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CONFORMED COPY  
 
GRANT NUMBER H205 GE 
 
Financing Agreement 
 
(Public Sector Financial Management Reform Support Project) 
 
between 
 
GEORGIA  
 
and 
 
INTERNATIONAL DEVELOPMENT ASSOCIATION 
 
Dated March 10, 2006  
 
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GRANT NUMBER H205 GE 
FINANCING AGREEMENT 
AGREEMENT, dated March 10, 2006, between GEORGIA (
“Recipient”) and 
INTERNATIONAL DEVELOPMENT ASSOCIATION (“Association”).  The Recipient 
and the Association hereby agree as follows: 
ARTICLE I 
–
GENERAL CONDITIONS; DEFINITIONS 
1.01. 
The General Conditions (as defined in the Appendix to this Agreement) 
constitute an integral part of this Agreement. 
1.02. 
Unless the context requires otherwise, the capitalized terms used in the Financing 
Agreement have the meanings ascribed to them in the General Conditions or in 
the Appendix to this Agreement.  
ARTICLE II – FINANCING 
2.01. 
The Association agrees to extend to the Recipient, on the terms and conditions 
set forth or referred to in this Agreement, a grant in an amount equivalent to two 
million one hundred thousand Special Drawing Rights (SDR 2,100,000) 
(
“Grant”) to assist in financing the project described in Schedule 1 to this 
Agreement (“Project”). 
2.02. 
The Recipient may withdraw the proceeds of the Financing in accordance with 
Section V of Schedule 2 to this Agreement.
 
2.03. 
The Maximum Commitment Charge Rate payable by the Recipient on the 
Unwithdrawn Financing Balance shall be one-half of one percent (1/2 of 1%) per 
annum. 
2.04. 
The Payment Dates are April 1 and October 1 in each year. 
2.05. 
The Payment Currency is Dollars. 
 
ARTICLE III 
–
PROJECT 
 
3.01. 
The Recipient declares its commitment to the objectives of the Project.  To this 
end, the Recipient shall carry out the Project in accordance with the provisions of 
Article IV of the General Conditions. 
3.02. 
Without limitation upon the provisions of Section 3.01 of this Agreement, and 
except as the Recipient and the Association shall otherwise agree, the Recipient 
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shall ensure that the Project is carried out in accordance with the provisions of 
Schedule 2 to this Agreement. 
ARTICLE IV 
–
REMEDIES OF THE ASSOCIATION 
 
4.01. 
The Additional Events of Suspension consist of the following: 
(a) 
A situation shall have arisen which shall make it improbable that the 
Program or a significant part thereof will be carried out. 
(b) 
The Government of the Recipient has failed to perform its obligations 
under the Memorandum of Understanding. 
(c) 
(i)  
Subject to sub-paragraph (ii) of this paragraph: 
 
(A)  
the right of the Recipient to withdraw the proceeds of 
any loan or grant made to the Recipient by a 
Development Partner for the financing of the Project 
shall have been suspended, cancelled or terminated in 
whole or in part, pursuant to the terms of the agreement 
providing therefore; or 
 
(B)  
any such loan shall have become due and payable prior 
to the agreed maturity thereof. 
(ii) 
Sub-paragraph (i) of this paragraph shall not apply if the 
Recipient establishes to the satisfaction of the Association that: 
 
(A)  such suspension, cancellation, termination or 
prematuring is not caused by the failure of the recipient 
to perform any of its obligations under such agreement; 
and 
(B) 
adequate funds for the Project are available to the 
Recipient from other sources on terms and conditions 
consistent with the obligations of the Recipient under 
this Agreement. 
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ARTICLE V 
–
EFFECTIVENESS; TERMINATION 
5.01. 
The Additional Conditions of Effectiveness consist of the following: 
(a) 
The Recipient has created Project sub-accounts in its Treasury and 
established a system for the managing of the relevant foreign currency 
account, all in a manner satisfactory to the Association. 
(b) 
The Recipient has signed the Memorandum of Understanding between 
the Government of Georgia and the Development Partners concerning 
pooled fund support for the Public Sector Financial Management Reform 
Support Project. 
(c) 
The Recipient has obtained from other Development Partners an amount 
of at least $500,000 in support of the Project. 
5.02. 
The Additional Legal Matter consists of the following, namely that the 
Memorandum of Understanding has been duly authorized by the Recipient and is 
legally binding upon the Recipient in accordance with its terms. 
5.03. 
The Effectiveness Deadline is the date ninety (90) days after the date of this 
Agreement. 
ARTICLE VI – REPRESENTATIVE; ADDRESSES
 
6.01. The 
Recipie
nt’s Representative is the Minister of Finance. 
 
6.02. 
The Recipient’s Address is: 
 
Ministry of Finance 
70, Irakli Abashidze Str. 
0162 Tbilisi 
Georgia 
 
Telex:  
 
 
212 348 MOFIN 
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6.03. 
The Association’s Address is: 
International Development Association 
1818 H Street, N.W. 
Washington, D.C. 20433 
United States of America 
 
Cable: 
  Telex: 
  Facsimile: 
INDEVAS  
248423 
(MCI) 
or 
1-202-477-6391 
Washington, D.C. 
  64145 (MCI) 
 
AGREED at Tbilisi, Georgia, as of the day and year first above written. 
 
GEORGIA 
 
By /s/ Aleksi Aleksishvili 
 
Authorized Representative 
 
INTERNATIONAL DEVELOPMENT ASSOCIATION 
 
By /s/ Van Roy Southworth 
 
Authorized Representative 
 
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SCHEDULE 1 
Project Description
 
The objectives of the Project are
 to support the Recipient’s Program: (a) to 
strengthen the institutional capacity of key ministries and agencies to use more 
effectively and efficiently public resources; and (b) to improve accountability in the use 
of public resources. 
The Project consists of the following parts: 
1. 
Medium Term Expenditures Framework (MTEF) and Budget Management
(a)  
further development of the MTEF and integration of the MTEF in the 
budget planning process; 
(b)  
development of realistic macro-economic framework for the MTEF and 
the budget process; 
(c) 
 improvements in the strategic and annual budget planning in the MoF; 
(d) 
 improved oversight and monitoring of the budget implementation by the 
MoF; 
(e) 
 
strengthening the procedures for strategic budget planning and 
management in line ministries; 
(f)   
improving the arrangements for the financing of territorial budgets; 
(g)   
introducing an internal public expenditure review process; 
(h)  
development and implementation of a capacity building and training 
strategy covering the MoF and line ministries; and 
(i)  
preparation of a transparency, information and communication strategy 
aimed at establishing greater transparency and public accountability within the budget 
process. 
2. 
Treasury and Budget Execution
(a)  
Development of the Treasury’s role and function in leading the 
accounting reform process, including defining accounting standards and regulations; 
(b)  
introduction of a training program leading to certification of public 
accountants and gradual adoption of IPSAS cash and accrual accounting standards; 
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(c) 
 
support towards establishing a professionalized public accounting 
community; 
(d)  
enhancing the budget accounting and reporting in line ministries, PLEs 
and other government entities; 
(e)  
improving the quality of public accounts and reports; 
(f)  
strengthening the cash management procedures in the Treasury and other 
spending agencies;  
(g)  
improving the efficiency of procurement related information sharing; and 
(h)  
introduction of an integrated Public Financial Management System. 
 
3.  
Human Resources  Management Information System
(a)  
Development of a Human Resources Management Information System 
(HRMIS); 
(b)  
development of an automated payroll calculation module linked to 
HRMIS, as well as budgeting and public expenditure management functions; 
(c)  
establishment of a database designed to provide improved access to 
accurate and timely personnel information  in each government unit; and 
(d)  
improving the execution of human resource remuneration management 
functions. 
4. 
Public Accountability and Oversight of Public Financial Management
(a) 
Strengthening the framework for the organization and management of 
the Chamber of  Control; 
 
(b) 
revising the legal framework governing the activities of the Chamber of 
Control; 
 
(c) 
strengthening the human resources capacity of the Chamber of Control; 
 
(d)  
developing an audit methodology; and 
 
(e) 
strengthening the external relations capacity of the Chamber of Control. 
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SCHEDULE 2 
Project Execution 
Section I. 
 Institutional and Other Arrangements
The Recipient shall carry out the Project in accordance with the POM and the 
provisions of the MOU and shall maintain the following institutional arrangements: 
1.
 
Project Management Committee (PMC)  
The PMC shall provide overall oversight and policy guidance for the Program. 
Its membership shall consist of senior decision makers within the government at Minister 
and/or First Deputy Minister level or equivalent and of representatives of the 
Development Partners. The PMC shall meet twice a year:  (a) once  to endorse the 
implementation report for the previous AWP and to agree on the new AWP for the 
following year; and (b) once as a mid-term review meeting to agree on in-year 
adjustments to the Program and the budge. 
2.
 
Project  Implementation Team (PIT) 
 
(a)
 
The PIT shall function as the secretariat to the PMC.  The PIT shall be 
coordinated by a Deputy Minister of Finance; its membership shall comprise all Project 
Component Managers. It shall be supported by an IT Coordinator and an Administration 
and Procurement Support Team. 
 
(b)  
The PIT shall meet regularly to discuss progress of the Project, monitor 
procurement and disbursements and to arrange, and prepare for, technical monitoring 
missions of the Development Partners. 
 
(c) 
The PIT shall prepare the AWPs based on inputs from the Project 
Component Managers pursuant to the procedures as set forth in the POM. 
3.
 
Project Component Managers (PCMs) 
 
The PCMs are managers within the ministries and agencies of the Government 
who have been given specific responsibility for the relevant Project component on the 
basis of their normal lines of accountability within their respective organization.  The 
PCMs are:  (i) the Deputy Minister(s) responsible for budget and fiscal policy; (ii) the 
Head of Treasury Service; (iii) the Head of the MoF Budget department; (iv) the Head of 
the Public Service Bureau; and (iv) the Deputy Chairman of the Chamber of Control. 
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4.
 IT 
Coordinator 
The Head of the 
MoF’s Informational Technologies and Analytical Department 
shall be designated as IT Coordinator for the Project responsible for providing technical 
coordination of all IT related Project activities. 
5.
 
Administrative and Procurement Support Team (APST)
 
In order to support the PCMs, the Government shall maintain a small team of 
experts familiar with the Association’s procurement rules and procedures and 
experienced in implementing donor-financed projects. The APST shall ensure that:  (i) 
the Project activities are well coordinated; (ii) issues affecting or potentially affecting the 
Project implementation are identified in a timely manner; (iii) technical advice is 
provided to PCMs in critical areas of Project management; (iv) necessary Project inputs 
are provided in a timely and cost-efficient manner; (v) Project resources are appropriately 
managed in accordance with the Association’s and Development Partners’ requirement 
for procurement and financial management; and (vi) effective Project monitoring and 
progress reporting is carried out. 
Section II. 
Implementation Covenants
1. 
The Recipient shall, not later than May 1 in each year, prepare and furnish for 
approval by the Association a draft annual work plan for the following calendar year, in 
scope and format agreed with the Association and the other Development Partners. 
2. 
The Recipient shall:  (a) carry out, not later than June 1, 2006, an informed 
analysis regarding the establishment of a country wide network of physical connectivity 
for the public financial management system under the Project; and (b) thereafter , guided 
by the results of this analysis, take measures to provide physical connections to establish 
the network indispensable for the carrying out of this Project in accordance with a 
timetable acceptable for the Association. 
3. 
The Recipient’s contribution to the Project financing shall be not less than 4% of 
the Project annual budget for the given fiscal year, and not less that 6% of total Project 
cost overall.
 
Section III. 
Project Monitoring, Reporting, Evaluation 
A. Project 
Reports 
1. 
(a) 
The Recipient shall monitor and evaluate the progress of the Project and 
prepare Project Reports in accordance with the provisions of Section 
4.08 of the General Conditions and on the basis of the indicators set forth 
below in sub-paragraph (b) of this paragraph.  Each Project Report shall 
cover the period of one calendar semester, and shall be furnished to the 
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Bank not later than one (1) month after the end of the period covered by 
such report.  
(b) 
The performance indicators referred to above in sub-paragraph (a) 
consist of the following: 
(i) 
Clear national expenditure priorities identified and allocations to 
national priorities defended in budget; 
(ii) 
Fiscal forecasts prepared for at least three (3) years on a rolling 
annual basis, links between multi-year estimates and annual 
budget ceilings are clear and differences explained;     
(iii) 
All major public entities submit fiscal reports to central 
government at least annually, and central government 
consolidates overall fiscal risk issues into a report; 
(iv) 
Routine data collection or accounting systems provide reliable 
information on resources received in cash and in kind, and 
expenditures; 
(v) 
Timely information is available about the size, composition, and 
cost of the civil service;  
(vi) 
Payroll and nominal roll data cover all of Government and are 
directly linked, with monthly reconciliation, updates, and reports 
on adjustments; 
(vii) 
Improved scope, nature, legislative scrutiny and follow up on 
external audits, all central government entities are audited using 
(primarily) compliance audits which adhere to international 
auditing standards; 
(viii) 
Provision of timely and transparent public financial management 
related information to Parliament and civil society groups. 
B. 
Financial Management, Financial Reports and Audits 
1. 
The Recipient shall maintain or cause to be maintained a financial management 
system in accordance with the provisions of Section 4.09 of the General Conditions. 
2. 
Without limitation on the provisions of Part A of this Section, the Recipient shall 
prepare and furnish to the Association as part of the Project Report not later than forty 
five (45) days after the end of each calendar quarter, interim un-audited financial reports 
for the Project covering the quarter, in form and substance satisfactory to the Association. 
3. 
The Recipient shall have its Financial Statements audited in accordance with the 
provisions of Section 4.09 (b) of the General Conditions.  Each audit of the Financial 
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Statements shall cover the period of one fiscal year of the Recipient.  The audited 
Financial Statements for each such period shall be furnished to the Association not later 
than five (5) months after the end of such period.
 
Section IV. 
Procurement
A. General
 
1.
 Goods.
 
All goods required for the Project and to be financed out of the proceeds 
of the Financing shall be procured in accordance with the requirements set forth or 
referred to in Section I of the Procurement Guidelines, and with the provisions of this 
Schedule. 
2.
 
Consultants’ Services.
 
All consultants’ services required for the Project and to 
be financed out of the proceeds of the Financing shall be procured in accordance with the 
requirements set forth or referred to in Sections I and IV of the Consultant Guidelines, 
and with the provisions of this Schedule. 
3.
 Definitions.
 The capitalized terms used below in this Section to describe 
particular procurement methods or methods of review by the Association of particular 
contracts, refer to the corresponding method described in the Procurement Guidelines, or 
Consultant Guidelines, as the case may be. 
B. 
Particular Methods of Procurement of Goods  
 
1.
 
International Competitive Bidding.  
Except as otherwise provided in paragraph 
2
below, goods shall be procured under contracts awarded on the basis of International 
Competitive Bidding. 
2.
 
Other Methods of Procurement of Goods.  
The following table specifies the 
methods of procurement, other than International Competitive Bidding, which may be 
used for goods. The Procurement Plan shall specify the circumstances under which such 
methods may be used: 
Procurement Method
(a)  National Competitive Bidding 
(b)   Shopping 
(c)  Direct Contracting 
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C. 
Particular Methods of Procurement of Consultants’ Services 
 
1.
 Quality- 
and 
Cost-based 
Selection.
 
Except as otherwise provided in paragraph 
2
below, consultants
’
services shall be procured under contracts awarded on the basis of 
Quality and Cost-based Selection.
 
2.
 
Other Methods of Procurement of Consultants’ Services
.
The following table 
specifies methods of procurement, other than Quality and Cost-based Selection, which 
may be u
sed for consultants’ services. The Procurement Plan shall specify the 
circumstances under which such methods may be used. 
 
Procurement Method
(a)  Selection based on Consultants’ Qualifications 
 
(b)  Individual Consultants 
 
D. 
Review by the Bank of Procurement Decisions 
 
The Procurement Plan shall set forth those contracts which shall be subject to the 
Association’s Prior Review.  All other contracts shall be subject to Post Review by the 
Association. 
Section V. 
Withdrawal of the Proceeds of the Financing
A. General 
1. 
The Recipient may withdraw the proceeds of the Financing in accordance with 
the provisions of this Section and such additional instructions as the Association may 
specify by notice to the Recipient, to finance Eligible Expenditures as set forth in the 
table in paragraph 2 below. 
2. 
The following table specifies the categories of Eligible Expenditures that may be 
financed out of the proceeds of the Financing (“Category”), the allocation of the amount 
of the Financing to such Category, and the percentage of expenditures to be financed for 
Eligible Expenditures in such Category: 
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Category 
Amount of the Grant 
Allocated (Expressed 
in SDR) 
 
Percentage of Expenditures  
to be Financed 
Goods, consultant’s 
service, training and 
operating costs 
included in the 
respective AWP 
2,100,000 
Such percentage of Eligible 
Expenditures as the Association 
may determine for each calendar 
year covered by the respective 
AWP 
TOTAL AMOUNT 
2,100,000
B. 
Withdrawal Conditions; Withdrawal Period   
1. 
Notwithstanding the provisions of Part A of this Section no withdrawal shall be 
made for payments made prior to the date of this Agreement. 
2. 
 The withdrawn proceeds of the Financing as determined by each AWP shall be 
deposited in a foreign currency sub-account opened and maintained by the Treasury in 
the National Bank of Georgia.  Upon receipt of such amount, the Treasury shall deposit 
an equivalent Lari amount into the Treasury’s Lari-denominated Treasury Single Account 
to be used to finance Eligible Expenditures under the Project as identified in the 
respective AWP. 
 
3.
 
The Closing Date is March 1, 2010. 
 
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APPENDIX 
Definitions 
1. 
“Annual Work Plan” or “AWP” means each list of annual activities under the 
Project prepared by the Recipient and approved by the Development Partners (as 
hereinafter defined). 
2. 
 “Category” means a category set forth in the table in Section V.A.2 of Schedule 
2
to this Agreement. 
 
3. 
“Consultant Guidelines” means the “Guidelines: Selection and Employment of 
Consultants by World Bank Borrowers” published by the Bank in May 2004. 
4. 
“Development Partners” means the signatories of the MOU (as hereinafter 
defined). 
5. 
“General Conditions” means the “International Development Association 
General Conditions for Credits and Grants”, dated July 1, 2005. 
6. 
“Lari” means the currency of the Recipient. 
7. 
“MoF” means the Recipient’s Ministry of Finance or any successor thereto. 
8. 
“Memorandum of Understanding” or “MOU” means the memorandum of 
understanding of even date herewith between the Government of Georgia and its 
Development Partners, providing for, 
inter alia
,
common procedures on procurement, 
disbursements, cooperation and exchange of information with respect to the financial 
support of the Project. 
9. 
“Procurement Guidelines” means the “Guidelines for Procurement under IBRD 
Loans and IDA Credits” published by the Bank in May 2004. 
10. 
“Procurement Plan” means the Recipient’s procurement plan for the Project, 
dated January 12, 2006 and referred to in paragraph 1.16 of the Procurement Guidelines 
and paragraph 1.24 of the Consultant Guidelines, as the same shall be updated from time 
to time in accordance with the provisions of said paragraphs. 
11. 
“Program” means the Recipient’s reform program outlined in the Strategic 
Vision for Public Financial Management Reform, dated November 2005. 
12. 
“Project Operational Manual” or “POM” means the manual, dated 
 
January 12, 2006, setting forth the procedures and institutional arrangements for carrying 
out the Project. 
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