PROJECT INFORMATION DOCUMENT (PID) ADDITIONAL FINANCING Report No.: PIDA46270 Project Name Second Public Financial Management Reform Project (PFMRP II) - Additional Financing (P150632) Parent Project Name Public Financial Management Reform II (P120427) Region SOUTH ASIA Country Afghanistan Sector(s) Public administration- Financial Sector (100%) Theme(s) Public expenditure, financial management and procurement (95%), Other public sector governance (5%) Lending Instrument Investment Project Financing Project ID P150632 Parent Project ID P120427 Borrower(s) Islamic Republic of Afghanistan Implementing Agency Ministry of FInance Environmental Category C-Not Required Date PID Prepared/Updated 27-Dec-2015 Date PID Approved/Disclosed 28-Dec-2015 Estimated Date of Appraisal 14-Dec-2015 Completion Estimated Date of First Grant 15-Jan-2016 Approval Appraisal Review Decision The review did authorize to proceed with Negotiations, in principle (from Decision Note) I. Project Context Country Context Afghanistan, is at a crossroads in its development, with economic growth declining and poverty incidence stubbornly high. Significant economic and social progress was achieved from a very low base between 2003 and 2012. Economic growth averaged 9.4 percent per year and key social and infrastructure indicators including school enrollment, life expectancy, and access to water improved markedly. However, poverty incidence nationwide remained stagnant. The political, security and economic transition since 2010 has led to a marked decline in economic performance and threatens the foundations of stability and progress in Afghanistan. Economic growth fell sharply to 1.5 percent in 2014 and a fiscal crisis unfolded with declining revenues leading to depleted cash reserves and accumulating arrears. As such, Afghanistan faces tremendous development challenges. GDP per-capita is among the lowest in the world, poverty is deep and widespread, and social indicators are still at very low levels. Page 1 of 5 Sectoral and institutional Context Despite the challenges faced by Afghanistan, with assistance of IDA and other donors, the government has made significant progress in establishing a functioning Public Financial Management (PFM) system under the direction of Ministry of Finance (MOF), whose leadership has been the single, most crucial enabling factor for the implementation of government budgeting. The legal framework underpinning PFM (Public Finance and Expenditure Management Law and Public Procurement Law) has been established and the government's PFM performance is generally portrayed as one which public finances are, by and large, used for their intended purposes as authorized by the budget which is processed with transparency and where the fiscal aggregates are well controlled. Effective PFM remains of key importance to Government, given the overriding current need to prioritize interventions within tight budget constraints. The new government has declared its commitment to address Afghanistan's development challenges, through its paper “Realizing Self Reliance: Commitments to Reforms and Renewed Partnership” presented at the London Conference in December 2014. In this paper, good PFM is recognized as a key building block towards self-reliance and consequently, a new five year PFM strategy is now under development for the period 2016 – 2020. The early outline shows the key PFM priorities of Government on which the new strategy will focus. In the acute aid-dependency environment projected for the mid-term, well performing public financial management (PFM) systems are an indispensable pillar of state operations. It is vital to maintain the momentum of the current good PFM performance during the period in which a new PFM Strategy is being developed. II. Proposed Development Objectives A. Current Project Development Objectives – Parent The proposed PDO is to strengthen public financial management through effective procurement, treasury and audit structures and systems in line with sound financial management standards of monitoring, reporting and control. B. Proposed Project Development Objectives – Additional Financing (AF) To further strengthen the efficiency and effectiveness of Afghanistan’s procurement, treasury, and audit systems. III. Project Description Component Name Procurement Reform Comments (optional) This component will support the National Procurement Authority (NPA), which was created through a Presidential Decree in 2015. The Procurement Policy Unit (PPU), Special Procurement Committee (SPC) and the Afghanistan Reconstruction and Development Services (ARDS) have been merged into the NPA. The NPA is based in the Administrative Office of the President (AOP). The main activities of this component include: • Capacity building in Line Ministries and Provinces • Institutional support and sustainable development of public procurement Component Name Financial Management Reform Comments (optional) Component 2: Financial Management Reform: This component aims to support high level PFM Page 2 of 5 performance and build the staff and institutional PFM capacity. The main activities include: • Treasury operations and systems development • Human resources capacity development • Professional accountants organization development Component Name Audit Reform and Performance Comments (optional) Component 3: Audit and Reform Performance: this component focuses on institutional reforms in internal audit and capacity building to improve management oversight. The main activities include: • Internal audit capacity development • Internal audit institutional development • Internal audit information technology development • Direct audit support – grant audits • Direct audit support – line Ministries • Policy advice to the Auditor General and coordination • Training support • Infrastructure support (IT center, databases and officer furnishing) • Public account committee strengthening • Preparatory activities for future audit reforms Component Name Reform Management Comments (optional) Component 4: Reform Management: this component focuses on reform within the MoF. Its main activities include; • Strengthening Monitoring and Evaluation • Strengthening of MoF Human Resource Management Department • Project management • Other institutional strengthening and capacity building activities Component Name Revenue Mobilization Comments (optional) Component 5: Revenue Mobilization: this is a newly added component to the AF-PFMR II, which is the top priority of the new PFM road map. The Government is committed to ambitious targets for tax collections. Therefore, additional support is needed to achieve these targets. The main activities of this component include: • Maintenance of computerized tax system (SIGTAS) • The implementation of initiatives such as risk based compliance • Preparing for VAT • Establishing the new organizational structure IV. Financing (in USD Million) Page 3 of 5 Total Project Cost: 42.00 Total Bank Financing: 0.00 Financing Gap: 0.00 For Loans/Credits/Others Amount Borrower 0.00 Afghanistan Reconstruction Trust Fund 42.00 Total 42.00 V. Implementation Implementation arrangements of the original project will be maintained under the Additional Financing. Overall responsibility for project implementation is vested in the Ministry of Finance (MOF). The existing implementation arrangements include a Project Steering Committee (PSC) chaired by the MOF consisting of representatives of Treasury, Internal Audit, and the Supreme Audit Organization (SAO). The National Procurement Authority has joined the PSC as the successor organization to Afghanistan Reconstruction and Development Services (ARDS)/ Procurement Policy Unit (PPU). The Afghanistan Revenue Department will also join the PSC given the planned incorporation of a revenue component during the period of additional financing. The Reform Management and Implementation Unit (RIMU) of the Ministry of Finance reports to the PSC and prepares implementation plans, annual budgets, and project reports and monitors and evaluates project results. The financial management arrangements as designed under the original project are operating satisfactorily, and will continue without any change under the additional financing. VI. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✖ Natural Habitats OP/BP 4.04 ✖ Forests OP/BP 4.36 ✖ Pest Management OP 4.09 ✖ Physical Cultural Resources OP/BP 4.11 ✖ Indigenous Peoples OP/BP 4.10 ✖ Involuntary Resettlement OP/BP 4.12 ✖ Safety of Dams OP/BP 4.37 ✖ Projects on International Waterways OP/BP 7.50 ✖ Projects in Disputed Areas OP/BP 7.60 ✖ Comments (optional) VII. Contact point World Bank Contact: Paul Welton Title: Lead Financial Management Spec Tel: 5232+3314 / Email: pwelton@worldbank.org Page 4 of 5 Borrower/Client/Recipient Name: Islamic Republic of Afghanistan Contact: Jabarkhail Title: Aid Management Directorate Tel: 93790850761 Email: moheb.jabarkhail@budget.gov.af Implementing Agencies Name: Ministry of FInance Contact: Dr. Mohammad Mustafa Mastoor Title: Deputy Minister Tel: 0093202102838 Email: mustafa.mastoor@bb.afghan-wireless.com VIII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop Page 5 of 5