PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: PIDA873 Public Disclosure Copy Project Name Lao Public Financial Management Project (P128854) Region EAST ASIA AND PACIFIC Country Lao People's Democratic Republic Sector(s) Central government administration (100%) Lending Instrument Specific Investment Loan Project ID P128854 Borrower(s) Ministry of Finance Implementing Agency National Assembly, State Audit Organization Environmental Category C-Not Required Date PID Prepared/Updated 30-Mar-2013 Date PID Approved/Disclosed 01-Apr-2013 Estimated Date of Appraisal 01-Apr-2013 Completion Estimated Date of Board 28-May-2013 Approval Decision I. Project Context Public Disclosure Copy Country Context The Government of Lao PDR (GOL) faces a number of economic opportunities and challenges in the n ear and longer term. Grow th is expected to remain strong, with the tar get of 8% achievable given the natural resource wealth and hydro power opportunities. Rapid growth has resulted in Lao PDR achieving lower middle – income status in 2011. Th is will result in a change in the pro file of financing of the GOL budget as it shifts away from external concessional financing towards increased reliance on growing domestically generated re venue. T he challenge f or the GOL will be to translate sustained economic growth in to improved delivery of services and comparatively equitable economic development.Meeting this challenge will require that the GOL’s public financial management systems are able to (i) maintain fiscal stability as volatile resource- based revenues grow, but also (ii) sustainably allocate additional resource inflows to those agencies responsible for delivering priority services and in turn that (iii) controls are in place to ensure resources are channeled and used to enhance improvements in those services. II. Sectoral and Institutional Context The importance of strengthening the country’s PFM systems has been recognized by the Lao PDR government and beginning in 2005, the Government launched its Public Expenditure Management Strengthening Program (PEMSP). Despite these improvements, the 2011 Public Expenditure and Financial Accountability (PEFA) assessment and the 2011 PER indicate that considerable Page 1 of 4 limitations in core PFM systems remain. It remains difficult to ascertain the link between government policy and the allocation of growing government resources with limited information available on budgetary allocations. The Ministry of Finance’s ability to manage the execution of the Public Disclosure Copy budget is hindered by weak compliance to treasury procedures. The lack of a single accounting and auditing framework further impedes fiscal transparency and accountability across the government as well as progress of other key PFM reforms. Cutting across these policy and procedural difficulties are weaknesses in capacity and information management systems. External oversight institutions are in the early stage of development which further contributes to the lack of accountability for the use of public resources. III. Project Development Objectives The objective of the new PFM Project (PFMP) is to (i) further strengthen the quality of information on budgetary allocations, (ii) improve compliance to budget execution and treasury management procedures, (iii) enhance the timeliness, reliability, coverage and quality of reports and financial statements (iv) strengthen external oversight of the allocation and use of public resources. IV. Project Description Component Name ENHANCEMENTS TO CORE BUDGET AND TREASURY MANAGEMENT POLICIES AND PROCEDURES STRENGTHENING EXTERNAL OVERSIGHT FUNCTION V. Financing (in USD Million) For Loans/Credits/Others Amount BORROWER/RECIPIENT 0.00 IDA Grant 22.00 Lao PDR - Free-standing Trust Fund Program 2.00 Public Disclosure Copy Total 24.00 VI. Implementation During the mission a workshop was held with MOF and SAO and NA to confirm with these government agencies roles and responsibilities for implementation under the proposed project to ensure effective and timely implementation. Based on the lessons learned from the implementation arrangements under the ongoing PFMSP Multi – Donor Trust Fund (MDTF) and the closed Financial Management Capacity Building Project (FMCBP), the agreed implementation arrangements seek to: (i) clarify roles and responsibilities to avoid duplication and confusion, delays in procurement and reporting; (ii) set for the clear arrangements for donor – government coordination to facilitate better communication and interaction; (iii) ensure appropriate staff from the Cabinet are assigned to the PCU to build capacity and ensure sustainability of the implementation arrangements. The agreed roles and responsibilities of each entity within the governance structure are broadly defined below. Three Implementing Agencies (the MOF, SAO, and NA) with distinct administrative and management structures (to include their own designated account) will be responsible for implementing their respective component activities under the proposed project. To ensure that the project is implemented effectively, the MOF with the Bank’s support will make Page 2 of 4 every effort to draft a detailed project operations manual on ‘who’s who’ and ‘who does what’. � The Public Financial Management Strengthening Project Steering Committee (PFMSP - Public Disclosure Copy SC) chaired by the Vice Minister under the guidance of the Minister of Finance will provide policy direction and guidance, evaluate the Component outcomes, approve annual work plans and budgets, and ensure inter-agency coordination during the implementation of the PFMP. Its members comprise (DG level) officials from all MOF sub-components, and the NA and SAO components. � The PFMSP - SC will be supported by a Secretariat, whose main responsibility is to support consolidation of work plans and budgets, monitor overall progress and assume the monitoring and evaluation functions for the project. This Secretariat located within the organization structure of the Department of International Cooperation (DIC) will serve as the primary contact point between the Ministry of Finance and development partners. � Under the project there are three Implementing Agencies (IAs): the Ministry of Finance, the National Assembly, and the State Audit Organization. Within each of these IAs there are a number of Implementing Departments (IDs) who will execute respective activities as agreed in their approved work plan and will be responsible and accountable for the delivery of their respective component outputs and outcomes. � Implementing departments in MOF report directly to the PFMSP - SC on the technical progress of their respective component; the NA and the SAO will share the progress of their respective components with the PFMSP – SC. � The PCU (located in the MOF Cabinet) ) will assume the fiduciary functions (procurement and financial management) for the MOF managed component of the project – it will act as a service delivery unit to all MOF-IDs and provide guidance to the NA and SAO as necessary on MOF internal processes and procedures. � The SAO and NA will have separate governance and operating structures to include their own project management units and steering committees. Each will appoint a representative (DG level) to PFMSP Steering Committee. Public Disclosure Copy VII. 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 ✖ VIII.Contact point World Bank Contact: Leah April Title: Sr Public Sector Mgmt. Spec. Tel: 5721+1352 Page 3 of 4 Email: lapril@worldbank.org Borrower/Client/Recipient Public Disclosure Copy Name: Ministry of Finance Contact: Title: Tel: 85621911611 Email: Implementing Agencies Name: National Assembly Contact: Title: Tel: 85621413528 Email: Name: State Audit Organization Contact: Title: Tel: 85621264335 Email: IX. 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 Public Disclosure Copy Page 4 of 4