there is some performance monitoring of SOEs there is no systematic and independent monitoring. DLI7 seeks to improve the monitoring and evaluation of SOEs through the completion of independent performance evaluation. This includes supporting the design and implementation of an SOE performance evaluation system with the Finance Division; supporting the development of turnaround strategies for SOEs; and reducing funds transfers to SOEs as a percentage of total public expenditures.

Data source/ agency

- SOE performance evaluation guidelines

- SOE grants policy & procedures manual/circular

- SOE performance evaluation reports

- SOE rewards ceremony report

- Grants/subsidies/transfers to SOEs

- Turnaround/exit strategies for non-performing SOEs


Procedure Review the performance guidelines and scoring criteria as well as the grants policy and procedures manual/circular to


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ascertain they meet expected standard as agreed with the Program Implementation Team

Review the performance evaluation reports to ensure they follow scoring criteria from performance guideline. Review the turnaround/exist strategies to ensure that the SOEs included are as agreed with the Program Implementation Team.

Using SOEs annual financial statements and data from iBAS++ determine the grants/subsidies paid by government as a percentage of the total public spending

DLI 8 Budget holders in MDAs effectively and transparently use financial information

Description

It is through the budget process that competing policy objectives are reconciled and implemented in concrete terms. In-year budget execution reports are not frequently accessed by the budget holders to monitor budget execution. Therefore, timely, accurate and comprehensive in-year budget execution reports are critical for decision making. DLI 8 seeks to support better reporting on budget execution linked to BACS and IBAS++. DLI 8 also seeks to improve the timeliness of financial reporting to within 6 months. One of the priority interfaces is Electronic Government Procurement (e-GP) which will reduce the travel time across institutions. The e-GP interface will automate procurement processes across institutions enabling reduction in travel time to move procurement documents for payments from one department to another. Similarly, use of iBAS++ by the Self Accounting Entities (SAEs) will reduce the need for physical movement of paper records between organizations that are needed for reconciliation between iBAS++ and the other sub-systems that will be interfaced. System generated reports will be produced from iBAS++ and that will reduce physical movement.

Data source/ agency

- Annual budget

- iBAS++ improvement plan duly endorsed by a user group

- iBAS++ reports generated by SAEs

- System logs on use of iBAS++ reports by the budget-holders

- Published budget execution reports

- Citizen engagement in monitoring service improvements enhanced by public finance improvements

- IPSAS adoption by OCAG

- IPSAS compliant annual financial statements


Procedure Review release reports and ascertain that the budget is prepared and released on new BACS

Review and ascertain that at least 3 interfaces are operational across relevant MDAs


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Review and ascertain that at least 4 SAEs are using iBAS++ properly

Review the website links of the budget ex execution report and ascertain disclosure of spending against approved and released budget disaggregated (sliced/diced) by department-wise, scheme-wise, sector/sub-sector-wise, fund-wise and other BACS elements supplemented with output data

Review and ascertain in that at least 60% of budget holders generate and publish required reports showing spending against approved and released budget disaggregated (sliced/diced) by department-wise, scheme-wise, sector/sub-sector-wise, fund-wise and other BACS elements supplemented with output data

DLI 9 Action taken on internal and external audit reports in Selected MDAs and post-procurement reviews in the Finance Division

Description

Internal audit is ad hoc and unstructured with isolated single audits and the applied standards are not based on international standards for the professional practice issued by The Institute of Internal Auditors. DLI 9 seeks to establish a modern internal audit function in selected large spending and high-risk departments as part of the suite of internal controls using risk-based audit methods concentrating on systemic issues and providing independent and objective advice to management. In addition, this DLI also aims to address the procurement fiduciary risks by encouraging the procurement planning and post-reviews by the FD, and finally resolution of the backlog of both internal and external audit observations in selected MDAs.

Data source/ agency

- Internal Audit Charter

- Organograms and working files of the internal audit departments

- Internal audit reports

- Audit committee notifications

- Minutes of the audit committee meetings


Procedure

Review the Internal Audit Charter to ascertain comprehensiveness and that it has been notified

Review risks-based audit manual to ascertain that it clarifies and distinguishes the roles and responsibilities of PAOs and internal auditors, covers all other expected topics, and has been notified and review the internal audit reports to ascertain that they meet guidelines in audit manual

Review the procedures established for the procurement planning and post reviews.


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Review audit memorandum tracking action taken on audit and procurement post review recommendations and ascertain the percentage that are resolved, this will include appropriate sanction of officers for deliberate non-compliance with rules and regulations, wasteful expenditure and fraud

DLI 10 PFM Action Plan implementation is effectively led through an adequate governance structure and an effective change management approach

Description

DLI 10 supports appropriate governance and change management processes for the entire PFM Action Plan implementation. Hence, DLI 10 supports a series of change management activities that are carefully articulated to analyze and learn from both successes and failures during the program implementation and improve approach to tackle the PFM problems. These change management activities include the key elements of program’s governance, implementation, and M&E systems, such as enabling progress reports to the Steering Committee and that these are reviewed in a broad-based program retreat encouraging results monitoring and mutual accountability. DLI 10 also seeks to establish a sustainable PFM learning environment with strengthened capacity of the Institute of Public Finance as a learning hub and institutionalizing the PFM research, field inspections, and problem-solving facilitation/ coaching. Annual performance reviews and DLI verification will enable a qualitative analysis of the enabling environment for PFM reforms so evolved and recommend improvements, as appropriate. The DLI will also support post-graduate education/certification of 100 or more civil servants in PFM related areas among which at least 30 should be women.

Data source/ agency

- PFM Action Plan progress reports and Program retreat reports

- Field inspection reports

- Facilitator deployment orders and facilitation evaluation report

- PFM research papers

- Updated competency framework

- Professional degrees and certificates

- PFM innovation awards ceremony


Procedure Review the program progress reports, retreat reports, field inspection reports and facilitation reports to ascertain that they meet the requirements as set out in DLI 10 Technical Note. Obtain copies of certifications to ascertain that 100 civil servants completed the required professional courses, of which at least 30 should be women.


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ANNEX 3. TECHNICAL ASSESSMENT

COUNTRY: Bangladesh Bangladesh Strengthening PFM Program to Enable Service Delivery

Program Description

1. Despite the important improvements in PFM, there is significant room to improve several PFM areas which are limiting the effective delivery of services to citizens. Strengthening PFM has been a cornerstone of reforms toward sound macroeconomic management and good governance. A sound PFM system is considered as fundamental to the Seventh Five-Year Plan objectives to effectively manage public resources. The PER identifies several challenging areas, including low tax-to-GDP ratio (9 percent), limited budget absorption capacity, decreasing quality of the investment portfolio resulting in implementation delays (80 percent of projects), cost overruns, low return on investment, and increasing debt service costs. The PER also raises budget allocation issues such as rapid asset erosion due to lack of maintenance and repairs,11 limitations in the design and targeting of agriculture subsidies, and low per capita health expenditures. Using the 2016 PEFA framework that has tougher benchmarks than the previous one, PEFA shows that Bangladesh’s overall performance in PFM is below average for six out of seven pillars. Finally, the financial and governance related data on SOE are fragmented and performance is not monitored effectively. Fiscal risks, debt, and contingent liabilities aggregated for all SOEs are unknown.

2. In the abovementioned context, the PFM Reform Strategy (2016–21) was approved by the Minister of Finance in August 2016. The PFM Reform Strategy clearly sets out the key goals and objectives of the PFM reforms and identifies the priority reform actions. The strategy was developed by a cross-institutional team from the MoF, OC&AG, the Planning Commission, and the National Board of Revenue, among others. It identified the following five goals for PFM reforms:

• Goal 1: Maintain aggregate fiscal discipline compatible with macroeconomic stability and pro-poor growth

• Goal 2: Allocate resources consistent with government priorities as reflected in National Plan

• Goal 3: Promote the efficient use of public resources and delivery of services through better budget execution

• Goal 4: Promote accountability through external scrutiny and transparency of the budget

• Goal 5: Enhance the enabling environment for improved PFM outcomes

3. A PFM Action Plan (2018–23) has been recently been approved to support the effective implementation of the PFM Reform Strategy. This PFM Action Plan provides the implementation road map for selected priority actions with clear institutional responsibilities for 14 reform components. It consists of a PFM Action Matrix which describes the different reform activities, identifies subactivities, provides the rough cost estimate and the intended benefits, and defines the results indicators with baselines and end-of-plan targets and the appropriate responsible institution. The PFM Action Plan also describes the governance structure for reforms and the change management approach. The PFM Action

11 The Global Competitiveness Report 2014–15 ranks Bangladesh’s overall infrastructure at 130 out of 144 countries.


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Plan was developed through a long consultative process with a broad range of stakeholders.

4. The PFM Action Plan aims to address specific high-level PFM problems with an innovative and dynamic approach, allowing for the flexibility needed during the implementation. Successful PFM reforms require both ‘causality’ and ‘discovery’. While the PFM Action Matrix is intended to provide a high-level causal logic needed for reforms to maintain the focus and direction to achieve the desired results, the exact pathway or solutions to drive the reform agenda in Bangladesh will require sufficient flexibility for course-correction. To accommodate this approach, the sub-activities described in the PFM Action Plan will be considered as a guide and will be subject to change as such understanding evolves over time. At present, it elaborates the current thinking of the PITs on how they can achieve the desired results. For example, the current forecasting model has shortcomings, which limits the accuracy of its analysis to support budget credibility. The PFM Action Plan underscores the need for a dynamic forecasting model and use of reliable data derived from various other systems; however, the detailed methodology to achieve this will be flexible and subject to change during the implementation of the plan. Another example is that the BMCs are not all institutionalized in accordance with the terms of reference (ToR) developed by the FD and have limited capacity for preparation of the sector strategy papers, annual performance agreements, and the medium-term strategy and business plans. Therefore, the result intended in this respect is to improve the performance of the BMCs, but the thinking on how to build their capacity and monitor performance improvements is likely to evolve during implementation.

5. The new SPFMS is designed to support the implementation of a part of the PFM Action Plan with the aim to ensure that PFM improvements enable more and better public service delivery in social sectors. The intention is not to implement PFM reforms for the sake of merely strengthening PFM—as was the case in the past—but to enable better service delivery to the citizens. The SPFMS includes eight components in the PFM Action Plan that are directly led by the FD including macro-fiscal forecasting, debt management, budget preparation and execution, IFMIS, TSA, SOE performance monitoring, pensions management, internal audit, and financial reporting. The SPFMS will provide both incentives as well as the technical capacity in a timely and flexible manner to ensure successful implementation of these actions identified by the reform coordination and implementation teams.

6. The PDO is to improve fiscal forecasting, budget preparation and execution, financial reporting, and transparency to enable better resource availability for service delivery in selected Ministries, Departments, and Agencies. PDO-level results indicators are

• Use of improved fiscal projections for budget making;

• Improved budget alignment with development strategy through better performance of BMCs (average BMC’s performance improves by 20 percent);

• Reduced number of days for DDOs to receive budget in selected Ministries, Departments, and Agencies (MDAs) (60 percent of DDOs receive budget by July 31);

• Timely, reliable payments of salaries and vendor invoices with strengthened and automated payment system in selected MDAs (40 percent EFT and 30 percent DDOs submitting online bills and 40 percent reduction in new special accounts outside TSA); and

• Budget holders effectively use financial information (50 percent budget holders).


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7. Four Program result areas are designed to make significant contribution to the abovementioned five goals of the PFM Reform Strategy. DLIs have been selected to measure concrete achievements in each of these areas as below:

Result Area 1: Improve fiscal forecasting and resource allocation consistent with Government priorities has three DLIs (DLIs 1, 2, and 3)

• DLI 1: Currently, static revenue and expenditure estimates restrict effective policy making. Through DLI 1, the Macro Economic Wing will develop a macro-economic model compatible with Bangladesh’s country context and a medium-term debt strategy. The model will be used to inform budget preparation and the MTMF. While debt sustainability assessment, medium-term debt strategy, and debt bulletin are well-established terms with fairly standard methodology, the DLI 1 technical note provides considerable detail on the qualitative aspects of the macro-economic model and data requirements to define a common expectation as to what constitutes an acceptable model.

Box 3.1. Proposed BMCs Performance Scorecard (%)

(a) Composition and functioning of BMC meetings 20 (b) Annual budget alignment with multi-year strategies and plans 15 (c) Internal alignment among the ADP, operating budget and APA 10 (d) Adequate consideration to climate issues in the budget 15 (e) Adequate consideration to gender and social issues in the budget 15 (f) Monitoring of budget execution 10 (g) Audit follow-up 15

Total 100

• DLI 2: BMCs supported by the Budget Working Groups (BWGs) have been established in all line ministries. The BMCs are the original budget makers for each ministry and strengthening them would ensure the allocative and operational budget efficiency. Capacity building is required to empower the BMCs and BWGs to better support their line ministries during budget preparation for improved alignment of the national budget with sector strategies and targets and to effectively monitor performance of budget execution. DLI 2 takes a scorecard approach to measure the BMC performance through an independent peer review process. The scorecard will not only measure the BMC’s performance but also the actual quality of budget as well as its implementation through BMC monitoring (see box 3.1). DLI 2 also seeks to strengthen the gender budgeting report and to ensure consistent year-on-year increase of social sector spending as a percentage of total expenditure. As part of the climate budget preparation, the FD has completed climate tagging for the top 20 climate spending ministries. The Program will ensure the tracking of these pro-climate expenditures and continued alignment and increased public spending with pro-climate considerations by improving the performance of BMCs under this DLI.

• DLI 3: Delay in budget releases is often cited as one of the biggest bottlenecks to smooth and efficient service delivery. Budget release for health sector development funds (especially reimbursable project aid for the third and fourth quarters) often takes more than two months,12 primarily because of ministry-level internal approval processes. DLI 3 seeks to expediate the budget release process by

12 World Bank. In press. Diagnostic Study of PFM for Strengthening Health Financing and Service Delivery in Bangladesh.


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delinking the statement of expenditures from the requirements for budget release. To facilitate the implementation and completion of projects and the effective operational management of programs, DLI 3 also seeks to release and distribute budget to 80 percent DDOs by July 31 with a focus on the social sectors of health, education, and roads.

Result Area 2: Improve budget execution has four DLIs (DLIs 4, 5, 6, and 7)

• DLI 4: Will enable the reduction of cash held outside of the TSA and modernize payment processes. One of the benefits of improving cash management through the proposed TSA is that the impact on the determination of borrowing requirements will be improved by consolidating cash balances. Reduction in costs of borrowing to the Government will increase fiscal space for allocation to service delivery and prompt settlement of Government obligations will increase confidence in the payment system. This will also promote the use of online bills and thereby greatly reduce the use of paper and transportation back and forth from 36,000 DDOs to the accounts office and from thousands of vendors to DDOs and their banks for check collection and deposit. This, together with DLI 5, will be able to directly reduce the transport demands of the government staff, pensioners, and vendors who would normally travel 10 km on average by car, bike, and bus to complete one public service transaction, leading to savings of approximately 518,055 tons of carbon dioxide.13

• DLI 5: Pension processing is cumbersome for both the Government and the pensioners and there is an urgent need to modernize the system through (a) establishment of a dedicated pension office, (b) the use of EFT, and (c) strengthened accounting and monitoring systems by strengthening iBAS++. DLI 5 seeks to streamline pension processing and payment systems by undertaking immediate priority and interdependent actions which are necessary for improved service delivery concerning civil servant pension. Similar to DLI 4, this DLI will likewise pursue the electronic procedure and ensure less transport and paperless jobs which will contribute to the reduction in corresponding carbon footprint and energy consumption.

• DLIs 6 and 7: Currently, financial information on a small number of SOEs is published in the annual Bangladesh Economic Review. SOE fiscal risks are not adequately assessed and debt and contingent liabilities are not effectively controlled. Furthermore, while there is some performance monitoring of SOEs, there is no systematic and independent monitoring. DLIs 6 and 7 are focused on SOE transparency, accountability, and effective monitoring. Finally, DLI 7 seeks a tangible outcome of reducing the ratio of SOE transfers to total public spending by 15 percent.

Result Area 3: Promote enhanced transparency of the budget execution and enable timely accountability has two DLIs (DLIs 8 and 9)

• DLI 8: There are implementation capacity challenges to support the migration from the old to the new BACS for FY19. In-year budget execution reports are not readily available to the DDOs to monitor budget execution. It is through the budget process that competing policy objectives are reconciled and implemented in concrete terms.14 Therefore, timely, accurate, and comprehensive

13 The Program team made calculations based on data from Bangladesh Road Transport Authority and the United States Environment Protection Agency’s GHG calculator. 14 Allen and Tommasi (2001), page 15.


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in-year budget execution reports are critical for decision making. DLI 8 seeks to further improve iBAS++, to develop priority interfaces with iBAS++ and to enhance its effective use. DLI 8 promotes the public dissemination of quarterly budget execution reports. In addition, the use of financial information is measured by its demand by the budget holders as quantified by their access to iBAS++ for budget execution reports.

• DLI 9: Internal audit is currently ad hoc and unstructured with isolated single audits and the applied standards are not based on International Standards for the Professional Practice in Internal Audit issued by the Institute of Internal Auditors (IIA).15 DLI 9 seeks to establish a modern internal audit function in selected large spending and high-risk departments as part of the suite of internal controls using risk-based audit methods concentrating on systemic issues and providing independent and objective advice to management. Finally, DLI 9 aims to get a rapid and effective action on the audit observations and procurement post reviews in FD. The audit follow-up will cover both internal and external audit observations.

Result Area 4: Establish an enabling environment for improved PFM outcomes (DLI 10)

• DLI 10 will support a series of change management activities that are carefully articulated to analyze and learn from both successes and failures during the program implementation and improve approach to tackle the PFM problems. These change management activities include the key elements of the Program’s governance, implementation, and M&E systems, such as enabling progress reports to the SC and that these are reviewed in a broad-based program retreat encouraging results monitoring and mutual accountability. DLI 10 also seeks to establish a sustainable PFM learning environment with strengthened capacity of the Institute of Public Finance as a learning hub and institutionalizing the PFM research, field inspections, and problem-solving facilitation/coaching. Annual performance reviews and DLI verification will enable a qualitative analysis of the enabling environment for PFM reforms so evolved and recommend improvements, as appropriate.

Strategic Relevance and Technical Soundness of the Proposed Program

8. The proposed Program reflects the Government’s priorities and is strategically relevant. The strategic goals of PFM reforms are to (a) maintain aggregate fiscal discipline compatible with macro-economic stability and pro-poor growth, (b) allocate resources consistent with Government priorities as reflected in National Plan, (c) promote the efficient use of public resources and delivery of services through better budget execution, (d) promote accountability through external scrutiny and transparency of the budget, and (e) enhance the enabling environment for improved PFM outcomes. Within these goals, the PFM Action Plan provides the implementation road map for some priority actions with clear institutional responsibilities among 13 thematic reform components, cost-benefit analysis of sub-activities, and results indicators to monitor the successful implementation. The PFM Action Plan also elaborates on the governance structure for reforms and the change management approach through a separate component.

15 www.theiia.org - its certified internal auditor (CIA) designation has become a hallmark of professionalism for internal

audit over the world.

http://www.theiia.org/

http://www.theiia.org/


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9. The Program is assessed as technically sound for the following reasons: (a) it is directly founded on the Bangladesh PFM Reform Strategy and PFM Action Plan; (b) it builds on previous PFM reform efforts and is selective by focusing on the subset of critical foundational reforms that are directly under the control of the FD; (c) it considers the implementation capacity and adaptive behavioral change managements needs for the reforms to be successful; and (d) much of the planned support has been piloted and proven successful with a promise for progressive scale-up, such as expansion of the iBAS++ and use of EFT.

10. Several PFM bottlenecks that impede efficiency and effectiveness of social service delivery are resolved by the Program. Table 3.1 describes how several PFM bottlenecks resolved by the Program will enable better availability of resources for social service delivery.

Table 3.1: PFM and Social Service Delivery

Key PFM bottlenecks

Impact on Social Service Delivery PFM Program Interventions

(a) Ambitious five-year national plan, other strategic planning documents, and MTBF

Multiyear planning becomes ineffective as the annual budget ceilings are not sufficiently aligned with annual budget, unrealistic five-year national plans and strategy documents. This creates several disconnects, such as partially completed development schemes with significant cost and time overruns, completed schemes with no recurrent costs budgeted, and insufficient recurrent resources for the existing facilities. Analysis shows that the annual social sector expenditures have been significantly below what was planned in the fifth or sixth five-year plans.

The PFM Program will contribute to

• Improving the realism of the fiscal projections through an improved forecasting model and with due regard to the fiscal risks (DLI 1);

• Allowing a steady growth of social sector spending as a percentage of total public-sector spending (DLI 2). In part these resources will come from improving the performance of the SOE sector (DLI 7); and

• Improving the alignment of the annual budgets with the multiyear plans (DLI 2), enabling quicker completion of the new development schemes and provision of additional resources for service delivery to existing facilities.

(b) Inequitable allocation of health and education resources without due consideration of the need

The budgets are mostly incremental within tight envelopes. This leads to resources being inefficiently distributed among geographical regions and ineffectively allocated among different programs and cost categories. This may drive regional disparities and hinder some facilities from receiving essential service delivery resources while resources are inefficiently deployed in partially complete schemes or surplus stocks of drugs, for instance.

• Annual budget allocations should be made after due regard to the fiscal need (to be separately worked out for development and non-development expenditures) and better aligned to prioritize the programs and cost categories in accordance with the sector strategy.

• Better budget allocation could only be achieved over time by making incremental changes each year (transition). This requires significant deliberations and stakeholder consultations on a constant basis.


• Improving the performance of the BMCs (DLI 2) to lead these consultations in each ministry to improve the quality of the annual budget and its execution over time.

(c) Fragmentation of budget

Social sector budgets are fragmented due to the vertical programs and externally financed interventions, even

• All sector programs should be mainstreamed within the core government budget to ensure


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primarily due to externally financed programs

if the activities are performed at the same facilities operated primarily by the government budget. Fragmentation of the budget poses several management challenges at the level of the budget holders and frontline service providers. They need to balance out in meeting their needs from different sources of funds and varying conditions accompanied. The timing of availability of these resources also vary and limit the ability to plan ahead. Finally, keeping funds in commercial bank accounts weakens the TSA and in turn affects the cash management ability of the Government and increases borrowing costs.

and demonstrate how the funds are effectively spent to achieve sector strategies.


• Strengthening the BMCs to progressively consolidate various programs into the annual budget and bring them in to the TSA to avoid the use of any exceptional procedures (DLI 2).

• Discouraging the use of the special project bank accounts outside of treasury (DLI 4).

• Ensuring timely budget releases to the DDOs (DLI 3) to remove one key obstacle often cited to allow separate project bank accounts.

(d) Long time taken in procurement

The PFM in Health report suggests that it takes around 15–18 months in procuring medicines, which is over the average time it would take to procure (that is, 9 months). Following a narrow interpretation of the general financial rules, most executives will not initiate any procurement actions before the budget approval. This delays the provision of necessary goods and services.

• This PFM Program does not directly attempt to improve procurement in this regard as there is a separate World Bank project dealing with the public procurement (on e-GP).

• Nevertheless, the interface between iBAS++ and e-GP and improved payment mechanisms of EFT and online bill submission (DLI 8) will expedite the payment for procurements and make them more transparent, thereby enhancing the market confidence.

(e) Delayed budget releases of development expenditures to the budget holders (especially for third and fourth quarters)

Delay in budget releases is often cited as one of the biggest bottlenecks to smooth and efficient service delivery. The PFM in Health report assessed that the budget release for development funds (especially reimbursable project aid for third and fourth quarters) took on average more than two months. This delays the implementation of critical activities and the payment to contracts (often for goods/services already delivered). The delay in budget release for the third and fourth quarters is primarily due to a requirement of submitting a statement of expenditures.


• Addressing the issue of timely budget releases (DLI 3). First, this DLI seeks to delink the budget releases from the need to submit a statement of expenditures as the budget execution data are now in iBAS++. Second, it seeks to ensure timely distribution of budget to the DDOs by the budget holders by establishing a monitoring mechanism through iBAS++. There are specific DLRs to seek timely receipt of budget by the DDOs.

(f) Lack of flexible resources at the health and education facilities

Sector ministries often advocate for the need for flexible cash resources at the health and education facilities. In general, cash handling is not considered as a good practice and is risky. However, there is sufficient evidence from the field of how public service delivery suffers due to lack of resources for

This is a complex issue to solve and will require broad-based consultations and advocacy to design a system of providing cash resources to the facilities that is not easily abused. The PFM Program will

• Conduct quarterly PFM field inspections by multi-institution teams to identify such challenges and then devise exceptional


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minor repairs, petty purchases, or paying the travel allowance for maternity patients. In some health sector program, the issue has been addressed on an ad hoc basis.

procedures for specific circumstances (DLI 10). In case of the health sector, such consultations could lead to allowing the facilities to retain user fees as flexible cash and complement this with what could be collected through community support committees, and if and how a part of these resources could be used for bonuses.

(g) Inadequate audit follow-up affecting DP disbursements

There are multiple factors that surface with inadequate audit follow-up. Irrespective of why the audit observation is not timely resolved, it can significantly affect DP disbursements and civil servants’ terminal benefits promoting an unnecessary risk-averse attitude among all civil servants. Delayed disbursements or inaction by civil servants eventually affect the efficiency and quality of the public service delivery.


• Expediting the audit follow-up by establishing well-functioning audit committees (DLI 9). Well-functioning audit committees on the one hand resolve the pending audit observations, and on the other hand, they provide useful feedback to auditors to improve audit quality.

Program’s Expenditure Framework

11. The total cost of PFM reforms laid out in the PFM Action Plan exceeds US$350 million for the next five years. The Program supported by the PforR, the SPFMS, comprises eight components of the PFM Action Plan to strengthen fiscal forecasting, budget preparation and execution, financial reporting, and transparency. The SPFMS will be implemented over five years, at an estimated total cost of US$170 million out of which IDA will finance US$100 million (about 28 percent of overall, incremental program, costs). The SPFMS incremental cost is estimated to be around US$110 million (table 3.2). Additional US$59.5 million of recurrent expenses of the FD, which represent 35 percent of the program cost, are closely related to the implementation of these reforms, taking the total estimated cost to US$170 million. Each component of the Program will be established as a budgetary special program on the Government’s recurrent budget. This is similar and to some extent an expansion of the ongoing PEMSP.

12. The Program budget will be distinguished as a special program on the Government’s budget with separated sub-schemes for which detailed technical notes have been prepared for each DLI. The IDA funds will be disbursed to the Government TSA on verification of achievement of DLRs.

Table 3.2. Program Cost Estimates (US$, millions)


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13. The expenditure is adequately structured to achieve the Program’s objective. The nature of expenses for the Program is shown in table 3.3. Professional fees and training together represent 51 percent of the program cost estimate, which reflects the substance of the reform activities especially around the iBAS++ enhancements and planning/budget reforms. The other cost items are wages and salaries 16 percent, administrative expenses 14 percent (including rent of program office), and machinery and equipment 7 percent; the rest includes software development, survey and study, repair and maintenance, travel, printing, and fuel and oil.

Table 3.3. Program Estimates by Nature of Expenses (under organizational code 1090101)

(Figures in US$, thousands)


14. Finally, the Program is complemented by a compact, but important, change management/enabling environment technical assistance to support, anchor, deepen, and sustain the reform processes. A separate World Bank-executed technical assistance (approximately US$10–12 million over the lifetime of the Program) under the SPEMP MDTF will support selected PFM reforms. It will ensure the provision of timely and quality technical assistance and advice as required and include the engagement of expertise to support the Government in niche areas (such as cash management, commitment control, TSA expertise, budgeting, and MTBF), as well as several discrete studies to help enhance understanding of key public resource management constraints at central or sectoral levels. The technical assistance will help the government identify relevant actions to address challenges faced as they evolve, broker solutions to collective action problems, and help ensure that reform processes are informed and adapted as implementation progresses.


Code

Program

cost %

Total

Program cost

Recurrent

cost

Incremental

cost

Year 1

(2018-2019)

Year 2

(2019-2020)

Year 3

(2020-2021)

Year 4

(2021-2022)



Training 3231 18% 30,797 7,989 22,808 9,367 8,841 8,109 4,480









35% 65% 25% 30% 26% 19%


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Figure 3.1. Results Chain and Logic for DLI Selection

15. There is a logical connection linking KRAs to DLIs and in turn to intermediate objectives, elements of the PDO, and the overall outcome. DLI 1 supports the adoption of an improved macro-economic model leading to improved fiscal forecasting. DLI 2 supports improved budget alignment with development strategy, leading to better budget preparation and execution in line ministries. DLI 3 supports timely budget releases. DLI 4 supports automation to enable timely payments of salaries and invoices. DLI 5 supports improved pension service including timely payments to pensioners. DLIs 6 and 7 support improved M&E of and reporting by SOEs. DLI 8 supports better reporting on budget execution


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linked to BACS and IBAS++. DLI 9 supports improved audit procedures, reporting, and resolution of audit recommendations. DLI 10 supports appropriate governance and change management processes for the Program. The DLIs and intermediate objectives feed into the PDO elements of improved fiscal forecasting, improved budget preparation and execution, enabling of better resource availability and management for service delivery, and improved financial reporting and transparency. These elements contribute in turn to the intended outcome of improved service delivery (see figure 3.1).

16. DLIs provide an ideal mechanism to advance these reforms, including incremental and process targets to guide implementation. Based on the SMART (specific, measurable, appropriate, realistic, and timebound) principle, select indicators will draw from the PFM Action Plan. The DLIs aim to address the bottlenecks along the results chain, including a reasonably even distribution of disbursements. The DLIs are structured to strike an appropriate balance between high-level and intermediate results. Figure 3.5 shows that certain reform activities incentivized through DLIs rest at the intersection of achieving more than one strategic goal of fiscal discipline and budget credibility, efficient service delivery, and accountability.

• The Program will make significant contributions for improved fiscal discipline and budget credibility. Specific reform activities will include improving fiscal forecasting supported by better IFMIS data and SOEs’ fiscal risks, strengthening the BMCs for budget credibility, ensuring timely budget releases to support improved budget out-turn, and enhancing use of the TSA.

• The Program interventions will contribute to improved financial accountability. These accountability reforms will include strengthening the monitoring of the performance of SOEs, ensuring the timely submission of central government financial statements for auditing, and strengthening internal audit function and audit committees.

• The Program is aimed to ensure that the improved PFM performance enables more and better public service delivery in social sectors. While the SPFMS will gradually cover all key sectors in Bangladesh, social sectors are prioritized to pilot the PFM improvements.

17. Examples include (a) improving the functioning of the BMCs in line ministries, (b) reducing the current three months taken to two weeks for the release of budget from departments to frontline service delivery units, (c) using financial information by the budget controlling officers, (d) monitoring performance of SOEs, (e) user group endorsing the iBAS++ improvement plan, (f) budget holders submitting payment bills online, (g) connecting iBAS++ with other applications/systems for direct bank transfer to pensioners or beneficiaries, (h) launching a portal to push the boundaries for fiscal transparency by disseminating key fiscal datasets (disaggregated revenue/expenditure and output) in user-friendly accessible formats, and (i) using smart phone to access real-time budget information for decision-making to enhance service delivery.

Program’s Results Framework and Monitoring and Evaluation

18. The Results Framework (annex 1) captures the direct benefits linked with the Program. The

theory of change (figure 3.2) explains the links between DLIs, intermediate outputs, the PDO, and the

ultimate intended outcome.


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Figure 2: Program Theory of Change

The PDO is "to improve fiscal forecasting, budget preparation and execution, financial reporting and transparency to enable better resource availability for service delivery."

Selected key Activities/Outputs DLIs

PDO Intermediate Results

PDO elements

1. Marco-economic model requirements finalized 2. Application for the model procured and configured with data 3. Macro-economic model completed with updated database 4. Macro-economic model used for MTMF and budget preparation 5. Updated medium term debt strategy.

1. GP Fund module and Pension Service module of iBAS++ implemented

2. Centralized pension roll with EFT enabled 3. Govt-wide annual GPF and Pension Service report produced 4. 50% reduction in the delayed pension cases 5. 90% of new pensioners paid through EFT no later than the

following pension payment cycle after retirement

1. Policy and procedures issued to regulate SOEs debt and contingent liabilities (including upgraded financial reporting framework to FD for SOEs)

2. 100 SOEs and autonomous bodies publish their audited financial statements

3. SOE debt and contingent liabilities statement prepared.

DLI 1: Use of improved fiscal projections for budget-making

DLI 4: Timely, reliable payments of salaries and vendor invoices with strengthened treasury single account and automated payment system

DLI 8: Budget holders in MDAs effectively and transparently use financial information

DLI 10: PFM program is effectively led through an adequate governance structure and an effective change management approach

Ou

tcom

e: Im

pro

ved service d

elivery

Use of improved fiscal projections for budget- making

1. SOE performance evaluation guidelines developed with clear scoring criteria

2. Adopt a policy and procedures manual that enable an effective review of grants to SOEs

3. At least 10 SOEs subjected to an independent performance evaluation

4. Turnaround/ exit strategies for at least 10 non-performing SOEs 5. The ratio of total transfers to SOEs as a percentage of overall total

public spending reduced by 15%

Improved budget alignment with development strategy through better performance of BMCs

Reduced number of days for DDOs to receive budget in selected MDAs

Timely, reliable payments of salaries and vendor invoices with strengthened treasury single account and automated payment system in selected MDAs

Improve fiscal forecasting

Improve budget preparation and execution

Improve financial reporting and transparency

Enable better resource availability for service delivery

DLI 2: Improved budget alignment with development strategy and gender, social, and climate considerations through better performance of BMCs

DLI 3: Reduced number of days for DDOs to receive budget in selected MDAs - (education, health, roads, public works & local government)

DLI 5: Improved pension service through the EFT no later than the following. pension payment cycle after retirement

DLI 6: SOE and autonomous bodies debt and contingent liabilities statement prepared and submitted to the policy makers DLI 7: Improved performance of the SOE sector and reduced subsidies as a percentage of total public sector spending

DLI 9: Action taken on audit reports in selected MDAs - (education, health, roads, public works, & local government) and post procurement review in FD

1. Monitoring framework (including a performance scorecard) for the BMCs developed as part of reconstituted TORs

2. 15% BMCs undertook inter-ministry peer-reviews

3. Increase Social Sector spending to 29%

4. 25% improvement in the average performance score of BMCs evaluated through the peer-reviews

5. Increase Social Sector spending to 29.25%.

1. Delink budget release from the fund utilization report submission 2. At least 80% of DDOs have budget released & distributed July 31

1. Stock-take of special accounts and EBFs outside TSA completed 2. At least 50% govt payment transactions are made through EFT 3. At least 40% DDOs submit pay bills online 4. Number of new (outside TSA) special accounts opened annually

reduced by 50%

1. FY18/19 budget released on new BACS 2. At least 3 priority iBAS++ interfaces with other systems are

operational 3. At least 4 SAEs using iBAS++ 4. Govt. wide unaudited Annual financial statements (including SAEs)

submitted to OCAG within 6 months of the fiscal year-end 5. Detailed budget execution reports published on the official website 6. 60% of budget-holders generate monthly 10 or more iBAS++

reports for budget execution decisions

1. Model Internal Audit Charter and risk based internal audit

manual issued 2. System for annual procurement planning and procurement

post review established and training conducted in FD 3. Internal Audit reports issued to two respective heads of the

Departments and PAOs 4. Audit committee resolves at least 50% of audit

recommendations for selected MDAs including FD & procurement post review finding in FD

1. Semi-annual PFM program progress reports submitted to the

Steering Committee 2. Semi-annual program/ stakeholder retreats conducted to review

the respective program progress reports 3. Learning Hub at IPF produced at least 3 research papers on reform

lessons and published through their website 4. 6 PFM field inspections are made 5. Facilitation evaluation report submitted 6. At least 100 civil servants (disaggregated by gender) completed

specialized courses

Budget-holders effectively use financial information


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19. The Program monitoring will be a continuous process of gathering data and comparing actual results of DLRs and other key indicators with expected results. The SPFMS will use existing systems within the Government whenever possible to carry out results-based monitoring, including the MoF’s SOE Monitoring Unit, OC&AG, and IMED. When needed, nongovernmental bodies will be engaged, including research institutes and external audit firms. The goal will be to measure how well the Program is being implemented and to ascertain when specific targets have been met that trigger disbursements by the World Bank operation to the Government. The monitoring will also provide feedback on progress achieved so that decision makers can make necessary changes to improve performance. The DLI verification will reinforce the M&E arrangements of the Program. Five DLIs will be verified by an independent verification agent to be appointed by the FD. Four DLIs, that involve financial data, will be verified by the Supreme Audit Institution (OC&AG). Finally, one DLI on the performance of the BMCs will be verified by the Cabinet Division as part of their support to other ministries on annual performance agreements.

20. In addition, an independent evaluation of the SPFMS will be carried out in the third year of the Program. The evaluation will assess, among others, whether the targets and expected outcomes are still relevant, how effectively and efficiently they are being achieved, what unanticipated effects are evident, and whether the Program represents the most sustainable and cost-effective means for achieving the intended outcomes. It will also look at the continuing relevance of the Program’s theory of change, including the extent to which the performance-based allocations and capacity development supported by the Program is helping to successfully drive the reforms.

21. The Program is trying to measure the increased capacity to adapt through DLI 10, though there is no easy barometer for measuring the behavioral changes. Attitudinal barriers to achieving the objectives of the PFM reform program will be addressed through behavioral and change management interventions. Among those described in DLI 10, these will include strategic communication about the reform benefits with the political leadership to solicit commitment and the administrative cadre for ‘buy-in’ to better manage resistance, participatory engagement with stakeholders (citizens/beneficiaries/DPs), and recognizing and rewarding of agencies and individuals for good PFM performance. This will help provide a conducive authorizing environment for sustaining the deep institutional reforms that require ownership and support by multiple stakeholders.

Program’s Governance Structure and Institutional Arrangements

22. The PFM reform process has a two-tier governance structure comprising a SC and a PECT. The SC headed by the Finance Secretary will comprise senior representatives from major spending ministries, Cabinet Division, CGA, Comptroller and Auditor General, National Board of Revenue, Economic Relations Division, and Planning Commission. The SC will oversee implementation progress, provide policy guidance, and ensure an enabling environment for reforms to succeed and sustain. The FD, through the PECT, would lead the coordination of the reforms with active support from the line ministries and the DPs. PECT will consist of six members from the FD and two members from other PFM institutions. The PECT can invite observers to their meetings and is expected to invite selected DPs for inputs and advice. The PECT will also be responsible for establishing a forum for institutional collaboration (PFM Reform Learning Hub at the Institute of Public Finance) for areas requiring collective action and mutual learning and accountability and for more systematic capturing, sharing, and replication of reform lessons.


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Figure 3.2. Program Governance Structure

(a) SC. The SC will be chaired by the Finance Secretary and will provide general strategic oversight and direction to program implementation. The SC will also monitor the program’s implementation. In addition to the SC, the joint government-donor Technical Advisory Committee already in place will continue to function for technical coordination and consultations on technical outputs under the reforms.

(b) PECT. The PECT will be anchored at the Budget Wing, FD. The PECT will consist of eight members, while the head of the Budget Wing will be ex officio the Program Director. To ensure a broad-based representation for the overall PFM reforms, at least 2 members of the PECT will represent institutions other than the FD.

(c) PITs. Every lead institution for each of the seven components of the PFM Action Plan will nominate a three- to five-member PIT from among their staff. There will be a total of seven PITs. The PIT will be accountable for implementation of the respective reform interventions and achieve the performance targets.

(d) Focal points in counterpart institutions. The lead institutions have identified around three to four focal points in their counterpart institutions to ensure smooth institutional collaboration for the implementation of PFM reform activities under each component.

23. The PECT will have clear division of responsibilities among its executives to perform specialized duties as follows:

(a) Program executive and coordinator (PFM Reforms and Change Management)

(b) Program executive and coordinator (Macroeconomics and Debt)

(c) Program executive and coordinator (Budget and Expenditure Control)

Steering Committee

Program Execution & Coordination Team


(MacroEco)


(Budget)


(SOEs)

Program Implementation

Team ( -- - )

PFM Learning Hub

(IPF) Team


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(d) Program executive and coordinator (iBAS++ and BACS)

(e) Program executive and coordinator (SOE Governance)

(f) Program executive and coordinator (Payments, Pensions, and Financial Reporting)

(g) Program executive and coordinator (Revenue Mobilization, Planning, and Procurement)

(h) Program executive and coordinator (Accountability and Parliamentary Oversight)

24. The SPFMS will use existing formal country systems structures to ensure that responsibility for meeting the DLIs is within the mandate of the assigned implementing agencies. The attitudinal barriers to achieving the objectives of the PFM reform program will be addressed through behavioral and change management interventions. These will include strategic communication about the reform benefits with the political leadership to solicit commitment and the administrative cadre for ‘buy-in’ to better manage resistance, participatory engagement with stakeholders (citizens/beneficiaries/DPs), and recognizing and rewarding of agencies and individuals for good PFM performance. This will help provide a conducive authorizing environment for sustaining the deep institutional reforms that require ownership and support by multiple stakeholders.

25. Technical assistance for coordination, capacity development, and M&E have also been built into the implementation arrangements and supported through DLI 10. This will include capacity strengthening of the governance arrangement for PFM reforms and adequate enabling environment, including the establishment of the PECT that will function as a secretariat to coordinate implementation and provide technical oversight of the Program. The PECT will be led by a program coordinator who will provide technical guidance and overall management and will also include specialists in the areas of monitoring and evaluation.

Role of the Development Partners

26. The PFM Action Plan was developed under the leadership of the FD in close collaboration with DPs: the Governments of Canada and the United Kingdom, the European Union, and JICA. This included DPs’ provision of time, comments on the PFM Action Plan and contributions on specific analytical inputs, and financing for engagement of technical and secretarial assistance through the SPEMP MDTF. The DPs will continue to support the technical assistance required for SPFMS’ success. A complete mapping of the DPs’ support for PFM reforms is provided in annex 4.

Citizen Engagement

27. Citizen engagement and access to information is a key precondition in improving accountability. The 2009 RTI Act provides an adequate legal basis for pursuing information and data sharing. The RTI, together with the 2009 Public Money and Budget Management Act, encourages government bodies to proactively disclose financial data in the interest of promoting transparency and accountability by complying with the specific transparency requirements. According to the 2017 Open Budget Index, however, the Government of Bangladesh provides the public with limited budget information and has not been consistent with the type of documents made publicly available in a given year. Since 2015, the availability of budget information to the public has decreased with in-year budget reports and audit reports not published on time and pre-budget statement and citizen’s budget not available. Access to


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timely and reliable information will be critical in promoting development and citizen participation in governance.

28. The Program will support the preparation and testing of a prototype of the citizen’s budget. A citizen’s budget is a simpler and less technical version of the Government’s Executive’s Budget Proposal or Enacted Budget, designed to convey key information to the public. For this purpose, the Budget in Brief can be built on and improved with infographics and citizen-friendly terminologies to start publishing a citizen’s budget. The Program will also support publishing the quarterly budget execution reports. The citizen’s budget will augment the existing series of documents that include the gender budget, child budget, and climate budget that are regularly produced by the Government.

29. The Program design has a special emphasis on the outreach activities and engagement with beneficiaries and citizens. Specifically, in DLI 10, a DLR about PFM field inspections aims to reach out to officials, beneficiaries, and the general public, both in and surrounding the public facilities, to understand how PFM-related bottlenecks are affecting the efficiency and effectiveness of the services being delivered at the last mile. This will enable those teams to remove those bottlenecks from the service delivery chain as part of the PFM reform process under this Program.

Gender

30. The Program will have a positive contribution for the gender development in the country. DLI 2 is focused on improved budget alignment with development strategy and gender, social, and climate considerations and the BMCs’ scorecard proposes a 15 percent weight for gender and social issues to ensure ex ante deliberations for increased pro-women and pro-children expenditures. The current gender and child budget documents provide sufficient background on the gender disparities in the social sectors to provide a good starting point for the BMCs.

31. The Program aims at improving gender equality in terms of easy access to pensions. Both male and female civil servant pensioners are covered by the noncontributory defined pension scheme and draw pensions following a uniform policy and processes. However, long processes and complex documentary requirements to accessing pensions (which affect both women and men) impinge more heavily on women due to women’s lower access to information and financial, time, and mobility constraints as well as sociocultural norms and potential exploitation. Having an automated system (EFT) will reduce hurdles which women commonly face and thus facilitate easier access to pension benefits. This will particularly benefit family pension recipients as widows of pensioners have to undergo a number of additional processes to claim family pensions–something that often results in surrendering of the pension claims of the deceased. Having the analysis of delayed pension cases by gender will also enable focusing on expediting resolution of cases for women pensioners. This is expected to benefit women disproportionately by helping overcome information access and mobility barriers while enabling women to circumvent gender bias and discrimination. Establishing a separate women’s counter at the pension office will also be considered. A few indicators will measure progress in gender equality in access to pensions. For example, the Program aims to ensure that 90 percent of new female pensioners (as well as 90 percent of new male pensioners) are paid through the EFT. Another indicator will measure progress on widows’ access to pensions by targeting a 60 percent reduction in delayed family pension cases (compared to a 50 percent reduction in all delayed pensions cases).


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32. Finally, the Program has a gender-disaggregated indicator on the number of civil servants who have completed specialized courses. Based on the updated competency framework in Year 1 of the Program, there will be more clarity on the gap between the skills of female and male civil servants and where the most urgent training needs exist within the Government and more tailored training of civil servants will commence in Year 2 and Year 3 of the Program. The gender action on training courses includes additional efforts to ensure that women staff are well informed about the courses in which they can enroll as well as tailored outreach activities targeted to women staff. Courses will be customized in some way to support a high participation by women staff (for example, the location/time the training is held). As a result, in Year 4 of the Program, a minimum of 100 civil servants are expected to have completed training (of minimum six-month duration) in areas such as macroeconomic fiscal modelling or debt management, for example, and professional certifications (such as CIPFA, PMP, CIA, and so on) of which at least 30 percent are women. Over the medium term, this will help reduce the gender disparity in the skills and career opportunities of government employees.

Economic Justification of the Program

33. The economic and social rationale for this Program is compelling. According to described PFM bottlenecks, Bangladesh pays a significant price for delayed and inefficient resource availability for service delivery. While an accurate estimation is hard, the Program is expected to add more than US$1 billion in economic gains for an overall program cost of US$170 million, which more than justifies the public investment. This estimation is based on the benefits attained in other settings where similar complex PFM reforms have taken place, and one would expect similar benefits to be achieved in Bangladesh.

• The reform program is likely to improve the quality of the MTBF and this in turn will lead to more efficient allocation of resources. The budget implementation rate for Bangladesh has been falling consistently in comparison to the increasing size of budget allocation. Experts have repeatedly pointed out that poor revenue mobilization against the projection makes implementation of the budgetary measures difficult. The failure to keep up with reality in the short run makes the implementation of multiyear plans and strategies even more difficult. The implementation of the program will help the FD make a realistic projection of macroeconomic variables. It is expected that a more realistic projection of expenditure and revenue will ultimately lead to improvement of the budget implementation rate, which fluctuated between 79 percent and 85 percent16 in FY13–14 to FY16–17. In terms of revenue collection and expenditure, only 81 percent and 79 percent were materialized, respectively, in FY16–17.17 Debt analysis and publication of the debt bulletin will enhance debt management capacity of the Government, which in turn will strengthen the overall fiscal situation and free up public funds that can be used efficiently in other sectors. It is expected that the fiscal space that the Government will gain through the implementation of the program will have a multiplier effect throughout the economy for several years in the future.

• A more realistic budget announcement will help different public and private sector stakeholders plan more efficiently, leading to further economic gains. Timely and predictable budget releases speed up the completion time for capital investments and improve the infrastructure utilization through timely payment of recurrent costs; these reforms, in turn, help projects deliver economic benefits

16 Budget in Brief, 2013–14 to 2016–17. 17 Budget in Brief, 2016 and 2017.


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faster and more reliably, thus improving value added as measured by net present value. The program will establish a monitoring mechanism in this regard, which will reduce time and costs associated with the process.

• The program is likely to have a significant effect on the SOEs, which remains an important part of the economy of Bangladesh. Estimated net profit for SOEs was BDT 66.4 billion (around US$800 million) in FY16–17;18 many of them are not profitable and dependent on subsidy from the Government. In FY15–16, subsidies to 11 SOEs amounted to BDT 17 billion (around US$204 million).19 The stock of debt service liabilities against 112 SOEs stood at BDT 2,031 billion (around US$24 billion) in FY15–16 and the energy sector SOEs have been the main beneficiaries of government guarantees. Losses in the energy sector alone are estimated at BDT 51.4 billion (around US$620 million) in FY15–16. Data from the Bangladesh Bank show that a total of 10 banks, including 7 state-owned banks, faced a capital shortfall of BDT 233.6 billion (US$2.8 billion)20 at the end of March 2018. Fiscal risk assessment and the preparation of debt and contingent liabilities statement will improve the overall management of these SOEs. This will lead to economic benefits from two directions: it will increase the profitability of the SOEs and the Government will need to provide lesser subsidies. These will again free up public funds that can be spent in productive sectors. A 10 percent increase in overall profitability of the SOEs because of loss prevention can free up US$80 million in a single year.

• Using human resource management systems and the EFT for payroll and pension payments will improve the incentive structure, encourage public officials to work harder, and deliver greater economic benefits. These systems have already removed several ghost pensioners. Using EFT for paying vendor invoices can lead to more timely and reliable payment and potentially enable vendors to offer lower bids for future government contracts. Online bill submission will make the payment process more reliable and transparent, leading to higher market confidence.

• The use of online bill submission and EFT will significantly reduce the use of paper and back and forth transportation of DDOs to the accounts office and contractors to DDOs and their banks, respectively. Given the present number of DDOs (around 36,000), this will amount to significant cost savings. Considering the cost of paper, logistics, and travel that is spent currently for DDOs to execute their budget, these reforms can have economic savings of at least US$35 million in the long run (out of which only US$31 million comes from the reduction in the use of transport and related GHG emissions).

• Strengthened TSA will save bank fees, commissions, and interest charges by consolidating all government cash in a single account.

• The Program will support the growth of key social sector spending areas like health and education as a percentage of the total public sector spending. Spending in these areas as a percentage of GDP is very low for Bangladesh compared to other developing countries. The positive effect of health and education improvements on GDP growth is well established in the literature and the reform program

18 Bangladesh Economic Review 2017, Chapter 9, page 135. 19 Data collected by the World Bank. 20 The banks are Bangladesh Krishi Bank, Sonali, BASIC, Rupali, Janata, Agrani, Rajshahi Krishi Unnayan Bank, Bangladesh Commerce Bank, ICB Islamic Bank and Farmers Bank.


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is likely to play an important role in this regard. A 0.4 percent increase in social infrastructure spending means an additional US$240 million in this sector (based on FY18 budget allocation) over four years after the end of the Program. This can have a multiplier effect in the long run.

• Improved transparency in public finance increases the confidence of citizens that they can expect that public resources are used to improve services, and thus improve their willingness to pay taxes. The tax-to-GDP ratio for Bangladesh is one of the lowest in the region and has the scope to improve significantly.

• Expansion and improvements of iBAS++ will strengthen controls that can better support the audit process to uncover financial irregularities and enable improved expenditure management going forward.

• Well-functioning audit committees both help resolve pending audit observations and provide useful feedback to auditors to improve audit quality. Improved audit quality and follow-up is expected to reduce the prevalence of costly, inappropriate behavior and incentivize more efficient and effective spending that delivers greater value for money.

Climate Co-Benefits

34. The Program will bring the climate co-benefits in several ways. First on mitigation, through DLIs 3, 4, 5, and 8, the Program will promote the use of online bill submissions and EFT for payments to government staff, pensioners, and vendors. This will greatly reduce the use of paper and transportation back and forth from 36,000 DDOs to the accounts office and from thousands of vendors to DDOs and their banks for check collection and deposit. This will be able to directly reduce the transport demands of the government staff, pensioners, and vendors who would normally travel over 10 km on average by car, bike, and bus to complete one public service transaction, leading to savings of approximately 518,055 tons of carbon dioxide.21

35. On the adaptation side, the FD has completed climate tagging for the top 20 climate-spending ministries as part of the climate budget preparation. The Program will ensure the tracking of these pro-climate expenditures and continued alignment of public spending with pro-climate considerations by improving the performance of the BMCs as part of DLI 2. Where applicable, the BMCs will ensure that budget programs set out and reflect policy goals in full compliance with the strategic goals of achieving gender equality, climate change, and citizens’ participation set out in the five-year plans and cross-cutting and sectoral strategies, clearly identifying the respective performance indicators. Finally, the Program will also finance maintenance and replacement of solar panels as a secondary electricity source for several upazila accounts offices.

Evaluation of the Technical Risks

36. The technical risk of the PforR is rated ‘Moderate’ considering the aforementioned context and technical preparations. The Government has the readiness to implement the approved PFM Action Plan

21 Program team made calculations based on data from Bangladesh Road Transport Authority and The United States Environment Protection Agency’s GHG calculator


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that has been prepared with analytical underpinning; the Program design provides the institutional framework and incentives for continued focus and prioritization of PFM reforms to have a clear impact on social service delivery; there is strong technical preparation with the DLI technical notes prepared by the notified government teams; and finally, the appropriate attention given on adaptive challenges has raised stakeholders’ understanding of the PFM challenges and thereby procured the necessary appetite for the changes needed.

Improvements Proposed to be Carried Out as Part of the PAP

37. The following actions are included in the PAP to retain the Program’s technical soundness and smooth implementation:

• Ensuring establishment of the PECT and PITs and that these are maintained throughout the Program implementation.

• DLI technical notes are reviewed and amended as necessary in consultation with the World Bank.

• Arrange DLI verification of four DLIs by the OC&AG and one by the Cabinet Division and enable verification of other five DLIs through a third-party verification.


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ANNEX 4. SUMMARY FIDUCIARY SYSTEMS ASSESSMENT


Reasonable Assurance

1. The FSA of the SPFMS was conducted. The FSA ascertained whether the Program’s financial management and procurement arrangements provide reasonable assurance that the financing proceeds will be used for the intended purposes, with due attention to the principles of economy, efficiency, effectiveness, transparency, and accountability. The FSA concludes that the FD’s financial management and procurement arrangement and mitigation measures to fraud and corruption risks meet the requirements of the World Bank’s Policy for PforR financing dated November 10, 2017, to achieve the PDOs and DLIs.

Scope

2. The fiduciary assessment comprises an analysis of risks in the existing country system that will be used to implement the program. They include the procurement, planning, budgeting, accounting, controls, funds flow, financial reporting, and auditing systems. The assessment is built on the country’s PEFA assessments and other general and sector-/institution-/project- or program-specific PFM assessments conducted for other PforR operations in Bangladesh. In addition, the assessment considered how the country’s governance systems manage the risks of fraud and corruption and how such risks will be mitigated. The assessment also incorporated the findings from consultations held with key stakeholders on core procurement issues and challenges that are relevant to the Program.

Fiduciary Framework

3. The legal and regulatory framework for the proposed Program’s fiduciary systems appears to be comprehensive. The Constitution of Bangladesh (Articles 81-92) lays down the legal framework of the basic financial procedures to be followed in managing public finance. The Public Money and Budget Management Act 2009 further elaborates these procedures and brings specificity in certain areas by defining core PFM elements. In addition, there are financial rules (General Financial Rules, Treasury Rules, Subsidiary Rules); Account Codes; Public Expenditure Management Manual; Internal Control Manual; and executive orders to guide the operation of a PFM system. Nonetheless, the assessment has identified a few deficiencies in the current systems and procedures: (a) delays in carrying out the annual audit and lack of response to audit observations, (b) weak capacity of the internal audit department and delays in taking actions on external audit observations, and (c) lack of provisions for detail budgetary allocation at the implementing wing level. In addition, there are several procurement-related shortcomings:

(a) Absence of distinct procurement unit in the FD and lack of proficient procurement experts.

(b) Ineffective contract management resulting in time and cost overruns.

(c) Absence of strategic procurement analysis and planning to determine the optimum procurement package size, procurement method, contracting modality, and duration of the contract. This leads to non-attainment of the development outcomes within the optimum cost and time.


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(d) Provisions in the procurement laws and regulations that are not consistent with international good procurement practices and the spirit of the open tendering method; for instance, tenders are invited or rejected based on percentage above or below the estimated cost, use of lottery systems, and so on.

(e) Inadequate complaint-handing system to register procurement-related complaints and monitor their resolution status.

Planning and Budgeting

4. The normal government budgeting process will determine the Program’s fund allocations and expenditures. Program funds will be directly disbursed to the Government’s treasury upon achievement and verification of results. The CGA will be responsible for maintaining the Program’s accounts and reporting through iBAS++. The new BACS is robust to capture and report on the Program. The overall budget for the FD can be clearly identified under Grant 07 of the MTBF 2018–19 to 2020–21. Together with the new integrated budget preparation and execution modules and functionalities, the planning and budget preparation process promotes better linking between policy formulation and planning and budget allocation to enhance service delivery in a transparent and accountable manner.

5. The Program budget will be distinguished as a special program on the Government’s budget with separated sub-schemes for which detailed technical notes have been prepared for each DLI. The IDA funds will be disbursed to the Government TSA (consolidated fund) on verification of achievement of DLRs.

Program Expenditure

Table 4.1.. Program Cost Estimates (US$, millions)

6. The nature of expenses for the program are shown in table 4.2. Professional fees and training together represent 51 percent of the program cost estimate, which reflects the substance of the reform activities especially around the iBAS++ enhancements, programming, data entry, and planning/budget reforms. The other cost items are wages and salaries 16 percent, administrative expenses 14 percent (including rent of program office), and machinery and equipment 7 percent; the rest includes software development, survey and study, repair and maintenance, travel, printing, and fuel and oil.


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Table 4.2. Program Estimates by Nature of Expenses (under organizational code 1090101)

(figures in US$ thousands)


Budget Execution

7. The CAO, FD currently uses the iBAS++ mainly for payment processing, accounting, and limited reporting purposes. To improve budget management of the Program and monitor progress to take corrective action, the format for budget execution reports would be improved to disclose spending against approved and released budget disaggregated (sliced/diced) departmentwise, schemewise, sector/subsector-wise, fundwise, and other BACS elements supplemented with output data for release to decision makers, service delivery managers, and publications, in a user-friendly format.

8. An expenditure reconciliation will be done at the end of the Program, which will decide whether a refund is necessary or not. Professional fees and training together represent 51 percent of the program cost estimate which reflects the substance of the reform activities especially around the iBAS++ enhancements and planning/budget reforms. The other cost items are wages and salaries 16 percent, administrative expenses 14 percent (including rent of program office), and machinery and equipment 7 percent; the rest includes software development, survey and study, repair and maintenance, travel, printing, and fuel and oil. There is no contract in the Program which is close to the OPRC clearance thresholds. The OPRC threshold per high-risk contract of goods, IT, and non-consulting services is US$30 million. Goods contracts under the Program include computer hardware and accessories, software, office equipment, fixtures, and so on. The OPRC threshold for high-risk contracts of consulting services for firms and individual consultants is US$15 million. Consulting services (firms) under the Program include identifying software for the macroeconomic model, transferring data from the existing macroeconomic forecasting model, survey, variance analysis, assessing fiscal risk and contingent labilities, creating a debt database, and carrying out sustainably analysis for debts. Individual consultants under the Program include IT consultants, economists, accountants, statisticians, public administrators, social sector specialists, sociologists, and so on. There are no works contracts for any new construction under the Program.

Auditing

9. The Program audit will be carried out by the OC&AG through the entity’s financial statement of the FD that will include the Program transactions that will be tracked using the operating segment of BACS. The Foreign-aided Project Audit Directorate, within the OC&AG, will coordinate with the


Code

Program

cost %

Total

Program cost

Recurrent

cost

Incremental

cost

Year 1

(2018-2019)

Year 2

(2019-2020)

Year 3

(2020-2021)

Year 4

(2021-2022)



Training 3231 18% 30,797 7,989 22,808 9,367 8,841 8,109 4,480









35% 65% 25% 30% 26% 19%


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Commercial Audit Directorate or any other relevant directorate to complete audit of the program expenditure. The audit report will be submitted to IDA within nine months from the end of the fiscal year. The new organization reform at the OC&AG will make the respective directorate more focused on the entity audit concept whereby the entity’s financial statements expenditure, which will include the Program and entity expenditure, will be audited annually and report submitted within nine months of the end of the fiscal year. The audit report of the FD’s statement of expenditure covering 2009–16 was completed in April 2017. It is the practice of the OC&AG to audit the FD once every two years, but it got delayed for the FD’s audit. The most recent audit observations remained unresponded for 18 months. Such delay in addressing audit observations undermines the usefulness of audit reports and leads to cynicism toward audits, which in turn reduce the effectiveness of the Program’s external audit. Internal Control 10. The Secretary FD as the Principal Accounting Officer (PAO) of the division is responsible for observance and compliance of all relevant financial rules and regulations of the Program through the Program Director as the DDO. The PAO will ensure that the total expenditure is kept within the limits of the authorized appropriation and that the funds allotted to the Program are spent for the intended purpose. To maintain proper control, the PAO will receive regular reports from the Program SC that will include Program budget execution reports. 11. The FD issues the Delegation of Financial Powers for all public sector organizations and projects. It is, therefore, expected that this delegation is meticulously followed by the FD and its line agencies. The Secretary of the division is the Head of Procuring Entity of the FD. Project directors appear to prefer escalating procurements approvals to higher levels rather than exercising the power delegated to them or sub-delegating to lowers levels. This lengthens the procurement processing time. According to the Bangladesh Government, delegation of financial power for non-ADB is that the head of a department/directorate/wing can approve contracts of goods and consulting services up to US$250,000 (BDT 20,000,000) and US$125,000 (BDT 10,000,000), respectively. The head of a department/wing can approve contracts of goods and consulting services up to US$5.8 million (BDT 500,000,000) and US$1.17 million (BDT 100,000,000), respectively. It appears that under the Program, there are procurement packages for both goods and consulting services (individual and firm) which lie at the procurement clearance level of the head of department and ministry.

Governance and Anticorruption Mechanism

12. The Administration Wing of the FD handles corruption and other disciplinary cases against employees of the division under the Discipline and Appeal Rules 2018 (SRO No. 110-Law 2018). The absence of internal control and internal audit hinders the detection of corruption at an early stage. Fraud and corruption issues arising out of statutory audit are handled within the existing mandate of the OC&AG. Three public finance-related committees in Bangladesh—the Public Accounts Committee, Estimates

Committee, and Public Undertakings Committee—provide legislature oversight of public accounts in the form of ‘ex post’ reviews of audit reports. The Public Accounts Committee plays a principal role in resolving audit objections according to the applicable laws. However, piled-up backlogs of audit observations for legislative review indicate that the disposal of cases has slowed down. Many of the accused may go out of reach before their cases are settled.


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13. Arrangements to deal with issues of fraud and corruption will follow the requirements of the Anti-Corruption Guidelines (ACG) on Preventing and Combating Fraud and Corruption in PforR financing. The Administration Wing of FD will use its practices and institutional arrangements to maintain a register in electronic format for all “Fraud and Corruption” as defined in the ACG promptly inform the Bank of all credible and material allegations or other indications of “Fraud and Corruption” in connection with the Program that come to its attention, together with the investigative and other actions taken. Key commitments by FD under the Program include:

(a) to take all appropriate measures to ensure that the Program is carried out in accordance with the

PforR ACG;

(b) to take all appropriate measures to prevent Fraud and Corruption in connection with the Program,

including (but not limited to) adopting and implementing appropriate fiduciary and administrative

practices and institutional arrangements;

(c) to promptly inform the Bank of all credible and material allegations or other indications of Fraud and

Corruption in connection with the Program that come to its attention;

(d) to take timely and appropriate action to investigate Fraud and Corruption allegations and indications;

report to the Bank on the actions taken in any such investigation, every six months; and, promptly

upon the completion of any such investigation, report to the Bank its findings;

(e) to take timely and appropriate action, satisfactory to the Bank, to remedy or otherwise address the

situation and prevent its recurrence if the Borrower or the Bank determines that that Fraud and

Corruption has occurred in connection with the Program;

(f) to cooperate fully with representatives of the Bank in any inquiry conducted by the Bank into

allegations or other indications of Fraud and Corruption in connection with the Program, and takes all

appropriate measures to ensure the full cooperation of relevant persons and entities subject to the

Borrower’s jurisdiction in such inquiry;

(g) to ensure that any person or entity debarred or suspended by the Bank is not awarded a contract

under or otherwise allowed to participate in the Program during the period of such debarment or

suspension; and

(h) to report to the Bank on actions taken in any investigation into Fraud and Corruption allegation or

other indications, the FD agrees to follow the intended periodicity of such reporting and the

format/required contents of the reports.

14. This is the first PforR to be implemented in the FD. The CAO, FD, will need to assign staff who will focus on processing and reporting on the Program expenses. The FD does not have any distinct procurement unit or specific personnel assigned to procurement. One Deputy Secretary, deputed as the Deputy Program Director has overall responsibilities for procurement of the PEMSP, though he feels that he could perform better if he was given the opportunity to receive formal training in procurement. The Skills for Employment Investment Program (SEIP) relied heavily on consultants for preparing technical specifications, ToR, contract documents, bid evaluation reports, and proposal evaluation reports. The FD has not taken any initiative for its personnel deputed to projects to receive formal training in


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procurement. The coordinator of the PEMSP, on his own initiative, took and completed the three-week procurement training offered by the CPTU.

Table 4.3. Fiduciary Risks and Mitigation Measures (DLI and PAP)

Risks Mitigation Measures

Timing

Type of action

(PAP, DLI)

1. Planning and Budgeting Inappropriate allocation of budget because of a) Lack of provision for detail

budget allocation at the implementing wing level; and

b) Disconnect between budget operation and procurement planning.

Deepen the organizational segment to the responsible wings (macroeconomic, SOE, debt, expenditure, and so on) to enhance the managerial accountability of funds allocated to deliver on the specific schemes at the lowest organizational unit. DLR 9.2. A system for annual procurement planning and post-review has been established by the Finance Division and training on the system has been conducted in FD (US$1 million). DLR 3.3. 80% of DDOs have had their budget released and distributed by 31st of July (US$3 million).

2019

2019

2021

PAP

DLI

DLI

2. Budget Execution Delayed implementation of program because of a) Low execution of budget;

and b) Slow collation of the

Program because of dual institutional reporting arrangement whereby separate financial accounts are being maintained by DDOs and CAOs).

DLR 4.3. 40% of DDOs submit all bills (payment requests) online (US$3 million). DLR 8.6. 60% of budget-holders generate 10 or more monthly iBAS++ reports for budget execution decisions (US$2 million). DLR 3.1. The Finance Division has drafted and issued a circular mandating the delinking of Budget Releases from Fund Utilization Report submission (US$3 million). The Program to use the separate standard document for procurement of works through e-GP system under DP-funded project, which does not have the provision of rejecting bids based on above/lower than the estimated cost.

2021

2022

2019

2018

DLI

DLI

DLI

PAP

3. Internal Controls Inability to identify the weakness and gaps in program processes and quality on time because of a) Weak internal audit capacity

and practice in the FD.

Internal audit for the Program will be strengthened by including the FD as one of the pilot agencies for the internal audit modernization under the Program. (DLR 9.3). DLR 9.1. The Model Internal Audit Charter and risk based internal audit manual have been issued by the Finance Division (US$1 million)

2019

2021

DLI

DLI


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Timing

Type of action

(PAP, DLI)

DLR 9.2. A system for annual procurement planning and post-review has been established by the Finance Division and training on the system has been conducted in FD (US$1 million) DLR 9.4. The relevant Audit Committees resolve 50% of: (i) audit recommendations for each of the Selected MDAs other than the Finance Division and (ii) audit recommendations and procurement post-reviews in Finance Division based on the stock of total audit recommendations and procurement post-reviews as applicable pending for each of the relevant Selected MDAs and the Finance Division respectively at the beginning of the relevant Fiscal Year in which the DLR is being assessed (US$3 million)

2021

DLI

4. Auditing Non-compliance with the financial covenants and inability to identify and take remedial measures of performance failure because of lack of response of the FD to audit observation (financial management and procurement post review)

A fiduciary DLI 9 to incentivize the FD to timely resolve the audit observations and recommendation of procurement post-review Training and capacity building of OC&AG on the Program audit through entity audit model (through a Bank-executed Trust Fund) The new organization reform at the OC&AG will make the respective directorate more focused on the entity audit concept whereby the entity’s financial statements expenditure, that will include the Program, will be audited and report submitted within six months of the end of the fiscal year.

2019 DLI

5. Procurement and Financial Management Capacity

Inefficient and ineffective Program implementation and lack of value for money because of a) The absence of a distinct

procurement unit in the FD b) The lack of proficient

procurement experts

Financial management and procurement staff in the FD will receive certified training under the Program. Create procurement unit in the FD. DLR 10.6. At least 100 civil servants (with data disaggregated by gender) completed specialized PFM related courses/certifications (US$4 million)

2022

2019

DLI

PAP


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Timing

Type of action

(PAP, DLI)

6. Impaired quality of bid evaluation resulting in non-achievement of objective of procurement

Form bid/proposal evaluation committees consisting of right members who have knowledge and experience in procurement of similar goods/services.

2019 PAP

7. Supplier community queries/complaints not addressed properly/on time, leading to degradation of quality of procurement and/or disputes

Assign one trained government official as a procurement focal point.

3 months from project implementation start

PAP

Implementation Support

15. The fiduciary team will work with the borrower to monitor implementation progress and address underperforming areas identified in the PAP. Fiduciary support includes

• Reviewing implementation progress and working with the task teams to examine the achievement of Program results and DLIs that are of a fiduciary nature;

• Helping the borrower resolve implementation issues and carry out institutional capacity building;

• Monitoring the performance of fiduciary systems and audit reports, including the implementation of the PAP; and

• Monitoring changes in fiduciary risks to the Program and, as relevant, compliance with the fiduciary provisions of legal covenants.


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ANNEX 5. SUMMARY ENVIRONMENTAL AND SOCIAL SYSTEMS ASSESSMENT


1. The ESSA provides a comprehensive review of relevant government systems and procedures that address environmental and social issues associated with the program. The ESSA describes the extent to which the Government’s environmental and social policies, legislations, program procedures, and institutional systems are consistent with the six core principles set out in the World Bank Policy for Program-for-Results Financing (November 2017) and the associated Interim Guidance Note (June 2012). The assessment recommends actions to address the gaps and enhance performance during Program implementation.

2. Overall, the ESSA found that the Program is compatible with the core principles of PforR. The assessment team used various approaches to review the environment and social systems that are relevant to supporting the Bangladesh SPFMS (the Program). It included analysis of information/data on previous assessments and reports on the status of different aspects of its management of environmental and social issues and national consultations with all key stakeholders related to the Program. The ESSA identified the potential risks and opportunities and analyzed the compatibility of the program with respect to the core principles of PforR operations. The team is convinced of the institutional capacity of the FD in running the Program. However, the ESSA recommends bolstering institutional capacity through recruiting environmental and social safeguard consultants for the program duration. This recommendation is summarized as actions and incorporated in the PAP and has been agreed with the borrower.

Environmental Risks and Opportunities

3. The Program does not pose any significant environmental risk because all the activities of the Program are aimed at strengthening the PFM Program to enable service delivery. There are no new physical facilities construction, civil works, or activities that can pose any significant environmental risk.

4. DLI 2 is aimed at improving budget alignment with development strategy and gender, social, and environmental considerations through better performance of the BMC. This indicates that there will be an increased focus on allocating funds to environmentally sustainable projects and the capacity of BMCs will be increased to better screen such projects. This will encourage the inclusion of environmental sustainability concepts while submitting proposals for projects as added emphasis is assigned in the screening process.

Social Risks and Opportunities of the Program

5. The Program does not pose any social risk because all the activities of the Program are at the macro level and aim at strengthening the PFM program to enable service delivery. Thus, all citizens of the country, including the vulnerable, the poor, disabled, women, children, the elderly, and indigenous people at large will directly benefit from the Program.

6. DLIs 1, 2, 3, and 8 will help improve the efficiency of the present PFM system at the macro level with its positive effect felt at the micro level. As such, these will directly and indirectly benefit all,


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including women, children, elderly, marginalized people, vulnerable groups, and indigenous people.

7. DLI 4 would go a long way in directly benefitting all government employees, including the vulnerable, poor and disabled, women, and the elderly. Government employees from the indigenous community who draw their salary from the revenue fund will also be included among the beneficiaries. Presently, the system is manual and some clerical staff has to prepare the salary demand in a paper bill format on a monthly basis and the process is slow, cumbersome, and not without errors. This creates bottlenecks in the process and a faulty salary demand has to be redone and the process takes time and the affected recipient suffers. The FD has planned to undertake a specific scheme incorporating the EFT system whereby government employees have to verify their accounts digitally and their salaries will automatically be sent to their bank accounts without any delay. This will make the ‘salary’ matter paperless and efficient. Presently, the widows, freedom fighters, and the elderly get monetary benefits monthly from the revenue fund under the present ‘social safety net’ program. The process is slow as all the inputs are given manually, at places affected by human error and goes through a lengthy clearing process involving more than one staff. The allotted money takes too long to reach the recipient. A separate scheme is being planned to arrange EFT based on iBAS++ whereby affected recipients will receive their money through timely deposits into their bank account or through a mobile money transfer system existing in the country: BIKASH, ROCKET and others. This will alleviate the sufferings of these recipients caused by delayed payments.

8. DLI 5 focuses on improved pension service (disaggregated by gender) through the EFT no later than the following pension payment cycle after retirement. A pilot project is being run at the FD on the issue. This does not demand the pensioners to report to the account office, confirming that the individual pensioner is alive. There will be an electronic/digital verification of the pensioner and the money will be transferred to his/her bank account following the EFT. Once sufficient experience is gained with the pilot project, it will be rolled out to all pensioners. Thus, DLI 5 would most directly benefit the vulnerable, the poor, disabled, women, the elderly, and indigenous people at large through improved pension service.

9. DLI 5 is supported by the evolving ecosystem of electronic and mobile payments. It is pertinent to note here that mobile telephone and Internet accessibility by the citizens have improved over the years and according to the Bangladesh Telecommunication Regulatory Commission some 152.527 million mobile telephone subscribers were noted in July 2018.22 During the same time, Internet subscribers reached 88.687 million.23These large numbers indicate that ordinary people, particularly the retirees and people under ‘social safety net’ program’ including vulnerable/indigenous people/elderly and women will immensely benefit from receiving pensions through their bank account or through using mobile money transfer apps such as BIKASH and ROCKET near their abode. This will in turn reduce the use of paper, thus improving the environment owing to less felling of trees and so on.

10. DLI 10 is aimed at developing the skills of the persons employed for PFM reform implementation and monitoring at the FD and recipient ministries. Enhanced workforce skills will have a positive effect on the overall PFM Program. Thus, all including the vulnerable, poor, disabled, women, the elderly, and indigenous people at large will indirectly benefit from DLI 10. In addition, DLI 10 will also provide post-

22 http://www.btrc.gov.bd/telco/mobile; accessed on September 17, 2018. 23 http://www.btrc.gov.bd/telco/internet; accessed on September 17, 2018.

http://www.btrc.gov.bd/telco/mobile

http://www.btrc.gov.bd/telco/internet


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graduation courses/certifications to 100+ staff and the World Bank will track them by gender to promote women participants.

11. The FD prepares the gender budget and child budget that could be further improved under the Program. The FD will also plan ‘gender analysis’ to identify relevant gaps between women and men, boys and girls, particularly as they relate to the World Bank’s broader country engagement framework. The FD will arrange participation of a mix of staff (men and women) at the organizational level and promote the same with line ministries when they are deputed to work/undergo training with the FD. The same staff could be used in executing the Program. This way the FD can identify relevant gaps between men and women at the execution level. Beneficiaries of DLIs 4 and 5 include men and women who are beneficiaries of the social safety net program. This analysis will be used to identify specific actions that can be supported by the Program, to be linked with relevant indicators in the Results Framework. This analysis will also focus on how the operation will contribute to the four pillars of the World Bank Group’s Gender Strategy 2016–23 (to narrow gaps between men and women in human endowments, more and better jobs, ownership and control of assets, and voice and agency).24

12. The Program has an environmental and social risk rating assessed as ‘Low’. Given the scope of the Program, its types and scale of investment, geographic focus, institutional capacity and previous experience of FD with World Bank projects, the risk is rated ‘Low’ from the environmental and social perspectives.

13. The ESSA recommendations are summarized as actions (table 5.1) and incorporated in the PAP and have been agreed with the borrower. Specific recommendations were made to address the identified risks, gaps/challenges, and needs. Recommended measures to strengthen system performance for environmental and social management are as shown in table 5.1.

Table 5.1. Measures to Strengthen System Performance for Environmental and Social Management

Objectives and Issues Measures for Strengthening Systems Performance

Environment and social management instruments

The MoF/FD is involved with the allotment of the revenue fund to recipient ministries and does not implement projects in the field. As such the MoF/FD need not develop any ‘Environment and Social Management Framework’ for the proposed ‘Bangladesh Strengthening PFM Program to enable Service Delivery (P167491)’ to address the social and environmental risks.

Strengthen institutional capacity for safeguards management

The FD does not need a separate environmental and social unit for overseeing the implementation of recipient ministries programs affecting social and environmental issues. For the current program, it is necessary for the FD or IMED to recruit dedicated environmental and social expert(s) for the Program tenure to oversee activities/projects of the implementing ministries that has potential to adversely affect the environment and the society at large. The borrower agreed with the suggestion and will allocate appropriate funds in the project for this purpose.

Capacity building and training

The FD had been working on the reform of public expenditure since long. The FD undertook the SEIP financed through a pool fund provided by ADB and Swiss Agency for Development and Cooperation (SDC). The total period of SEIP is 2014–21 and ADB and SDC have financed Tranche 1 (FY14–15 to FY17–18) with

24 Project Concept Note, June 19, 2018; page 19, paragraph 50.


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Objectives and Issues Measures for Strengthening Systems Performance

US$138.5 million. Some 1.5 million people are planned to undergo training that includes new entrants and up skilling the existing workforce. IDA and KOICA are expected to join the subsequent tranches.a This training aimed at strengthening and building capacities for improved effectiveness, efficiency, and transparency of the public resource management process and is enormously contributing in PFM. The SPEMP was undertaken in 2008 funded by U. K. Department for International Development, Danish International Development Agency, and the EU while being administered by the World Bank.b After the program ended successfully, related works continued with the SPEMP-A, 2014.c It is heartening that the process is continuing under the PFM Reform Strategy (2016–21) and PFM Action Plan (2018–23) and the 2016 PEFA Assessment (PEFA 2016).d Thus, there is sustained effort on capacity building by the FD and the line ministries on PFM. Through personal engagement it is noted that the manpower at the FD is sufficient to undertake the proposed program. Additional manpower, when required, is deputed from recipient ministries who also undergo relevant training along with the staff of the FD. As such, no additional staffing is envisaged. The FD undertakes professional training courses round the year and they have plans to continue running required courses for the program. The FD will incorporate specific training for the deputed staff from the recipient ministries on environmental and social management at the SPFMS implementation level.

Note: a. http://seip-fd.gov.bd/about-us-2/, accessed on September 17, 2018. b.http://documents.worldbank.org/curated/en/524961468013216189/text/701400ESW0P121000iBAS0review0report.txt. c. Government of the People’s Republic of Bangladesh, PFM Reform Strategy. 2016–21, June 2016, page7. d. Project Concept Note, June 19, 2018; page 4.

http://seip-fd.gov.bd/about-us-2/


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ANNEX 6. PROGRAM ACTION PLAN

COUNTRY : Bangladesh Bangladesh Strengthening PFM Program to Enable Service Delivery

Action Description

DLI# Responsibility Recurrent Frequency Due Date Completion Measurement

Ensuring establishment of the PECT and PITs (within 3 months of the Effective Date) and that these are maintained throughout the Program implementation

Finance Division Yes CONTINUOUS PECT and PITs are in place throughout the Program implementation

Strengthen IPF as PFM Learning Hub by recruiting three permanent staff within six months of the Effective Date

Finance Division Yes CONTINUOUS IPF strengthened with the addition of three permanent staff

DLI technical notes are reviewed and amended from time to time in consultation with the Bank

Finance Division Yes YEARLY DLI technical notes are periodically updated, in consultation with the Bank team

Arrange DLI verification by the OC&AG, the Cabinet Division and through a third-party verification agent (to be appointed no later than 3 months after the Effective Date)

Finance Division Yes YEARLY Submission of DLI verification reports acceptable to the Bank

Assign separate organizational

Finance Division No 30-Jun-2019

The Program budget for FY20 be


Page 90

budget codes to the FD wings responsible for Program implementation (macro-economic, SOE, Debt, Expenditure etc.) to enhance managerial accountability of funds allocated to deliver on the specific DLI schemes at the lowest organizational unit

distributed by FD wings

Program to use the separate standard document for procurement of permitted works through e-GP system, which does not have the provision of rejecting bids based on above/lower than the estimated cost

Finance Division Yes CONTINUOUS eGP used for all Program procurements

For each bid/proposal under the Program, form Bid/Proposal evaluation committees consisting of members with the appropriate knowledge and experience of

Finance Division Yes CONTINUOUS Evaluation committees are established with suitably qualified/ experienced members


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procurement of similar goods/services

Assign one trained Government official as procurement focal point within six months of Effective Date

Finance Division Yes CONTINUOUS Trained officer designated as the Procurement Focal Point

Maintain a publicly accessible website where all disclosable procurement data will be available and regularly updated

Program Execution and Coordination Team

Yes CONTINUOUS Website with disclosable procurement data

FD seeks the advice of environmental and social expert(s) for the Program, as needed for Program activities

Finance Division Yes CONTINUOUS Either in-house capacity built or assistance sought from IMED


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ANNEX 7. IMPLEMENTATION SUPPORT PLAN


Strategy and Approach for Implementation Support

1. The implementation support plan (ISP) for the Program has been developed to reflect the nature of the reform activities and the specific needs identified by the various assessments. The plan will be regularly reviewed and revised as required. The ISP also identifies the requirements to meet the World Bank’s fiduciary obligations. Although the overall responsibility for Program implementation rests with the Federal Government, the World Bank will provide the necessary and continuous implementation support in the following areas:

(a) Reviewing implementation progress toward achieving Program results to meet DLI disbursement requirements

(b) Monitoring implementation of the Program

(c) Monitoring changes in Program risks and compliance with the provisions of legal covenants

(d) Providing hands-on institutional capacity building as may be required

Implementation Support Plan and Resource Requirements

2. Regular implementation support missions will cover technical, institutional, safeguards, M&E, and fiduciary aspects. Formal implementation support missions will be carried out thrice during the first year and every six months in subsequent years. During the first year of the program, it is envisaged that support will focus on operationalizing the PIC. The attitudinal barriers to achieving the objectives of the PFM reform program will be addressed through behavioral and change management interventions. These will include strategic communication about the reform benefits with the political leadership to solicit commitment and the administrative cadre for ‘buy-in’ to better manage resistance, participatory engagement with stakeholders (citizens/beneficiaries/DPs), and recognizing and rewarding of agencies and individuals for good PFM performance. This will help provide a conducive authorizing environment for sustaining the deep institutional reforms that require ownership and support by multiple stakeholders. 3. The subsequent years will include support for implementation of reform activities and sustaining change management, including media outreach on benefits of the reforms.

4. The volume of support is expected to be particularly high in the first two years of Program implementation. An ISP for the first year of the program and for the following years is provided in table7.1.


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Table 7.1. Main Focus of Implementation Support

Skills Needed Number of Staff Weeks

Firs

t 1

2 m

on

ths

Task team leadership Task team leader 20

Task team leadership Task team leader-SOEs 8

Task team leadership Task team leader-Economics 4

M&E M&E specialist 4

Operational - procurement Procurement specialist (ADM responsible) 4

Financial management Financial management specialist 14

12

to

48

mo

nth

s

Task team leadership Task team leader 22

Task team leadership Task team leader-SOEs 10

Task team leadership Task team leader-Economics 6

M&E M&E specialist 5

Operational - procurement Procurement specialist (ADM responsible) 6

Financial management Financial management specialist 8

Environmental safeguards Environmental safeguards specialist 4

Social safeguards Social safeguards specialist 4

Role of Partners in Program Implementation

5. The PFM Action Plan was developed under the leadership of the FD in close collaboration with the DPs—the Governments of Canada and United Kingdom, the EU, and JICA. This included DPs’ provision of time, comments on the PFM Action Plan, and contributions on specific analytical inputs, as well as financing for engagement of technical and secretarial assistance through the SPEMP MDTF. The DPs will continue to support the technical assistance required for the SPFMS’ success.

6. In seeking to align financing for the PFM Action Plan, the DPs have expressed the need for greater links between spending, performance, and results. In particular, the DPs have expressed interest in the World Bank supporting improved coordination of PFM reforms across several government institutions led by the FD. An initial mapping of the DPs’ support to various PFM Action Plan components has been compiled and will be updated annually to facilitate division of labor and harmonized approach in supporting PFM reforms.

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