PRIVATE SECTOR DEVELOPMENT CAPACITY B ILDING PROJECT

IDF GRANT No. TF013657

IMPLEMENTED BYINVESTMENT AND PUBLIC PRIVATE PARTNERSHMP DEPARTMENT

OF MINISTRY OF ECONOMY OF THE KYRGY REPUBLIC

SPECIAL PURPOSE FINANCIAL STATEENTS

AND

INDEPENDENT AUDITOWS REPO T

For the period from 4 September 2013 to 21 Ocinber 2016

BISHKEKOctober 2016

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PRIVATE SECTOR DEVELOPMENT CAPA CITY BUILDING

PROJECT

IDF GRANT NO. TF013657

TABLE OF CONTENTS

Page

STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION

AND PRESENTATION OF THE SPECIAL PURPOSE FINANCIAL S, ATEMENTS 3

INDEPENDENT AUDITOR'S REPORT 4-5

SPECIAL PURPOSE FINANCIAL STATEMENTS

For the period from 4 September 2013 to 21 October 2016:

6Statement of cash receipts and payments

7Statement of expenditures per components

Notes to the special purpose financial statements 8-11

ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUB 1TTED BY THE IPPPD AND

DISBURSED BY THE WORLD BANK 12

2

STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION

AND PRESENTATION OF THE SPECIAL PURPOSE FINANC1 L STATEMENTS FOR

THE PERIOD FROM 4 SEPTEMBER 2013 TO 14 OCTOBER 1016

The Investment and Public Private Partnership Department of N nistry of Economy of the

Kyrgyz Republic ("IPPPD") is responsible for the preparation of tl, special purpose financial

statements of "Private Sector Development Capacity Building Pr ject" ("Project") financed

by Letter Agreement IDF Grant No. TF013657 and that prese t fairly the Project's cash

receipts and payments, expenditures per components for the period from 4 September 2013 to

21 October 2016, in compliance with the International Public Se ctor Accounting Standard

"Financial Reporting under the Cash Basis ofAccounting" (IPSA -Cash Basis) issued by the

International Public Sector Accounting Standards Board (IPSA SB) of the International

Federation of Accountants (IFAC) and the Financial Manageme t Manual for World Bank

Financed Investment Operations (WB Guidelines).

In preparing the special purpose financial statements, IPPPD is resp onsible for:

* Properly selecting and applying accounting policies;

* Presenting information, including accounting policies, i a manner that provides

relevant, reliable, comparable and understandable informatioi

* Providing additional required disclosures for the period frc i 4 September 2013 to 21

October 2016.

IPPPD's Management is also responsible for:

* Designing, implementing and maintaining an effective al sound system of internal

controls, throughout the Project;

* Maintaining adequate accounting records that are sufficie t to show and explain the

Project's transactions, and which enable them to ensure that e special purpose financial

statements of the Project comply with IPSAS - Cash Basis a d the WB Guidelines;

a Taking such steps that are reasonably available to them to safeguard the assets of the

Project and to affirm that funds received have been used i accordance with the Letter

Agreement IDF Grant No. TF013657 dated 18 March 2013, and World Bank related

guidelines, with due attention to economy and efficiency, nd only for the purposes for

which the financing was provided; and

* Preventing and detecting fraud and other errors.

The special purpose financial statements for the period from 4 & ptember 2013 to 21 October

2016 were authorized for issue on 24 October 2016 by the IPPPI.

On behalf of the IPPPD:

Kanat Abdrahmanov oAirag Temiralieva

Head of Poject onsultant

Investment and Public Private o cial Management

Partnership Department of

Ministry of Economy

3

"SOS-AUDIT"L TD

INDEPENDENT AUDITOR'S RE PORT

On the special purpose financial statements o the

Private Sector Development Capacity Building Project

for the period from 4 September 2013 to 21 Octo er 2016

To the management of the Investment and Public Private Partne ship Department of Ministry

of Economy of the Kyrgyz Republic ("IPPPD")

We have audited the accompanying special purpose financial statements of the "Private

Sector Development Capacity Building Project" (the Project) f nanced by Letter Agreement

IDF Grant No. TF013657, which comprise the statement of ca0h receipts and payments, the

statement of expenditures per components for the period frm 4 September 2013 to 21

October 2016, and a summary of significant accounting policies and other explanatory notes.

Management's Responsibility for the Special Purpose Financia Statements

The management of the IPPPD is responsible for the preparatio and fair presentation of these

special purpose financial statements in accordance with International Public Sector

Accounting Standard: Financial Reporting Under the Cash Iasis of Accounting, (IPSAS-

Cash Basis) issued by the International Public Sector Accountimg Standards Board (IPSASB)

of the International Federation of Accountants (IFAC), and Financial Management Manual

for World Bank Financed Investment Operations, and Ior such internal control as

management determines is necessary to enable the preparatio, of special purpose financial

statements that are free from material misstatements, whether d.e to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these special pur ose financial statements based

on our audit. We conducted our audit in accordance with Intert ational Standards on Auditing

(ISAs) as issued by International Auditing and Assurance S dards Board (IAASB) of the

IFAC. Those standards require that we comply with ethic requirements and plan and

perform the audit to obtain reasonable assurance whether the special purpose financial

statements are free from material misstatement.

An audit involves performing procedures to obtain reason; le audit evidence about the

amounts and disclosures in the special purpose financial statef ents. The procedures selected

depend on the auditor's judgment including the assess ent of the risk of material

misstatement of the special purpose financial statements, wlether due to fraud or error. In

making those assessments, the auditor considers internal conirol relevant to the preparation

and fair presentation of the special purpose financial statei ent in order to design audit

procedures that are appropriate in the circumstances, but not fr the purpose of expressing an

opinion on the effectiveness of the internal control.

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An Associate of the Crowe Horwath Business Alli nce

38/55 A.Tigranyan, 0037 Yerevan, RA; Tel.: (+37410) 20 11 51; Fax: (+37410) 20 11 50; www. saudit.am; E-mail: info@sosaudit.am

4

"UOU-MfIPI-khS" WIIQ

"SOS-AUDIT" LTD

An audit also includes the appropriateness of accounting policies used and the reasonablenessof accounting estimates made by management, as well as evalu ing the overall presentationof the special purpose financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our opinion.

Opinion

In our opinion,1. the special purpose financial statements present fairly in .11 material respects the cash

receipts and payments for the period from 4 September 1013 to 21 October 2016 inaccordance with IPSAS-Cash Basis;

2. funds have been used in accordance with the conditions i f the Letter Agreement IDFGrant No. TF013657 dated 18 March 2013 between the International Bank forReconstruction and Development (IBRD) and the Kyrgyt Republic, and World Bankrelated guidelines, with due attention to economy and ifficiency, and only for thepurposes for which the financing was provided;

3. supporting documents, records and accounts have been maintained to support claimsfor reimbursement of expenditures incurred. Expenditure included in the withdrawalapplications and reimbursed against are eligible for :imancing under the LetterAgreement IDF Grant No. TFO 13657;

4. The Designated account used has been maintained in accoddance with the provision ofthe Letter Agreement IDF Grant No. TF013657, and Word Bank related guidelines.

Emphasis of matters

Without qualifying our opinion, we draw your attention to Note 8 of these special purposefinancial statements which disclosed that the Project was completed as at the reporting date.

-"SOS-Audit" LLCIN0124 October 2016

Manve -Gnel Khachatryan, FCCADi Auditor

* SOS-AUDIT"0)00513166

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An Associate of the Crowe Horwath Business Allia ce38/55 A.Tigranyan, 0037 Yerevan, RA; Tel.: (+37410) 20 11 51; Fax: (+37410) 20 11 50; www.so audit,am; E-mail: info@sosaudit.am

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Private Sector Development Capacity Building ProjectIDF Grant No. TF013657

Notes to the special purpose financial statementsFor the period from 4 September 2013 to 21 October 2016

1. General information

1.1. The Project

The Letter Agreement IDF Grant No. TF013657 was concluded on 18 March 2013 between theKyrgyz Republic and the International Bank for Reconstruction and Development ("IBRD", "WB"),according to which a grant from the WB's Institutional Development F nd ("IDF") in the amount notto exceed 320,000 Unites States dollars ("USD") was provided to the Ky rgyz Republic.

The Letter Agreement became effective on 4 September 2013.

The financing was provided for the implementation of "Private Sector D velopment Capacity BuildingProject" (the Project).

The Closing date of IDF Grant No. TF013657 is set 4 September 2016.The Grace Period for submitting withdrawal application for expenditur s incurred before the Closingdate is four months following the Closing dates.

1.2. The Project objectives

The objective of the project is to build the capacity of the Ministry of Economy of the KyrgyzRepublic ("MoE") by:

(a) Strengthening coordination and communication amongst govcrnment agencies, the privatesector and donors;

(b) Designing a private sector development ("PSD") strategy and ac ion plan; and(c) Enhancing its policy implementation supervision capacity.

The Project consists of the following parts:

Part 1: Development of Staff Capabilities and Expertise in PSD S rategy and Train-the-Trainers

Part II: Development of PSD Strategy and Implementation Mon toring

1.3. The Project Budget and Financing

The Project is wholly financed by IDF Grant No. TFO13657, inclusive o taxes.

IDF Grant Grant ExpenditureNo. Financing

Category TF013657 Total (inclusive of taxes)USD USD

equivalent %

(1) Goods, Consultants' services includingaudit, Training and Operating Costs 320,000 320,000 100%Total 320,000 320,000

1.4. Project Implementation

The Investment and Public Private Partnership Department of the Ministry of Economy of the KyrgyzRepublic ("IPPPD") is responsible for the Project implementation. 1he Department performed its

duties mostly through International Aid Coordination Division (IACD) operating under it.The IPPPD address is: 106 Chui Avenue, Bishkek, Kyrgyz Republic.

8

Private Sector Development Capacity Building ProjectIDF Grant No. TF013657

Notes to the special purpose financial statementsFor the period from 4 September 2013 to 21 October 2016

2. Summary of significant accounting policies

2.1. Preparation and presentation offinancial statements

The special purpose financial statements are prepared in accordance with the International

Public Sector Accounting Standard: Financial Reporting Under t e Cash Basis ofAccounting

(IPSAS-Cash Basis), issued by the International Public Sector Accounting Standards Board

(IPSASB) of the International Federation of Accountants (IFAC), and presented in

accordance with Financial Management Manual for World ank Financed Investment

Operations (March 2010): RM 3 - Financial Reporting and Auditi rg.

The principal accounting policies applied in the preparation of th se special purpose financial

statements are set out below. These policies have been consisten ly applied to all the periods

presented.

2.2 Cash basis of accounting

Project financing is recognised as a source of project funds when the cash is received. Project

expenditures are recognised as a use of project funds when the pa ments are made.

2.3 Reporting currency

The reporting currency of these special purpose financial state nts is United States dollars

(USD).The expenditures made in local currency, Kyrgyz Som (KGS), ae translated into USD based

at the exchange rate prevailing at the date of the transaction as iss ed by the commercial bank,

OJSC "Commercial Bank Kyrgyzstan" (CBK), where the amounis are held.

The exchange rate defined by the CBK is as follows:

21 October 2016: USD 1 67.80 KGS.

2.4. Taxes

The taxes are paid in accordance with the tax regulation of the K rgyz Republic.

9

Private Sector Development Capacity Building ProjectIDF Grant No. TF013657

Notes to the special purpose financial statementsFor the period from 4 September 2013 to 21 October 2016

3. Summary of Summary Reports and SOEs

Payment categories TotalWithdrawal Withdrawalapplication application (1) Goods, Consultants' services

No value date including audit, Training andOperating Costs

2 21.Jul.2014 57,057.00 57,057.00

3 8.Oct.2014 37,682.30 37,682.30

4 16.Dec.2014 24,633.91 24,63191

5 5.Mar.2015 45,928.32 45,928.32

6 21.Jan.2016 57,400.78 57,400.78

8 22.Sept.2016 57,886.26 57,886.26

Total 280,588,57 280,588.57

4. Statement of Designated Account

Bank account number 1030120800003387Bank OJSC "Commercial Bank yrgyzstan"

Bank location Erkindik 58, Bishkek, Kyr z Republic

Currency USD

Grant IDF No. TF0136574.SL-p.2013_21.Oct.2016

1. Opening balance as at 04.09.2013

2. Add: opening discrepancy

3. WB advance/replenishment 290,567

4. Less: Refund to WB from DA

5. Present outstanding amount advanced to DA 290,567

6. DA closing balance as at 21.10.2016 -7. Add: Amount of eligible expenditures paid 290,567

8. Less: interest earned (if credited to DA)

9. Total advance accounted for 290,567

10. Closing discrepancy (5)-(9)

5. CashUnderlying 21 Oct 2016CurrencV USD

Escrow account* USD 9,9789 978

(*) Escrow account is opened at OJSC "Commercial Bank Kyrgyzstan" for pa ing the final audit fee.

10

Private Sector Development Capacity Building ProjectIDF Grant No. TF013657

Notes to the special purpose financial statementsFor the period from 4 September 2013 to 21 October 2016

6. Project Expenditures

CumulativeExpenditures

as at 21 Oct 2016 Total budget ExecutionCategory USD USD %(1) Goods, Consultants' services including audit,Training and Operating Costs

Goods 24,556 21,000 117%Consultants' services including audit 213,820 270,000 79%Training 28,300 15,000 189%0perating costs 13,913 14,000 99%

Total 280,589 3200 88%

7. Financing

IDF Grant No. TF013657Reporti Cumulative as at

peried 21 Oct 2016USP USD

Advances/ (advance recovery) 9,978.10 9,978.00*Direct Payments - .SOE and Summary Report 280,588. 7 280,588.57Total 290,566. 7 290,566.57

Total financing budget 320,000Percentage of finance provided as at 21 Oct 2016 91%

(*) The unsettled advance balance will be covered with the submission of SOE for finial audit servicein the amount of USD 9,978.00.

8. Project completion

The Project was completed as at 4 September 2016 (the Closing Date), and the Grace period forsubmitting withdrawal application for expenditures incurred before the Closing date set four monthsafter the Closing Date.

However, all the transactions were completed as at 21 October 2016 (Reporting date).As at the date of signing these special purpose financial statements:a. No expenditures related to the Project were incurred after the Closing Date; the payments made

during the Grace period related to expenditures incurred before the losing Date;b. No withdrawals from grant account were made after Reporting date;c. No expenditures related to the Project were submitted to the WB after the Reporting date; the

SOE for finial audit service in the amount of USD 9,978.00 will be Submitted to the WB after thecompletion of the audit service;

d. There were no uncovered prepayments or payables outstanding to contractors related to the

Project as at the Reporting Date, except for final audit service;

e. The outstanding cash balance at escrow account as at Reporting Date, will be paid for final auditservice, including the related non-resident income tax (Note 5);

f. We are not aware about any pending or existing litigations against t e Project.

11

Private Sector Development Capacity Building ProjectIDF Grant No. TF013657

ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMI TED BY THE IPPPD ANDDISBURSED BY THE WORLD BANKFor the period from 4 September 2013 to 21 October 2016(Amounts are shown in US dollars)

IDF Grant No. TF013657

Expenditure Category Appl. IPPPD WB Difference

Advance (recovery) 1 60,000.00n ((50,022.00)

9,978.002 57,057.00 57,057.003 37,682.30 37,682.30 -

(1) Goods, Consultants' services 4 24,633.91 24,633.91 -including audit, Training and Operating 5 45,928.32 45,928.32 -Costs 6 57,400.78 57,400.78

8 57,886.26 57,886.26 -

280,588.57 280,588.57Total 280,588.57 290,566.57

12