INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Public Disclosure Copy Report No.: ISDSC5559 Date ISDS Prepared/Updated: 16-Oct-2013 Date ISDS Approved/Disclosed: 13-Mar-2014 I. BASIC INFORMATION A. Basic Project Data Country: Maldives Project ID: P145317 Project Name: Maldives: PFM Systems Strengthening Project (P145317) Task Team Jiwanka B. Wickramasinghe Leader: Estimated 20-Feb-2014 Estimated 29-May-2014 Appraisal Date: Board Date: Managing Unit: SARFM Lending Specific Investment Loan Instrument: Sector(s): General public administration sector (100%) Theme(s): Public expenditure, financial management and procurement (100%) Financing (In USD Million) Total Project Cost: 6.50 Total Bank Financing: 6.50 Financing Gap: 0.00 Public Disclosure Copy Financing Source Amount BORROWER/RECIPIENT 0.00 IDA Grant 6.50 Total 6.50 Environmental C - Not Required Category: Is this a No Repeater project? B. Project Objectives The proposed project development objectives (PDO) are to enhance budget credibility, transparency, and financial reporting of central government finances. C. Project Description Building on ongoing PFM programs, this concept note proposes a project that focuses on 3 components to build a good foundation and an enabling environment for sustainable PFM strengthening, enhance budget credibility and improve budget execution: (a) Strengthening the PFM Environment (US$2 million). The objective of this component is to set the foundation and create an enabling environment for sound PFM. This component will have 4 Public Disclosure Copy subcomponents: (i) legislative and institutional framework for PFM; (ii) strengthened macro fiscal framework; (iii) medium-term debt management; and (iv) strengthened PFM training capacity. (i) Legislative and institutional framework for PFM (US$0.4 million). A number of stand-alone pieces of legislation and sets of rules and regulations governing various aspects of PFM have been introduced over recent years. This subcomponent will include a comprehensive review of such laws and regulations to identify and recommend measures to remove inconsistencies and fill gaps in the existing PFM regulatory framework. (ii) Medium-term macro fiscal framework (US$0.4 million). The GoM recognizes the need to carry out macro fiscal planning for credible budgeting. The proposed project will provide consultancy support to strengthen the macro-fiscal unit; prepare and train staff on budget preparation guidelines; and set up processes and techniques to prioritize capital projects. The project will also support fiscal planning with necessary computer hardware and software, including interfacing budget preparation with the PAS for a more efficient budget preparation process. (iii) Strengthened debt management (US$0.4 million). Given the large borrowing requirements, there is great need for an analytical strategy that is based on rigorous cost-risk considerations to support authorities in meeting their financing gap at lower costs. This subcomponent will support medium- term debt management via strengthening the debt management unit, updating its debt management strategy, and building capacity in order to reduce the country’s vulnerability to financial shocks. This subcomponent will fund consultancy support to: • Strengthen the newly created middle office of the Debt Management Department to carry out risk management by identifying the required institutional structures, defining roles and responsibilities of the staff and providing on the job training; • Update the debt management strategy that would set out the objectives for debt management Public Disclosure Copy and the development of a domestic debt sector and provide on-the-job training to staff on preparation of a medium-term debt management strategy; and • Train a team of staff, which includes members from Economic Policy Planning Section and Debt Management Department of MoFT and Maldives Monitory Authority, on debt sustainability analysis tools to analyze the evolution of debt over time and to assess risks to debt distress. In addition, the project will also support debt management with necessary hardware and software, including interfacing budget preparation with the PAS. (iv) Strengthened PFM training capacity (US$0.8 million). The objective of this subcomponent is to enhance in-country training facilities that produce trained PFM staff on a regular and systematic basis. This subcomponent will institutionalize PFM training by strengthening existing training institutions/universities to provide formal PFM courses, including procurement-related courses. Consultancy support will be provided for course and curriculum development; training of trainers; and twinning arrangements where relevant. (b) Strengthening Budget Execution (US$3.7 million). The objective of this component is to strengthen budget execution by improving the efficiency of resource utilization and the credibility, comprehensiveness, and timeliness of financial reporting. There will be 2 subcomponents: (i) strengthening the public accounting system and (ii) enhancing the control environment. (i) Strengthening the public accounting system (US$2.9 million). The public accounting system will be strengthened to improve financial reporting practices to include timely production of budget execution reports, project financial statements, and other financial reports providing relevant Public Disclosure Copy information, for example, on arrears, commitments, and contingent liabilities. This will be achieved through: • Development of an information technology master plan that will give a comprehensive overview of the short- and medium-term changes necessary to develop the interfaces between the various systems and indicate the sequencing of the technical improvements; • Consultancy support for functional upgrades of the SAP in line with the IT master plan and to support strengthened business processes; • Staff training on SAP; • Upgrading the computer hardware and software, including purchasing of additional software licenses; and • Establishing maintenance arrangements and supporting these arrangements in the initial years of the project with a gradual phasing out. (ii) Strengthening the control environment (US$0.8 million). Consultancy support will be provided to: • Strengthen business processes by producing a financial management manual underpinned by a comprehensive review of PFM processes; • Update the Financial Regulations in line with the improved legislative framework for PFM; • Improve payroll controls via integration of human resources and payroll data; • Develop national bidding documents, establish a database of awarded contracts that is publicly accessible, set up a grievance redressal process, and provide on-the-job procurement training; and • Strengthen internal audit and internal audit committees specifically to include audits of budget realization reports utilizing the computer-assisted audit technique capabilities inherent in SAP and thereby enhancing the quality of the budget realization reports. (c) Project Management (US$0.8 million). This component will provide support to the MoFT for Public Disclosure Copy coordination, administration, communication, financial management, and procurement of the project. The Government will establish a project management unit (PMU) at the MoFT to act as a coordinating unit and as a central point of contact. The MoFT Financial Controller will head the PMU and will also be the project director. A senior project manager with international experience in PFM and project management will be assigned to carry out day-to-day project coordinating work on behalf of the project director. Adequate powers will be delegated to the project manager to carry out these tasks. Additionally, the PMU will have an assigned FM specialist and a procurement specialist considering that the bulk of FM and procurement activities will be centralized at the PMU. The project will finance the salaries/allowances of the project manager, and FM and procurement specialists. Champions from each of the key departments that have a key role in implementation will be assigned to liaise with the project manager. Champions will be selected from existing staff in the respective departments. A high-level project steering committee chaired by the Minister of Finance and represented by a broad range of stakeholders, including heads from respective departments/units of the MOFT, MMA, Civil Service Commission, Attorney General and Office of the Auditor General, will be constituted to monitor progress of the project. The project will support communication and change management that will cut across all of the above activities. D. Project location and salient physical characteristics relevant to the safeguard analysis (if known) The project interventions will be focused in the Island of Male, the capital of the Maldives, located at the southern edge of North Male Atoll. All project counterpart agencies are based on the Male Island E. Borrowers Institutional Capacity for Safeguard Policies Public Disclosure Copy The Maldives, being an economy driven primarily by nature-based tourism and also greatly susceptible to the risks of climate chant, is greatly dependent on the natural environment for economic stability and the wellbeing of its population. In recognition of the fact that sound environmental management is essential in ensuring that the economic growth and development is continual, the GoM has an adequate institutional and regulatory framework in place. This is driven towards ensuring a high level of environmental integrity in economic operations. The Ministry of Environment, established in 2004, acts as the pivotal agency responsible for the implementation of environmental safeguards in the Maldives. The National Environmental Agency (NEA), established in 2008, holds the mandate of formulating policies, regulations and standards needed for the implementation of The Environment Protection and Preservation Act (EPPA) of the Maldives, which was enacted in 1993. A National Environmental Action Plan (NEAP) and an update to the EPPA were completed in 1999. Several NEAPs have been implemented and they have served as the GoM’s comprehensive framework for ensuring environmental protection and sustainable development during the years of implementation. Environment plays a key role in national development articulated in the Strategic Action Plan as well. A specific set of regulations on the Management of Solid Waste was developed and enforced in early 2013. Even though the Maldives has an institutional and regulatory framework for the management of environment in place, the institutional capacity for the effective enforcement and regulation of management aspects is weak. F. Environmental and Social Safeguards Specialists on the Team Mokshana Nerandika Wijeyeratne (SASDI) Public Disclosure Copy II. SAFEGUARD POLICIES THAT MIGHT APPLY Safeguard Policies Triggered? Explanation (Optional) Environmental Assessment OP/ No As a category C project, the project does not BP 4.01 trigger OP 4.01 - Environmental Assessment. No physical construction/reconstruction/ rehabilitation is envisioned under the project interventions. It is expected that no e-waste will be generated via the upgrading of computer servers under component b (i) as the old servers are expected to be used as backup servers. The hardware upgrade will not involve upgrading of any PC Units or other hardware. Natural Habitats OP/BP 4.04 No Project interventions are not expected to have any significant impacts on the natural habitats within the project locality Forests OP/BP 4.36 No There are no forest areas on the Island of Male and no project interventions will be conducted in such areas Public Disclosure Copy Pest Management OP 4.09 No Not Applicable as no project interventions are made where significant use of pesticides and other such substances are utilized. Physical Cultural Resources OP/ No Project interventions do not involve any BP 4.11 physical interventions, thus there are not impacts expected any physical cultural resources designated on the Island of Male Indigenous Peoples OP/BP 4.10 No The project will not affect any indigenous groups. Involuntary Resettlement OP/BP No Project activities are not expected to involve any 4.12 resettlement Safety of Dams OP/BP 4.37 No No dams will be affected via project interventions. Projects on International No The project location does not fall in route of any Waterways OP/BP 7.50 international waterways. Projects in Disputed Areas OP/BP No The project location does not fall within a 7.60 disputed area. III. SAFEGUARD PREPARATION PLAN A. Tentative target date for preparing the PAD Stage ISDS: 30-Nov-2013 B. Time frame for launching and completing the safeguard-related studies that may be needed. The specific studies and their timing1 should be specified in the PAD-stage ISDS: Public Disclosure Copy Safeguard related studies are not applicable for this proposed project IV. APPROVALS Task Team Leader: Name: Jiwanka B. Wickramasinghe Approved By: Regional Safeguards Name: Francis V. Fragano (RSA) Date: 16-Oct-2013 Coordinator: Sector Manager: Name: Fily Sissoko (SM) Date: 13-Mar-2014 1 Reminder: The Bank's Disclosure Policy requires that safeguard-related documents be disclosed before appraisal (i) at the InfoShop and (ii) in country, at publicly accessible locations and in a form and language that are accessible to potentially affected persons.