GrantThornton Project's Financial Statements and Independent Auditor's Report Government of Republic of North Macedonia/General Secretariat "Contingent Emergency Response Component (CERC) under the Local Roads Connectivity Project" International Bank for Reconstruction and Development Loan number 90340-MK - CERC component For the period from 01 May 2020 to 31 December 2020 Government of Republic of North Macedonia/General Secretariat "Contingent Emergency Response Component (CERC)" IBRD Loan number 90340-CERC component Contents Page Management Responsibility 1 Independent Auditors' Report 2 Statement of Cash Receipts and Payments 4 Balance sheet 5 Statement of Uses of Funds by Project Activity 6 Statement of Withdrawals - Designated Accounts A and B 7 Statement of Designated Account A - EUR-MOTC 8 Statement of Designated Account B - EUR-Government 9 Statement of Treasury Account (Mirror Designated Account) - MKD-Government 10 Notes to the Project's financial statements 11 Government of Republic of North Macedonia/General Secretariat "Contingent Emergency Response Component (CERC)" IBRD Loan number 90340-CERC component Management Responsibility The accompanying financial statements comprising the Statement of Cash Receipts and Payments, Balance sheet, Statement of Uses of Funds by Project Activity, Statement of Withdrawals, Designated Accounts' Statements and related disclosure Notes (further referred as to "Project's Financial Statements"), of the Government of Republic of North Macedonia/General Secretariat (further referred to as "the Government"), "Contingent Emergency Response Component" ("the Project"), under the Local Roads Connectivity Project ("LRCP"), financed under International Bank for Reconstruction and Development ("IBRD") Loan number 90340-MK - CERC component as at and for the period from 01 May 2020 to 31 December 2020 included on pages 4 to 12, are the responsibility of, and have been approved by the Project's management. The accompanying Project's financial statements have been prepared by the Project's management, for the purposes of reporting to the Government and the IBRD in conformity with the related requirements of the World Bank's financial reporting guidelines and in compliance with the relevant provisions set out in the Loan Agreement numbered 90340 dated 23 December 2019. Project's management, in furtherance of the integrity and objectivity of the Project's financial statements, has developed and maintained an internal control structure, including the appropriate control environment, accounting systems and control procedures. Project's management believes that internal controls provide assurance that financial records are reliable and form a proper basis for thi preparation of financial statements, and that assets are properly accounted for and safeguarded. There are, however, inherent limitations that should be recognized in considering the assurances provided by the internal control structure. The internal control process also includes management's communication to employees of policies, which govern ethical business conduct. Grant Thornton DOO Skopje, Independent Auditor, has been engaged to audit these Project's financial statements in accordance with the auditing standards accepted in the Republic of North Macedonia'. Its report is included on pages 2 and 3. 29 December/2, Elena Pagovska Pell6kovski Muhamed eqiri Project Coordinator Secretary General f the Government f the Republic of North Macedonia International Standards on Auditing ("ISA") issued by the International Auditing and Assurance Standards Board ("IAASB"), effective from 15 December 2009, translated and published in the "Official Gazette" of the Republic of Macedonia no. 79 from 2010. 0 GrantThornton Independent Auditor's Report Grant Thornton DOO Sv. Kiril I Metodij 52b-1/20 1000 Skopje North Macedonia T +389 (0)2 3214 700 F +389 (0)2 3214 710 E Contact@mk.gt.com VAT No. 4030003475973 To the Management of the Project We have audited the accompanying financial statements of the Government of the Republic of North Macedonia/General Secretariat ("the Government"), "Contingent Emergency Response Component" ("the Project"), under the Local Roads Connectivity Project ("LRCP"), financed under International Bank for Reconstruction and Development ("IBRD" or "Donor") Loan number 90340-MK - CERC component, comprising the Statement of Cash Receipts and Payments, Balance sheet, Statement of Uses of Funds by Project Activity, Statement of Withdrawals, Designated Accounts' Statements and related disclosure Notes ("the Project's Financial Statements") as at and for the period from 01 May 2020 to 31 December 2020 included on pages 4 to 12. Management's responsibility for Project's financial statements These Project's financial statements are prepared for the purposes of reporting to the Government and the IBRD, and are the responsibility of the management of the Project. The Project's management is responsible for developing and maintaining such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. The Project's Management policy is to prepare the accompanying Project's financial statements orthe cash receipts and disbursement basis in conformity with the related requirements of the World Bank's financial reporting guidelines and in compliance with the relevant provisions set out in the Loan Agreement numbered 90340-MK dated 23 December 2019. On this basis, cash receipts are recognized when received rather when earned and cash expenditures are recognized when paid rather than when incurred. Auditor's responsibility Our responsibility is to express an opinion on these Project's financial statements based on our audit. We conducted our audit in accordance with the auditing standards accepted in the Republic of North Macedonia'. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Project's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying Project's financial statements of "Contingent Emergency Response Component", under the Local Roads Connectivity Project, financed under International Bank for Reconstruction and Development, Loan number 90340-MK - CERC component, present fairly, in all material respects, the Project's financial position as at 31 December 2020, and the movement on the Cash Receipts and Payments, Statement of Uses of Funds by Project Activity, Statement of Withdrawals and Designated Accounts' Statements as at and for the period from 01 May 2020 to 31 December 2020, in conformity with the accounting policies described in Note 3 to the Project's financial statements. International Standards on Auditing ('ISA") issued by the International Auditing and Assurance Standards Board ("IAASB"), effective from 15 December 2009, translated and published in the Official Gazette' of the Republic of Macedonia no. 79 from 2010. Grant Thornton 000 is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a woddwide partnership. GTIL and each member is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one anothers acts or omissions. grantthomton. k 2 0 GrantThornton Emphasis of matter - Basis of accounting and restrictions on distribution and use We draw attention to Note 3 to the Project's financial statements, which describes the basis of the accounting. The Project's financial statements are prepared for the purposes of reporting to IBRD, on the activities of the Project, related to the funds received for the completion of the Project's objectives, in accordance with the respective provisions set out in the Loan Agreement Loan number 90340 signed between the IBRD and the Republic of North Macedonia and may not be suitable for other purposes. Our report is intended solely for use by the Project's management, the Government of the Republic of North Macedonia and IBRD. Our opinion is not modified in respect of this matter. Other matters According to the request from the Donor and the Government, an annex to the Contract for Consultants' Services was signed for extending the Contract for Consultants' Services until 31 December 2021, in order to perform additional audit procedures for the payments of the financial support based on the additionally submitted supporting documentation by the Government. As a result of this, we have issued this Auditor's Report. R Suzana Stavrikj Suza a Stavrikj Director 77p Certified auditor Grant Thornton DOO, pje 4o Skopje, 30 December 20 0n e GrantThnrntonoo is a nener firm of Grant Thormton InWimnonWLtdl (GTIL). GTIL and the memberfirns are not a worldwide partnership. GTIL and each memberis a separate gal entity. Servcev are delivend by ile nmmbef frms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obigale, one another and are not iable Isr cn anothers acts or orrsviom. grantthornton.rnk Government of Republic of North Macedonia/General Secretariat "Contingent Emergency Response Component (CERC)" IBRD Loan number 90340-CERC component Project's Financial Statements For the period from 01 May 2020 to 31 December 2020 Statement of Cash Receipts and Payments (Amounts in EUR) For the period from 01 May 2020 to 31 December 2020 Actual Budget Variance Sources of Funds World Bank 46,983,042 - 46,983,042 Front-end Fee 175,000 175,000 Total sources of funds 47,158,042 - 47,158,042 Uses of funds Capacity Enhancement 2,877,500 (2,877,500) Rehabilitation and Maintenance - 28,122,500 (28,122,500) Project implementation support - 1,825,000 (1,825,000) Contingent Emergency Response Component (CERC) 36,905,161 37,000,000 (94,839) Front-end Fee 175,000 175,000 Total uses of funds 37,080,161 70,000,000 (32919,839) Net increasel (Decrease) in cash flow 10,077,881 - Bank balances, at beginning of the period -__ ____ __________-________ Bank balances, at end of the period 10,077,881 - The Project's Financial Statements have been approved by the Government of the Republic of North Macedonia on 29 December 2021 and signed on its behalf by: Elena PlMuha ed Zeqiri Project Coordinator Secretary Gen ral of the Govern nt of the Republic of North Macedonia 4 Government of Republic of North Macedonia/General Secretariat "Contingent Emergency Response Component (CERC)" IBRD Loan number 90340-CERC component Project's Financial Statements For the period from 01 May 2020 to 31 December 2020 Balance sheet In EUR 31 December 2020 Assets Bank balances 10,077,881 Total assets 10,077,881 Funds and liabilities Unspent funds 10,077,881 Total Funds and liabilities 10,077,881 5 � � � �� Z N � 1 У � У 1 1 � LwL � й�г°s о омо омо а`�о С '� n N N 0�1 � � . 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Statement of Designated Account B - EUR- Government Account number MK07100701000179620 Depository Bank National Bank of the Republic of North Macedonia Complex of Banks, 1000 Skopje, Republic of North Address Macedonia Loan Number 90340 Currency EUR (Amounts in EUR) For the period from 01 May 2020 to 31 December 2020 At 01 May 2020 Add: Inflows Replenishment during the period 100,000 100,000 Deduct: Outflows Transfer to treasury account (Mirror designated account) - MKD (22,109) Bank fee (10) (22,119) At 31 December 2020 77,881 9 Statement of Treasury Account (Mirror Designated Account) - MKD-Government Account number 100000000063095 Depository Institution National Bank of the Republic of North Macedonia Loan Number 90340 Currency Macedonian Denars ("MKD") (Amounts in EUR) For the period from 01 May 2020 to 31 December 2020 At 01 May 2020 Add: Inflows Replenishment during the period 36,883,042 Transfer from designated account - EUR 22,119 36,905,161 Deduct: Outflows Amount of eligible expenses paid during the period (36.905.161) (36,905,161) At 31 December 2020 10 Notes to the Project's financial statements 1 General On 23 December 2019 the Government of the Republic of North Macedonia and the International Bank for Reconstruction and Development, the World Bank, have signed Loan Agreement for financing the Local Roads Connectivity Project P170267 (Loan Agreement No.09034-MK). For the purpose of implementation they have assigned the Ministry of Transport and Communications as an Implementing Agency. The Bank agreed to lend the Government amount equal to 70,000,000 EUR to assist in financing the Project. Included in the Loan Agreement is Component 4: Contingent Emergency Response which can be activated upon request. On 08 May 2020, the Bank has approved the activation of Contingent Emergency Response Component (further referred to as "CERC") of the Project in the amount of 50,000,000 EUR to finance emergency responses activities related to the COVID-19 emergency in the Republic of North Macedonia. Initial available funds amounts to 37,000,000 EUR. For purpose of implementation of this component they have assigned General Secretariat of the Government of the Republic of North Macedonia. 2 CERC Objectives and Implementation Arrangements CERC Objectives CERC Project is designed to assist implementation of income support scheme established by the Government of North Macedonia as part of its COVID 19 crisis response program and the modalities of funding of the scheme by the World Bank under the Contingency Emergency Response Component (CERC) of the Local Roads Connectivity Project. The income support scheme is institutionalized under the Government's Decre,s on the Financial Support of Private Sector Employers Affected by the Health and Economic Crisis caused by the COVID 19 Virus that establishes an income support scheme for the months of April, May and June 2020 (further referred to as "the Decrees"). The fundamental objective of the scheme is to enable employers to keep employees on their payroll during the crisis, so that they can restart their operations quickly and efficiently following the crisis. Project Description The COVID-19 pandemic presents Governments all over the world with unprecedented challenges. Current circumstances require a highly adaptive responsive management design to avoid, minimize and manage what may be a rapidly evolving situation. This is why, all parties involved in project implementation had to use reasonable efforts, recognizing that what may be possible today may be different next week (both positively, because more supplies and guidance may be available, and negatively, because the spread of the virus may have accelerated). In order to mitigate the crisis and prevent further spreading of the disease many countries, including the Republic of North Macedonia (RNM), were forced to issue lockdown measures for non-vital enterprises and (economic) activities. Full or partial lockdown measures are now affecting almost 2.7 billion workers globally, representing around 81 per cent of the world's workforce. In the current situation, businesses across a range of economic sectors are facing catastrophic losses, which threaten their operations and solvency, especially among smaller enterprises, while millions of workers are vulnerable to income loss and layoffs. The majority of job losses and declining working hours occurred in hardest-hit sectors. Key sectors included retail trade, accommodation and food services, and manufacturing. Without appropriate policy measures, workers face a high risk of falling into poverty and would experience greater challenges in regaining their livelihoods during the recovery period. In such circumstances, the Local Road Modernization Project (LRCP) financed by the IBRD activated the Contingency Emergency Response Component redirecting a total of 50 million Euros for emergency fiscal response (the CERC) to support The Financial Support of Private Sector Employers Affected by the Health and Economic Crisis Caused by the Covid-19 virus, for the payment of salaries for months of April, May and June 2020 implemented by the Government of RNM. Notes to the Project's financial statements (continued) CERC Objectives and Implementation Arrangements (continued) The CERC financed the subsidy of wages in the means of grant funds assigned to any eligible companies that have been forced to close their physical point of sale or that have experienced a reduction in revenues but were not ordered to close. The eligibility of companies applying for the grant funds was determined through a multi-criteria screening process upon receiving the respective applications. The World Bank CERC financing is applicable for micro, small, and medium enterprises (MSMEs) that meet the Government criteria published in Government's Decree on the Financial Support of Private Sector Employers Affected by the Health and Economic Crisis caused by the COVID 19 Virus dated 10 June 2020 and 05 May 2020 and additional viability criteria (operate profitably in the last two years, did not have non-performing loans of 90 days or more on February 20, 2020 and do not owe taxes of more than EUR 5,000), comply with environmental and social standards, and have less than 250 employees (MSMEs). Implementation Arrangements In the event of public health emergency due to Covid 19 pandemic and desire to extend support to enterprises affected by the pandemic, the implementation of CERC was be carried out by the General Secretariat of the Government (GS). The team from the GS was be led by the Head of the Finance Department and comprised of GS civil servants who were responsible for the implementation of Covid-1 9 response measures financed under the national funds, and were supported by outsourcing fiduciary and other necessary services provided by consultants currently working in project implementation agencies responsible for different World Bank financed projects. Two teams from the project implementation units (PIU) of the existing World Bank projects were created: a- First team for Financial management which comprised of 2 persons including one from Municipal Service Improvement Project - MSIP PIU (Ministry of Finance) and one from Local Roads Connectivity Project LRCP PIU (Ministry of Transport and Communication). This team was coordinated by the MSIP PIU; b. Second team for Social and Environmental safeguards was also comprised of'2 persons including one from MSIP PIU (Ministry of Finance) and one from Road Upgrading and Development Project - RUDP PIU (Public Enterprise for State Roads). This team was coordinated by the MSIP PIU. The team from the GS civil servants and two teams composed of the PIU local staff were organized in one unit named Project Emergency Compliance Unit (PECU). The PECU was the lead agency within the Government of the Republic of North Macedonia responsible for the implementation of the emergency activities, including all aspects related to procurement, financial management, monitoring & evaluation and safeguard compliance. 3 Accounting policies Following are the principle accounting policies adopted in preparation of these Project's financial statements. These accounting policies are consistently applied to all financial periods presented. Basis of preparation The Project's financial statements have been prepared for the purposes of reporting to IBRD, on the activities of the Project related to the funds received for the completion of the Project's objectives, in accordance with the respective provisions set out in the Loan Agreement Loan number 90340 signed between the IBRD and the Republic of North Macedonia. These financial statements are prepared on the cash receipts and disbursement basis and include all Project - related expenditures incurred, which are financed under the provisions set out in Loan Agreement Loan number 90340 dated 23 December 2019. The financial statements have been prepared for the period from 01 May 2020 to 31 December 2020. The accounting policies have been applied consistently throughout the period. Reporting Currency The Project's Financial Statements are prepared in EURO ("EUR") as this is the reporting currency of the Project. Transactions denominated in currencies other than EURO are translated using the buying foreign exchange rate the National Bank of Republic North Macedonia at the date of transaction. 12