THE KYRGYZ REPUBLICSECOND CAPACITY BUILDING FOR PUBLIC FINANCE MANAGEMENT

MULTI DONOR TRUST FUND GRANT (№TF0A3998)

TERMS OF REGERENCE FOR COMPANY ON NATIONAL ANDSUBNATIONAL GOVERNMENTS PEFA ASSESSMENTS (KG-MOF-CS-CQS-3-7)

1. BACKGROUND

The Kyrgyz Republic is a mountainous and low-middle income country in Central Asia. Although it is small and landlocked, the country is located within short reach of the large Chinese, Russian, and South Asian markets. Despite of this there is a weak land transport (road and railways) communications with neighboring countries which do not allow benefiting this geographic location.

The country is rich in natural resources, including minerals—mainly gold—and abundant water for hydropower generation. However, significant investments are required for utilization of these resources and most of them remain unused and unexplored. Its multiethnic population, estimated at 6.1 million in 2016, is young and growing rapidly. Almost two thirds of population is living in isolated rural and mountainous areas: over 90 percent of the country’s 198,500 square kilometer area is at least 1,000 meters above sea level and 30 percent – above 3,000 meters.

1.1. Economic performance

The Kyrgyz Republic’s economic development is heavily dependent on remittances from migrant labor, gold exploitation, and import and re-exports bazar trade.

Since 2000, real growth in gross domestic product (GDP) has averaged 4.5 percent annually, in line with the average among developing countries in Europe and Central Asia. Despite these growth rates, the country remains at the bottom of the income scale in Europe and Central Asia.

The macroeconomic situation in the Kyrgyz Republic for 2016–2017 in the commodity and financial markets remained rather stable despite the unfolding complex situation in the global economy. In 2016, as a result of the situation improvement in the economic sectors, real GDP growth was achieved at 4.3% due to an increase in the growth rates of gross output in all economic sectors. The favorable factors that influenced the economic growth were the increase in gold prices, the increase in remittance flows of individuals, the provision of concessionary loans to farmers, the strengthening of the national currency against the US dollar. It should be mentioned the growth was not driven by increased productivity. In 2017, real GDP growth was at 4.6%. The main favorable factors that influenced economic growth were moderate inflation, which caused a real growth in household incomes, an increase in the remittances flows of individuals, and the provision of concessionary loans to farmers.

In 2016 deflation was recorded at 0,5% (decrease in consumer prices) (in % against December of the previous year), in 2017 inflation level (in % against December of the previous year) was 3,7%.

Export of goods increased from 1 482,9 mln. USD in 2015 to 1 573,2 mln. USD in 2016 and to 1 790,7 mln. USD in 2017. The increase in average annual nominal export growth rate for 2016-2017 amounted to 10,0%. The import of goods decreased from 4 153,9 mln. USD in 2015 to 4 000,4 mln. USD in 2016 and increased to 4 481,3 mln. USD in 2017. The increase in average annual nominal import growth rate amounted for 2016-2017 amounted 4,2%.

In 2017 GDP per capita in USD increased compared to 2016 by 8,0% and amounted to 1 272,5 USD.

The results of assessment of population welfare measurement show the decrease of poverty level from 32,1% in 2015 to 25,6% in 2017.

The main objective of macroeconomic policy in 2018 is to maintain macroeconomic stability and create conditions for positive dynamics of economic growth.

In 2018 economic development of the country is performed on the basis of the Kyrgyz Republic Government “Unity, Trust, Creativity” activity program implementation. GDP growth is expected to be at 2,8%. Inflation will mainly be defined by volatility of the exchange rate of the

domestic currency against foreign currencies, influence of global food prices, as well as inflation expectations of the population. Inflation level in 2018 is expected at 3,5% (in % against December of the previous year). In 2018 monetary policy will still be conducted in accordance with free-floating exchange rate regime selected in the country. Foreign exchange interventions will be aimed at mitigation of som exchange rate fluctuations.

In economy average annual growth of real GDP forecasted at 4,1% in 2018 will be resulted from sustained growth in all economic sectors.

Table 1: Main macroeconomic indicators, 2014-2020

I. Social and Demographic Indicators

Population (in millions, 2017) 6Unemployment rate (official, 2016) 7,2Poverty rate (2015) 32,1GNI per capita (2016, Atlas method, U.S. dollars) 1100

 II. Economic Indicators 2016 (Act.)

2017 (Est.)

2018 (Prog.)

2019 (Prog)

2020 (Proj.)

Nominal GDP (in billions of soms) 476,3 521 558,4 605,8 666,8Real GDP (growth in percent) 4,3 4,6 2,8 4,3 4,2GDP per capita (in U.S. dollars) 1,11 1,208 1,271 1,311 1,375Consumer prices (12-month percent change, eop) -0,5 3,7 4,1 4,7 5,1

Investment (in percent of GDP) 31,6 31,3 30,2 30,2 28,1Savings (in percent of GDP) 20 24,9 17,1 17,2 17,1Banking and external sectorsReserve money (percent change, eop) 27,6 16,9 10,3 8,9 15,9Broad money (percent change, eop) 14,6 17,9 14,1 14,4 15,9Export of goods and services (in millions of U.S. dollars) 2,449 2,638 2,929 3,093 3,401

Import of goods and services (in millions of U.S. dollars) 4,789 5,113 5,961 6,315 6,571

Exchange rate (soms per U.S. dollar, average) 69,9 68,9      

Source: IMF staff estimates and projections

1.2 Fiscal management at the national level

At the moment tax policy is conducted according to the Concept of fiscal policy of the Kyrgyz Republic for 2015-2020 approved by KR Government Resolution “About approval of Concept of fiscal policy of the Kyrgyz Republic for 2015-2020 and Action Plan on implementation of Concept of fiscal policy of the Kyrgyz Republic for 2015-2020” dated July 7, 2015 #455 as well as in the framework of program documents of the KR government (“Unity. Trust. Creativity.” and other)

2016-2017 were marked with significant growth in terms of budget revenues. In relation to GDP Government budget revenues were increased by 1,3 percent from 27,4% of GDP in 2016 to 28,7 of GDP in 2017. Despite the growth of tax revenue in 2016, there was a range of factors that adversely affected the flow of tax revenues: 1) amendments made to the tax legislation in terms of exemption of grain import from sales tax and VAT; 2) decrease in import from the EEU member states; 3) decrease in import of the EEU member states with third countries.

In 2016 and 2017 growth of budget revenues was mainly provided from tax revenues. In 2017 import from the EEU member states and third countries was increased which significantly affected tax

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revenues flow. In 2018 public budget revenues are forecasted at 29,1% of GDP which is slightly higher compared to 2017.

In 2016-2017 significant growth in flow of received official transfers from 2,1% of GDP in 2016 to 2,6% of GDP in 2017.

In 2017 public budget expenditures of the Kyrgyz Republic amounted to 31,9% of GDP. Current expenditures in 2017 amounted to 26,4% of GDP. Capital expenditures in 2017 amounted to 5,5% of GDP. Public budget deficit in 2017 amounted to 3,2% of GDP which was mainly financed by external borrowings.

Public budget expenditures of the Kyrgyz Republic in 2018 are forecasted at 31,6% of GDP. Forecast for current expenditures in 2018 amount to 25,5% of GDP, forecasted capital expenditures amount to 6,1% of GDP. Public budget deficit in 2018 is forecasted at 3,6% of GDP which is financed by external borrowings like in 2017.

Certain activities on decreasing budget deficit are being implemented for the purpose of strengthening financial sustainability of the budget system. Measures on strengthening administration of budget revenue flows are taken. Increase in budget expenditures is constrained by improving instruments of budget planning and prioritizing expenditures. Moreover, activities on maintaining sustainability of public external debt and increasing the internal borrowings are being implemented as well.

Table 1.1. Kyrgyz Republic aggregate fiscal data, 2016 to 2017 (million KGS)Element FY 2016 FY 2017Total revenue 130 669,9 149 547,4– Own revenue 120 792,8 136 080,9– Grants 9 877,1 13 466,5Total expenditure 151 558,8 166 023,6– Noninterest expenditure 146 405,7 160 097,5– Interest expenditure 5 153,2 5 926,1Aggregate deficit (incl. grants) -20 888,9 -16 476,2Primary deficit -15 735,7 -10 550,1Net financing 26 871,8 22 806,8– External 19 183,8 17 602,2– Domestic 7 688,0 5 204,6

Public debt (million USD) 4 065,4 4 530Ratio of public debt to GDP 54,4% 53,9%

Источник: МФ КР

As of December 31, 2016 public debt of the Kyrgyz Republic amounted to 54,4% of GDP, 92,1% of the total public debt is external public debt and 7,9% is internal public debt. As of December 31, 2017 public debt of the Kyrgyz Republic amounted to 53,9% of GDP, 90,1% of the total public debt is external public debt and 9,1% is internal public debt.

For the purpose of ensuring effective public debt management, actions of the Government of the Kyrgyz Republic are focused on: attraction of new external borrowings only for the highest priority programs and projects that will promote economic growth and poverty reduction; attraction of new public external borrowings that comply with minimal loan concessionality of 35 percent (grant element) and other activities envisaged in Strategy on public debt management for 2018-2020.

Fiscal management at the subnational level

Local budget is a budget of local community in rural district or a town. Preparation, approval, implementation and control of the local budgets are performed by local self-governments. Local budgets are approved by regulatory legal acts of local councils. Reports on the performance of local budgets (revenues, expenditures) are prepared on a cash basis. Local government reports are included in the consolidated state budget and the governmental finance statistics.

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In accordance with Budget Code local budgets receive: deductions from national revenues according to established rates; land tax; property tax and other local taxes and duties.

National revenue is budget revenues envisaged by the Budget Code of the Kyrgyz Republic that are subject to distribution between republican and local budgets according to established rates of revenue sharing. National revenues include 8 types of taxes: income tax, sales tax, exploitation tax and others. Tax sharing rates to local budgets in the approved budgets for 2017 as well as for 2018 were following:

- Income tax, sales tax, tax on the use of subsoil resources (royalties, with the exception of strategic minerals: gold, oil, gas) - in the amount of 50 percent

- Tax on the basis of a voluntary patent, tax on the basis of compulsory patenting, income on the basis of a single tax - in the amount of 100

The following structure of expenditure obligations distribution is established in the Kyrgyz Republic: 1) Expenditure obligations of the Government; 2) Expenditure obligations of local self-governments.

Intergovernmental fiscal transfers provided to the local budgets are approved by annual law on republican budget. In intergovernmental fiscal transfer system includes transfers to local budgets in the form of:

а) Equalization transfers – funds, provided from the republican budget for covering financial gap between revenue and needs of local budgets. The amount of equalization transfers is defined on the basis of budget capacity level of local budgets and is provided to ensure fullness of local budgets financing for the purpose of maintaining stable social economic situation in the region. The procedure and formula of defining the amounts of equalization transfers is approved by the Government.

b) targeted transfers – funds provided from one budget level to another for certain purposes.

Although there are oblast (region), cities, district and local self-government levels in the administrative structure of the country, there are two tiers in the transfers system: 1) from republican budget to cities, 2) from republican budget to local communities. There are no oblast and district level budgets in the Kyrgyz Republic. Transfers from republican budget are provided directly to LSGs and cities budgets. Oblasts and districts can be seen as deconcentrated units of the Central Government. The LSGs are submitted approved annual budgets and reports on budget execution to the MoF through the MoF local branches. In addition MoF local branches provide methodology and practical assistance to LSGs on budget preparation and execution issues.

Table 2 presents the salient features of subnational expenditure and revenue nationally and Table 3 for the Jalal-Abad city municipality and selected two LSGs of Sokuluk district.

Table 2. Kyrgyz Republic Subnational governments revenue and expenditure 2016 to 2017 (million KGS)Element 2016 2017Total national revenue 130 669,9 149 547,5Total national expenditure 151 558,9 166 023,6– Transfers to tier 1 of SNGGs 885,1 2 997,4 Equalization transfers 9,3 8,2 Targeted transfers 875,8 2 989,1– Transfers to tier 2 of SNGGs 1 882,3 2 457,5 Equalization transfers 1 577,1 1 809,4 Targeted transfers 305,2 648,2Total own revenue of SNGGs 14 909,2 14 850,5– Revenue of tier 1 of SNGGs 10 405,0 9 871,1– Revenue of tier 2 of SNGGs 4 504,2 4 979,3

Total expenditure of SNGGS 17 766,4 19 528,5– Expenditure of tier 1 of SNGGs 11 460,2 12 578,5– Expenditure of tier 2 of SNGGs 6 306,2 6 950,0Source: MoF

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Presentation of the assessed Sub-National Governments and explanation of the selection criteria

The SNG PEFA assessment under the current TOR will be performed for three SNG units, that is, city of Jalal-Abad, Saz and Krupskii LSGs in Sokuluk district.

Jalal-Abad city

The selection of Jalal-Abad city is based on the following criteria. There are 12 cities with the status of oblast (region) significance and 2 cities with the status of republican significance in the country. Jalal-Abad is the economic and administrative center of the Jalal-Abad oblast (oblast significance) in the southern part of the country and the third largest city in Kyrgyzstan with a population about 97,172 thousand people (Census as of 2009). Jalal-Abad in terms of its population, budget and economic indicators is the largest city in the south part of the country (apart from Osh city). Therefore there is no equalization transfer for this city. Jalal-Abad city will represent the cities with the status of oblast significance for SNG PEFA assessment as well as the cities with republican significance.

Jalal-Abad is a city with an industry and social infrastructure. There are banks and other financial facilities, wholesale and retail trade. The industry is represented by a wood processing plant, food processing, light, cotton fiber, flour milling enterprises.

The Mayor is head of city administration (executive branch) of Jalal-Abad city. Mayor is elected by local council. Executive government is called Meria. Meria consist of different structural units and sub-units. Some services are performed by semi-autonomous entities and public corporations that are managed/supervised by Meria.

Saz LSG in the Sokuluk district

Sokuluk is one of the districts of the Chui oblast near the Bishkek city, in whose territory the northernmost point of Kyrgyzstan is located. In the north, the Sokuluk district borders with Kazakhstan. Population is 150,482 thousand people (Census as of 2009). There are enterprises of mechanical engineering, motor transport, processing, food industry as well as business facilities, health care, sports, education and culture. The main industry of the area is agriculture. The total length of the irrigation network in the district is 1,397.2 km. There are 16 WUAs (water user associations) operating in the district, which cover 26,685 hectares or 49% of irrigated area.

There are 19 local self-governances with 68 villages. Some of LSGs get enough revenue to cover their expenditures and self-sufficient; some of them need to receive equalization transfers from republican budget.

For the purposes of assessment the MoF identified Saz LSG (which receives equalization transfers) and Krupskii LSG (self-sufficient LSG) in the Sokuluk district. The selection of Saz and Krupskii LSGs is important to ensure the structure of LSGs is well represented which will highlight the challenges faced by such subnational entities so that they are reflected in over SNG PEFA report.

The Saz local community is located in the south mountainous part of the Sokuluk district and 37 km apart from Bishkek city. There are 2 villages in the local community. Population is 2,3 thousand people (Census of 2009) which is the lowest number compared with other LSGs in the district. This LSG had a lowest own revenues in 2017 compared to other LSGs in the district. There is only agriculture industry. The local council elected for 5 years period. The Head of LSG is elected by local council also for 5 years. Executive body of LSG has 10 employees responsible for different issues related to LSG activities. Based on the information provided by MoF there are no services performed by semi-autonomous entities that are managed/supervised by LSG.

Krupskii LSG in the Sokuluk district

Krupskii local community is located in village Sokuluk near (1,2 km) to the district center and 23 km apart from Bishkek city. There are 4 villages in the local community. Population is 15,1

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thousand people (Sensus of 2009) which is a second biggest LSGs in terms of population after Novopavlovka LSG with 22,1 thousand people. This LSG had a biggest own revenues in 2017 compared to other LSGs in the district. There are some industrial and infrastructure facilities. But agriculture sector is the main occupancy of people. There is local council elected for 5 years period. The Head of LSG is elected by local council also for 5 years. Executive body of LSG has 24 employees responsible for different issues related to LSG activities. Some services are performed by semi-autonomous entities that are managed/supervised by LSG.

Table 3. Kyrgyz Republic Subnational governments aggregate fiscal data, 2016 to 2017 (million KGS)Element Jalal-Abad city Krupskii LSG Saz LSG

2016 2017 2016 2017 2016 2017Total revenue 376,2 395,5 52,6 67,0 4,1 5,4

– Own revenue 375,4 384,8 51,1 63,5 2,1 2,7– Transfers from CG 0,9 10,7 1,5 3,5 1,97 2,7 Equalization transfers  --  -- -- -- 1,94 2,4 Targeted transfers 0,9 10,7 1,5 3,5 0,03 0,3– Other -- -- -- -- -- --Total expenditure 370,7 319,1 52,6 47,6 4,1 5,0Aggregate deficit (incl. grants) -- -- -- -- -- --Net financing -- -- -- -- -- --– External -- -- -- -- -- --– Domestic -- -- -- -- -- --Public debt -- -- -- -- -- --

Source: MoF

In accordance with the Budget Code local self-governments borrows funds by issuing municipal securities from the behalf of local self-governments and attracting budgetary loans that result in occurrence of municipal debt obligations.

Generally local budget authorities do not issue municipal securities apart from Bishkek city which is the capital of the country. There is no public debt in the Jalal-Abad city and 2 selected LSGs in Sokuluk district.

In practice the local budgets in the Kyrgyz Republic are formed without budget deficit. Thus in the selected LSGs there were no budget deficit for 2016 and 2017 fiscal years.

1.3 Governance, institutions, and decentralization system

Kyrgyzstan is an independent, secular, democratic and legal state. The political system is defined by the Constitution of the Kyrgyz Republic, which was adopted on 27 June 2010. The new constitution defines the state form of governing as parliamentary republic. Parliament and the Prime Minister have much more power and authority than the President.

Legislative power is exercised by the Parliament - Jogorku-Kenesh. The parliament of Jogorku-Kenesh is unicameral and consists of 120 members, elected for five years by party lists. The parliament of Kyrgyzstan has priority in important government decisions.

Executive power in the Kyrgyz Republic is represented by the Government, its subordinate ministries, state committees, administrative departments and local administrations.

The government is the highest executive body of the Kyrgyz Republic. The government is headed by the Prime Minister. The Government consists of the Prime Minister, Deputy Prime Ministers, ministers and chairmen of state committees. The structure of the government includes ministries and state committees. Head of the Government is Prime Minister, appointed by the Parliament at the proposal of the parliamentary faction of the majority (members of the political party which won more than 50 percent of the seats).

The president is elected by popular vote to serve six years, without the right to a second term. One and the same person cannot be elected President twice.

The judicial system of the Kyrgyz Republic is established by the Constitution and laws and it consists of the Supreme Court and local courts. Judicial power is exercised by means of constitutional,

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civil, criminal, administrative, and other forms of proceeding. The Supreme Court is a constitutional chamber. The law may establish specialised courts. The creation of extraordinary courts is prohibited.

The Chamber of Accounts is an independent Supreme Audit Institution. The Chamber of Accounts in its activities is accountable to the President of the Kyrgyz Republic and Zhogorku Kenesh of the Kyrgyz Republic. For the time being, according to the new Constitution of the KR and amendments made to the edition of Law “About the Chamber of Accounts” dated February 18, 2011 #2 the management of the Chamber of Accounts consists of nine auditors.

The main objective of the Chamber of Accounts activities is to conduct audit and performance audit: to assess implementation of republican and local budgets, utilization of public and municipal properties, to ensure implementation of standards, to develop methodologies on international standards of financial reporting and international standards of accounting as well as to promote reforms of financial management in public, municipal enterprises, organizations and institutions.

The republic of Kyrgyzstan includes 7 regions (Chui, Issyk-Kul, Talas, Naryn, Jalal-Abad, Osh, Batken), capital Bishkek, Osh with the status of republican city and 40 administrative districts. There are also 453 local self-governance.

2. HISTORY OF ENGAGEMENT ON THE PFM AGENDA

2.1 Previous PEFA assessment(s) at national level and other PFM diagnostics

The Government realized that there is requirement for changes in the way it manages public finances. The Ministry of Finance (MoF) made a request to World Bank to provide assistance in developing the design and implementing the program by conducting diagnostic analysis, providing technical assistance and credit transaction on PFM in 2009. Capacity Building in Public Finance Management (CBPFM) Project was implemented in 2009-2015. The project made a contribution in the initial quality improvement in budgeting, accounting, accountability, internal and external control and made the first steps in development of expenditure planning.

The Public Expenditure and Financial Accountability (PEFA) Assessment was used to track reform progress over time. The first assessment was conducted in 2005 and published in 2006. A baseline assessment was carried out in 2009 and a follow up assessment was undertaken in 2014. Figure 1 highlights improvements in budget credibility, accounting and reporting, and in external scrutiny and audit over the period 2009 to 2014. However, ratings for budget comprehensiveness, transparency and policy alignment of budgets have not changed. The Kyrgyz Republic performs on par with its ECA and Central Asian peers in accounting, recording and reporting and in external scrutiny and audit, but lags behind on budget credibility, comprehensiveness and transparency.

Figure 1: PEFA Assessment Average Ratings: Kyrgyz Republic 2009 and 2014 Comparing with ECA and Central Asia

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Insufficient budget credibility hinders strategic planning, fiscal adjustment and spending agencies’ ability to align their medium-term objectives and plans with the resources available. Large in-year changes in the composition of expenditure highlight weak policy alignment of the budget. A program budgeting framework was developed, including program classification and performance information, but it is not used for decision making and costing is often unrealistic. A medium term budget framework was implemented starting 2009, but outer year estimates do not inform future budget allocation. Investment planning remains fragmented, with inadequate links to the planning of current expenditure. Sector strategies lack objectives to be attained within specified timescales or resource allocations.

Control in budget execution has improved with the support of CBPFM, but weak predictability of funding undermines service delivery. An automated Treasury Budget Information System (TBIS) has enabled improvements in budget predictability and execution through proper monitoring and cash planning, but the system has a number of shortcomings: paper-based instructions (in parallel with electronic) from the Treasury to the National Bank of the Kyrgyz Republic for payments; lack of effective commitment controls and reporting on arrears; absence of centralized payroll controls. Since the 2017 payment orders are initiated by budget organisations in the system electronically. Payment requests are signed with electronic digital signatures at all stages of approval. The treasury has become a direct participant in the Real Time Gross Settlement System operated by the central bank. This enables the Treasury to process large number of transactions, both individually and in batches. The reconciliation with the central bank is conducted on a daily basis. However implementation of the comprehensive Treasury Management Information System (TMIS), which would have linked budget preparation, budget execution, commitment control, payments and a Human Resources Management Information System, was cancelled in November 2013. Limited capacity to forecast cash flow, and absence of links between procurement and treasury systems, results in cash rationing instead of proactive cash management. Cash flow constraints lead to cuts or the postponement of approved expenditures in year. The structure of controls focuses on compliance and enforcement and is not conducive to improvements in resource allocation and operational efficiency. The debt management function remains fragmented, hampering debt portfolio management.

Public procurement reform has been successful. The Public Procurement Law of 2015 introduced modern procurement methods and enhanced disclosure of procurement information and data. MoF developed e-procurement portal and e-Government Procurement with the support of the Asian Development Bank (ADB), which could be further expanded to cover all methods and stages of procurement. The Public Procurement Department is preparing a five-year Public Procurement Strategy for 2016-2020.

Budget transparency has improved: according to the Open Budget Index (OBI), Kyrgyz Republic’s rating has increased from 20 in 2012 to 55 in 2017, slightly above a global average score of 45. The Government regularly prepares a summary of the main elements of the budget for civil society and holds public hearings on the draft budget on an annual basis. In order to enhance transparency and ensure that citizens can exercise the right to access information held by public bodies, the MoF has launched a web site www.okmot.kg, which includes such portals as "Open Budget", "Electronic Public Procurement" and "Economic Map".

Development of technical and managerial skills needed to support the modern PFM system remains a long-term challenge. The MoF Training Center undertakes Government-wide training activities in support of the reforms. The Center has developed a Strategy for Distance Learning and implemented the 2015-2017 training plan. More than 22,462 personnel at ministries and local levels were trained during that period. However, training needs are considerable and capacity has to be created to implement reforms in the areas of budget preparation, financial controls, and local finance.

2.2. PFM plans in Kyrgyz Republic at national and subnational level

In December 2016 the Government enacted the PFM Reform Strategy for 2016-2025. The Strategy incorporates lessons learned from previous Government documents including the PFM Reform Action Plan 2009-2013 approved by the President in 2009, and extended until 2015. An integral part of the Strategy is the PFM Action Plan for 2016-2019, which covers a wide range of measures aimed at strengthening budget preparation and execution, accounting, auditing and fiscal

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transparency, as well as improving public debt management, revenue administration, intergovernmental fiscal relations and transfers, public procurement procedures and public investment management. Strategic tasks to achieve the objectives of the Strategy:

1) Improvement of State budget planning and execution, including:- improvement of budget transparency completeness and accuracy;- budget corresponding to government policy;- improvement of control over budget revenues and expenditures;2) timeliness of accounting and financial reporting;3) enhancement of internal and external audit procedures.Complementing the PFM Action Plan, the Government has also adopted a Strategy for

Developing Corporate Financial Reporting and Audit in the Kyrgyz Republic for 2014-2020. Recently adopted national program National Strategy for Sustainable Development envisages further improvement of PFM system. However, it is too early to assess the results of specific events and activities foreseen in these programs now.

Decentralization reform initiatives

The beginning of reforms on financial decentralization in the Kyrgyz Republic is related to approval of the laws of the Kyrgyz Republic “About financial and economic framework of the local government”, “About main principles of budget law in Kyrgyz Republic”.

The law of the Kyrgyz Republic “About republican budget of the Kyrgyz Republic for 2007” established new format of intergovernmental fiscal relations based on the following regulations:

- introduction of two-level budget system that eliminates oblast and rayon budgets; - beginning of restricting expenditure obligations of republican, and local budgets on the level

of oblast, rayon, town and local self-governments;- reserving revenue sources for every budget level;- prohibition of funds exaction from local budgets to republican budget;- equalizing budget capacity of the territories to cover minimal expenditures guaranteed by the

government. New system of the intergovernmental relations certainly had a positive nature. In 2007 alone

local self-governments’ own revenue increased by 30,5%, at the same time the amount of equalizing grants was decreased by 75,4%. Because of new system local self-governments were given motivation to develop local budgets more properly and ensure implementation of public enquiries on current issues. There was a legal requirement for LSG budgets development before 2007 but LSGs prepared and approved own budgets just formally; quality was very low and MoF local branches strongly supervised and controlled the local budget preparation and execution issues. Since 2007 the MoF local branches are provided methodological and practical support to LSGs on budget issues.

With that, the need to provide support to the local self-governments that were dependent from the transfers from the republican budget and had limited own resources required to form district budgets again. Revenue resources of district budgets were defined, including at the cost of resources previously reserved for local budgets for towns and local self-governments which led to a certain stagnation of financial decentralization reform development. The period from 2008 to 2012 was characterized by the growth of subsidized local governments from 320 to 393, as well as growth of equalizing grants from 141,1 mln. som to 948,8 mln. som.

In 2012-2015 the system of intergovernmental fiscal relations was again altered in accordance to the principles established on the first stage of reforms. Government tax sharing system became uniform for all groups of local budgets; revenue capacity of the local budgets has improved, transfer of certain types of taxes for local self-governments administration has begun.

Intergovernmental finances require changes to comply distribution of expenditures with functions, and to ensure fair and effective distribution of resources. Since 2012 in Kyrgyz Republic there are two levels of local government that cover 453 local self-governments. The resources are transferred according to the rules, but the formula is complicated and results in development grants benefitting relatively thriving rayons. In March 2016 public bodies approved the Concept of Intergovernmental Fiscal Relations Development for 2016-2019, which is aimed at their further improvement.

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The Second Capacity Building in PFM project

The second Capacity Building in Public Financial Management Project builds on the achievements of the first CBPFM Project implemented from 2009 to 2015 and parallel World Bank grant-financed technical assistance projects. These projects contributed to significant improvements in the quality of budgeting, accounting, reporting, internal control and external scrutiny and initial steps in the development of expenditure planning. CBPFM II continues to support this broad reform agenda, focusing on those areas where the progress was slower in the first round of reforms namely budget predictability, control and transparency. Achievement of improvements in budget predictability is expected to prove particularly challenging given the uncertain macro-economic environment.

The second Capacity Building for Public Finance Management Project is financed by Multi Donor Trust Fund (MDTF) with grant funds provided by the Governments of the Switzerland, and by the European Commission. MDTF is administered by the World Bank. The objective of the Project is to improve budget predictability, control and transparency in the Kyrgyz Republic. The Ministry of Finance is responsible for management and administration of this fund to achieve the agreed trust fund objectives.

The Project comprises four Components. The Components identify the broad areas of focus for CBPFM II. Project components are following:

Component 1. Strengthening Budget Planning and Execution. The first component will focus on enhancing the legislative framework for PFM; strengthening Medium-Term Budgetary Framework and revenue and expenditure forecasting; and implementing program budgeting reforms, improvements in public investment management and budget transparency; and institutionalize budget hearings.

Component 2. Building Capacity of the Ministry of Finance in the Public Finance Management. The emphasis of this component will be on implementation of the PFM Development Strategy Action Plan.

Component 3. Strengthening of the Intergovernmental Fiscal Relations and Sub-National PFM. The Component will support operationalization of the Intergovernmental Fiscal Relations Development Concept, and the corresponding estimates, and preparation and implementation of two sub-national PEFA assessments and one national PEFA assessment.

Component 4 Project Management. This Component will finance project supervision, monitoring and evaluation, reporting, procurement, financial management activities of the Project Implementation Support Team (PIST).

The Ministry of Finance is responsible for implementation of the ‘Project’ utilizing funds received from this Trust Fund. The project structure comprises the following bodies: Project Board,Project Coordinator from the Kyrgyz Republic (MoF Deputy Minister), Project Implementation Support Team (Project staff), Technical Expert Panel. For the purpose of coordination and management of the CB PFM Project implementation on September, 2018 a Project Board was established and hold the first meeting. The Minister of Finance is the chair of the Board. Members of the Board – MoF Permanent Secretary, Deputy minister of finance - Project Coordinator, representative of the SECO, representative of EU, Head of Finance Unit of Office of Prime Minister. Technical Expert panel includes Head of MoF’s departments involved to PFM reforms and second CB PFM project activities.

3. PURPOSE, SCOPE AND COVERAGE OF THE ASSESSMENT

3.1. Purpose

Global objective for national PEFA assessment

The main purpose of the 2019 national PEFA assessment is to provide the Government of Kyrgyz Republic and its development partners with an objective up-to-date diagnostic of the national-level public financial management performance based on the latest internationally recognized PEFA methodology. The 2019 PEFA assessment is intended to provide an update of progress in PFM since

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the last national PEFA in 2014, but also establish a new PEFA baseline using the 2016 PEFA methodology for Government.

Global objective for subnational PEFA assessment

The SNG PEFA assessment aims to evaluate the PFM performance of an illustrative sample representing the city and LSGs level in Kyrgyz Republic.The main purpose of the 2019 SNG PEFA assessment is to provide the Government of Kyrgyz Republic, subnational governments and its development partners with an objective up-to-date diagnostic of the sub-national public financial management performance based on the latest internationally recognized PEFA methodology. The SNG PEFA assessment will be conducted for the first time in the country. Therefore the 2019 PEFA assessment is intended to establish a PEFA baseline using the 2016 PEFA methodology for SNG governments.

The national and SNG assessments process seeks to build a shared understanding of PFM performance and those dimensions that require improvement. The both PEFA assessments will aim at: (i) informing the Central and subnational Governments on areas of PFM strengths and weaknesses; (ii) facilitating and updating the dialogue on PFM between Government and donors; (iii) helping donors build budget support programmes; and iv) provide an independent information to civil society on progress in PFM reforms. The results of the assessments are expected to assist the Central and local Governments in monitoring the implementation of Public Financial Management Reform Strategy and Intergovernmental Fiscal Relations Development Concept to achieve a PFM system that meets the requirements of efficiency and effectiveness and long-term sustainability.

Specific objectives

1) To conduct national PEFA assessment using the PEFA framework of 2016. The methodology to be used is the official methodology of 2016 provided by the PEFA Secretariat www.pefa.org. The PEFA assessment should be done in full and include all the performance indicators. The 2018 national PEFA assessment should also provide an update of progress in PFM since the last national PEFA in 2014. During the assessment of relevant PIs and in the report the special focus on revenue from mining should be given because of the mining is the most important economic sector contribution to the budget.

2) To conduct SNG PEFA assessment for Jalal-Abad city and two LSGs (Saz and Krupskii) in Sokuluk district using the PEFA framework of 2016. The methodology to be used is the official methodology of 2016 including Supplementary guidance for subnational PEFA assessments December 2016 provided by the PEFA Secretariat www.pefa.org. The PEFA assessment should be done in full and include all the performance indicators including HLG-1, the additional indicator for transfers from central government.

3.2. Scope and Coverage

Scope and Coverage for national PEFA assessment

The national PEFA assessment will cover the central Government and all related ministries and state bodies. Public corporations and subnational government will only be considered in the context of indicators where they are specifically included in the PEFA methodology.

In the assessments all 31 indicators of the PFM Performance Measurement Framework (PEFA 2016) will be applied. The main units of the government to be covered by the assessment will need to be established during the first mission. Those will include ministries and agencies. The Table 4 includes indicative list of government units to be updated as a result of the first mission.

The performance change over time since the previous assessment will be tracked using the PEFA 2011 framework version as suggested by the PEFA Secretariat in its “Guidance on tracking performance across time: Comparing PEFA 2016 against PEFA 2005 or PEFA 2011”.

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Scope and Coverage for subnational PEFA assessment

The SNG PEFA assessment will cover Kyrgyz Republic Jalal-Abad city and Saz and Krupskii LSGs in Sokuluk district composed of budgetary and extrabudgetary units as reflected in the PEFA framework (PEFA Framework February 2016 and Supplementary guidance for subnational PEFA assessments December 2016 as issued by PEFA Secretariat).

In the assessments all 31 indicators of the PFM Performance Measurement Framework (PEFA 2016) including HLG-1, the additional indicator for transfers from central government, will be applied. The findings of the PEFA assessment will identify areas that need strengthening in the PFM system and Fiscal Relations Development Concept that will feed into the PFM strategy for Kyrgyz Republic. This strategy will identify actions that will improve the PFM systems at both central and local government levels.

The SNG PEFA will cover local council of Jalal-Abad, Jalal-Abad city (Meria) and two LSGs in Sokuluk district and its units broken down into services delivery. The Table 4.1 includes indicative list of local government units to be updated as a result of the first mission.

3.3. Time period for assessing performance

In the national and SNG PEFA assessments the data to be used for rating the indicators shall cover the years 2016-2018. The cut-off date used for the dimension assessed “at time of assessment” is July 2019. All scoring and evidence of materiality will only be based on the situation of July 2019 or FYs 2016 to 2018.

Table 4. Main units of government to be covered by the national assessmentBudgetary units (such as ministries, committees, or

agencies)

Extrabudgetary units Public corporations*

Example: Example: Example:Cabinet of Ministers Medical Insurance Fund Joint Stock Company “Severelectro”Ministry of Finance Social Fund JSC “Airport Manas”Ministry of Economy Universities JSC “National power plants”Ministry of Health Unemployment Fund JSC Commercial Bank RSKMinistry of EducationChamber of Accounts* Only include institutional units within the scope of the assessment. For assessments of subnational governments, such units would be only those owned and controlled at the subnational level.

Table 4.1. Main units of government to be covered by the SNG assessmentBudgetary units (such as

ministries, directorates, or agencies)

Extrabudgetary units Public corporations*

Example: Example: Example:Office of the Mayor High schools Heating companyDepartment of Finance Municipal enterprise on garbage collection Department of infrastructure Grassland users society (abolished

since 2017)Municipal enterprise “Vodokanal”

Department of EducationFinancial and economic unit* Only include institutional units within the scope of the assessment. For assessments of subnational governments, such units would be only those owned and controlled at the subnational level.

4. MANAGING OF PEFA ASSESSMENTS

4.1 Management and oversight

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Formulation of the working group

MoF will establish one working group for national and SNG PEFA assessments which will provide necessary evidences and review PEFA reports. The working group will be led by the CB PFM Project Coordinator and consist from the Heads of MoF departments and heads of MoF’s local branches in Jalal-Abad city and Sokuluk district as well as the heads of financial and economic units of Saz nad Krupskii LSGs.

Management and oversight team

There will be established management and oversight team. The team will include government officials and development partners for national and SNG PEFA assessments. This team will also include the local government authorities from the Jalal-Abad city and 2 LSGs in Sokuluk district. Local government authorities will coordinate the SNG PEFA assessment in the selected city and 2 LSGs as well as review draft report and provide comments and opinion. There is one sole oversight team for both the assessments.

Table 5. Management and oversight teamOrganization name Team member detailsMinistry of Finance Mr. Mirlan Baigonchokov, Deputy Minister of

Finance – Project Coordinator, CB PFM project Board member

Office of Prime Minister Mr. Samat Kuljiev, Head of the Finance Unit, CB PFM project Board member

Swiss Embassy Ms. Meuwly Monteleone Danielle, Mr. Aegerter Lucien - representatives from StateSecretariat for Economic Affairs (SECO)/Swiss Embassy, CB PFM Project Board members

EU Delegation Ms. Adriaen Charlotte, Mr. Brudzynski Robert - representatives from the EU, CB PFM Project Board members

PEFA Secretariat Mr. Martin John BowenWorld Bank team TTL - Gregory Kisunko, Lilia Saetova, World Bank

team Jalal-Abad City Municipality Mr. Mairambek Adylbekov, First Vice Mayor of

Jalal-Abad City administrationSaz LSG Ms. Saule Karamurzinova, Head of financial and

economic unit of Saz LSGKrupskii LSG Ms. G. Tulinova, Head of financial and economic unit

of Krupskii LSG

MoF focal point is Mr. M. Temirbekov, the Second CB PFM Project Implementation Support Team Head. The MoF will be the contracting authority for the national and SNG PEFA assessments and will finance them through the Second CB PFM project.

Stakeholders in the assessment include Chamber of Accounts, Parliamentary Committees on Budget and Economic policy, Ministry of Economy, State Tax Service, State Custom Service, State Property Fund, State Agency for Local Government and Inter-Ethnic Relations and any other relevant institutions. The experts should also consult with development partners, non-government organizations/civil society associations and independent experts to add perspective, in areas such as budget transparency and preparation, tax and procurement. They will be invited for discussions of PEFA findings.

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4.2 Assessment team: composition and inputs

The assessment team will include MoF working group and Consultants. MoF will provide the Consultants by the necessary evidence, the MoF Order on establishment of working group and members and review reports. MoF will coordinate the work with the other ministries and agencies involved in evaluation of PIs.

The assessment team for national and SNG PEFA assessments indicated in Table 6. The number of working days is indicative and Company can propose its estimates for implementation of assignment.

Table 6. Assessment team’s indicative input to the PEFA assessments

Team member

Area of expertise

Assignment Preparatory work (no. of

days)

Field work(no. of days)

Post–field work (no. of

days)Expert 1 Team Leader (category 1)

National PEFA assessment

Overall assessments leader, Lead of national PEFA assessments

3 24 25

Expert 2 (category 1)

National PEFA assessment

Cross-cutting tasks3 18 20

Expert 3 (category 2)

National PEFA assessment

Cross-cutting tasks3 24 30

Expert 4 (category 1)

SNG PEFA assessment

Lead of SNG PEFA assessments 3 21 24

Expert 5 (category 1)

SNG PEFA assessment

Cross-cutting tasks3 15 20

Expert 6 (category 2)

SNG PEFA assessment

Cross-cutting tasks3 21 26

Total 18 123 145

Table 6.1 Summary of indicative working days’ breakdown per expert for national PEFA assessment

Category of expert / task Preparation/ Desk Phaseat place of recruitment

Introductory mission

Assessment mission

Days to prepare report and integrate final comments (home based)

Third mission

Total of working days

Expert 1 Team Leader (category 1- K!)

3 4 18 25 2 52

Expert 2 (category 1 – K2) 3 0 18 20 0 41Expert 3 (category 2 - K5) 3 4 18 30 2 57Total of working days 9 8 54 75 4 150

Table 6.2. Summary of indicative working days’ breakdown per expert for SNG PEFA assessment

Category of expert / task Preparation/ Desk Phaseat place of recruitment

Introductory mission

Assessment mission

Days to prepare

report and integrate

final comments

(home based)

Third mission

Total of working

days

Expert 4 (category 1- K3) 3 4 15 24 2 48Expert 5 (category 1 – K4) 3 0 15 20 0 38Expert 6 (category 2 – K6) 3 4 15 26 2 50Total of working days 9 8 45 70 4 136

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It is supposed that for the both teams would be one team leader who should coordinate the activities of both teams and will conduct the national PEFA assessment.

4.3. Resources

The assessments are funded by the Second CB PFM project.

5. APPROACH AND METHODOLOGY

5.1 Methodology and information requirements

The assessments will evaluate Kyrgyz Republic’s PFM performance in accordance with the new 2016 PEFA Framework and supplementary guidance for sub-national PEFA assessments. The 2016 methodology identifies the seven pillars of performance that are essential for an open and orderly PFM system. These include budget reliability, transparency of public finances, management of assets and liabilities, policy-based fiscal strategy and budgeting, predictability and control in budget execution, accounting and reporting, and external scrutiny and audit. The additional indicator HLG-1 for transfers from central government should be evaluated in accordance to Supplementary guidance for subnational PEFA assessments December 2016 provided by the PEFA Secretariat www.pefa.org.

Each dimension and each indicator will be scored against clear criteria set out in the PEFA field guide (https://pefa.org/sites/default/files/16_08_30%20Fieldguide_9.pdf). A baseline national PEFA Assessment was undertaken in 2014 based on the previous PEFA methodology.

In addition to using the Guidelines for Conducting a Repeat Assessment for national PEFA assessment, the performance change over time will be tracked using the PEFA 2011 framework version as suggested by the PEFA Secretariat in its “Guidance on tracking performance across time: Comparing PEFA 2016 against PEFA 2005 or PEFA 2011” (the guidance note available at the PEFA website (https://pefa.org/sites/default/files/Guidance%20on%20performance%20changes%20from%202011%20or%202005%20versions%20in%20PEFA%202016%20FINAL%20edited_0.pdf). Conducting a comparison with national assessments based on earlier PEFA versions requires completion of a supplementary annex (annex 4).

The draft assessment reports will be prepared by consultants and will consider comments and suggested amendments from the Government team (including municipal and district representatives), consultations and meetings with development partners, reports and results produced by closed and on-going TA projects related to PFM issues before it will form the basis of a report that will be sent to the peer reviewers and the PEFA Secretariat. The peer reviewers will be from the Ministry of Finance of Kyrgyz Republic, World Bank, SECO, European Union, the PEFA Secretariat (it needs to be reviewed by at least 4 independent PFM institutions) as well as selected local governments for SNG PEFA report. The report will be distributed at the same time.

Data collection

The sources of information for the assessments will include relevant legislation, budget documentation and reports, methodology and other documentation and data provided by the MOF and other institutions involved in the assessments, information collected by the assessment team during the interviews, 2014 PEFA assessment report, and relevant reports produced by the World Bank, IMF and other development partners.

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The MoF working group will play key role in coordinating the data collection. A detailed 2016 PEFA methodology training will be carried out on April 2019 with broad participation from all relevant Kyrgyz agencies and selected local governments.

The data collection exercise will be launched immediately after the training. The authorities will provide, prior to the second field mission, a range of primary sources of information on each indicator as well as supporting data. The time between the training and the second field mission is sufficient for the prior preparation to be effective.

The interviews will involve all the key PFM institutions so as evidence is collected from the involved institutions and triangulated as necessary. The interviews will include the Chamber of Accounts, Parliament, civil society and others. These are in addition to the Government institutions involved in budget formulation, budget execution, procurement, internal audit and control and accounting and reporting, local authorities of Jalal-Abad city, 2 selected local self-governments in Sokuluk district . Additionally, major spending ministries and local territorial bodies in the selected areas of these ministries will be visited (at least health and education are proposed) in order to validate information obtained from the Ministry of Finance and its departments.

Main deliverables

The TOR will be revised on the basis of the comments issued by the peer reviewers. A final version of the TOR will be sent to the peer reviewers.

To meet the objective of the assessment mission, the following tasks, also summarised in Table 8 below, are requested:

Background documentation for preparation/desk phase : Before the mission to the country, the experts will receive from the Ministry of Finance some basic background documentation to prepare their mission. Background documents shall include the previous national PEFA assessment of 2014. Budget Code, Law “On public procurement”, ”Public Financial Management Reform Strategy, Intergovernmental Fiscal Relations Development Concept, Action plan on PFM reform of the Ministry of Finance shall also be provided and the related progress reports prepared by the Ministry.

List of institutions/persons to be met : Prior to the first mission to Kyrgyz Republic and allowing sufficient time to organise meetings the experts shall specify the list of the interlocutors to meet so that initial meetings can be organised by the Ministry of Finance in coordination with other central and local Government authorities. In addition, a list of required documents per institution must be prepared by the experts to facilitate the preparation of those by Government and local authorities in the selected city and district. After the initial meetings take place, the experts shall be responsible for organising subsequent meetings directly and keep the management and oversight team informed.

Three missions to Kyrgyz Republic should be foreseen , an initial introductory mission (of maximum 4 working days) which should be completed before April 15, 2019. And a second mission (assessment mission of a maximum of 18 working days for national PEFA and 15 for SNG PEFA) during which the actual PEFA assessments shall be conducted, which should start by the end of May 2019 and be concluded at the latest by the end of June 2019 and should provide initial findings and draft Reports with the preliminary scores presented to the Ministry of Finance working group and other stakeholders. After that the Draft Reports should be finalized and submitted to the Ministry of Finance. The last mission should be completed by end-October 2019 to conduct final workshop on presentation of scores and discuss any comment the counterparts may have and should not exceed 2 working days for both assessments.

Introductory mission : During the introductory mission the expert shall provide a one day information session on the PEFA framework of 2016, on what is new, on what is to be measured, on what is expected from the government, selected city and 2 LSGs in Sokuluk

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district officials, and eventual timeframe of the assessment. Relevant government institutions, Jala-Abad city and Saz and Krupskii LSGs officials shall be invited to the information session. The introductory mission shall also be used to hold some bilateral meetings with the main PFM institutions, including the Ministry of Finance and its subdivisions, WB and Trust Fund Donors. The introductory mission shall also serve to discuss and fine-tune the list of required documents per institution.

Work-plan : At the end of the introductory mission the experts shall submit a brief work plan with a roadmap for the execution of the missions (with foreseen deadlines), to be submitted to the Ministry of Finance, the Trust Fund Donors and the World Bank (maximum 5 pages). Annexed to the work plan should be a list of requested meetings for the future assessments mission and a list of required documents. The Ministry of Finance shall take responsibility to transmit those to the government and LSGs authorities. The list of required documents is needed early so that the Government can gather the documents during the period of April 15 to May 20, 2019. A breakdown of indicators should also be annexed to the workplan, so as to ensure the coverage of all dimensions of both sets of indicators. The table of correspondence available on the PEFA website could support in establishing the breakdown: https://pefa.org/sites/default/files/Ind-Comps%202016%20vs%202011%20and%202011%20vs%202016.pdf .

Assessment mission : The actual national and SNG PEFA assessments mission shall be conducted in the end-May – end June with the initial findings and the draft reports to be produced by the mid-August 2018 latest. The exact dates for the introductory and assessment missions will be defined once clarified with the Ministry of Finance. A final debriefing session by the experts on the findings shall be organised at the end of the mission to the main PFM Government stakeholders, Ministry of Finance working group and local authorities in the selected city and LSGs. Moreover, the experts must also be available for a briefing and debriefing with Trust Fund Donors and the World Bank team as requested.

Quality assurance : The assessment reports will conform to the PEFA Check requirements Translation of reports : Government and local authorities in the selected city and LSGs should

review and provide comments to the preliminary Reports. For that purposes preliminary Reports should be translated into Russian. Once government, peer reviewers comments are incorporated into the national and SNG PEFA reports and the reports are approved by the Ministry of Finance, the reports shall be translated into Kyrgyz and Russian.

Publication: The Ministry of Finance will be the reports owner and will be the recipient of the final reports. The reports will be published on the MoF website, the World Bank publications portal and the PEFA website upon Government’s approval.

Successive assessments

To the extent possible the 2019 national PEFA Assessment will track and document changes over time and score the indicators according to the 2011 methodology, in accordance with the Guidelines for Conducting a Repeat Assessment.

The SNG PEFA assessment was never conducted in the Kyrgyz Republic. Therefore it will be the baseline established for further assessments.

Table 7. National and Subnational PEFA assessments implementation scheduleTask Deliverable Date(s)

Preparatory work Establishment of the stakeholder oversight team Team confirmation July 2019 Finalization of the terms of reference Terms of reference June 2019

Establishment of MoF working group MoF Order July 2019

Procurement of assessment team Contract with Company signed August 2019 Coordination with government and stakeholders

(including meeting and workshop schedule)Agreed work schedule August 2019

Initial data request Data request issued to responsible units

September 2019

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Workshop preparation Workshop materials in required language(s)

September 2019

Field work PEFA methodology workshop for MoF working

group, Jalal-Abad city and two LSGs (Saz and Krupskii) local officials and other stakeholders

Workshop delivery September 2019

Data collection and interviews All necessary data obtained October-November 2019 Preparation of draft national and SNG reports by

assessment team Draft reports November 2019

Presentation of initial findings and draft national and SNG Reports to authorities

Presentation initial findings November 2019

Post–field work Translation of draft reports to Russian and

providing to authorities for commentsDraft reports translated to Russian

December 2019

Review of comments and further drafting of reports

Comments recorded and considered, draft revised

December 2019 – January 2020

Translation of final reports to Russian/Kyrgyz Final reports translated to Russian/Kyrgyz

February 2020

Presentation of final reports to authorities Final report March 2020 Publication of final report Publication April 2020Planned post–PEFA assessment activity (not part of the scope of the concept note/terms of reference) PFM reform dialogue based on PEFA assessment

findingsBriefing on the relevance of PEFA to national and subnational government policy priorities

April 2020

Development of a PFM action plan including Fiscal Relations between different levels of Government or reform program at the national and subnational levels

PFM action plan April 2020

5.2. Structure of the PEFA report

The structure of the PEFA report will follow the template outlined in the PEFA 2016 framework and Supplementary guidance for subnational PEFA assessments. The structure of the national and SNG PEFA assessment reports will be as follow:

Executive summary: it will present a brief overview of the main findings on systems performance and their implications for the government’s ability to deliver the intended fiscal and budgetary outcomes.

Section 1. Introduction: it will explain the context, the purpose and the process of preparing the report and specifying the institutional coverage captured by the report.

Section 2. Country background information: it will provide an overview of important country-related information to assist in understanding the context underpinning indicator results and overall PFM performance. It will include a brief review of the country economic situation, a description of the structure of the public sector, a description of the budgetary outcomes as measured by other analytical work and, a description of the legal and institutional PFM framework.

Section 3. Assessment of PFM performance: it will provide an assessment of performance in terms of the seven pillars of the PFM system and will contain the analysis and measurement of results in terms of the 31 indicators of PFM performance.

Section 4. Conclusions on the analysis of PFM system: it will provide a cross-cutting analysis using the information in other sections of the report to provide an integrated assessment of the country’s PFM system. This section will assess the likely impact of strengths and weaknesses on the three-main fiscal and budgetary outcomes: aggregate fiscal discipline, strategic allocation of resources and efficient service delivery.

Section 5. Government PFM reform process: it will provide an overview of Government initiatives to improve PFM performance. This section will summarize the overall approach to

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PFM reform, the recent and ongoing actions taken by government. It will assess the institutional factors that are likely to impact reform planning and implementation in the future.

Annexes of information on evaluation and observation: This will include a summary narrative on findings during assessment score for current methodology, comparison with previous methodology, and observations on internal control framework.

In addition, there will be an overview report based on Jalal-Abad and two SNGs following the formation of section 4 above.

The Ministry of Finance of Kyrgyz Republic will be the owner of the report. Upon consent from the Government of Kyrgyz Republic, the report will be published in the websites of the Ministry of Finance as well as the PEFA Secretariat’s one (www.pefa.org).

5.3. Quality assurance

The 2018 PEFA Secretariat’s guidance on quality assurance mechanisms will be applied. They include (i) the review of the TOR prior to the start of the formal PEFA assessment, and recording/reporting of reviewer comments, and (ii) the review of the draft and final draft reports, with recording/reporting of reviewer comments.

Analysis and comments will be provided by peer reviewers (including the SNGs) and the PEFA Secretariat. All comments will be addressed, assessed and responded to. Responses to comments will be made in a response matrix in a format that can distinguish the response from the comment. A revised drafts together with the matrix of comments will again be sent to all reviewers.

The six following criteria of the PEFA check will be followed:1. The draft TOR is submitted for peer review before the in‐country assessment field work starts. 2. A final version of the TOR is shared with all peer reviewers. 3. The complete draft PEFA reports are submitted to all peer reviewers for review. Peer reviewers are expected to provide comments or acknowledge “no comment” if they consider no changes are needed. 4. A revised draft PEFA reports are prepared by the assessment team attaching a matrix with peer reviewers’ comments and assessment team responses. 5. The final reports are reviewed by the PEFA secretariat to ensure that the compliance indices for dimensions and indicators and the reports coverage index are both higher than 85 percent. If any of the indices scores are below 85 percent, the PEFA secretariat will inform the assessment manager and highlight areas where compliance or coverage can be improved to meet or exceed 85 percent. The reports will be revised to reach the thresholds.6. The assessment management and quality assurance arrangements are described in the PEFA report as illustrated in Box 2. If the PEFA Secretariat considers the six criteria as fulfilled, it will issue a PEFA Check. The following institutions will be the peer reviewers:

1- The Ministry of Finance 2- SECO.3- The delegation of the European Union in Kyrgyz Republic.4- World Bank.5- The PEFA Secretariat. 6- Jalal-Abad city and 2 LSGs in Sokuluk district (for SNG PEFA assessments)

The experts shall submit a draft PEFA reports to the MoF following the deadlines specified in section 5 of the present terms of reference. The MoF shall circulate the draft reports to all relevant Government and entities, local authorities in the selected city and district (SNG PEFA draft report), development partners and PEFA Secretariat and collect comments to the reports and transmit them to the experts. Based on the comments received, the experts shall prepare the final reports. When the experts disagree with the comments and do not include these in the final reports a justification must be provided in a separate document to the MoF. Once the MoF confirms in writing its approval of the final national and SNG PEFA reports – after consulting with the relevant Government and local authorities – the framework contractor can then proceed with organising for the translation of the report to Kyrgyz/Russian.

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5.4. PEFA assessment findings and PFM reform SNG

The national and SNG PEFA assessment reports will be discussed with all key central and local government institutions coordinated by the Ministry of Finance as well as development partners and non-governmental organizations/civil society associations. This will involve identifying the strengths and weaknesses in the country’s PFM system, review the progress in the implementation of existing PFM strategy for 2016 – 2025, Intergovernmental Fiscal Relations Development Concept and MoF PFM Action Plan for 2016-2019. Based on these discussions and recommendations the next MoF PFM Action Plan for 2020-2022 will be prepared which will define the policy to drive reforms, supported by Development Partners.

There will be a consolidated overview report based on Jalal-Abad city and 2 LGSs in Sokuluk district following the format of section 4 of the PEFA Framework.

6. LANGUAGE OF THE CONTRACT

The main language of the assignment is English; the experts should be perfectly fluent in English, for some experts Russian/Kyrgyz language is mandatory.

7. LOCATION AND DURATION

Starting period and foreseen finishing period or duration

The starting period should be as early as possible after the contract signature so as to ensure that the initial introductory mission (of maximum 4 working days) is completed before end-September 2019. The second mission (assessment mission) should take place from the end of October 2019 and be concluded at the latest by end of November 2019. The last mission should be completed by end March 2020 to present the final report and discuss any comment the counterparts may have stage and should not exceed 2 working days.

Each week will correspond to 5 working days. Saturdays spent in Kyrgyz Republic are considered as working days.

After the first SNG PEFA assessment there is a possibility to conduct the second SNG PEFA assessment. The timing for second SNG PEFA assessment will be identified by the Ministry of Finance in 2020. The additional contract arrangements will be set up for this purpose.

Location of assignment

Bishkek, Kyrgyz Republic

8. REPORTING

Content

The content of the PEFA assessments is set by the PEFA Secretariat's Guidelines.

Language

All requested reports are to be submitted in English. Final reports are to be translated to Russian/Kyrgyz.

Submission of reports/comments timing

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Work plan for the assessments : to be submitted by the end of the introductory mission including the list of required documents per institution and list of institutions to meet during the assessments mission. The work plan should be brief and should have a maximum of 10 pages excluding annexes.

Aide memoire to aid the debriefing : in view of debriefing session at the end of the assessments mission, the experts will provide an aide mémoire (10 pages maximum, excluding annexes) indicating the main findings and reflections which will be developed in the draft reports. This aide mémoire will be complemented by a table of the PEFA indicators with preliminary scorings.

Draft national and SNG PEFA reports : within two weeks after the end of the assessment mission, the experts will submit the draft PEFA reports. The MoF shall have 5 weeks to collect comments on the report.

Final national and SNG PEFA reports: once the comments on the draft PEFA reports are provided to the experts, the experts shall have two weeks to integrate the comments into the final PEFA reports.

National and SNG PEFA reports translated to Kyrgyz/Russian : The draft of reports should be translated to Russian prior to providing to Government and LSGs for review and comments. Once the final national and SNG PEFA reports are approved by the Ministry of Finance, the framework contractor shall organise for its translation to Kyrgyz/Russian. In addition, the framework contract must arrange for the translation to be proof read and corrected if needed by a PFM expert to confirm that the translation and technical terms are done correctly.

In the draft and final versions of the national and SNG PEFA reports, it is imperative that the experts include the reference documents used, and provide the Head of CB PFM Project Implementation Support Team with a copy of each of the used documents either in paper copy or CD format. This aims to facilitate future PEFA assessments, it is thus imperative for the experts to maintain clear record and copies of all the reference documents they receive or use.

Attention is drawn to the fact that no report shall be approved if submitted in an incomplete or fragmentary manner, or with poor or inconsistent drafting.

Any release of conclusions and/or recommendations on the present assignment are the exclusive responsibility of the Ministry of Finance and the experts will neither issue nor circulate any information on the activities under this contract unless prior written (letter or e-mail) authorisation has been received.

In this connection, the experts' attention is drawn to the requirement of strict respect of confidentiality, including with regard to all the documents received from third parties.

Number of report(s) copies

The draft versions of the reports should be submitted in electronic format only. The final version of all reports should be submitted in four hard copies and an electronic format.

9. INCIDENTAL EXPENDITURE

- Three missions to Kyrgyz Republic should be foreseen. Therefore, three return economy flights for two international experts and one return economy flight for 2 international experts from the place of origin to Capital city can be included as reimbursable costs for experts who are not resident in Kyrgyz Republic.

- A provision of maximum USD 5,000 to organise the presentation/training workshop at the beginning of the mission and for another workshop to present the final reports during the third mission can be included as reimbursable costs. This shall include all costs: rent of venue, necessary equipment, printing documents, refreshments, and simultaneous interpretation services English/Russian are required, to host at least 50 persons for 2 days.

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- A provision of maximum USD 6,000 must be included to undertake the translation of the draft reports and full final national and SNG PEFA reports to Kyrgyz/Russian. This amount includes proof reading by a PFM expert to confirm that the translation and technical terms are done correctly. There should be also a provision for translation/interpretation services up to USD 3,200.

10. MONITORING AND EVALUATION

Definition of indicators

The quality of the PEFA report must be conforming to the Guidelines by the PEFA Secretariat and answer to the present terms of reference.

Special requirements

At least one meeting every two weeks should be foreseen with the MoF Project Coordinator to discuss progress.

11. QUALIFICATION REQUIREMENTS

11.1. Selection criteria for shortlist

The company/consortium should comply with the following minimum requirements:

1.              At least 8 years of work experience in the national and sub-national PEFA assessments with corresponding evidence for last 12 years – 30 points;

2.               At least five successfully completed contracts in areas stated in the assignment within last 12 years with corresponding evidence – 70 points;

11.2. Qualification requirements for consulting company:

The company should provide a team of consultants with international and local expertise for the current assignment implementation. A team of four experts of category 1 is requested. Three experts (two of them are category 1, and one – category 2) will conduct the national PEFA assessment and three – SNG PEFA assessment.

Instead of six experts there could be only three experts who will conduct both PEFA assessments: national and subnational. In this case assessment implementation schedule needs to be revised and agreed with the management and oversight team. It is envisaged that Company may form an expert team or a consortium with other entities/agencies, and/or consulting firms. The experts have to be highly skilled and qualified, have experience in consultancy services, have competence in working as a team and be knowledgeable in areas covered by the project. A team leader for the both assessments with project management and PEFA assessment expertise should be identified. The team leader must have, at least, 10 years of experience in the relevant field of activity in the region or other parts of the world, preferably in transition economy, in the capacity of leading staff in similar projects. Working knowledge of Russian is considered as a significant advantage. In addition, team members ideally should speak English and Russian. Provision for interpretation services will need to be included if members of the team are unable to speak the said languages. The Company will provide Government and SNG officials and non-government organizations/civil society associations and independent experts with translation services during trainings, workshops and other activities related to the assignment using allocated funds.Interested consultants and experts need to have knowledge in the areas, involved in the project. They should coordinate their actions with the project team leader, who approves/coordinates their actions

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with the Government and SNG officials and non-government organizations/civil society associations and independent experts. The required expertise and capacity mentioned above needs to be reflected in the CVs of the proposed team members. The Consultant cannot propose more than one person for a key expert position. The Consultant’s team members need to specify their relevant experience, as indicated in the scope of work. In particular, the experience in the relevant field and qualifications; experience of undertaking similar assignments either in the Kyrgyz Republic, or Central Asia or in one or more Eastern European countries; The Consultant’s team needs to include adequate knowledge and expertise in applicable Kyrgyz legislation, regulation and jurisdiction different areas and levels of knowledge in the CVs.The working languages (written and spoken) will be Russian and English. The Consultant should demonstrate sufficient capacity (including, if necessary use of translators) to perform the assignment in Russian. Capacity to work in English and Kyrgyz languages will be considered as a significant advantage. Specialists engaged in training and implementing on the project and other practical work, should preferably avail of at least proficiency in the Russian (oral and reading) and Kyrgyz (oral) languages.The Consultant needs to include sufficient and relevant backstopping support inter alia for knowledge management and reporting. The Consultant’s team of key experts needs to include indicatively 286 man days (MOF preliminary estimation, but Consultant can propose its own cost estimate) of experts with international and national experience in the relevant field. An expert with international experience is expected to be present at least 43% of the allocated time in Bishkek/LSGs also to lead or manage local experts in their tasks and to coordinate with other (international) contractors hired under second CB PFM project. Experience should be reflected in the CVs.The cumulated experience of the experts should ensure that the team is able to cover the analysis of all the different areas of the PEFA assessment. Below is the qualification of the six (6) key experts.

No. Key Expertswithinternationalexperience (category 1)

Headcount

Area of Specific Expertiserequired

Requiredminimumqualificationsandprofessionalexperience

Indicative estimationsrecommended personmonths forconductingthe TOR1

K1 Team leader and Lead of national PEFA assessment

1 Advanced degree in public financial management or relevant subject from a certified university;

Certified relevant professional experience

Experience in managing similar projects in the PEFA assessments;

Knowledge of, and experience in, public financial management;

Experience in analysis of PFM in developing countries;

Experience in successfully conducting PEFA assessments;

Experience in conducting PEFA

at least 12 years

at least 8 years

52 man days

1 Indicative estimates made by MoF, but the Consultant can propose its own estimate

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assessments using the PEFA methodology of 2016 or the test phase of the PEFA methodology used in 2009 is an advantage;

A high degree of experience in drafting reports, rapidly and concisely;

Excellent written and spoken English;

Knowledge of Russian and/or Kyrgyz language will be considered as an advantage;

A full range of computer skills for drafting reports

an expert will be expected to be travelling with his/her laptops, and must be easily contactable by email while on mission.

K2 Specialist on national PEFA assessment

1 Advanced degree in public financial management or relevant subject from a certified university;

Certified relevant professional experience;

Knowledge of, and experience in, public financial management;

Experience in analysis of PFM in developing countries.

Experience in successfully conducting PEFA assessments;

Experience in conducting PEFA assessments using the PEFA methodology of 2016 or the test phase of the PEFA methodology used in 2009 is an advantage;

A high degree of experience in drafting reports, rapidly and concisely;

Excellent written and spoken English;

Knowledge of Russian and/or Kyrgyz language will be considered as an advantage;

A full range of computer skills for

at least 12 years

at least 8 years

an expert will be expected to be travelling with his/her laptops, and must be easily contactable by email while on

41 man days

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drafting reports, mission.K3 Specialist on

subnational PEFA assessment -Lead of SNG PEFA assessment

1 Advanced degree in public financial management or relevant subject from a certified university;

Certified relevant professional experience;

Experience in managing similar projects in the PEFA assessments;

Knowledge of, and experience in, public financial management;

Experience in analysis of PFM in developing countries;

Experience in successfully conducting PEFA assessments;

Experience in conducting PEFA assessments using the PEFA methodology of 2016 or the test phase of the PEFA methodology used in 2009 is an advantage;

A high degree of experience in drafting reports, rapidly and concisely;

Excellent written and spoken English;

Knowledge of Russian and/or Kyrgyz language will be considered as an advantage;

A full range of computer skills for drafting reports

at least 12 years

at least 8 years

an expert will be expected to be travelling with his/her laptops, and must be easily contactable by email while on mission.

48 man days

K4 Specialist on subnational PEFA assessment

1 Advanced degree in public financial management or relevant subject from a certified university;

Certified relevant professional experience;

Knowledge of, and experience in, public financial management;

Experience in analysis of PFM in developing countries;

at least 12 years

at least 8 years

38 man days

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Experience in successfully conducting PEFA assessments;

Experience in conducting PEFA assessments using the PEFA methodology of 2016 or the test phase of the PEFA methodology used in 2009 is an advantage;

A high degree of experience in drafting reports, rapidly and concisely;

Excellent written and spoken English;

Knowledge of Russian and/or Kyrgyz language will be considered as an advantage;

A full range of computer skills for drafting reports

an expert will be expected to be travelling with his/her laptops, and must be easily contactable by email while on mission.

No. Key Expertswithnationalexperience (category 2)

Headcount

Area of Specific Expertiserequired

Requiredminimumqualificationsandprofessionalexperience

Minimumrecommended personmonths forconductingthe TOR

K5 Specialist on national PEFA assessment

1 Advanced Degree in public financial management or relevant subject from a university;

Certified relevant professional experience;

Knowledge of, and experience in, public financial management;

Experience in analysis of PFM in developing countries;

Experience in successfully conducting PEFA assessments is an advantage;

A high degree of experience in drafting reports, rapidly and concisely;

Excellent written and spoken English.

Fluent knowledge of Kyrgyz/Russian language;

A full range of computer skills for drafting reports

at least 8 years

at least 5 years

the expert will be expected to be travelling with their laptops, and must be easily contactable by email while on mission.

57 man days

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K6 Specialist on subnational PEFA assessment

1 Advanced Degree in public financial management or relevant subject from a university;

Certified relevant professional experience;

Knowledge of, and experience in, public financial management;

Experience in analysis of PFM in developing countries;

Experience in successfully conducting PEFA assessments is an advantage;

A high degree of experience in drafting reports, rapidly and concisely;

Excellent written and spoken English;

Fluent knowledge of Kyrgyz/Russian language;

A full range of computer skills for drafting reports;

at least 8 years

at least 5 years

the expert will be expected to be travelling with their laptops, and must be easily contactable by email while on mission.

50 man days

Instead of the K5 and K6 experts the Consultant can attract interpreters/translators. If so, for the purpose of the offers' financial evaluation, this service cost will be added to the total fees.NB. As Organisation and Methodology the offer must provide the following (1) a summary table of which experts shall cover each of the PEFA performance indicators, so as to ensure that the six experts (or three - depending on the offer) are capable of covering all the performance indicators of the national and SNG PEFA assessments. (2) And must state the dates when the experts will and must be available for the introductory mission and for the assessment mission to Bishkek, Kyrgyz Republic.

12. TERMS OF PAYMENTS Payments should be done in three installments based on following:

- First installment after submission and acceptance (in official written letter) of inception report with a detailed timetable for implementation of this assignment – 10 % of contract amount;- Second installment after submissions of draft reports on national and subnational PEFA assessments – 50% of contract amount;- Third installment after submission and acceptance (in official written letter) of final reports on national and subnational PEFA assessments – 40% of contract amount.

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