World Bank Document - Documents & Reportsdocuments.worldbank.org/curated/en/942081468780601741/pdf/IDA1R... · Benefits and target population ... and the 2002 Country Procurement

Document o f The World Bank

Report No: 25480-VN

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR39.90 MILLION

(US$54.33 MILLION EQUIVALENT)

TO THE

SOCIALIST REPUBLIC OF VIETNAM

FOR A

PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT

APRIL 24,2003

Poverty Reduction and Economic Management Unit East Asia and the Pacific Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective March 3 1, 2003)

Currency Unit = Dong (D) USSl = D 15,456.5

ADB CAS CFAA C P A R CPRGS CTA D M F A S DFID D M F A S GF S GVN H I P C I C T IDA IMF IV&V LAN MDTF MOET MOF MPI MTFF MTEF P A R PER PFMRP P F M R I PMU PRSC S B V SOE TA T A B M I S UNCTAD U N D P WAN

FISCAL YEAR January 1 -- December 31

ABBREVIATIONS AND ACRONYMS

Asian Development Bank Country Assistance Strategy Country Financial Accountability Assessment Country Procurement Assessment Report Comprehensive Poverty Reduction and Growth Strategy Chief Technical Adviser Debt Monitor ing and Financial Analysis System Department for International Development (UK) Debt Management and Financial Analysis System Government Finance Statistics Government o f Vietnam Highly-Indebted Poor Country Information and Communications Technology International Development Association International Monetary Fund Independent Validation and Verif ication Loca l Area Network Mult i -donor Trust Fund Min is t ry o f Education and Training Min is t ry o f Finance Min is t ry o f Planning and Investment Medium-Term Fiscal Framework Medium-Term Expenditure Framework Public Administration Reform (Master Plan) Public Expenditure Review Public Financial Management Reform Project Public Financial Management Reform Init iative Project Management Unit Poverty Reduction Support Credit State Bank o f Vietnam State-Owned Enterprise Technical Assistance Treasury and Budget Management Information System United Nations Conference on Trade and Development Uni ted Nations Development Program Wide Area Network

Vice President: Jemal-ud-din Kassum, EAPVP Country ManagedDirector: Klaus Rohland, EACVF

Sector ManagedDirector: Homi Kharas, EASPR Task Team Leader/Task Manager: Edward Mountfield, EASPR

VIETNAM PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT

CONTENTS

A. Project Development Objective

1. Project development objective 2. Key performance indicators

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2. Main sector issues and Government strategy 3. Sector issues to be addressed by the project and strategic choices

C. Project Description Summary

1. Project components 2. Key policy and institutional reforms supported by the project 3. Benefits and target population 4. Institutional and implementation arrangements

D. Project Rationale

1. Project alternatives considered and reasons for rejection 2. Major related projects financed by the Bank andlor other development agencies 3. Lessons learned and reflected in the project design 4. Indications o f borrower commitment and ownership 5. Value added o f Bank support in this project

E. Summary Project Analysis

1. Economic 2. Financial 3. Technical 4. Institutional 5 . Environmental 6. Social 7. Safeguard Policies

F. Sustainability and Risks

1. Sustainability 2. Critical r isks

Page

2 2

2 2 5

6 14 15 15

16 17 19 19 19

20 20 21 21 22 22 23

23 24

3. Possible controversial aspects 25

G. M a i n Credit and Grant Conditions

1. Effectiveness Condition 2. Other

H. Readiness for Implementation

I. Compliance with Bank Policies

Annexes

Annex 1 : Project Design Summary Annex 2: Detailed Project Description Annex 3: Estimated Project Costs Annex 4: Fiscal Costs and Benefits Analysis Summary Annex 5: Financial Summary Annex 6: (A) Procurement Arrangements

(B) Financial Management and Disbursement Arrangements Annex 7: Project Processing Schedule Annex 8: Documents in the Project Fi le Annex 9: Statement o f Loans and Credits Annex 10: Country at a Glance

25 26

27

27

28 35 55 56 57 58 67 73 74 75 77

VIETNAM Public Financial Management Reform Project

Project Appraisal Document East Asia and Pacific Region

EASPR

Date: April 24,2003 Sector Director: Homi Kharas Country Director: Klaus Rohland Project ID: PO75399 Lending Instrument: Specific Investment Loan (SIL)

Team Leader: Edward Mountfield Sector(s): General public administration sector (50%), Sub-national government administration (50%) Theme(s): Public expenditure, financial management and Procurement (PI3 Debt management and fiscal substainability (P)

[ ] Loan [XI Credit [ ] Grant [ ] Guarantee [ ] Other:

For LoanslCreditslOthers: Amount (US$m): 54.33

BORROWER

Proposed Terms (IDA): Standard Credit Grace period (years): 10 Commitment fee: 0.5%

3.81 I 3.33 I 7.14

Years to maturity: 40 Service charge: 0.75%

Total: 10.52 I 60.94 I 71.45

IDA UK: BRITISH DEPARTMENT FOR INTERNATIONAL 4.05 2.66 I 50.28 7.33 I 54.33

9.99

I I I

Borrower: SOC. REP. OF VIETNAM Responsible agency: MINISTRY OF FINANCE OF VIETNAM Address: 8 Phan Huy Chu, Hanoi Contact Person: Mr. Vu Van Truong (Director o f Project Management Unit) Tel: 84-4-9719277 and 9719664 Fax: 84-4-9719273 Email: [email protected]

Estimated Disbursements ( Bank FY/US$m):

Project implementation period: 5 years

A. Project Development Objective

1. Project development objective: (see Annex 1)

The objective o f the Public Financial Management Reform Project (PFMRP) i s to strengthen budget planning, execution, reporting and accountability. The current systems and processes have some important strengths, and the Government has made steady progress in addressing the weaknesses. Nevertheless, there i s an urgent need for further, accelerated reform to strengthen and integrate core treasury and budget management information systems; to strengthen the links between budget management and the developmental goals set out in the Government‘s Comprehensive Poverty Reduction and Growth Strategy (CPRGS) within a medium-term expenditure framework; and to improve the management o f public debt and other fiscal risks.

2. Key performance indicators: (see Annex 1)

K e y performance indicators for the PFMRP are:

i. accuracy, timeliness, relevance, transparency and compliance with international best practices in budget execution and reporting at each level o f government;

ii. better planning of the State Budget and the Public Investment Program to achieve the growth and poverty reduction goals set out in the CPRGS; and

iii. greater fiscal sustainability through improved and more integrated recording o f external and domestic publ ic and publicly guaranteed debt, improved capacity to monitor SOE liabilities, and improved abi l i ty to assess associated fiscal risks.

B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 24621-VN

The PFMRP supports the 2002 Country Assistance Strategy goal o f promoting good governance. The PFMRP will focus o n the sub-goal o f improving public financial management, information and transparency. Indirect but important contributions wil l be made to the achievement o f other governance sub-goals including public administration reform, development o f e-govemment and combatting o f corruption.

Date of latest CAS discussion: September 3,2002

2. M a i n sector issues and Government strategy:

Issues. Public financial management in Vietnam continues to strengthen. Vietnam has earned a reputation for fiscal prudence, with relatively small budget deficits and l o w debt (both domestic and foreign). The existing treasury and budget management systems include some effective mechanisms to prevent over-spending and misappropriation o f resources. Targeting o f spending on public health and education, especially o n education, has improved over time. Public social expenditures are now more equally distributed than household expenditures. The 1996 State Budget L a w established clear and generally sound “rules o f the game” for resource allocation and resource use.

A revised State Budget L a w was approved by the National Assembly in December 2002 and comes into force in January 2004. This revised legislation strengthens the legal platform for budget management in three important regards:

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i. Managing decentralization: The new law further clarifies the roles and responsibilities o f central and subnational government. In particular, provincial People's Councils are given more explicit powers and duties to prioritize resources, including determining allocations to different sectors and transfers to lower tiers. They also are given more explicit powers and duties to mobil ize resources, with some taxes that were assigned to central government now shared. Local spending units will gradually be given greater budget f lexibi l i ty. Local planning wil l be promoted through the agreement o f transfers f rom the center to provinces for stable periods o f three years, in return for which provinces must produce medium-term expenditure plans.

ii. Strengthening transparency and accountability: The new law consolidates and builds on recent efforts to promote fiscal transparency and accountability, such as Decision 182/2001/QD-TTg allowing for more detailed publication o f f inal accounts for 2000 and the budget plan for 2002 and providing an enforcement mechanism to make communes post their budgets outside offices. Henceforth, budgets will be published as soon as they are approved, along with al l procedures and regulations. In addition, the National Assembly i s given powers to decide detailed appropriations for Ministries and transfers to provinces, whereas previously they only approved allocations at the sector level.

iii. Promoting administrative rationalization and streamlining: The division o f responsibilities between the Ministry o f Finance, the State Treasury Department (within the MOF), the Ministry o f Planning and Investment and the State Bank o f Vietnam are h r the r clarified. The MOF will be the lead agency responsible for budget formulation and debt management. The State Treasury Department wil l be the lead agency responsible for budget execution and for government financial management information. A major effort i s under way to simplify and strengthen financial management and reporting requirements. Duplicative and low-value added stages in the budget formulation and allotment processes are being eliminated or consolidated.

Nonetheless, significant weaknesses remain. Fiscal sustainability i s jeopardized by potential declines in oil-revenue, and a growing mismatch between increasing capital expenditure and declining non-wage recurrent expenditure. I t i s also at risk because o f pressure for further c iv i l service pay increases, and the uncertainties associated with extra-budgetary accounts, non-performing loans to state-owned enterprises and other contingent liabilities. Processes for priori t iz ing expenditures remain ineffective. The absence o f a credible multi-year fiscal framework means that expenditure planning i s conducted without reference to medium-term resource constraints. Prioritization i s carried out separately for capital spending (by the Ministry o f Planning and Investment) and for recurrent spending (by the Ministry o f Finance), with significant imbalances between the two. Operational effectiveness i s limited. Vietnam lacks even a basic mechanism for monitoring the actual outcomes o f publ ic spending and for feeding this information back into future resource allocation decisions. Weaknesses in transparency and accountability continue to exist, perpetuating corruption and waste.

Cutting across a l l these weaknesses are shortcomings in Vietnam's public financial management information systems. The lack o f a fully consolidated budget makes it dif f icult to monitor total revenues and expenditures, as we l l as the true fiscal position. Extra-budgetary funds, on-lent off icial development assistance and much o f commune-level spending are not consolidated into the budget. The lack o f common accounting structures results in numbers which are inconsistent and hard to compare. The lack o f integrated, electronic data recording and reporting results in laborious manual consolidation and manipulation o f data f rom mult iple satellite databases, and in financial reporting which is neither t imely nor accurate. These deficiencies contribute to the poor f l ow o f budgetary information between government ministries, provinces, donors and the public.

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There has been extensive analysis of these issues, including the jo int IMF-Wor ld Bank study o f 1999 "Towards Fiscal Transparency"; the jo int Government-donor Public Expenditure Review (PER) o f 2000; the 2001 Country Financial Accountability Assessment (CFAA) o f 2001; and the 2002 Country Procurement Assessment Report (CPAR) o f 2002. Chapter 12 o f the Wor ld Bank's 2003 Vietnam Development Report includes a summary and update.

Strategy. Public financial management reform i s one o f four focus areas w i th in the Government o f Vietnam's Public Administration Reform (PAR) Master Program for the period 2001 - 2010. Other focus areas include organizational restructuring, pay and employment reform and institutional development. The prioritization o f publ ic financial management as part o f the P A R Master Program was endorsed by the Prime Minister in September 2001, in Decision No. 136/2001/QD-TTg. In order to take forward reform in these four key areas, the Prime Minister has also approved seven programs o f action, o f which Program No. 6 i s the Public Financial Management Reform Initiative (PFMRI).

T o ensure implementation o f the PFMRI, the Minister o f Finance has established a Steering Committee for the Modernization o f Public Financial Management. The Steering Committee i s chaired by Vice Minister L e Thi Bang Tam and members include leaders o f key departments f rom across the Ministry o f Finance. This Steering Committee has identified f ive areas o f public financial management reform requiring attention:

i. budget management, including the establishment o f an integrated Treasury and Budget Management Information System (TABMIS) and the introduction o f multi-year expenditure programming focused o n attainment o f the Vietnam Development Goals set out in the CPRGS;

ii. revenue management, including the strengthening o f tax administration systems, processes and capabilities, focusing in the first instance on the introduction o f VAT self-assessment;

iii. debt management, including strengthening systems for the recording o f domestic and external debt, the establishment o f a debt management strategy and the development o f a r i sk assessment framework;

iv. SOE fiscal risk management, including the development o f a tracking system for State Owned Enterprise (SOE) debt and other contingent liabilities and the integration o f this data into a risk assessment framework; and

v. public asset management, including the establishment o f systems for better tracking o f the state's physical assets and assessing how we l l these match identified asset requirements.

These f ive reforms each have subnational as we l l as national dimensions. With a population o f 78 mi l l ion people, Vietnam has a three-tiered structure o f local governance. In addition to the national level administration, there are 61 provinces (tier l), 598 districts (tier 2) and 10,500 communes and wards (tier 3). The share o f these local administrations in total expenditure increased steadily f rom 26 percent in 1992 to over 43 percent in 1998, and to close to 50 percent at the current time. W i t h the exceptions o f the Education and Training sector and the Science and Technology sector, which have been identified as national priorities, the provincial People's Councils have considerable discretion in allocating between sectors and spending units, a discretion formalized in the revised State Budget L a w in December 2002. The majori ty o f revenues are n o w shared between central and provincial government.

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The Government has asked the Wor ld Bank and other donors for assistance in a l l f ive o f the PFMRI areas. Within each o f these areas, the Government has identified a need for (a) technical assistance with pol icy and institutional reform; (b) capacity building cutting across Government; and (c) the implementation o f appropriate financial management information systems.

3. Sector issues to be addressed by the project and strategic choices:

The Public Financial Management Reform Project (PFMRP), financed by the Wor ld Bank and the UK Department for International Development, wil l take forward implementation in the areas o f budget management and debt management, where substantial diagnostic work has been completed and where there i s broad consensus between Government and donors on the way ahead. In the area o f budget management, the reforms to be implemented draw o n Bank-supported diagnostic work identified above. As detailed in Section C, the reforms which the Government plans to take forward as part o f the PFMRP build on important reforms already undertaken, many in fulf i lment o f f i rs t and second tranche release conditions for the f i r s t Poverty Reduction Support Credit (PRSC 1 - FYOl to FY03). In the area o f debt management, the Wor ld Bank has conducted diagnostic work in support o f PFMRP preparation, including the needs assessment report entitled "Vietnam: Modernizing the Management o f Public Debt and SOE Fiscal Risk" (FY03).

The PFMRP will make in i t ia l contributions in the areas o f SOE fiscal risk management and asset management. On SOEs, however, the project wil l focus o n improving capacity to monitor the net l iabi l i ty positions o f SOEs and to use this information to manage the fiscal r isks entailed. Regarding asset management, the new Treasury and Budget Management Information System (TABMIS) will include an assets module in order to ensure the system would be able to operate in an accruals accounting environment in future. However, this may or may not be fully operationalized during the project implementation period.

I t was decided not to include revenue management in the PFMRP. It was felt that, unl ike budget management and debt management, a platform o f diagnostic work and pr ior pol icy reform had yet to be established in this area. It was felt not only unnecessary but undesirable to integrate information systems for tax administration with systems for treasury and budget management. The functional interfaces between the expenditure and revenue sides o f the budget are relatively l imi ted and best handled through batch interfacing o f data rather than wholesale integration.

Nevertheless, the Bank, the IMF and other donors have indicated their willingness to provide technical assistance in a l l f ive areas o f the PFMRI through other channels, with a v iew to larger scale investment when the time i s right. As a f i rs t step, the Governments o f Canada, Denmark, the Netherlands, Norway, Sweden, Switzerland and the United K ingdom have established a Mult i-Donor Trust Fund (MDTF) in support o f the PFMRI. Administered by the Wor ld Bank, this trust fund i s worth S 1.8 mi l l ion over the next 18 months, with US$2.0 mi l l ion pledged for a further period o f 18 months. The MDTF will support diagnostic work, capacity building and dialogue in al l areas o f the PFMRI and will help the Government advance other parts o f i t s agenda to the stage where larger scale investment can be considered.

Systems implemented as part o f the PFMRP wil l have "open architecture" and wil l make use o f modular financial software packages which support subsequent expansion. This will enable future systems implemented to be integrated with those systems developed in this first phase. A provision has been included in the project budget to finance consulting inputs for the preparation o f a follow-on project when the t ime i s right.

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C. Project Description Summary

Component 4: Project Management Support

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown) :

The PFMRP will finance an integrated package o f assistance to strengthen budget planning, execution, reporting and accountability. This will include Technical Assistance (TA) to support institutional reform and pol icy development; training and capacity building; and a major upgrading o f core systems for publ ic financial management. By the end o f the project, an effective, integrated Treasury and Budget Management Information System (TABMIS) will be operational in al l central, provincial and district treasury offices, based on a new, integrated account code structure. This wil l enable accurate and t imely consolidated budget reporting and cash accounting. It will f o rm a platform for introduction o f coinmitment accounting and other elements o f accruals accounting; and, combined with the new inter-bank payments system, w i l l support the introduction o f a Treasury Single Account. Modem budget planning approaches wil l have been established in the Ministry o f Finance, Ministry o f Planning and Investment, in four pi lot sector ministries and four pi lot provinces. Strengthened approaches to the management o f publ ic debt wil l have been established in core government agencies, including integrated processes for recording o f domestic and external debt and for analysis and management o f fiscal risk.

Project components, their indicative costs and bank financing, are tabulated and described below.

Component

Component 1 : Strengthening Treasury and Budget Management

Component 2: Strengthening State Budget and Investment P 1 ann i n g

Component 3: Strengthening Management o f Public Debt and SOE Fiscal Risks

ndicative costs

(US$M) 6 1.42

4.18

2.88

2.97

% of Total

86.0

5.9

4.0

4.2

Bank- Financing (US$M)

51.84

1.04

1.33

0.12

% of Bank-

financing 95.4

1.9

2.4

0.2 100.0 100.0


Overview. The f i rs t and largest component o f the PFMRP will involve the implementation o f an integrated Treasury and Budget Management Information System (TABMIS). The turn-key procurement o f the new TABMIS, including hardware, software, implementatiodintegration services, training and change management services will be financed by IDA credit with Government contribution. Other consulting and capacity building costs associated with the implementation o f the T A B M I S wil l be financed on a grant basis by the UK Department for International Development. Full implementation across central government and a l l 61 provinces, including a l l users at provincial and district level, i s expected to take f ive years.

The Government o f Vietnam, l ike many governments, historically has left the development o f i t s financial management information systems to i t s individual departments and units, with l i t t le attention to

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the critical f lows o f information between system components and beyond the system. The current systems are fragmented technologically and have overlapping and conflicting fkc t iona l i t y . The end result has been a lack o f integrity in overall fiscal data, transparency and control. The Government has made a start in modernizing its core treasury and budget management systems. The systems put in place have proved broadly effective at preventing overspending and misappropriation o f resources. Nevertheless, major weaknesses remain.

On the institutional side, the lack o f a common account code structure results in financial reports which are inconsistent and hard to compare. Paralleling the three separate accounting systems, separate financial management information systems currently operate in the State Budget Department, the State Treasury Department and spending units. Extra-budgetary funds, on-lent off icial development assistance and much commune-level spending are currently not consolidated into the budget or recorded in the State Treasury Department's main accounting system. The lack o f a fully consolidated and integrated budget makes it dif f icult to monitor total revenues and expenditures, distorting perceptions o f the true fiscal position, with potentially serious consequences for fiscal stability. I t makes it hard to assess h o w resources are being allocated as a whole, and to poverty alleviation in particular; and to compare budget plans with budget outturns. I t also acts as an impediment to the successful management o f further devolution and delegation.

Art icle 61 o f the 2002 L a w o n State Budget designates the State Treasury as the lead agency responsible for maintenance o f financial management information. In addition, the Government has committed to integrate the Treasury accounting system, the budget accounting system and the spending units accounting system within an integrated chart o f accounts. Work i s underway to identi fy and consolidate extra-budgetary funds into the budget. These reforms form the platform for Component 1 o f the PFMRP.

Technological weaknesses also persist, despite progress in recent years. In 1999, Vietnam's key fiscal agencies began to invest in a united information infrastructure in their various agencies. The purpose was to create a network backbone connecting their individual networks. In March 1999, the Minister o f Finance signed Decision No.30/1999/QD-BTC approving the development o f a State Budget database. Since then, there has been a very substantial investment in ICT hardware, software and communications infrastructure. There are now Local-Area Networks (LANs) connecting the key financial agencies (the Treasury department, finance department, taxation department and customs department) in a l l 6 1 provinces. Wide-Area Networks (WANs) have been established in some o f the larger cities. Investment i s currently underway to complete a national network backbone, which wil l link these LANs and WANs by the end o f 2004.

The Government has announced i t s wish to build on institutional reforms, the improved I C T environment and the various legacy systems, to procure an integrated Treasury and Budget Management Information System (TABMIS), which wil l eventually support budgeting, control, monitoring and accounting at every level o f government. Recognizing the need to draw o n international experience and global best practice to identi fy and document their functional and technical specifications, the Government o f Vietnam has appointed Booz A l len Hamil ton Inc. to assist them. The functional and technical specifications emerging, further detailed in Annex 2, are closely aligned with the Wor ld Bank - IMF "Treasury Reference Model".

Sub-component 1 (a) - Procurement assistance and Independent Bid Evaluation: The procurement strategy for Component 1, detailed in Annex 6 (a), involves procurement the T A B M I S "solution" (sub-components 1 (c) - I ( f ) ) as a single "turn-key" package. As such, this single package will include implementation and integration services, hardware, software, training and change management services. The solution wil l be designed by bidders to meet functional/user requirements and technical

specifications to be precisely set out in the Bidding Document being prepared by Booz A l len Hamilton. Sub-component 1 (a) wil l finance continued assistance, once the credit becomes effective, w i th procurement and Independent Bid Evaluation. The procurement assistance will include supporting the Government with the development o f the second stage bidding documents, including any revisions to the functional and technical specifications emerging f rom the f i rs t stage; participation in the "proof o f concept" process; and negotiation o f an exacting contract with the successful bidder. The Independent Bid Evaluation will be commissioned by the Government but submitted to the Wor ld Bank as well as to the Government. At the Government's discretion, this work may be contracted directly to Booz Al len Hamilton in order to ensure continuity w i th earlier work (subject to successful price negotiation and continued perfonnance by the consultants). Booz Al len Hamilton were competitively selected previously in accordance with Wor ld Bank procurement guidelines.

Sub-component 1 (b) - Independent Validation and Verification (IV&V): Although such a large procurement carries risk, it was decided that any attempt to split the procurement o f sub-components 1 (c) to 1 (f) into separate procurement packages would carry greater risk. With turn-key procurement o f this kind, the vendor will be responsible for ensuring timely and successful delivery o f a l l hardware, software, implementation and integration services, training and change management. Consequently, there wi l l be no possibility for blaming delays and problems o n other vendors. The Government will need assistance not only to select i t s turn-key solution partner and negotiate a contract with them, but thereafter to veri fy and validate delivery against the milestones stipulated. Sub-component 1 (b) will provide ongoing assistance w i th procurement management and subsequent Independent Validation and Verification (IV&V) services. This contract wil l be let as soon as possible after credit and grant effectiveness. A t the Government's discretion, this work may be contracted directly to Booz A l len Hamilton in order to ensure continuity with earlier work (again, subject to successful price negotiation and continued performance by the consultants).

Sub-component 1 (c) - Training and change management: A training and change management assessment, as part o f project preparation, has found that the Treasury offices where most o f the data input wil l take place already have a critical mass o f staff familiar with using electronic databases for transaction processing and accounting. Nevertheless, ensuring that these sk i l ls are updated and extending such s k i l l s to other agencies at central, provincial and district level wil l involve a major training effort. Ensuring user acceptance will require not only training but a carefully devised and implemented change management plan. This sub-component involves the development and implementation o f a strategy for training and change management. This requires the development o f the full plans, resource schedules, preparation o f materials and testing o f those materials against tr ial audiences and a delivery plan for both change management and training that f i t s together with the implementation strategy. The material for both change management and training must cover systems management, financial management and the Government accountants and financial controllers and staff, data entry, report extractors, help desk operations and general users who wil l receive information in new formats. The delivery o f the change management information and education, as with training, wil l continue throughout the implementation process. A "training o f trainers" approach will be used to deliver training to an estimated 14,000 trainees in the State Treasury Department, the Ministry o f Finance, the Ministry o f Planning and Investment and in provincial and district finance departments and line agencies.

Sub-component 1 (d) - Installation and configuration of TABMIS in Treasury head office, MOF, MPI and one pilot province: With the solution identified, the implementer selected will further develop the implementation plan. The plan will contain a strategy for implementation roll-out and data management and conversion between the legacy and new systems. The implementer will then design and configure the system, conducting required testing, in a development environment. Only when confident

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o f acceptability will the implementer migrate a version o f the system to a full test environment, Acceptance by Government wil l be subject to rigorous user acceptance testing and load testing, according to a test p lan contained in the contract documentation. Treasury head office (which will house the central database and be the repository o f the "core" system) will form the first production environment. The production environment wil l be tested here pr ior to the populating o f the system with l ive data. The chart o f accounts and other control data (security profiles, banking controls, audit trails, data import and export capabilities, standard report configuration, etc) will be established and l ive data entry enabled. The Ministry o f Finance, Ministry o f Planning and Investment and one pi lot province wil l then be connected to the central Treasury system.

Sub-component 1 (e) - Rol l out to all Treasury offices in provinces and districts: Implementation will then take place in a phased manner in a l l Treasury offices in provinces and districts. This includes a l l data entry, data reporting, interlinking and data transfer between Districts and their Province and between Provinces and Treasury head office. This sub-component will be considered complete when T A B M I S i s functioning in a l l Treasury offices and data communications between Districts and their Provinces and between Provinces and Central Treasury are operating successfully.

Sub-component 1 (f) - Roll-out to Finance Departments and planning departments a t provincial and district levels: Implementation wil l then take place in Finance Departments and planning departments at provincial and district level. At the completion o f this sub-component, a l l Distr ict and Provincial Offices o f both the Treasury and the finance departments will be operating on the new T A B M I S and the legacy systems wil l be de-commissioned.

Sub-component 1 (g) - Pilot implementation in selected large spending units: The Government, in consultation with i t s consultants and with the Wor ld Bank, has concluded that i t would be premature to attempt to integrate al l spending units into TABMIS, so that they could transact electronically with the Treasury. There are many tens o f thousands o f spending units, and it wou ld be a further major expense as we l l as a further logistical challenge to implement T A B M I S in them all. Nevertheless, this i s clearly the long-term vision. This sub-component wil l support the pi lot integration o f selected large spending units into T A B M I S during the last phase o f the project.

Sub-component 1 (h) - Government TABMIS implementation team: Although much o f the responsibility for delivery o f the new T A B M I S will be given to the tum-key contractor, it wil l be essential to have a Government counterpart team in place at central, provincial and district levels to interact with the tum-key contractor's consultants. I t i s estimated that up to 800 staff will be required, perhaps on a ha l f time basis, for as long as five years. These costs wil l be financed 100 per cent by Government contribution.

Sub-component 1 (i) - Supplementary technical assistance with financial management rationalization and reform: The objective o f this component as a whole i s to support the reform o f Treasury and Budget management, and not just the strengthening o f systems used for such management. Government has already undertaken some important financial management rationalization and reforms, in preparation for the proposed TABMIS, and further reforms (for example, the establishment o f a single account code structure for the Treasury, Budget and Spending Unit accounting systems) are in train. As the Government implements TABMIS, however, additional technical assistance needs will emerge. This sub-component wil l ensure that funds are available to finance such inputs as they emerge. A major input wil l be to support the establishment o f a Treasury Single Account. The combination o f T A B M I S and the new inter-bank transfer system wil l make a Treasury Single Account technically feasible, but assistance with institutional development wil l be required to support i t s operationalization and the development o f

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associated processes and procedures. Similarly, the new system wil l support a gradual move to accruals accounting, but further technical assistance wil l be needed to achieve this.

Recurrent operating costs: There are major recurrent operating costs associated w i th this component. These are set out in Section F. 1 and in Annex 2.

Component 2: Strengthening State Budget and Investment Planning

Overview. The second component o f the PFMRP w i l l involve the strengthening o f state budget and investment planning, including the development o f a Medium Term Fiscal Framework (MTFF) and o f Med ium Term Expenditure Frameworks (MTEFs) in four pi lot sectors and four pi lot provinces. Technical assistance wil l be co-financed on a grant basis by the UK Department for International Development. The design and implementation o f a budget planning module, to interface with TABMIS, wil l be financed by IDA credit with Government contribution. The TA components are expected to be implemented over a three year period, w i th the I C T investment fol lowing in years four and f ive o f the project, once a inulti-year approach to budget planning has taken root.

The need for a strong central budget function i s now widely recognized by government. An effective central budget function i s required to ensure integration o f the medium-term planning o f recurrent and capital expenditures for the achievement o f agreed pol icy objectives, within a consistent medium-term fiscal framework. Vietnam has made a start in strengthening i t s state budget management and investment planning. M u c h attention has been focused on strengthening processes for the evaluation o f publ ic investment projects by the Ministry o f Planning and Investment, as part o f the Public Investment Program (PIP). The CPRGS i s a valuable step forward in that it sets out a coherent set o f development goals and includes some ini t ia l attempts to translate these goals into priorities for both capital and recurrent spending. Nevertheless, the government i s increasingly aware that i t needs to move beyond “dual budgeting” to integrated planning o f development policy, recurrent and capital expenditure within a single medium-term framework, consistent with a single, fonvard-looking fiscal framework. The revised State Budget L a w makes the MOF the lead agency responsible for preparing the overall budget. I t also requires provinces to prepare annual and five-year expenditure plans.

The Government has identified a program o f TA, in conjunction with the Wor ld Bank and other donors. The central element of this program i s to provide assistance with the development o f a Medium-Tenn Fiscal Framework (MTFF) in MOF and MPI; and o f Medium-Term Expenditure Frameworks (MTEFs) in sectors and provinces. Senior off icial workshops wil l be provided across Government to support the development o f medium-term budget planning, recognizing the “whole o f government” nature o f such reform and the need for capability and buy-in at every level. With new processes evolved and such buy-in achieved, the design and implementation o f an ICT-enabled budget preparation systems will fo l low in the later years o f the project.

Sub-component 2 (a) - Assistance to MOF and MPI with preparation of an MTFF and oversight of MTEF pilots. Preparing an aggregate MTFF and coordinating sector-level MTEFs will place major new demands on the Ministry o f Finance at the highest level. There i s a pressing need for a senior technical adviser o f international standing to provide sustained and high level guidance, advice and quality assurance to senior management. However, it i s equally imperative that MOF staff are given space to “learn by doing“, with international consultants providing advice and guidance to their efforts, rather than displacing such efforts. T o this end, i t has been agreed that a peripatetic rather than resident Ch ie f Technical Adviser should be appointed to assist the Director o f the State Budget Department in preparing the MTFF and in coordinating the preparation o f MTEFs in pi lot sectors. This Chief Technical Adviser

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will spend some three months per year in Hanoi for three years, making approximately four v is i ts per year to review progress at critical junctures and agree next steps. The CTA's primary responsibility wil l be to support the development o f the MTFF, working closely with both MOF and MPI . In addition, the CTA will assist the Director o f the State Budget Department in overseeing the consulting budgets for sector and province level MTEF development under sub-component 2 (b) and the senior off icial workshops under component 2 (c).

Sub-component 2 (b) - Assistance with preparation of MTEFs in four pilot sectors and four pilot provinces. Good medium-term expenditure planning i s not something that i s conducted solely by the MOF but i s a "whole o f government" exercise. The Government o f Vietnam has recognized this and as part o f i t s Public Expenditure Review has agreed to pi lot sector-level MTEFs in a number o f key sectors. The Govemment has indicated that the sectors it would l ike to start with are (i) Education and Training, (ii) Health, (iii) Transport and (iv) Agriculture. The Ministry o f Education and Training (MOET) wil l lead the f i rs t pilot, and MOET, MOF and M P I have come together to develop a vision for this pi lot which encompasses a l l levels o f government and vertically integrates expenditure planning from the macroicentral level, through the sector level to provinces and eventually to specific institutions. The system emerging will respect and operationalize the principles o f decentralization while connecting the national-level planning goals and targets in the CPRGS to the provincial level decision making for the distribution o f both recurrent and capital resources. The focus will be on achieving pro-poor, pro-growth expenditure allocation in l ine with the objectives o f the CPRGS.

In addition, the new State Budget L a w places greater responsibility for budget planning o n provinces, and requires them to prepare f ive year expenditure plans. The MOF would l ike this sub-component to provide assistance to four p i lo t provinces to identify new approaches to budget planning at local level, to be rolled-out inore comprehensively subsequently. Methodologies for provincial-level MTEFs have not yet been devised. I t i s expected that the CTA will play a key role in devising a generic methodology, to be elaborated o n a province-by-province basis during implementation.

Sub-component 2 (c) - Workshops to support establishment of medium-term budget planning. Over the past few years, U N D P has provided a substantial program o f capacity building and training to support establishment o f MTEFs. The primary need now i s not for theoretical training, but for hands-on capacity building and learning by doing o f the sort provided under sub-components 2 (a) and 2 (b). Nevertheless, there i s a need to ensure that the lessons learned f rom the four sector MTEF pilots and the four province MTEF pilots are widely disseminated and discussed amongst senior officials across Government. This budget will be overseen by the C T A and the Director o f the State Budget Department.

Sub-component 2 (d) - Design and implementation of a budget preparation system. Towards the end o f the PFMRP implementation period, software that supports the development o f budget planning, both for the current budget cycle and for forward years, wil l be procured. Budget preparation software packages typically stand alone f rom treasury and budget management systems, but interface with them. With such a system, it wil l be possible to upload completed budget plans into T A B M I S for execution; and to download budget outturn data f rom T A B M I S back to the budget planning system to fo rm a baseline for future budget development and analysis. This sub-component has been programmed towards the end o f PFMRP implementation period, because at least three years wil l be required to clari fy the approach to inedium-term expenditure planning in Vietnam and to build capacity to manage such an approach. To ensure the budget development software i s a good fit to TABMIS, it will not be selected and implemented until T A B M I S implementation i s we l l advanced.

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Component 3: Strengthening Management of Public Debt and Monitoring of SOE Fiscal Risks

Overview. The third component o f the PFMRP will support the strengthening o f the Government's abi l i ty to manage Vietnam's public debt and to begin monitoring fiscal r isks that emanate f rom State-Owned Enterprise (SOE) liabilities. This wil l include TA, training and capacity building, as we l l as systems implementation to support recording o f domestic debt (interfacing or integrated with systems for recording o f external debt that are already under development with U N D P assistance). In addition, it wil l provide TA, training and capacity building and associated systems implementation to support processes for analyzing and managing domestic debt liabilities. Through appropriate learning activities, this project wil l facilitate the strengthening o f ski l ls o f officials within the Government so as to ensure i t i s able to conduct day-to-day debt management operations as per international best practice, and advise pol icy makers on the implications o f alternative borrowing strategies. The design and implementation o f the systems, to interface with systems for external debt already under development as part o f a UNDP "External Debt Management" project, will be financed by the IDA credit, w i th Government contribution. The TA, training and capacity building elements will be co-financed on a grant basis by the UK Department fo r International Development. This component i s expected to be implemented over a f ive year period.

Vietnam's management o f public debt has some key strengths. The fiscal stance remains prudent, with an expected budget deficit o f approximately 2.5 percent o f GDP before on-lending for 2002, about the same level as in 2000 and 2001. Vietnam's stock o f external debt stood at US$12.1 b i l l i on in 2001 and 84 percent o f exports, w i th an annual debt service o f 8 percent o f exports. Most o f this debt i s o n concessional terms, which means that it carries very l o w interest rates. As a result, Vietnam's debt service capacity i s estimated to be sustainable over the medium term, making it ineligible for debt rel ief under the Highly Indebted Poor Countries (HIPC) initiative. The country i s getting better grades f rom sovereign risk rating agencies and the fiscal deficit i s sustainable.

Nevertheless, significant vulnerabilities remain. Vietnam's o i l revenues are forecast to decline and there i s growing pressure o n the spending side for c iv i l service pay increases. At projected rates o f economic growth, Vietnam needs to be planning now for i t s eventual graduation f rom IDA status, whereupon el igibi l i ty for concessional borrowing may be curtailed. Current publ ic debt management practices in Vietnam are aimed at controlling the levels o f debt stock and debt service payments, with l i t t le consideration o f risk-cost trade-offs in public debt-related transactions. Over time, the Government needs to enhance i t s capacity to analyze and manage the r isks to i ts publ ic debt portfolio.

Debt related information i s currently fragmented within Government. Currently, external debt data gets recorded in several constituent units within the MOF, the S B V and the Development Assistance Fund (DAF). The External Finance Department in MOF records the off icial bilateral and multilateral loans, whi le SBV's Foreign Exchange Department records data o n external debt contracted by a l l enterprises (including SOEs) and financial institutions. Both these units have already installed the U N C T A D Debt Management and Financial Analysis System (DMFAS) for this purpose. However, it i s not yet fully operational and various duplicate and satellite data bases remain in operation. The State Treasury Department i s constructing i t s own domestic debt database which will record the transactions related to the Government Treasury Bills and Bonds. Meanwhile, the State Budget Department in MOF records the domestic debt o f the provincial governments (in the aggregate) in an Oracle-based system. These mult iple databases have a narrow focus that meet only the business needs o f the particular unit handling the specific type o f debt data. This makes it dif f icult for the authorities to get a comprehensive picture on the indebtedness position o f the govemment at any point in time. I t also results in unnecessary duplication o f data sources within Govemment.

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The Government has recognized the need to modernize the management o f publ ic debt. Cross-country experiences in setting up a fully functioning “debt management office” show that i t i s time consuming and will require dedicated resources throughout the process, including change management specialists and a continuous s k i l l s development effort. Several necessary steps wil l need to be accomplished in this endeavor. These include: (a) the identification of debt management objectives for the Government and how it i s translated to the operational guidelines for the “debt management office”; (b) the establishment o f a risk management framework; (c) the identification and management o f different sources o f r isks (such as currency risk, interest rate risk, liquidity risk, among others); and (d) the creation o f either a debt management off ice o r a coordination mechanism between the various departments involved in debt management, to lead the organizational and regulatory changes that wil l be needed to get the debt management modernization program moving on a sustained basis.

The Government has been working with a range o f agencies, including the Wor ld Bank, the IMF, U N D P and the Governments o f Australia and Switzerland, to strengthen management o f external debt. Component 3 o f the PFMRP wil l focus on the domestic debt side o f the portfolio, and o n integration o f the recording and management o f domestic and external debt in a data warehouse.

Sub-component 3 (a) - TA and capacity building to support strengthening of recording and management of domestic debt: This sub-component will provide local and international technical assistance and capacity building to support the development o f domestic debt recording and risk management in Government. The Wor ld Bank and UNDP have agreed to coordinate their activities, to ensure that this work aims towards the Government’s long-term objective o f having a single debt recording and associated risk management system. In the new State Budget Law, the MOF has been given the mandate comprehensively to manage Vietnam’s public debt. This sub-component, jo in t l y with the UNDP project, wil l help to operationalize this mandate. An early step will be to recruit an International Lead Adviser to assist the Government in coordinating other inputs and to work with Government to clari fy the roles and reporting relationships between the different entities within Government currently involved in debt management. Training on debt recording and risk management wil l be instituted. At a later stage, debt management objectives wil l be formalized and a r isk management framework adopted and communicated to the various entities involved. Manuals and regulations will be re-written and supplemented where appropriate.

Sub-component 3 (b) - Procurement of systems for recording, consolidation and management of public debt: This sub-component will finance procurement o f a system for recording o f domestic debt, to interface with the D M F A S system for recording external debt, being upgraded and operationalized as part o f the U N D P project, and also with TABMIS. The domestic debt database will be designed to record a l l Government domestic debt, including domestic debt at provincial level. At a later stage, a system for risk analysis will be selected and implemented, with appropriate connections made to other systems. There will be continuous dialogue between the PFMRP project and the U N D P External Debt Project to ensure that solutions identified are fully coordinated and as integrated as possible.

Sub-component 3 (c) - Monitoring o f SOE Fiscal Risks: This sub-component i s aimed at beginning a process o f enhancing the Government’s abi l i ty to keep track o f the risks emanating f rom i t s contingent liabilities and incorporating their implications into debt management policy. I t wil l provide the needed resources for the authorities to undertake an inventory o f the different sources o f fiscal r isks (giving particular attention to those arising from SOE liabilities) and a preliminary aggregate quantification. The authorities have rightly noted that the SOEs could be an important source o f such contingent liabilities in Vietnam. The PFMRP wil l finance the undertaking o f preliminary SOE risk analysis with international and local consultant experts, once the in i t ia l inventory o f contingent liabilities i s completed. This effort

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will be supplemented by appropriately timed seminars and workshops to familiarize the Government and the SOEs with h o w other countries are monitoring their SOE contingent liabilities and associated fiscal r isks. Whi le mechanisms for electronic reporting by SOEs i s being established, this project sub-component will allocate some resources to enable MOF staff to conduct onsite visits to SOEs to get the necessary information periodically as wel l as to train them on reporting requirements and formats. This sub-component wil l not address issues o f SOE reform itself, but wil l focus o n the aggregate monitoring o f the basic SOE liabilities that may impact on the fiscal situation o f Vietnam.


Project implementation arrangements are set out in Section C.4, below. Funds under this component are available for project management consulting support, follow-on project development, and Project Management Unit staffing and operating costs. These costs wil l be financed by a mixture o f DFID grant, IDA credit and Government contribution. Full details are set out in Annex 2.

2. Key policy and institutional reforms supported by the project:

The project wil l promote a wide variety o f pol icy and institutional reforms. In summary, these include:

i. strengthening treasury and budget management. K e y pol icy and institutional reforms supported through these activities wil l include the consolidation o f the Treasury's new status as the lead agency responsible for maintenance o f treasury and budget management information; the integration o f currently disparate accounting systems, including making them more consistent with international standards; the consolidation o f extra-budgetary funds into the budget; the routine disclosure o f detailed, reliable public financial information including budget plans and budget f inal accounts; and the establishment o f an effective integrated Treasury and Budget Management Information System (TABMIS) and associated capacity. Over time, T A B M I S wil l support a move f rom pure cash accounting towards accruals; and, together w i th the new inter-bank transfer systems, a move to a Treasury Single Account.

ii. strengthening state budget and investment planning. K e y pol icy and institutional reforms supported through these activities will include the consolidation o f the Ministry o f Finance's new status as the lead agency responsible for the budget, along with better partnership arrangements between MOF, MPI, l ine ministries and provinces; the establishment o f an MTFF as part o f each budget cycle, including projections o f expenditure aggregates by ministrylprovince and economic classification; and pi lot ing o f MTEFs as a vehicle for forward expenditure planning and pol icy management in l ine ministries and provinces, integrating capital and recurrent expenditures, including disaggregated expenditure plans consistent with the forward fiscal framework, and including a modest number o f indicative performance goals consistent w i th the CPRGS.

iii. strengthening management of public debt and monitoring o f SOE fiscal risk. K e y pol icy and institutional reforms supported through these activities wil l include operationalization o f the MOF's legal mandate to manage a l l components o f Vietnam's publ ic debt; the formalization o f publ ic debt management objectives and guidelines within Government; the clarification o f reporting relationships between the different agencies that are involved in day-to-day debt related transactions; the operationalization o f an integrated debt recording system; and the adoption and institutionalization o f risk management systems and practices in Government in Vietnam. I t wil l put in place a mechanism for monitoring SOE enterprise liabilities to the extent that they impact o n the indebtedness levels o f the country - current and future - and put in place an institutional set-up to make SOEs more accountable to the Government for their borrowings.

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3. Benefits and target population:

In short, the project wil l ensure quality and transparency in public financial information, and effectiveness, efficiency and sustainability in the management o f public finances. There wil l be qualitative improvements in the public financial information available to government and to the wider public; more appropriate control o f public finances at every level o f government; more efficient and effective management o f the state budget and the public investment program; and greater fiscal sustainability through more effective and efficient management o f public debt. This better financial management, along with other reforms in governance, wil l result in better service delivery; faster economic development; and swifter progress in attacking poverty.

Public financial management reform i s a "whole o f government" process and the project wil l have impacts at every reach o f the public sector. Ultimately, however, the beneficiaries wil l be a l l those who use public services in Vietnam. Through the development o f formal links between budget management and the developmental goals o f the CPRGS, the poor should benefit disproportionately.

4. Institutional and implementation arrangements:

Implementation period: Wor ld Bank FY04 - FY09; Government o f Vietnam FY03 - FYO8

Executing agency: The project executing agency wil l be the Ministry o f Finance, although there wil l be close involvement o f other agencies. A Project Management Unit (PMU) wil l be created inside MOF to carry out day-to-day management o f the project activities. This wil l be headed by a full time Director-level off icial o f the MOF.

The P M U will be organized into four teams: one for project implementation support and the other three for implementation o f the f i rs t three components o f the project. The project implementation support team will provide generic project management functions such as administration, accounting, finance, disbursement and procurementicontract management to the component implementation teams. Specifically, the project implementation support team will undertake: (i) overall planning for project implementation and overall coordination o f project activities, including monitoring and evaluation o f progress; (ii) administration, including personnel management, accounting, monitoring and reporting for both government and donors; and (iii) procuring o f goods, hiring o f consultant services and management o f international competitive biddings. The component implementation teams will be responsible to the Director o f the PMU for carrying out activities under their respective components.

Oversight: The P M U will operate under the oversight o f an Inter-Ministerial Steering Committee for Public Finance Management Reform headed by a Vice Minister o f Finance and made up o f senior officials f rom MOF and other related ministries and government agencies. The Steering Committee's role i s to ensure that the Project i s coordinated with other government initiatives.

Procurement arrangements: The procurement o f goods and related services financed under the credit wil l be carried out in accordance with the Bank's "Guidelines for Procurement under IBRD Loans and IDA Credits" issued in January 1995 and most recently revised in January 1999 (Procurement Guidelines). Contracts for consulting services under Bank financing will be procured in accordance with the "Guidelines for the Selection and Employment o f Consultants by Wor ld Bank Borrowers" issued in January 1997 and most recently revised in M a y 2002 (Consultant Guidelines). The Bank's Standard Bidding Documents and Standard Request for Proposals will be used. Further details are at Annex 6(a).

Accounting, financial reporting and auditing arrangements: Project accounts will be kept for a l l project related expenditures using accounting principles and practices acceptable to IDA. Project accounts will be audited o n an annual basis in accordance with international standards on auditing and in

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compliance w i th the independent auditing regulations o f Vietnam. The auditor's report wil l be made available to IDA and donor within six months o f the close o f the fiscal year. Further details are at Annex

Monitoring and evaluation arrangements: Monitoring o f project execution wil l be undertaken by the Steering Committee, although it may delegate day-to-day monitoring to the PMU. The Bank wil l participate in monitoring project implementation through semi-annual supervision missions. The Steering Committee will provide the Bank a six monthly work plan, no later than November 30 and M a y 3 1 o f the preceding half-year. The Government's mid-term review wil l be completed and submitted to IDA no later than November 30,2006 to assess progress in meeting agreed targets and to identify additional technical support as needed.

6@).

D. Project Rationale 1. Project alternatives considered and reasons for rejection:

A number o f project alternatives were considered and rejected. Some years ago, the Government developed a similar project as a "Ministry o f Finance Modernization Project", more focused on I C T investment and on particular assistance to the MOF. However, the Government has since recognized the need to take a more holistic approach, sequencing I C T investment with modernization o f management processes, institutions and capabilities; and treating public financial management reform as a "whole o f government" exercise, encompassing the MPI, the SBV, l ine ministries and provinces, rather than as something l imi ted to the MOF.

As described in Section B.3, consideration was given to including additional elements o f the Government's wider agenda for public financial management reform in the project. The PFMRP will make in i t ia l contributions in the areas o f SOE fiscal risk management and asset management, but further assistance may be required in due course. It was decided to exclude revenue management because the IMF has been leading the dialogue with the Government o n this issue, and because diagnostic work and dialogue on the shape o f reforms are at an earlier stage. Experience from other Wor ld Bank-supported public finance projects suggested that success was more l ikely if such projects were as focused as possible. Support for revenue management pol icy and capacity development wil l be available through other channels, including the Mult i-Donor Trust Fund, and the PFMRP includes a provision for development o f a fol low-on project wh ich might focus on revenue management.

A key strategic choice faced in designing the PFMRP was whether to focus on central government, or whether to incorporate the subnational dimensions o f this issue, thereby contributing to the cross-cutting issue o f strengthening management o f decentralization. Given the increasingly decentralized nature o f publ ic financial management in Vietnam, i t was decided that the project should focus both o n central and provincial levels o f government, even if this resulted in slower init ial implementation at central level. Almost ha l f o f public spending, and for key social ministries the major share o f spending, i s now channeled through provincial budgets rather than through national ministries. There i s currently only l imi ted input from the national ministries in the way in which these funds are spent. I t was concluded that the project could only be successful in helping public financial management better serve the goals o f the CPRGS if i t took a "vertical" focus, f rom the subnational to the national level o f government, rather than limiting itself even in the f i rs t instance to central government.

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2. M a j o r related projects financed by the Bank and/or other development agencies (completed, ongoing and planned).

The Public Financial Management Reform Project wil l build o n the public financial management pol icy dialogue which was part o f the completed Poverty Reduction Support Credit (PRSC 1). I t will complement the public financial management pol icy dialogue under way in preparation for the second Poverty Reduction Support Credit (PRSC 2). By strengthening public financial management, information and transparency, it wil l increase the likelihood o f further PRSCs and o f sector-wide assistance programs o f the kind proposed in the CAS. There wil l be synergies between Component 1 o f the PFMRP and two Bank operations: (i) the Banking System Modernization Project already under implementation; and (ii) the "e-government" project currently being prepared.

A Public Financial Management and Fiduciary Review (a combined PER-CFAA-CPAR) i s scheduled for FY04 and will serve as an opportunity to further develop the pol icy dialogue. At the request o f the Budget Director, these activities wil l be fully coordinated with the implementation o f the PFMRP.

The PFMRP will complement the Multi-Donor Trust Fund (MDTF), established by the "like minded" group o f donors to support strengthening o f public financial management reform. The MDTF has been discussed and developed in parallel with the project and will be overseen by the same Steering Committee as the project. Generally, the PFMRP w i l l finance longer term TA, in areas where there i s already strong consensus about the reform agenda; whereas the MDTF will finance smaller, more discrete TA inputs, and will tend to focus on areas o f publ ic financial management reform where there i s currently less clarity and consensus.

The project wil l build o n the U N D P Public Expenditure Review project, which the Government and U N D P have confirmed will not be extended beyond June 2003. Component 3 o f the PFMRP will complement the recently initiated U N D P External Debt Management project by focusing o n the domestic debt side o f the portfol io and on the coordination o f external and domestic debt management. UNDP and the Wor ld Bank have agreed to work closely to ensure that these parallel activities are closely coordinated. The project will also complement the ADB's programmatic support to the Government with other aspects o f the Public Administration Reform initiative and the U N D P project supporting budget scrutiny by the National Assembly.

Sector Issue Project

Ban k-financed Poverty reduction, governance and econoinic management - including public financial management

Banking and private finance

Poverty reduction, governance and economic management - to include public financial management

Governance - E-government

PRSC 1 (completed)

Banking System Modernizatior (ongoing)

PRSC 2 (planned)

I

E-Government (planned)

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Latest Supervision (PSR) Ratings

(Bank-finance Implementation

Progress (IP)

S

S

projects only) Development

Objective (DO)

S

S

Sovemance - public expenditure, financial management and procurement (combined PER-CFAA-CPAR,

Public Financial Management and Fiduciary Review

Public financial management - revenue

Public financial management

Sovernance - public administration reform

Governance - public financial management


IMF and Sweden: Revenue Management (planned)

Canada, Denmark, Norway, Netherlands, Sweden, Switzerland and UK: Mult i-Donor Trust Fund to Support Public Financial Management Reform (ongoing:

ADB: Programmatic Support to Public Administration Reform (ongoing)

UNDP: Support to National Assembly Committee for Economic and Budget Affairs (planned)



Public financial management - debt

France: TA with Public Financial Management and Economic Statistics (completed)

Germany: TA w i th Revision of the State Budget L a w (completed)

UNDP: TA with Public Expenditure Review (to be completed June 2003)

UNDPiAustraliaiSwitzerland: External Debt Management (ongoing)

I

Hiahlv Unsatisi

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3. Lessons learned and reflected in the project design:

Lessons were learned f rom other public financial management reform projects financed by the Wor ld Bank, including those in Guatemala, Ecuador, Pakistan, Kazakhstan, Ghana, Bolivia, Hungary, Colombia and Turkey, and incorporated into the project. These include the importance of: (i) integrating management and institutional reforms with I C T investments; (ii) sequencing reforms, with a focus o n core systems first; (iii) ensuring government commitment and management support fo r the overall reform through extensive and deep dialogue with the authorities in a l l aspects o f project design and implementation and through workshops in different provinces o f the country; (iv) the importance o f inter-agency coordination and user involvement in systems design; (v) the importance o f developing organizational capacity and technical ski l ls ; and (vi) the need for formal project planning and systematic processes for management o f change.

In addition, the project design takes o n board the lessons f rom slow execution o f many such projects, resulting f rom the need to develop user requirements, functional and technical specifications and procurement documentation in advance o f the main procurement o f an ICT solution. By means o f a PHRD grant, the Steering Committee of the Public Financial Management Reform Init iat ive has been able to undertake this work as part of project preparation, rather than as phase 1 o f the project. This should enable more rapid effectiveness and implementation than has been the case with many previous such projects.

4. Indications of borrower commitment and ownership:

The Ministry o f Finance has been requesting support for a project o f this kind f rom the Wor ld Bank for at least f ive years. The continued strength of the Government's commitment and ownership to the project i s demonstrated, among other things, by: (i) the Prime Minister's statement o n the Public Administration Reform Master Plan, including a clear statement o f publ ic financial management reform objectives; (ii) the establishment, through a formal decision of the Minister o f Finance of a Steering Committee for the Public Financial Management Reform Initiative; (iii) the passing by the National Assembly o f a revised L a w o n State Budget in December 2002, including formal clarification o f responsibility for budget planning, budget execution and management o f public debt; (iv) the recruitment o f Booz A l len Hamilton Inc. in January 2003 to assist the Government with preparation o f the TABMIS; (v) the appointment o f one o f the Ministry o f Finance's most senior and capable officials to lead the PFMRP team o n a full t ime basis; and (vi) implementation o f other reforms to strengthen information, transparency and public financial management, as detailed in Sections B and C o f this appraisal.

5. Value added o f Bank support in this project:

The Wor ld Bank has extensive experience o f implementing public financial management reforms in East Asia and around the world. The Bank can provide high quality technical advice, drawing o n this worldwide experience, as we l l as cri t ical ly needed and t imely financing. It can provide high-level support to senior officials as they struggle with the change management challenges o f a reform o f this kind. I t can convey credibility and transparency to the reform effort, and promote efficient and effective use o f the resources supporting the Government's program. The Bank has been working with the Government o n public financial management reform over a number o f years, as set out in Section B o f this appraisal, and has developed a strong partnership with the borrower. There i s strong synergy between Bank support for this project and other components o f the Bank Group CAS for Vietnam, as also set out in Section B. In particular, the case for ongoing budget support, through PRSCs and sector-wide assistance programs, wil l be significantly strengthened if a well-designed project to strengthen public financial management reform i s underway in Vietnam.

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E. Summary Project Analysis (Detailed assessments are in the project f i le, see Annex 8)

1. Economic (see Annex 4): Cost benefit Cost effectiveness

0 Other (specify) Fiscal impact (see below).

NPV=USS million; ERR = % (see Annex 4)

2. Financial (see Annex 4 and Annex 5): NPV=US$ ni i l l ion; FRR = % (see Annex 4)

The project's fiscal impact was appraised and judged to be sound.

Fiscal Impact:

Project costs: The total project costs are estimated to be USS71.45 million, o f which USS54.33 mi l l ion wil l be financed by the Wor ld Bank o n IDA terms, USS9.99 mi l l ion will be co-financed on a grant basis by the UK Department for International Development and US7.14 mi l l ion by the Government o f Vietnam as a counterpart contribution.

Project benefits: The project wil l not generate direct income or benefits against which costs could be compared. Nevertheless, it was concluded that the project wil l have substantial fiscal benefits over time. These include:

a. Improved aggregate fiscal discipline and fiscal risk management: A new and integrated Treasury and Budget Management Information System (TABMIS), combined with a Medium-Term Fiscal Framework, will provide better planning, monitoring and control o f aggregate budget spending. This could help avoid unnecessary borrowing costs associated with unplanned deficits. Careful recording o f publ ic debt liabilities and integrated management o f such fiscal r isk will help ensure that cost-risk trade offs are optimized, avoiding excessive risk exposure and unnecessary borrowing costs.

b. Improved budget allocation at the sector and institutional level: TABMIS, combined with a Medium-Term Fiscal Framework and sector- and province-level Medium-Term Expenditure Frameworks, will result in better planning, monitoring and control o f spending allocations between sectors and institutions. Better information and improved planning processes wil l result in a stronger focus on pro-poor, pro-growth public expenditure and faster progress towards the Vietnam Development Goals set out in the CPRGS. Better information wil l a l low wider publ ic scrutiny and debate about the appropriateness o f budget allocation decisions and about the quality o f budget execution, with consequent improvements in efficiency and effectiveness.

c. Improved operational efficiency and effectiveness of public expenditure and financial management: The better information provided by the TABMIS, combined with better sector- and province level planning through Medium-Term Expenditure Frameworks, will result in greater operational efficiency and effectiveness in public spending. The transparency and auditability o f the T A B M I S will help reduce waste and corruption. Transparency will encourage betfer decision making, control and compliance, al lowing extemal and internal scrutiny. An integrated T A B M I S wil l support better cash management through more t imely and accurate recording o f cash transactions and balances, and by enabling the establishment o f a Treasury Single Account.

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Such benefits are easier to identify than quantify. However, it was concluded that the project cost should be more than compensated by savings due to better planning, implementation and control o f the budget. Vietnam's total public expenditure in 2001 was the equivalent o f some US$7 billion. Efficiencies o f just a quarter o f a percentage point o f this amount per year (US$17.5 mil l ion) would be sufficient to achieve undiscounted payback in just over four years.

3. Technical:

The technical tasks involved in completing the project were appraised and assessed to be feasible for Vietnam, given continued commitment and leadership. In I C T terms, this i s mainstream work, with we l l established solutions and internationally-recognized software packages. TABMIS-type systems have been implemented in many developing countries, often with Wor ld Bank financing.

Whi le technical capabilities at subnational level are weak and wil l need to be developed as part o f the project, there i s a critical mass o f highly skilled officials within the central agencies that will lead the project, including experts in economics, public administration, publ ic finance, accounting, debt management and information technology. These officials have experience with management o f TA projects. In addition, Vietnam's track record o f being able to take the first steps in strengthening o f i t s financial management information systems without intemational assistance i s an impressive one.

The leadership and project management team recognizes the need to draw on intemational expertise. The Project Board has recruited Booz A l len Hamilton to guide them through procurement o f T A B M I S and assist them with technical assessment o f proposals received. The turn-key procurement strategy proposed under Component 1 will reduce the technical demands on Government during the implementation period. The sizeable provision for procurement assistance (including an Independent Bid Evaluation) and for Independent Verification and Validation services wil l ensure that the P M U has ample access to technical advice and assistance.

4. Institutional: The institutional arrangements supporting the project were appraised and found to be sound.

4.1 Executing agencies:

The responsible executing agency for the project, as detailed in Section C.4 o f this appraisal, i s the Ministry o f Finance, with day to day project management delegated to a Project Management Unit.

4.2 Project management:

The P M U i s headed full-time by a Director-level off icial o f the Ministry o f Finance. The team has experience managing donor-financed projects and operations, including TA project financed by UNDP and bilateral donors and the Wor ld Bank PRSC. The team has performed very satisfactorily in managing the P H R D grant provided for project preparation.

4.3 Procurement issues:

During preparation o f this project, a procurement capacity assessment was conducted. I t was concluded that the proposed Project Management Unit has a reasonable capacity to manage the procurement aspects o f the project. Actions to strengthen procurement capability have been agreed and are presented in Annex 6 (4.

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4.4 Financial management issues:

During the preparation o f this project, a financial management assessment was conducted. The assessment concluded that the proposed Project Management Unit has a reasonable capacity to handle the accounting and disbursement aspects o f the project. Actions to strengthen financial management capability have been agreed and are presented in Annex 6 (b).

5. Environmental: 5.1 Summarize the steps undertaken for environmental assessment and E M P preparation (including consultation and disclosure) and the significant issues and their treatment emerging f rom this analysis.

N o t applicable.

5.2 What are the main features o f the E M P and are they adequate?

N o t applicable.

5.3 For Category A and B projects, timeline and status o f EA:

N o t applicable.

Environmental Category: C (Not Required)

Date o f receipt o f final draft: N o t applicable.

5.4 H o w have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted?

N o t applicable.

5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? Do the indicators reflect the objectives and results o f the EMP?

N o t applicable.

6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes.

The project wil l enhance the social impacts o f public spending, ensuring that resources are better ut i l ized for the achievement o f the developmental goals set out in the CPRGS. The project wil l increase transparency and accountability in public financial management, allowing fo r public scrutiny and participation in the budget process.

6.2 Participatory Approach: H o w are key stakeholders participating in the project?

N o t applicable.

6.3 H o w does the project involve consultations or collaboration w i th NGOs or other c i v i l society organizations?

N o t applicable.

6.4 What institutional arrangements have been provided to ensure the project achieves i t s social development outcomes?

N o t applicable.

6.5 H o w will the project monitor performance in terms o f social development outcomes?

N o t applicable.

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7. Safeguard Policies:

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

N o t applicable.

F. Sustainability and Risks 1. Sustainability:

The reforms supported by this project are expected to have a sustained impact o n financial management in Vietnam's public sector, and on service delivery and governance more generally. The reformed processes, systems and capabilities established should become permanent assets for publ ic financial management and governance in Vietnam. The project's emphasis o n training, the collaboration with local consultants and the extensive reliance on government officials in the design and implementation are intended to ensure transfer o f s k i l l s and "learning by doing". The reforms are underpinned by a strong legal framework, including the revised State Budget Law.

Project components are designed not only to generate valuable benefits in their own right but to fo rm the platform for further development. The Government has outlined ambitious plans for the longer term, including the move f rom cash accounting to modif ied accrual or full accrual accounting and the establishment o f an output or outcome-based budgeting process. The TABMIS, by being based o n modular, world-class software, wil l fo rm a platform for such upgrading when the time i s right.

Some r isks to sustainability arise f rom the ongoing costs o f supporting and upgrading TABMIS. There are major recurrent operating costs associated with this system. These include the costs o f hardware maintenance, software maintenance and connectivity (bandwidth purchase). These recurrent costs wi l l build up during the implementation period, as the system i s rol led out and additional software licenses are purchased. During the implementation period, these costs wil l be financed through a blend o f IDA credit and Government contribution. In steady state, they are estimated to be some US$3.2 mi l l ion per year, and the Government has undertaken to meet these costs in full f rom the date o f project closing. In addition, hardware replenishment costs will occur f rom time to time. These are estimated to be in the order o f US$2.6 mi l l ion approximately every five years and the Government will need to ensure that these hnds too are made available if the system i s to remain fully operational.

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2. Critical Risks (reflecting the failure o f critical assumptions found in the fourth column o f Annex 1):

Crit ical r isks are summarized in the table below.

H

S

Risk From Outputs to Objective Lack o f ongoing support for cross-departmental working, particularly between MOF, S B V and MPI.

Lack o f ongoing support to ensure "buy in" and ownership at line ministry, province and spending unit level.

From Components to Outputs Lack o f ownership and commitment o f beneficiary entities to implement and sustain project.

Lack o f partnership working among donors and between donors and government.

Poor project management, procurement management and financial management.

Overall Risk Rating

Risk Rating - H (High Risk), S (Substantial Ris

Relevant authorities have been closely involved in project design and will be represented o n the Steering Committee and in the PMU.

A cross-section o f l ine ministries and provinces have been consulted throughout project preparation. Representatives o f l ine ministries and provinces wil l be represented on the Steering Committee.

RiskRatina I Risk Mitiaation Measure

H

H

H

The Steering Committee and PMU will take responsibility for coordinating donors in the area o f publ ic financial management reform, including the Wor ld Bank, the "Like Minded Group" and other multilateral and bilateral agencies. There will be ongoing consultation, building on the experience o f the j o in t donor-Government Public Expenditure Review and multi-donor collaboration o n PRSC 1.

"Turn-key" procurement for TABMIS, combined with appropriate provision for assistance with project management, financial management, procurement management and independent validationlverification.

Close Wor ld Bank supervision.

S The Government has been closely involved in designing the project, in partnership with i ts consultants and the Wor ld Bank. The project wil l build o n the track record o f strong leadership within the Ministry o f Finance and other beneficiary agencies and on the evident commitment to and ownership o f the project to date.

L i k e any large scale IT implementation, this project i s high risk. However, effective risk mit igation measures are built in to the project design. The r isks o f doing nothing, for the Government and i t s donor partners alike, are certainly far greater.

Particular attention will be paid to the r isks o f poor procurement management. Drawing o n advice f rom the W o r l d Bank's management and regional procurement experts, the Government and the Wor ld Bank

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task team have decided that a turn-key procurement for TABMIS will be the least-risk approach. This wil l ensure that one vendor i s contractually responsible for success and wil l eliminate potential for blaming other parties for delays and problems. I t should enable a contract to be negotiated involving payment on the basis o f results delivered, rather than payment on the basis o f the costs o f goods and services supplied. To succeed, this procurement approach wil l require skilled drafting o f the Bidding Document for the turn-key procurement package, slulled and transparent management o f the selection process, and independent and high calibre supervision o f implementation. The Govemment has:

e recruited Booz A l len Hamilton Inc., a highly regarded international ICT strategy consultancy firm, to assist them with the drafting o f the Bidding Document;

e agreed to commission an Independent Bid Evaluation to support the Government's own evaluation process, and to share this independent evaluation with the Wor ld Bank;

e agreed to appoint an expert from outside MOF to participate in the bid evaluation committee for the turn-key package; and

e agreed to recruit a reputable firm with international experience to provide Independent Validation and Verification (IV&V) services during T A B M I S implementation.

3. Possible Controversial Aspects:

None identified other than risks noted above.

G. Main Credit and Grant Conditions 1. Effectiveness Conditions

The fol lowing events are specified as conditions to the effectiveness o f the Development Credit Agreement:

a. the DFID Trust Fund Grant Agreement has been executed and delivered and a l l conditions precedent to i t s effectiveness or to the right o f the Borrower to make withdrawals thereunder have been fulfil led, except the effectiveness o f the Development Credit Agreement;

b. the Borrower has established the Project Management Un i t and appointed thereto a Project director; a finance officer supported by an accountant, a cashier and assistant; procurement specialists and IT specialists, a l l in accordance with the provisions o f the Development Credit Agreement;

c. the Borrower has: (i) adopted and put into effect a financial management manual; (ii) established a computerized financial management system for the purpose o f producing the FMRs; and (iii) provided financial management and disbursement training to staff o f the PMU; a l l in a manner satisfactory to the Association, in accordance with the provisions o f the Development Credit Agreement; and

d. the Borrower has: (i) issued a Ministerial Instruction on Procurement for the Project; and (ii) established an evaluation committee; a l l in a manner satisfactory to the Association, in accordance with the provisions o f the Development Credit Agreement.

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2. Other [classify according to covenant types used in the Legal Agreements.]

Conditions o f implementation are specified in the Legal Agreements and summarized below.

Management o f project

0 The P M U shall be overseen by the Steering Committee o f the Public Financial Management Reform Initiative, whose membership shall be expanded to include at least one representative o f the Ministry o f Planning and Investment, at least one representative o f the State Bank o f Vietnam, at least one representative o f a central l ine ministry and at least one representative o f a provincial finance department.

Procurement

0

The Borrower shall commission an Independent Bid Evaluation as part o f the procurement o f the Treasury and Budget Management Information System, to be made available to IDA and DFID. The Borrower shall submit an annual budget plan, acceptable to IDA, for hardware maintenance, software maintenance and connectivity (bandwidth leasing) associated w i th TABMIS .

Accounting

e The Borrower shall prepare annual financial statements using the accounting system promulgated under Decision 999 dated November 2, 1996 and in compliance with IDA requirements.

Audit

0 The Borrower shall appoint an independent auditor with qualifications acceptable to IDA, to carry out project audit in accordance with Terms o f Reference acceptable to IDA.

Implementation o f project

0 The Borrower shall furnish IDA with a semi-annual work program, n o later than M a y 3 1 and November 30 o f the preceding half-year.

Monitoring, review and reporting

0

0 Supervision shall be carried out every six months. The Borrower shall provide semi-annual reports, no later than January 3 1 and July 3 1 o f the subsequent half-year, documenting implementation progress o n a l l aspects o f the project, and shall l i s t problems and issues requiring resolution as soon as these become apparent. For semi-annual project monitoring purposes, the Borrower shall use the format for financial monitoring reports prepared by IDA which have been tailored to meet specific requirements o f the project.

0

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0 The Borrower shall complete a mid-term review and provide it's report to IDA no later than November 30,2006 to assess progress in meeting agreed targets and to identify adhtional t e c h c a l support as needed. The Borrower shall prepare and submit a Project Completion Report to IDA within six months o f the closing date o f the project, including financing plans for ongoing operation and maintenance o f the financial management systems developed under the project.

0

Other

0 Other con&tions, as set out in the Legal Agreements.

H. Readiness for Implementation 0 1. a) The engineering design documents for the f irst year's activities are complete and ready for the

start o f project implementation. 1. b) Not applicable.

2. The procurement documents for the first year's activities are complete and ready for the start o f

5 3. The Project Implementation Plan has been appraised and found to be realistic and o f satisfactory project implementation.

quality. 4. The following items are lacking and are discussed under loan conditions (Section G):

The procurement documents for the first year's activities are expected to be complete and ready for the start o f project implementation before the project becomes effective. Booz Al len Hamilton have been contracted to assist the Government in preparing the Bidding Document for the turn-key procurement o f TABMIS by mid-May, and the work i s progressing to schedule. All other major procurement documents for the f i rs t year's activities have been drafted and w i l l be finalized over the coming weeks.

1. Compliance with Bank Policies 1. T h s project complies with all applicable Bank policies.

0 2. The following exceptions to Bank policies are recommended for approval. The project complies with a l l other applicable Bank policies.

Edward Mountfield Klaus Rohland Team Leader Se or Director Country Director

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Annex 1 : Project Design Summary VIETNAM: Public Financial Management Reform Project

Outcome I Impact Indicators: (i) Accuracy, timeliness, relevance, transparency and compliance with international best practices in budget execution and reporting at each level o f government.

Hierarchy of Objectives iector-related CAS Goal: ;oal: promoting good ,ovemance.

Project reports:

Reports by the PMU, Wor ld Bank Public Financial Management and Fiduciary Reviews, project supervision missions, IMF Article IV missions.

lub-goal: strengthening lublic financial management, nformation and transparency.

Project Development Objective: T o strengthen budget planning, execution, reporting and accountability.

Key Performance indicators

Sector indicators: (a) Establishment o f a sustainable and publ ic ly disclosed Medium-Term Fiscal Framework (MTFF).

(b) Establishment o f sector-level and provincial-level Medium-Term Expenditure Frameworks (MTEFs) increasingly aligned with MTFF and CPRGS goals.

(c) Reduced discrepancies between budget plans and end-year out-turns.

(d) Timely, annual publication o f detailed and accurate budget data and budget out-turns at each level o f government.

(e) Reduced corruption and reduced perception o f corruption in use o f state budget.

(f) Progress against CPRGS goals through better budget management.

(g) Sustainable publ ic debt ratios, with port fo l io reflecting an appropriate debt and fiscal risk strategy.

Data Collection Strategy

iectorl country reports: I ietnam Development keports, Country Economic demoranda and Public Tinancia1 Management and 2iduciary Reviews; and IMF ir t ic le I V missions.

Critical Assumptions ?om Goal to Bank Mission) 'ontinued government ommitment to governing for l e achievement o f poverty :duction.

ustained econoinic stability nd growth.

from Objective to Goal)

zontinued government :oinmitment to wider prograin if activities to strengthen ;overnance.

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Output from each Component: 1 : Treasury, budget and spending unit accounting systems based on a uni f ied Chart o f Accounts; effective Treasury and Budget Management Information System (TABMIS) in place and operational in a l l central, provincial and district treasury offices; progress on the road f rom cash to accruals accounting and to a Treasury Single Account.

(a) Ut i l izat ion throughout government o f an integrated chart o f accounts for treasury and budget management and spending units, consistent with appropriate intemational standards (by end 2004).

(ii) Better planning o f the State Budget and the Public Investment Program to achieve the growth and poverty reduction goals set out in the CPRGS.

Semi-annual reports by the PMU, Wor ld Bank Public Financial Management and Fiduciary Reviews, semi- annual project supervision missions, annual IMF Article IV missions.

(iii) Greater fiscal sustainability through improved and more integrated recording o f external and domestic public and publ ic ly guaranteed debt, improved capacity to monitor SOE liabilities, and improved abil ity to assess associated fiscal risks.

Output Indicators: I Project reports: (from Outputs to Objective)

Continued senior leadership support fo r cross-departmental working, particularly between MOF and MPI ; and to ensure "buy in" and ownership at l ine ministry, province and spending unit level.

(b) Implementation o f T A B M I S in Treasury head office, MOF, M P I and one p i lo t province (by end 2005), with relevant staff trained.

(c) Roll-out o f T A B M I S to a l l Treasury offices in provinces and districts (by end 2007), with relevant staff trained.

(d) Roll-out o f T A B M I S to Finance departments and planning departments at provincial and district level (by 2008), with relevant staff trained.

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!: Modern state budget and nvestment planning .pproaches established in dOF, MPI, four p i lo t sector ninistries and four p i lo t irovinces

m d SOE liabil it ies monitoring stablished in core ;overnment agencies, ncluding (i) integrated ,ecording o f debt; and (ii) rocesses for identification, tnalysis and management o f iscal risk.

i: Modern approaches to the nanagement o f public debt

debt management across Government, with appropriate regulations issued by end-2004.

(b) Approval and publication o f debt management objectives by end-2005,

(e) Pi lot ing o f T A B M I S in selected large spending units (by 2008), with relevant staff trained.

( f ) Progress o n the road f rom cash to accruals accounting and to a Treasury Single Account.

(a) 5 year MTFF prepared as part o f 2005 budget cycle, and rol led over, updated and published as part o f each subsequent budget cycle.

(b) MTEFs successfully pi loted in two sectors and two provinces as part o f 2005 budget cycle; ro l led over and updated in the first two sectors and provinces, plus piloted in a further two sectors and provinces, as part o f 2006 budget cycle; and rol led over, updated and published in a l l four sectors and a l l four provinces in subsequent years.

(c) Budget planning module o f T A B M I S tested and implemented in a l l 6 I provinces by 2008.

(d) Workshops on medium-term expenditure planning provided to a l l relevant senior government officials by 2006, with consensus for wider roll-out of medium-term budget planning emerging.

(a) Identif ication o f a lead department in MOF to direct

emi-annual reports by the MU, W o r l d Bank Public inancial Management and iduciary Reviews, :mi-annual project upervision missions, annual MF Art ic le IV missions.

lemi-annual reports by the 'MU, W o r l d Bank Public 'inancia1 Management and iiduciary Reviews, emi-annual project upervision missions, annual MF Art ic le IV missions.

:ontinued senior leadership upport for cross-departmental gorking, particularly between AOF and MPI; and to ensure buy in" and ownership at l ine ninistry, province and pending unit level.

Zontinued senior leadership uppor t for cross-departmental vorking, including MOF, SB\ md MPI ; and to ensure :ompliance by SOEs, irovinces and spending units.

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I: Effective project nanagement capabilities in )lace in Ministry o f Finance ind sub-implementing igencies.

(c) Domestic debt recording system (able to provide consolidated public debt data, including external debt) established and operational by end 2005, with key staff trained in new systemsipractices.

(d) Analytical capability in debt management enhanced with critical staff identif ied and trained.

(e) SOE liabilities monitoring practices established and operational b y end 2006, with key staff trained in the use o f this information to make preliminary assessments o f associated fiscal risks.

(a) K e y project staff and equipment in place by 2004 and throughout project implementation period.

(b) Full compliance with Wor ld Bank procurement, financial management and reporting requirements.

I

Jroject Components I I Inputs: (budget for each sub-components: 2omponent 1 : Strengthening rreasury and Budget vfanagement

component) US$61.42 mi l l ion ( o f which USS5 1.84 mi l l ion IDA credit, US$3.52 mi l l ion DFID grant and USS6.07 counterpart contribution)

Semi-annual reports b y the 'MU, semi-annual project upervis ion missions.

Project reports:

semi-annual reports by the PMU, reports by contractors :o the PMU, semi-annual m-site project supervision missions, quarterly iisbursement data, annual iudit reports.

continued senior leadership ;upport for cross-departmental working, including MOF, SB\ md MPI ; and t o ensure :ompliance by SOEs, provinces and spending units.

(from Components to Outputs) (i) Continued ownership and commitment o f beneficiary entities to implement and sustain project.

(ii) Sustained partnership working among donors and between donors and government.

(iii) Effective project management, procurement management and financial management.

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Of which:

Component 1 (a): Procurement assistance and Independent Bid Evaluation

Component 1 (b): Independent Verification and Validation

Component 1 (c): Training and change management urogram

Component 1 (d): Installation and configuration of TABMIS in Treasury head office, MOF, MPI and one pilot province

Component 1 (e): Roll-out to a l l Treasury offices in orovinces and districts

Component 1 #I: Roll-out to Finance Departments and olanning departments at orovincial and district levels

Component 1 (g): Pilot implementation in selected large spending units

Component 1 (h): Government TABMIS implementation team

Component I fi): Supplementary TA with financial management rationalization and reform

Physical and price contingencies

Recurrent operating costs

Ofwhich:

US$O.20 million (DFID)

US$2.00 million (DFID)

US$S.OO million ( IDA/W)

US$16.57 million (IDA/VN)

US$I 1.21 million ( IDA/W)

USg8.35 million (IDA/VN)

US$1.00 million ( IDA/W)

USg1.64 million (vru)

US$l.OO million (DFID)

USg4.70 million (IDA/VN/DFID)

US$9.7S million (IDA/VN)

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2oinponent 2: Strengthening itate Budget and Investment 'lanning.

Jf which:

Component 2 (a): Assistance to MOF and M P I with preparation of an MTFF and oversight of MTEFpilots.

Component 2 @): Assistance with preparation of MTEFs in fourpi lot sectors and four pi lot provinces

Component 2 (e): Senior oflcial workshops to support development of medium-term budget planning

Component 2 (d): Design and implementation of a budget preparation system

Physical and price contingencies

Component 3 : Strengthening Management o f Public Debt and Mon i to r ing o f SOE Fiscal Risks

JSS4.18 in i l l ion (of which JS$1.05 mi l l ion IDA credit, JS$3.08 mi l l ion DFID grant nd USS0.05 mi l l ion ounterpart contribution)

ywh ich :

JS$O.40 million (DFID)

JS$2.20 million (DFID)

JS$O.20 million (DFID)

JS$l.OO million ( IDA/W)

JSs0.38 million DFID/IDA/ W)

JSS2.88 m i l l i on (o f which JS1.33 mi l l ion IDA credit, JS1.42 m i l l i on DFID grant .nd USSO. 13 mi l l ion Lounterpart contribution)

iemi-annual reports by the 'MU, semi-annual on-site iroject supervision missions, parterly disbursement data, nnual audit reports.

Semi-annual reports by the 'MU, semi-annual on-site r o j e c t supervision missions, par te r ly disbursement data, innual audit reports.

I) Continued ownership and ommitment o f beneficiary ntities to implement and ustain project.

ii) Sustained partnership Jorking among donors and etween donors and overnment.

iii) Effective project ianagement, procurement ianagement and financial ianagement.

i) Continued ownership and :ommitment o f beneficiary mtities to implement and ustain project.

ii) Sustained partnership Norking among donors and )etween donors and government.

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3f which:

Tomponent 3 (a): TA and zpacity building to support ,trengthening of recording ind management of domestic lebt

Tomponent 3 (b): 'rocurement of debt ,ecording and management ystems

Tomponent 3 (c): TA and zpucit), building to support nonitoring of SOEPscal risks

3hysicul and price :ontingencies

2omponent 4 : Project nanagement support.

fwhich.

Tomponent 4 (a): PMU *onsulting support

Tomponent 4 (b): Follow-on woject development

Tomponent 4 (c): PMU uanagement/operating costs

Ihysical and price mtingencies

7f which:

LS1.07 million (DFID)

JS1.33 million ( IDA/W)

;iS$0.23 million (DFID)

;iS$0.26 million DF ID / IDA/W)

JS$2.97 m i l l i on (of which JS$O.12 mi l l ion IDA credit, JS$l.96 m i l l i on DFID grant Ind US$0.89 mi l l ion :ounterpart contribution)

fwhich:

YS1.28 million (DFID)

;iS$0.50 million (DFID)

X$O.92 million (VMIDA)

XS0.27 million DF ID /W/ IDA)

lemi-annual reports by the 'MU, semi-annual on-site lroject supervision missions, iuarterly disbursement data, nnual audit reports.

iii) Effective project nanagement, procurement nanagement and financial nanagement.

\i) Continued ownership and commitment o f beneficiary entities to implement and sustain project.

(ii) Sustained partnership working among donors and between donors and government.

(iii) Effective project management, procurement management and financial

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Annex 2: Detailed Project Description VIETNAM: Public Financial Management Reform Project

By Component:

Project Component 1 - US$61.42 million Strengthening Treasury and Budget Management (US$51.84 million IDA credit; US$3.52 million DFID grant; US$6.07 million Government contribution)

Overview. The f i rs t and largest component o f the P F M W will involve the implementation o f an integrated Treasury and Budget Management Information System (TABMIS). The turn-key procurement o f the new TABMIS, including hardware, software, implementatiodintegation services, training and change management services wil l be financed by IDA credit with Government contribution. Other consulting and training costs associated with the implementation wil l be financed o n a grant basis by the UK Department for International Development. Full implementation across central government and a l l 61 provinces, including a l l users at provincial and district level, i s expected to take f ive years.

Institutional context. The link between good information systems and improved public financial management has long been understood and promoted both by Governments and the international financial institutions. Financial management information systems provide decision makers and managers with information and tools necessary to control aggregate spending, prioritize expenditures across various program and projects and improve operational efficiency and effectiveness through focused, relevant and reliable information.

However, the Government o f Vietnam, l ike many governments, historically has lef t the development o f i t s financial management information systems to i t s individual departments and units, with l i t t le attention to the critical f lows o f information between system components and beyond the system. The current systems are fragmented technologically and have overlapping and conflicting functionality. The end result has been a lack o f integrity in overall fiscal data, transparency and control.

Over the past few years, the Government has made a start in modernizing i t s core publ ic financial management information systems. The identical but separate databases established in each State Treasury Department off ice for recording, managing and processing financial transactions related to the state budget have some significant strengths. They have proved broadly effective at preventing overspending and misappropriation o f resources, helping Vietnam earn i t s reputation for fiscal prudence, with relatively small budget deficits and l o w debt. Checks presented by spending un i t s to a local Treasury off ice are validated against a l ine i tem allotment in the database and will receive Treasury endorsement only if funds are found available within that l ine item. If the check i s endorsed, the expenditure i s automatically deducted f rom the free balance and i s recorded in the ledger with coding broadly consistent with the IMF's "Government Finance Statistics" (GFS) classification system.

The system has also facilitated budget transparency, enabling the preparation for publication for the f i r s t time in 2000 o f consolidated budget plans and f inal accounts. Whi le the experience o f the various systems and application development projects has been mixed, there can be no arguing the value o f ICT-enabled systems to publ ic financial management reform in Vietnam. Though the data and systems remain fragmented and in some cases incomplete, the transaction processing and reporting capabilities have added considerable value. Indeed, managing in a decentralized public financial management environment such as Vietnam's wou ld be impossible without them.

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Nevertheless, major weaknesses remain. The lack o f a common accounting standard results in financial infonnation wh ich i s inconsistent and hard to compare. At least three parallel standards exist within Government in Vietnam: that o f the State Treasury Department, that of the State Budget Department and that used by spending units (which in turn i s inconsistently applied). Paralleling the separate accounting systems, separate financial management information systems currently operate in the State Budget Department, the State Treasury Department and spending units. Extra-budgetary funds, on-lent off icial development assistance and much commune-level spending are currently not consolidated into the budget o r recorded in the Treasury Department's main accounting system. The lack o f a fully consolidated and integrated budget makes it dif f icult to monitor total revenues and expenditures, distorting perceptions o f the true fiscal position, with potentially serious consequences for fiscal stability. I t makes it impossible to assess how resources are being allocated as a whole, and to poverty alleviation in particular. I t makes i t hard to coinpare budget plans w i th budget out-turns. I t also acts as an impediment to the successful management o f further devolution and delegation.

Further strengthening and integrating o f financial management information systems i s a cri t ical next step for Vietnam. Component 1 o f the PFMRP i s intended to build o n and consolidate recent institutional reforms. Art icle 61 o f the new State Budget L a w designates the State Treasury Department as the lead agency responsible for the financial management information system. In addition, the Government has committed to integrate the Treasury accounting system, the budget accounting system and the spending units accounting system within an integrated chart o f accounts. Work i s underway to identi fy and consolidate extra-budgetary funds into the budget. These reforms fo rm the platform for Component 1 o f the PFMRP.

The new legislation forms a sound and stable institutional platform for the PFMRP. Although Vietnam's budget planning processes are increasingly decentralized, budget execution i s a firmly established responsibility o f the State Treasury Department. Although a network o f Treasury offices exist at provincial and district level, these are legally as we l l as in management and reporting tenns branches o f the central State Treasury Department. The Public Administration Reform Master Plan for the period 2001 to 2010 states that Treasury management will remain a central Government function and this i s clearly stated in the new State Budget Law. Officials interviewed at central, provincial and district level perceived no pressures that in the foreseeable future might result in decentralization o f the Treasury function, as has been the case in some other countries including Russia.

Technological context. Many o f Vietnam's problems with financial management have stemmed froin institutional weaknesses, now being addressed. Technological weaknesses have also been a major limitation. Although the Treasury databases are a reasonably effective tool for controlling and recording expenditure, the continued fragmentation and incompleteness o f electronic data recording and reporting results in laborious semi-manual consolidation and manipulation o f data f rom mult iple satellite databases, and consequently in financial reporting which i s late and inaccurate.

These deficiencies contribute to the poor f l ow o f budgetary information between provinces, central financial agencies, central ministries, donors and the public. Central financial agencies and ministries that would l ike to take stock o f often highly decentralized spending within their sectors are unable to obtain this information without great effort. Foreign donors who would l ike to give or lend more by way o f fungible budget support and support for sector-wide adjustment programs find th is hard to justify in the absence o f reliable budget management information and reliable systems for ensuring that funds are we l l managed. Although Vietnam has made strenuous efforts to increase fiscal transparency, the availability o f t imely and high quality data has often been a constraint.

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In 1999, Vietnam's key fiscal agencies began to invest in a united information infrastructure in their various agencies. The purpose was to create a network backbone connecting their individual networks. In March 1999, the Minister o f Finance signed Decision N0.3011999/QD-BTC approving the development o f a State Budget database. Since then, there has been a very substantial investment in I C T hardware, software and communications infrastructure. There are now Local-Area Networks (LANs) connecting the key financial agencies (the Treasury department, finance department, taxation department and customs department) in a l l 61 provinces. Wide-Area Networks (WANs) have been established in some o f the larger cities.

Investment i s currently underway to complete a national network backbone, which wil l link these L A N s and WANs. It i s planned that by the end o f 2004, this backbone will link Hanoi, Danang and H o Chi Minh City, and that the other 58 o f Vietnam's 61 provincial Treasury offices wil l connect v ia leased lines to this backbone. The 600 district offices will mainly use dial-up connections to their respective provincial Treasury offices. The bandwidth MOF i s currently leasing i s insufficient to support the proposed new TABMIS. However, sufficient bandwidth i s available for leasing as it becomes necessary. Upgrade o f desk tops and LAN environments to Microsoft X P are planned over the next year, and this would be satisfactory for a l l l ikely T A B M I S application options. Oracle databases wil l also be upgraded to version 8 or 9 as appropriate.

Conceptual design. The Government has announced i t s wish to build on institutional reforms, the improved I C T environment and the various legacy systems, to procure an integrated Treasury and Budget Management Information System (TABMIS), which will eventually support budgeting, control, monitoring and accounting at every level o f government.

Recognizing the need to draw on international experience and global best practice to identify and document their functional and technical specifications, the Government o f Vietnam has appointed Booz A l len Hamilton Inc. to assist them. The Booz A l len Hamilton team, comprising 6 international consultants and 14 domestic consultants, started work in Hanoi o n January 13,2003 and will be working with the Government for a period o f approximately twelve months, ini t ial ly financed by a Bank-administered grant f rom the Government o f Japan's Pol icy and Human Resources Development (PHRD) Fund. Their Terms o f Reference includes, inter alia:

i.

11.

... 111.

iv.

to design the TABMIS, including identification o f functionalluser requirements and documentation o f technical specifications;

to plan and prepare for the organizational transformation associated w i th the new system and related reforms, including init ial capacity building for T A B M I S implementation, preparing a training needs assessment and a change management plan, and assisting the Government in identifying and implementing further reforms to publ ic financial management processes and institutions that wi l l be necessary to support investment in the new TABMIS;

to develop the system implementation project design, including a procurement strategy, cost estimates and documentation to support appraisal by donors and procurement documentation; and

to provide technical and management support to the bidding process and selection o f a provider o f system development and implementation services.

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Tasks under items (i) to (iii) in the above l i s t are financed by the PHRD grant and will have been completed pr ior to the project Board date. Tasks under i tem (iv) wil l be undertaken after the project funds become effective. The Government has undertaken to commission a full Independent Bid Evaluation and this i s expected to be commissioned from Booz A l len Hamilton as a contract amendment, expanding the scope o f component (iv).

The functional and technical specifications emerging are closely aligned with the Wor ld Bank - IMF “Treasury Reference Model”. The TABMIS will:

a. be centered on the Treasury Department, and wil l operate in the f i r s t instance at central, provincial and district levels, with data entry at the Treasury level and in some cases (on a pi lot basis) at the commune or spending unit level;

b. operate in the first instance on a cash basis, but wil l be based around an account code structure and a systems design that wil l enable commitment accounting and in due course full accruals accounting;

c. to this end, include basic accounting and cash management modules as follows: (i) budget executiow‘general ledger based on a double-entry system and (ii) treasury modules; and additional modules to establish an upgrade path to modif ied accruals o r full accruals accounting including (iii) payables, (iv) receivables, (v) assets and (vi) procurement, forming the core structure;

d. have the fields and character spaces sufficient to report by institutional (ministryiprovince) classification, projectiprogram classification, geographical classification and functional and economic classifications consistent with the IMF’s “GFS 200 1” standards; along with capacity to cater for future development o f output/outcome budgeting in l ine with Government’s future vision;

e. be capable o f generating consolidated reports and end-year accounts in a timely and accurate way and warehousing the information for subsequent analysis;

f. have open architecture, including the capacity to interface with (i) a medium-term budget preparation module, to be developed as part o f Component 2 o f the PFMRP; (ii) debt management modules, to be developed as part o f Component 3 o f the PFMRP; and (iii) such other modules as the Government may have or wish to develop at a later stage, including a tax revenue module, a customs module and a human resources module;

g. have the capacity to exchange information and reconcile with inter-bank transfer system, facilitating the move to a Treasury Single Account in due course;

h. include strong security features and will generate a computer-assisted audit trai l to facilitate modem sample-based auditing; and

i. be capable o f interfacing and operating concurrently w i th the existing systems during the transition period.

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K e y modules o f the proposed TABMIS, and the wider integrated financial management information architecture, are summarized in the chart below. The provisional six key modules o f T A B M I S are summarized in the rectangular box. This T A B M I S will have the capability to interface with the further systems (either existing or envisioned) summarized in the oval shapes surrounding.

I n t e g r a t e d Financial Management I n f o r m a t i o n A r c h i t e c t u r e

Treasury and Budget Management in format ion System

Tax Revenue a\ Customs a-

Preparation

B u d g e t / C h a r t o f

A c c o u n t s

Tr e a s u r y l e a n k i n g

R e c e i v a b l e s

P a y a b l e s

P r o c u r e m e n t

Asset s

n Human Resources /b

4-b c Central Bank

Management (Domestic, External)

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Sub-components and costs: Based on the emerging conceptual design, and on assumptions about the type o f solution and the l ikely implementation strategy which will emerge from the procurement process, the fo l lowing table estimates the annual costs associated with the sub-components o f Component 1.

Sub-component

1 (a): Procurement assistance and Independent Bid

Costs (US$ millions) 2003 I 2004 1 2005 1 2006 1 2007 1 2008 (Total 0.05 I 0.15 I I 0.20

Sub-component 1 (a) - Procurement assistance and Independent Bid Evaluation: The procurement strategy for Component 1, set out in more detail in Annex 6 (a), involves procurement o f the T A B M I S "solution" (sub-components 1 (c) - 1 (f)) as a single "turn-key" package. The solution will be designed by bidders to meet functionalluser requirements and technical specifications to be precisely set out in the Bidding Document being prepared by the Booz Al len Hamilton consultants. The solution selection process will fo l low the Wor ld Bank's new standard "Two-Stage Bidding for Supply and Installation o f Information Systems", with n o pre-qualification stage. The process wil l involve careful dialogue with vendors and "proof o f concept" (creating a mock-up o f the system operating o n equipment mirroring that proposed for use in the central location, one province, one l ine ministry and possibly one district, w i th mirror hardware, software, applications and communications to demonstrate that the solution can provide functionality across an indicative environment representing an approximation o f the Vietnamese environment). Unless the successful bidder i s able to prove their concept, a contract wil l not be signed and the Government wil l reassess rejected tenders. Successful demonstration during the proo f o f concept, with user involvement to gain a feel for the solution, wil l then lead to negotiations fo r procurement o f that solution, including licensing o f software in the Government's name and negotiation o f terms for ongoing licensing and support.

Sub-component 1 (a) wil l finance the continued assistance o f the consultants, once the credit becomes effective, with procurement and Independent Bid Evaluation. The procurement assistance wil l include assisting the Government with the development o f the second stage bidding documents, including any revisions to the functional and technical specifications emerging f rom the f i rs t stage; participation in the "proof o f concept" process; and negotiation o f an exacting contract with the successful bidder. The

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Independent Bid Evaluation wil l be commissioned by the Government but submitted to the Wor ld Bank as we l l as to the Government. At the Government‘s discretion, this work may be contracted directly to Booz A l len Hamil ton Inc. in order to ensure continuity with earlier work. This wil l be subject to successful price negotiation and satisfactory performance under existing contracts by the consultants. Booz A l len Hamil ton were competitively selected previously in accordance w i th Wor ld Bank procurement guidelines.

Sub-component 1 (b) - Independent Validation and Verification (IV&v): Although such a large procurement carries risk, it was decided that any attempt to split the procurement o f sub-components 1 (c) to 1 (f) into separate procurement packages would carry greater risk. With tum-key procurement o f this kind, the vendor wil l be responsible for ensuring t imely and successful delivery o f a l l hardware, software, implementation and integration services, training and change management. There wil l consequently be n o possibility for blaming delays and problems on other vendors. The payment schedule wil l be l inked to delivery o f results against careful specified milestones, and not to delivery o f hardware or software and hours o f consulting input. Contracts o f this hnd come at a cost premium. However, this premium i s the price o f risk absorption by the contractor. The Government wil l need assistance to select i t s turn-key solution partner, negotiate an exacting contract with them, and then veri fy and validate delivery against the milestones stipulated.

Sub-component 1 (b) wil l provide ongoing assistance with procurement management and subsequent Independent Validation and Verification (IV&V) services. The IV&V work wil l include validating and veri fying progress against specific acceptance criteria and sign-off stages within the turn-key solution provider’s contract; advising the Government team on progress; conducting post-implementation reviews at sample locations; providing arbitration between the Government and the turn-key solution provider; and accepting responsibility for escalating issues that threaten the successful outcome o f the project components and that local arbitration cannot resolve, through a contractually-stipulated escalation path, until resolution has been achieved. This contract will be let as soon as possible after credit and grant effectiveness. At the Government‘s discretion, this work may be contracted directly to Booz A l len Hamilton Inc. in order to ensure continuity w i th earlier work. Once again, this wil l be subject to successful price negotiation and satisfactory performance under existing contracts by the consultants.

Sub-component 1 (c) - Training and change management: Treasury offices, where most o f the data input will take place, already have a critical mass o f staff familiar with using electronic databases for transaction processing and accounting. Nevertheless, ensuring that these sk i l ls are updated and extending such s k i l l s to other agencies at central, provincial and district level wil l involve a major training effort. Ensuring user acceptance will require not only training but carefully devised change management processes.

This sub-component involves the development and implementation o f a full and detailed strategy for change management and training. This requires the development o f the full plans, resource schedules, preparation o f materials and testing o f those materials against t r ia l audiences and a delivery plan for both change management and training that f i t s together w i th the implementation strategy. The material for both change management and training must cover system management, financial management and the Government accountants and financial controllers and staff, data entry, report extractors, help desk operations and general users who wil l receive information in new formats. The delivery o f the change management information and education, as with training, will continue throughout the implementation process. A “training o f trainers“ approach will be used to deliver training to an estimated 14,000 trainees in the State Treasury Department, the Ministry o f Finance, the Ministry o f Planning and Investment and in provincial and district finance departments and line agencies.

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Sub-component 1 (d) - Installation and configuration of TABMIS in Treasury head office, MOF, MPI and one pilot province: With the solution identified, the implementer selected wil l further develop the implementation plan. A fit/gap analysis conducted by the implementer will fol low. The fitigap analysis allows the contractor to determine in detail the extent o f f i t between requirements and capability and the means o f addressing gaps that the analysis may disclose. At this stage, the implementer can determine the extent o f work adjustments required that dif fer f rom the description o f work and services contained in the successful tender. The extent to which this modifies price i s subject to acceptance by the contracting parties, with the IV&V service provider acting as a broker. At this stage, a full set o f contractual documentation (implementation plan, timetables, test plan, documentation strategy, risk management, resource schedules, quality management, milestone and reporting definitions and contingency arrangements) will be developed and presented to the Government. The plan will contain a strategy for implementation roll-out and data management and conversion between the legacy and new systems. The iinplementer will then design and configure the system, conducting required testing, in a development environment. Only when confident o f acceptability wil l the implementer migrate a version o f the system to a full test environment. Acceptance by Government wil l be subject to rigorous user acceptance testing and load testing, according to a test plan contained in the contract documentation. A t the coinpletion o f user acceptance and sign-off, the system wil l be migrated into the central production environment, and re-tested before f inal acceptance and l ive implementation.

Treasury head off ice (which will house the central database and be the repository o f the "core" system) wil l fo rm the f i r s t production environment. The production environment wil l be tested here pr ior to the populating o f the system with l ive data. The chart o f accounts and other control data (security profiles, banking controls, audit trails, data import and export capabilities, standard report configuration, etc) wil l be established and l ive data entry enabled. The Ministry o f Finance, Ministry o f Planning and Investment and one pi lot province wil l then be connected to the central Treasury system.

Sub-component 1 (e) - Roll out to all Treasury offices in provinces and districts: Implementation will then take place in a phased manner in a l l Treasury offices in provinces and districts. This includes a l l data entry, data reporting, interlinlung and data transfer between Districts and their Province and between Provinces and Treasury head office. This sub-component wil l be considered complete when T A B M I S i s functioning in a l l Treasury offices and data communications between Districts and their Provinces and between Provinces and Central Treasury are operating successfully.

Sub-component 1 ( f ) - Roll-out to Finance Departments and planning departments at provincial and district levels: Implementation wil l then take place in Finance Departments and planning departments at provincial and district level. At the completion o f this sub-component, a l l Distr ict and Provincial Offices o f both the Treasury and the finance departments will be operating o n the new T A B M I S and the legacy systems wil l be de-commissioned.

Sub-component 1 (g) - Pilot implementation in selected large spending units: The Government, in consultation with i t s consultants and with the Wor ld Bank, has concluded that it wou ld be premature to attempt to integrate a l l spending units into TABMIS, so that they could transact electronically with the Treasury. There are many tens o f thousands o f spending units, and it would be a major further expense as we l l as a further logistical challenge to integrate them all. Nevertheless, this i s clearly the long-term vision. This sub-component will support the p i lo t integration o f selected large spending units into T A B M I S during the last phase o f the project.

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Sub-component 1 (h) - Government TABMIS implementation team: Although much o f the responsibility fo r delivery o f the new TABMIS wil l be given to the tum-key contractor, it wil l be essential to have a Government counterpart team in place at central, provincial and district levels to interact with the tum-key contractor's consultants. I t i s estimated that up to 800 staff will be required, perhaps o n a h a l f time basis, for as long as f ive years. These costs will be financed 100 per cent by Government contribution.

Sub-component 1 (i) - Supplementary technical assistance with financial management rationalization and reform: The Government has already undertaken some important financial management rationalization and reforms in support o f the proposed TABMIS, and further reforms (for example, the establishment o f a single account code structure for the Treasury, Budget and Spending Unit accounting systems) are in train. As the Government implements TABMIS, however, additional technical assistance needs will emerge. This sub-component wil l ensure that funds are available to finance such inputs as they emerge. A major input wil l be to support the establishment o f a Treasury Single Account. The combination o f T A B M I S and the new inter-bank transfer system wil l make a Treasury Single Account technically feasible, but assistance with institutional development wil l be required to support i t s operationalization and the development o f associated processes and procedures.

Recurrent operating costs: There are major recurrent operating costs associated w i th this component. These include the costs o f hardware maintenance, software maintenance and connectivity (bandwidth purchase). These recurrent costs wil l build up during the implementation period, as the system i s rol led out and additional software licenses are purchased. During the implementation period, these costs wil l be financed through a blend o f IDA credit and Government contribution. In steady state, they are estimated to be some US$3.2 mi l l ion per year, and the Government has undertaken to meet these costs in full f rom the date o f project closing. In addition, hardware replenishment costs wil l occur f rom time to time. These are estimated to be in the order o f US$2.6 mi l l ion approximately every f ive years and the Government wil l need to ensure that these fhds too are made available if the system i s to remain fully operational.

Project Component 2 - US$4.18 million Strengthening State Budget and Investment Planning (US$1.04 million IDA credit; US$3.08 million DFID grant; and US$0.05 million Government contribution)

Overview. The second component o f the PFMRP w i l l involve the strengthening o f state budget and investment planning, including the development o f a Med ium Term Fiscal Framework (MTFF) and o f Medium Term Expenditure Frameworks (MTEFs) in four pi lot sectors and four pi lot provinces. Technical assistance wil l be co-financed o n a grant basis by the UK Department for Intemational Development. The design and implementation o f a budget planning module, to interface with TABMIS, will be financed by an IDA credit with Government contribution. The TA components are expected to be implemented over a three year period, with the ICT investment fol lowing in years four and f ive o f the project, once the multi-year approach to budget planning has taken root.

Context. The need for a strong central budget function i s now widely recognized by government. An effective central budget function i s required to ensure integration o f the medium-term planning o f recurrent and capital expenditures for the achievement o f agreed pol icy objectives, within a consistent medium-term fiscal framework. Such approaches are generally considered to contribute to:

improved macroeconomic policy, through the development o f a single, consistent and realistic resource framework:

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8 improved allocation o f resources to strategic priorities between and within sectors, through the planning o f budgets around a consistent, realistic and agreed set o f pol icy objectives;

8 improved coordination and balance between capital and recurrent expenditures, through the integrating of planning for both of these within a single, forward-looking budgetary process; and

8 increased commitment and predictability both in pol icy and funding, so that ministries and provinces can plan ahead and programs and projects can be sustained.

The Government has made a start in strengthening i t s state budget management and investment planning. M u c h attention has been focused on strengthening processes for the evaluation o f public investment projects by the Ministry of Planning and Investment, as part o f the Public Investment Program (PIP). The CPRGS i s a valuable step forward in that it sets out a coherent set o f development goals and includes some ini t ia l attempts to translate these goals into priorities for both capital and recurrent spending. Nevertheless, the government i s increasingly aware that i t needs to move beyond “dual budgeting” to integrated planning of recurrent and capital expenditure within a single medium-term framework, with a single, forward-looking fiscal framework and a single, forward-looking set o f development goals. The amended L a w o n State Budget makes the MOF the lead agency responsible for preparing the overall budget, with M P I assisting the MOF in preparing the budget. I t also requires provinces to prepare annual and five-year expenditure plans.

There i s increasing capacity for public expenditure analysis, building o n the Government‘s successful Public Expenditure Review conducted in 2000, as wel l as the three province-level Public Expenditure Reviews conducted in Ho Ch i Minh City, Bac Ninh and Quang Binh provinces in 2000 and 2001. The Ministry o f Finance has organized a program o f training o n “Medium Term Expenditure Frameworks“ (MTEFs), with assistance f rom UNDP. Plans have been outlined to pi lot “bottom up” medium-term sector expenditure programs in a number o f l ine ministries.

However, progress with the pi lot ing o f MTEFs has been slow. This i s part ly due to the lack o f a clear “top down” forward looking fiscal framework, including indicative totals for expenditure by province and ministry, and partly due to lack o f awareness, capacity and ownership at l ine ministry and province level. Some efforts have been made to start to forge links between the CPRGS development goals and expenditure planning processes. However, progress has been l imi ted due to the lack o f agreed methods for linking budgets to pol icy goals and monitoring program performance; and due to lack o f integration o f the CPRGS with main budget processes. Identi fying and monitoring program objectives and performance indicators, consistent with the CPRGS, as part o f annual medium-term expenditure planning i s recognized to be a more appropriate route forward than premature efforts to implement output- or outcome-based budgeting.

Component design. The Government has identified a program o f TA, in conjunction with the Wor ld Bank and DFID. The central element o f this program i s to provide assistance with the development o f a Medium-Term Fiscal Framework (MTFF) in MOF and MPI; and o f Medium-Term Expenditure Frameworks (MTEFs) in pi lot sectors and provinces. Senior off icial workshops wil l provided across Government to support the development o f medium-term budget planning, recognizing the ”whole o f government‘’ nature o f such reform and the need for capability and buy-in at every level. With new processes evolved and such buy-in achieved, the design and implementation o f a ICT-enabled budget preparation system w i l l fo l low in the later years o f the project.

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Sub-components and costs. The fol lowing table estimates the annual costs associated with the sub-components o f Component 2.

Sub-component 2 (a) - Assistance to MOF and MPI with preparation o f an MTFF and oversight o f MTEF pilots. Preparing an aggregate MTFF and coordinating sector-level MTEFs will place major new demands on the Ministry o f Finance at the highest level. There i s a pressing need for a senior technical adviser, o f international standing, to provide sustained and high level guidance, advice and quality assurance to senior management. However, i t i s also imperative that MOF staff are given space to "learn by doing", with international consultants providing advice and guidance to their efforts, rather than displacing such efforts. T o this end, i t has been agreed that a peripatetic rather than resident Chief Technical Adviser should be appointed to assist the Director o f the State Budget Department in preparing the MTFF and in coordinating the preparation o f MTEFs in pi lot sectors. This Chief Technical Adviser wil l spend some three months per year in Hanoi for three years, malung approximately four visits per year to review progress at critical junctures and agree next steps. The CTA's primary responsibility wil l be to support the development o f the MTFF, working closely with both MOF and MPI . In addition, the CTA will assist the Director o f the State Budget Department in overseeing the consulting budgets for sector and province level MTEF development under sub-component 2 (b) and the senior of f ic ia l workshops under component 2 (c).

K e y activities under this sub-component are planned as follows:

Identification o f the key parameters and fiscal targets that influence the aggregate level o f publ ic expenditure and setting those parameters within the context o f overall economic planning. This i s as much a learning process as a technical one in which previous assumptions are made explicit, their inter-connection explored and their validity tested.

Improvement o f underlying forecasting tools in areas such as revenue forecasting and requirements o f on-going policies (the status quo). This wil l include improved forecasting o f local revenues and expenditures and external bodies to which public finances are exposed such as state owned enterprises.

Building appropriate connections between capital and recurrent expenditure forecasts.

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d. Developing tools to help build scenarios to test the implications o f parameter or priori ty changes, but also link to practical budget allocation procedures. What i s required i s a budget allocation model that goes beyond the macro-parameters to testing allocative options.

e. Developing processes for forming sector resource ‘envelopes’ connected to pol icy objectives and priorities and drawing on emerging sector plans. In i t ia l ly it may be more practical to build out f rom the existing processes o f norms since those are deeply embedded in the system with a v iew to more fundamental changes in approach in the medium term. It wil l also be necessary to reshape the budget cycle i tself to reflect and support the new processes.

f. Building relationships in the ‘vertical’ through the MTEF work at sectoral level and at provincial level so that the central MTFF i s formed in such a way that it helps build positive decision making down to the level o f service provision.

g. Helping to establish an MTFF review mechanism, enabling senior pol icy makers to discuss and build consensus about sector resource envelopes and l ine ministrylprovince resource envelopes.

The CTA i s l ikely to be recruited at a point in the budget preparation cycle for 2004 where only l imited impact i s likely/practical. Work in these early months will focus o n activities (a) to (c). In the cycle for 2005 (starting during 2004) work wil l begin in building the tools envisaged in activity (d) so that they can inform the cycle outcome. In parallel, work will commence in developing the relationships and processes envisaged under activities (e) and (f). The cycle for 2006 will focus on refinement o f the fiscal framework and more intensive work o n activities (e) and (f).

Sub-component 2 (b) - Assistance with preparation o f MTEFs in four pilot sectors and four pilot provinces. Good medium-term expenditure planning i s not something that i s conducted solely by the MOF but i s a “whole o f government” exercise. The Government o f Vietnam has recognized this and as part o f i t s Public Expenditure Review has agreed to pi lot sector-level MTEFs in a number o f key sectors. The Government has indicated that the sectors it would l ike to start with are (i) Education and Training, (ii) Health, (iii) Transport and (iv) Agriculture. In addition, the new State Budget L a w places greater responsibility for budget planning on provinces, and requires them to prepare f ive year expenditure plans. The MOF wou ld l ike this sub-component to provide assistance to four pi lot provinces to identify new approaches to budget planning at local level, to be rolled-out more comprehensively subsequently.

So far, work has started only in the Education and Training sector. Progress has been slow, but recently the Ministry o f Education and Training, the MOF and M P I have come together to develop an vision which encompasses al l levels o f government and vertically integrates expenditure planning f rom the macro/central level, through the sector level, to provinces and eventually to specific institutions. The system emerging will respect and operationalize the principles o f decentralization whi le connecting the national-level planning goals and target in the CPRGS to the provincial level decision making for both recurrent and capital resources. Building on the ongoing budget reform work led by MOF, a comprehensive modernization o f the planning and budgeting processes used in the sector wil l introduce the techniques, s k i l l s and tools needed to link spending and national pol icy strategies more closely and ensure that provinces have the resources needed to attain their port ion o f the national goals. In a focused three year program, cost and distributive norms wil l be updated and simplified, l i n k s between the capital and recurrent budgets reinforced, sector and provincial planning and budgeting tools will be prepared and trialed, a sector wide MTEF will be prepared and the new planning and budgeting system wil l be rolled-out to provinces and generalized. The focus wil l be o n achieving pro-poor, pro-growth expenditure allocation in l ine with the objectives o f the CPRGS.

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The f i r s t phase, which i s already underway in the education sector, wil l be: (i) the creation o f a small team in the sector ministry to lead work o n the program; and (ii) the definition o f the work program. Work at the local spending unit level (education institutions) has already started and pilots are being undertaken to help spending units review priorities within a more flexible framework and plan their implementation o n a multi-year basis. Hence, work has started both ‘top-down’ and ‘bottom-up’ with a v iew to bringing the two together at an appropriate juncture.

It i s proposed that the fol lowing activities wi l l be undertaken:

a. Sector strategic plans wil l be further refined to make them more directly influential over resource allocation and tools further developed to both assist pol icy and priori ty planning and to provide a connection to sub-sectoral allocation.

b. Parallel tools will be developed to assist Provincial level planning and resource allocation in such a way that their use o f those tools can be a focus for constructive dialogue between national pol icy makers and local decision takers.

c. Bo th (a) and (b) wil l seek to integrate recurrent and capital expenditure planning. The framework will be multi-year, although care will be required to base the years beyond the immediate budget year o n a realistic and sustainable level o f detail.

d. Within the framework established by these tools further work wil l be done to refine mechanisms for implementing pol icy through the budget process. I t i s envisaged that this work will most appropriately build outwards from the norm process that i s deeply embedded in existing systems to a system that i s more output rather than input orientated.

e. Support wil l be provided to help establish positive ‘vertical’ linkages between resource planning at a l l the levels (Ministry, Province, District, spending unit) while respecting decentralization objectives and the need for appropriate flexibilities and incentives at each level.

f. Monitor ing and review mechanisms wil l be further developed based around improved accounting facilities under Component 1 and the emerging Education Management Information System being developed in the sector.

Broadly, it i s envisaged that activities (a) to (c) wil l be undertaken during the preparation cycle for the 2004 budget. Activities (d) and (e) w i l l be the focus o f the cycle building towards the 2005 budget and ( f ) will the focus o f work in the preparation for the 2006 budget. In practice, activities wil l overlap and a certain amount o f opportunism wil l be required in order to make practical progress.

The in i t ia l education pi lot i s already financed, under a Wor ld Bank-administered A S E M grant, and work i s starting. Component 2 (b) o f the PFMRP will finance parallel activities in the health, transport and agriculture sectors, fo l lowing a similar approach.

Similarly based programs o f development are intended for the other sectors, although the emphasis wil l be different between the sectors depending o n their structure and the extent to which decentralization i s an issue for them.It i s also envisaged that the phasing wil l be similar, although one cycle behind the education sector reflecting the work already done there.

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Methodologies for provincial-level MTEFs have not yet been devised. I t i s expected that the C T A wil l p lay a role in devising a generic methodology, to be elaborated on a province-by-province basis during implementation.

I t i s intended that the contracting model wil l be similar in each pi lot sector and province and along the fol lowing lines:

The core team wil l be local and appointed by the Government f rom within the public service.

A Lead Adviser will be identified for each sector, plus a fifth o f oversee the four provincial-level MTEFs which wil l be smaller in scale and scope. These Lead Advisers wil l report to the Director o f the State Budget Department and the CTA. As with the CTA, these individuals will not be resident, but available to provide advice and coordination for approximately three months in a year for up to three years.

Three pools o f experts wil l be available for cal l down, under "framework contracts", as required and as advised by the Lead Adviser in consultation with the Director o f the State Budget Department and the CTA. These pools wil l be available to provide inputs across the sectors o n a draw-down basis. Each pool wil l include a mix o f sector specialists, budgetiplanning specialists and accountingicontrol specialists, with a mix o f both international and local consultants in each.

Sub-component 2 (c) - Workshops to support establishment of medium-term budget planning. Over the past few years, U N D P has provided a substantial program o f capacity building and training to support establishment o f MTEFs. The primary need now i s not for theoretical training, but for hands-on capacity building and learning by doing o f the sort provided under sub-components 2 (a) and 2 (b). Nevertheless, there i s a need to ensure that the lessons learned from the four sector MTEF pilots and the four province MTEF pilots are widely disseminated and discussed amongst senior officials across Government. Experience with implementing significant changes in the budget process in other countries suggests that the institutional implications o f reform are significant and require careful attention. Emphasis wil l be placed o n dialogue and o n jo in t learning between senior officials, both those participating in pilots and those not yet involved. These workshops will help to build a platform for wider roll-out o f medium-term budget planning.

This budget will be overseen by the C T A and the Director o f the State Budget Department. The f ive Lead Advisers will support the Government in preparation and conduct o f these workshops. The timing o f these workshops wil l be flexible, but l ikely to be targeted towards the window between one budget cycle and the next (between about February and May).

Sub-component 2 (d) - Design and implementation o f a budget preparation system. Towards the end o f the PFMRP implementation period, software that supports the development o f budget planning, both for the current budget cycle and for forward years, wil l be procured. Budget preparation software packages typically stand alone from treasury and budget management systems, but interface with them. Such software i s typically LAN based and distributable around any electronic network. I t i s usually more user friendly, w i th better functionality, than the budget planning modules which are occasionally available as part o f accounting software suites. Once this software i s in place, i t will be possible to upload completed budget plans into T A B M I S for execution; and to download budget outturn data f rom T A B M I S back to the budget planning system to fo rm a baseline for future budget development and analysis.

- 4 8 -

This sub-component has been programmed towards the end o f PFMRP implementation period, because at least three years o f TA will be required to clarify the approach to medium-term expenditure planning in Vietnam and to build capacity to manage such an approach. T o ensure the budget development software i s a good fit to TABMIS, i t would not be selected and implemented un t i l T A B M I S implementation was we l l advanced. I t i s essential that the budget development software mirrors the Chart o f Accounts structure used for TABMIS, to simplify the process o f uploading and downloading data between the two applications. Such a system would operate on the same network as TABMIS. Due to the nature o f this type o f software, and the smaller number o f people required to use it, implementation would be possible over two budget cycles. The main challenge would be the delivery o f training to end users, and the costings al low for this.

Project Component 3 - US$2.88 million Strengthening Management o f Public Debt and SOE Fiscal R i s k s (US$1.33 million IDA credit; US$1.42 million DFID grant; US$0.13 million Government contribution)

Overview. The third component o f the PFMRP will support the strengthening o f the Government's abi l i ty to manage Vietnam's public debt and to begin monitoring fiscal r isks that emanate f rom State-Owned Enterprise (SOE) liabilities. This wil l include TA, training and capacity building, as wel l as I C T systems implementation to support recording o f domestic debt (interfacing or ideally to be integrated with systems for recording o f external debt that are already under development w i th U N D P assistance). In addition, i t will provide TA, training and capacity building and associated I C T systems implementation to support procedures and processes for analyzing and managing domestic debt liabilities. Through appropriate learning and innovation activities, this project wil l facilitate the acquisition and honing o f sk i l ls o f officials within the Government so as eventually to have a large enough poo l o f skilled technical staff for it to be able to conduct day-to-day debt management operations as per international best practice, and advise pol icy makers o n the implications o f alternative borrowing strategies. The design and implementation o f the systems, to interface with systems for extemal debt already under development as part o f a UNDP "External Debt Management" project, wil l be financed by the IDA credit, with Government contribution. The TA, training and capacity building elements will be co-financed o n a grant basis by the UK Department for International Development. This component i s expected to be implemented over a f ive year period.

Context. Systematic management o f public debt liabilities and other fiscal r isks i s v i ta l to fiscal sustainability. Poorly structured debt in terms o f maturity, currency or interest rate composition, and large and unfunded contingent liabilities, have been important factors in inducing or propagating economic crises in many countries. A government's debt portfolio, including domestic as we l l as external debt, i s usually the largest financial portfol io in the country. It often contains complex and risky financial structures, and can generate substantial risk to the government's balance sheet and the country's financial stability. Integrated recording and monitoring o f external and domestic debt i s needed to fo rm a sound platform for i ts management. Once good data on the debt portfol io i s available, systems for portfol io risk analysis and management are also required. Establishing good debt recording and risk management requires strong institutions, clearly delineated responsibilities, integrated systems and strong capabilities.

Vietnam's management o f public debt has some key strengths. The fiscal stance remains prudent, with an expected budget deficit o f approximately 2.5 percent o f GDP before on-lending for 2002, about the same level as in 2000 and 2001. Vietnam's stock o f extemal debt stood at US$12.1 b i l l i on in 2001 and 84 percent o f exports, with an annual debt service o f 8 percent o f exports. Most o f this debt i s on concessional terms, which means that it carries very l o w interest rates. As a result, Vietnam's debt service capacity i s estimated to be sustainable over the medium term, making it ineligible for debt rel ief under

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the Highly Indebted Poor Countries (HIPC) initiative. The country i s getting better grades f rom sovereign risk rating agencies and the fiscal deficit i s sustainable.

Nevertheless, significant vulnerabilities remain. Vietnam’s o i l revenues are forecast to decline and there i s growing pressure o n the spending side for c iv i l service pay increases. At projected rates o f economic growth, Vietnam needs to be planning now for i t s eventual graduation f rom IDA status, whereupon funding sources will be greatly diversified (including international bond issuances) and i t s el igibi l i ty for concessional borrowing may be curtailed. Although Vietnam’s systems, institutions and capabilities for the management o f i t s public debt have strengthened in recent years, significant weaknesses remain. Current publ ic debt management practices in Vietnam are aimed at controlling the levels o f debt stock and debt service payments, with l i t t le consideration o f risk-cost trade-offs in public debt-related transactions. Over time, the Government needs to enhance i ts capacity to analyze and manage the r isks to i t s publ ic debt portfolio. However, it i s not realistic to expect Vietnam to do this until adequate procedures and processes have been established for timely and consistent debt reporting and prudent risk control mechanisms are in place.

Debt related information i s currently fragmented within Government. Currently, external debt data gets recorded in several constituent units within the MOF, the S B V and the Development Assistance Fund (DAF). The External Finance Department in MOF records the off icial bilateral and multilateral loans, while SBV’s Foreign Exchange Department records data o n external debt contracted by al l enterprises (including SOEs) and financial institutions. Both these units have already installed the U N C T A D Debt Management and Financial Analysis System (DMFAS) for this purpose. However, it i s not yet fully operational and various duplicate and satellite data bases remain in operation. The State Treasury Department i s constructing i t s own domestic debt database which wil l record the transactions related to the Government Treasury Bills and Bonds. Meanwhile, the State Budget Department in MOF records the domestic debt o f the provincial governments (in the aggregate) in an Oracle-based system. These mult iple databases have a narrow focus that meet only the business needs o f the particular unit handling the specific type o f debt data. This makes it dif f icult for the authorities to get a comprehensive picture on the indebtedness position o f the government at any point in time. I t also results in unnecessary duplication o f data sources within Government.

Component design. The Government has recognized the need to modernize the management o f publ ic debt. Cross-country experiences in setting up a fully functioning “debt management office” show that it i s time consuming and will require dedicated resources throughout the process, including change management specialists and a continuous s k i l l s development effort. Several necessary steps will need to be accomplished in this endeavor. These include: (a) the identification o f debt management objectives for the Government and how it i s translated to the operational guidelines for the “debt management office”; (b) the establishment o f a risk management framework; (c) the identification and management o f different sources o f r isks (such as currency risk, interest rate risk, l iquidity risk, among others); and (d) the creation o f either a Debt Management Off ice or a coordination mechanism between the various departments involved in debt management, to lead the organizational and regulatory changes that wil l be needed to get the debt management modernization program moving o n a sustained basis.

The Government has been working with a range o f agencies, including the Wor ld Bank, the IMF, U N D P and the Governments o f Australia and Switzerland, to strengthen management o f external debt. Component 3 o f the P F M W will focus o n the domestic debt side o f the portfolio, and o n integration o f the recording and management o f domestic and external debt in a data warehouse.

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Sub-component

3 (a): TA and capacity building to support strengthening o f

Sub-component 3 (a) - TA and capacity building to support strengthening o f recording and management of domestic debt: This sub-component wi l l provide local and international technical assistance and capacity building to support the development o f domestic debt recording and risk management in Government. The Wor ld Bank and U N D P have agreed to find ways to better coordinate their activities, to ensure that this work aims towards the Government's long-term objective o f having a single debt recording and associated risk management system. The Ministry o f Finance has already been given the legal mandate comprehensively to manage Vietnam's public debt and this sub-component, jo int ly with the U N D P project, wil l help to operationalize this mandate. An early step wi l l be to recruit an international Lead Adviser to assist the Government in coordinating other inputs and to work with Government to clarify the roles and reporting relationships between the different entities within Government currently involved in debt management. Training on debt recording and risk management wil l be instituted. At a later stage, debt management objectives wil l be formalized and a r i sk management framework adopted and communicated to the various entities involved. Manuals and regulations wil l be re-written and supplemented where appropriate.

Costs (US$ millions) 2003 I2004 I2005 I2006 I2007 I2008 ] T o t a l 0.01 I 0.23 I 0.31 1 0.25 [ 0.18 I 0.10 I 1.07

Sub-component 3 (b) - Procurement of systems for recording, consolidation and management of public debt: This sub-component wil l finance the procurement o f a system for recording o f domestic debt, to interface with the D M F A S system for recording external debt being upgraded and operationalized as part o f the U N D P project, and also with TABMIS. The domestic debt database wil l be designed to record al l Government domestic debt, including domestic debt at provincial level. A data warehouse will be established to bring together external debt data f rom D M F A S and domestic debt data f rom the domestic debt database. At a later stage, a system for risk analysis will be selected and implemented, with appropriate connections made to other systems. There will be continuous dialogue between the PFMRP project and the UNDP External Debt Management Project to ensure that solutions identified are fully coordinated and integrated. Joint workshops and similar training and capacity building activities wil l be held whenever deemed appropriate by the Vietnamese authorities.

Sub-component 3 (c) - Monitoring of SOE fiscal risks: This sub-component i s aimed at beginning a process o f enhancing the Government's abi l i ty to keep track o f the r isks emanating f rom its contingent liabilities and incorporating their implications into debt management policy. I t wil l provide the needed resources for the authorities to undertake an inventory o f the different sources o f fiscal risks (giving particular attention to those arising f rom SOE liabilities) and a preliminary aggregate quantification. The authorities have rightly noted that the SOEs could be an important source o f such contingent liabilities in Vietnam (e.g. since they have contracted large loans that have explicit guarantees f rom sovereign Government, among others). The PFMRP will finance the undertaking o f preliminary SOE risk analysis with international and local consultant experts, once an init ial inventory o f contingent liabilities i s

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completed. This effort wil l be supplemented by appropriately t imed seminars and workshops to familiarize the Government and the SOEs w i th how other countries are monitoring their SOE contingent liabilities and associated fiscal risks. This sub-component will not address issues o f SOE reform itself, but wil l focus o n the aggregate monitoring o f the basic SOE liabilities that may impact on the fiscal situation o f Vietnam (for instance, if a contingent l iabi l i ty were to get realized and becomes an actual l iabi l i ty o f the State).

Project Component 4 - US$2.97 million Project Management Support (US$0.12 million IDA credit; US$1.96 million DFID grant; US%O.88 million Government contribution)

Overview and context. MOF will be the executing agency for the PFMRP. A Project Management Unit (PMU) will be created inside MOF to carry out day-to-day management o f the project activities. The P M U wil l be headed by a full time Director-level off icial o f MOF and staffed by a combination o f government officials and domestic consultants.

The P M U will take guidance f rom an Inter-ministerial Steering Committee for Public Financial Management Reform, headed by a Vice Minister o f Finance and made up o f senior officials f rom MOF and other related ministries and government agencies. The Steering Committee's role i s to ensure that the PFMRP i s coordinated w i t h other government initiatives.

The P M U wil l be organized into four teams: one for project implementation support and the other three for implementation o f the f i r s t three components o f the project. The project implementation support team wil l provide generic project management functions such as administration, accounting, finance, disbursement and procurement'contract management to the component implementation teams. Specifically, the project implementation support team will undertake: (i) overall planning for project implementation and overall coordination o f project activities, including monitoring and evaluation o f progress: (ii) administration, including personnel management, accounting and monitoring and reporting needs for both government and donors; and (iii) procuring o f goods, hiring o f consultants services and management o f international competitive bidding. The component implementation teams will be responsible to the Director o f the P M U for carrying out activities under their respective components.

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A general picture o f the overall project management structure i s provided in the figure below.

-

-

-

Component Implementation Teams

Component 1 Implementation Team Lead Agency: State Treasury

-

Component 2 - Implementation Team Lead Agency: State Budget

Department

Component 3 -Implementation Team Lead Agency: Extemal

Finance Department

Inter - Ministerial Steering Committee on Public

Financial Management

Project Management Unit + Project Management Support Team

1 1 I 1. Planning, Monitoring, Reporting and

idministration

2. Procurement

3. Finance

4. I T SuDnort

Component design. Funds under this component are needed to finance P M U personnel (local consultants and Government staff), training, in-country travel, office space, telecommunication costs, consumables, transport, and audit services. The basic approach wil l be to keep the P M U as small as possible, with DFID money financing consultant inputs and a blend o f IDA and Government counterpart funds financing off ice management and operating costs. Additional consulting resources will be provided on a grant basis by DFID under this component to finance development o f a follow-on Public Financial Management Reform Project.

Sub-components and costs. The fol lowing table estimates the annual costs associated with the sub-components o f Component 4.

Sub-component 4 (a) - Project management consulting support: This sub-component wi l l finance local consultant and training inputs to strengthen the PMU's capabilities in the areas o f project management, procurement management, I C T and English language.

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Sub-component 4 (b) - Follow-on project development: This sub-component wil l finance intemational and local consulting inputs to develop a follow-on project, if required, towards the end o f the PFMRF' implementation period. These funds would finance equivalent activities to those financed by the PHRD grant for the present project. A follow-on project could focus on the extension o f T A B M I S to spending unit level; on the development of a Human Resources module to link in to TABMIS; or on the strengthening o f parallel revenue management systems, building on pilots currently being conducted by the Government and the IMF.

Sub-component 4 (c) - PMU office management and operating costs: This sub-component wil l finance the PMU's day to day office management and operating costs. These costs have been kept to a bare ininiinuin and w i l l be financed part ly on IDA terms and partly through Government contribution.

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Annex 3: Estimated Project Costs VIETNAM: Public Financial Management Reform Project

55.84


65.85

Component 2: Strengthening State Budget and Investment Planning

Component 3: Strengthening Management o f Public Debt and SOE Fiscal Risks


Recurrent operating costs Total Baseline Cost

Physical Contingencies Price Contingencies

1 Total Proiect Costs

Total Financing Required

Local US $million

1.64

0.20

0.53

2.70

4.94 10.01 0.25 0.25

10.51 10.51

Foreign US $million

45.33

3.60

2.09

0.00

4.82

Total US $million

46.97

3.80

2.62

2.70

9.76

i

77.25% o f total project cost nct o f taxcs. Identifiable taxes and duties are 1.13 (USSm) and the total project cost, net o f taxes, is 70.32 (US$m). Therefore, the project cost sharing ratio i s

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Annex 4 Fiscal Costs and Benefits Analysis Summary

VIETNAM: Public Financial Management Reform Project

Project costs: The total project costs are estimated to be US$71.45 million, o f which US$54.33 mi l l ion will b e financed by the Wor ld Bank on IDA terms, US$9.99 mi l l ion wil l be co-financed on a grant basis by the UK Department for International Development and US$7.14 mi l l ion by the Government o f Vietnam as a counterpart contribution.

Project benefits: The project wil l not generate direct income or benefits against which costs could be compared. Nevertheless, it was concluded that the project will have substantial fiscal benefits over time. These include:

a. Improved aggregate fiscal discipline and fiscal risk management: A new and integrated Treasury and Budget Management Information System (TABMIS), combined with a Medium-Term Fiscal Framework, will provide better planning, monitoring and control o f aggregate budget spending. This could help avoid unnecessary borrowing costs associated with unplanned deficits. Careful recording o f publ ic debt liabilities and integrated management o f such fiscal risk wil l help ensure that cost-risk trade offs are optimized, avoiding excessive risk exposure and unnecessary borrowing costs.

b. Improved budget allocation at the sector and institutional level: TABMIS, combined with a Medium-Term Fiscal Framework and sector- and province-level Medium-Term Expenditure Frameworks, will result in better planning, monitoring and control o f spending allocations between sectors and institutions. Better information and improved planning processes will result in a stronger focus on pro-poor, pro-growth public expenditure and faster progress towards the Vietnam Development Goals set out in the CPRGS. Better information wil l al low wider publ ic scrutiny and debate about the appropriateness o f budget allocation decisions and about the quality o f budget execution, with consequent improvements in efficiency and effectiveness.

c. Improved operational efficiency and effectiveness of public expenditure and financial management: The better information provided by the TABMIS, combined with better sector- and province level planning through Medium-Term Expenditure Frameworks, wi l l result in greater operational efficiency and effectiveness in public spending. The transparency and auditability o f the TABMIS will help reduce waste and corruption. Transparency will encourage better decision malung, control and compliance, al lowing external and internal scrutiny. An integrated T A B M I S wil l support better cash management through more t imely and accurate recording o f cash transactions and balances, and by enabling the establishment o f a Treasury Single Account.

Such benefits are easier to identify than quantify. However, it was concluded that the project cost should be more than compensated by savings due to better planning, implementation and control o f the budget. Vietnam's total publ ic expenditure in 2001 was the equivalent o f some US$7 bi l l ion. Efficiencies o f just a quarter o f a percentage point o f this amount per year (US$17.5 mil l ion) would be sufficient to achieve undiscounted payback in jus t over four years.

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Annex 5: Financial Summary VIETNAM: Public Financial Management Reform Project

Years Ending December 31

(Year 1 = 2003)

I Year1 I Year2 I Year3 I Year4 1 Year5 I Year6 I Year 7 Total Financing Required

Project Costs Investment Costs 0.6 10.7 17.1 13.6 10.1 9.5 0.0 Recurrent Costs 0.0 0.1 1.7 2.2 2.7 3.1 0.0

Total Project Costs 0.6 10.8 18.8 15.8 12.8 12.6 0.0 Total Financing 0.6 10.8 18.8 15.8 12.8 12.6 0.0

IBRDli DA Government

Central P rovi nci ai

Co-financiers

0.0 7.2 14.7 12.3 10.1 10.1 0.0 0.1 0.7 1.4 1.7 1.6 1.6 0.0 0.1 0.7 1.4 1.7 1.6 1.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.5 2.9 2.7 1.8 1.1 0.9 0.0

Jser FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 0.6 10.8 18.8 15.8 12.8 12.6 0.0

Main assumptions: See Detailed Project Description in Annex 2.

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Annex 6(A): Procurement Arrangements VIETNAM: Public Financial Management Reform Project

Procurement

The procurement o f goods and related services financed under the credit and the grant will be carried out in accordance with the Bank's "Guidelines for Procurement under IBRD Loans and IDA Credits'' issued in January 1995 and most recently revised in January 1999 (Procurement Guidelines). Contracts for consulting services under Bank financing wil l be procured in accordance with the "Guidelines for the Selection and Employment o f Consultants by Wor ld Bank Borrowers" issued in January 1997 and most recently revised in M a y 2002 (Consultant Guidelines). The Bank's Standard Bidding Documents and Standard Request for Proposals wil l be used.

Overall project costs by type o f expenditure and procurement arrangements are shown in Table A. Consultants selection arrangements are presented in Table A l . The Bank's thresholds for pr ior and post review are summarized in Table B. A preliminary procurement plan including the packaging o f contracts and the timing o f major procurement events i s presented in Table B1.

For any contract to be eligible for financing from the credit or grant, the procurement shall be done in accordance with the procedures set out in the Credit Agreement and Grant Agreement. These procedures include criteria for packaging o f contracts, the various methods o f procurement that may be used, the thresholds within which those methods apply and arrangements for pr ior and post review o f procurement documentation and decisions. The Borrower (Vietnam Ministry o f Finance and i t s PMU) shall be responsible for a l l procurement actions necessary to implement the project. The Bank shall supervise the work o f the P M U to ensure that al l procurements under Bank financing are carried out in accordance with agreed procedures as defined in the Credit Agreement and Grant Agreement. All procurements shall be conducted in accordance with a detailed procurement plan agreed with the Bank.

Procurement o f Information Systems and Goods

There are five major systems contracts estimated to cost US$48.76 mi l l ion including contingencies. These include one large value contract o f US$46.34 mi l l ion including contingencies to supply and install TABMIS. The four others cover budgeting and debt management systems. The T A B M I S procurement strategy and packaging - Le. single "turn-key" versus mult iple contracts - was carefully discussed taking into account experience in similar Bank-assisted projects and elsewhere. The major risk o f a single large contract i s that the entire project success depends almost totally o n one contracting party and i t s s h l l s and experiences. Ma jor benefits include a single and consistent solution design and function, shifting many risks to the contractor; and a significant reduction in the potential for project conflicts, disputes and disruptions. The mult iple contract approach can bring benefits such as more control by the PMU, reduced risk o f dependence o n contractors and lower costs. Ma jor r isks include dif f iculty o f contract management and especially the synchronization o f multiple independent parties involved in delivery. Overall, the risk o f system failure due to weaknesses in contract management capacity and potential lack o f synchronization and consistency o f the system appeared to be greater than the benefit. Therefore, the single turn-key approach has been selected. Measures for mitigating the r isks associated with this approach include increased quality o f the Bidding Documents, bid evaluation and contract, careful scrutiny o f CVs and references with controlled resource replacement and right to reject unsuitable resources and the use o f an Independent Verification and Validation (IV&V) adviser to ensure close contract management. Advanced training of P M U procurement and technical staff o n Information Systems (IS) procurement i s also foreseen.

- 5% -

For a l l I S and goods contracts estimated to cost US$lOO,OOO or more per contract, International Competitive Bidding (ICB) procedures wil l be followed. For a l l large value I S contracts, the Borrower wi l l use the Bank’s Standard Bidding Documents for the Supply and Installation o f Information Systems, single-stage andor two-stage bidding procedures, as appropriate. For procurement o f conventional goods through ICB, the Bank’s Standard Bidding Documents for Procurement o f Goods shall be used. International and National Shopping procedures can be used for procuring smaller quantities o f small value and readily available off-the-shelf items or services o f non-intellectual nature under contracts estimated at US$ 50,000 equivalent or less per contract. These include the PMU’s car, debt management office equipment and software. The aggregate amount o f shopping i s estimated at USSO. 12 mi l l ion including contingencies.

Consulting Services

There are about 40 consultants assignments comprising both individuals and f i r m s to provide technical assistance for project implementation and capacity building. I t should be noted that single source selection may be the appropriate method to procure additional technical assistance estimated at U S 0 . 2 2 m i l l i on including contingencies on procurement and training o f P M U staff and an independent bid evaluation o f the major I S procurements f rom the firm who has been providing technical assistance in preparation o f the I S functional requirements and bidding documents. This i s to ensure continuity and consistency o f the adopted approach and subject to a satisfactory performance o f the firm under the current contract. The largest contract (USS2.2 mi l l ion including contingencies) for provision o f services for Independent Verification and Validation (Tv&V) o f the IS systems may also be procured using single source selection f rom the same firm for similar reasons. The use o f the single source method wil l depend on satisfactory performance o f the firm under i t s current TA contract. Total amount o f single source selection contracts i s estimated at US$2.42 mi l l ion including contingencies. Any single source selection wil l require the Bank’s prior no objection. Alternatively, these two contracts may be procured using the QBS method, given that quality i s paramount. QBS may also be used to procure consulting services o n project development for the same reason. Quality- and Cost-Based Selection (QCBS) shall be used for most o f the remaining larger assignments where some competition o n cost i s desirable. These include the three pools o f consultants to support MTEF Pilots and the risk management consultants. Individual consultants can be used for smaller assignment where team work and f i rm ’s support are not necessary and qualification o f individuals i s paramount. There are 33 individual consultants covering a wide range o f technical and managerial s k i l l s as listed in Table B 1.

Training

In addition to training incorporated in major I S and service contracts, a number o f separate workshops and training courses both in-country and overseas will be carried in accordance with agreed procedures based o n training programs w i th detailed itemized budgets approved by the Bank. The training programs shall provide the objectives, criteria for selection o f participants, venue andor institute selected, period o f activity and estimated cost. Expenditures incurred under these activities wil l generally be claimed under SOEs.

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Operating Costs

Incremental operating costs for the P M U include communication costs, off ice rent, but not staff salaries. Incremental operating costs for the T A B M I S include the costs o f hardware maintenance, software maintenance and connectivity (bandwidth leasing). The Government shall submit an annual budget plan, acceptable to IDA, for hardware maintenance, software maintenance and connectivity (bandwidth leasing) associated with TABMIS.

Procurement methods (Table A)

Procurement methods are summarized in Tables A and A1 below. Total amounts include DFID co-financing. DFID co-financing wil l administered as a Wor ld Bank Group Trust Fund and so will be subject to Wor ld Bank Group procurement guidelines.

Table A Project Costs by Procurement Arrangements (US$ million equivalent)

I’ Figures in parentheses are the amounts to be financed by the IDA Credit. All costs include contingencies.

*’ Includes goods to be procured through national shopping, consulting services, services o f contracted staff o f the project inanageinent office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) operating T A B M I S .

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Table AI : Consultant Selection Arrangements (optional) (US$ million equivalent)

Total (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) 1.51 0.50 0.00 0.06 0.18 6.91 0.00 9.16

I (0.00) I (0.00) I (0.00) I (0.00) I (0.00) I (0.00) I (0.00) I (0.00) 1 I\

Including contingencies

Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), and sole source selection N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank Credit.

- 6 1 -

Prior review thresholds (Table B) Goods (and related services)

2. Goods

All contracts fo r goods estimated to cost US$ 100,000 equivalent or more per contract shall be subject to pr ior review.

>100,000 ICB All

Consulting Services

3. Services

Each contract fo r consulting services by f i r m s estimated to cost USS 100,000 equivalent o r more and US$ 50,000 equivalent or more for individuals will be subject to Bank's pr ior review. Contracts below the above thresholds will be subject to post-review. All TORS irrespective o f amount shall subject to pr ior review.

(US$44.33 mil l ion) >$100,000 f i r m s

(US$ 4.03 mil l ion) Various (see table Bl)

Post Review Rat io

4. Training 5. Miscellaneous

Contracts not covered by prior review shall subject to post review. The post review ratio will be one in f ive contracts.

SOEs SOEs

Table 8: Thresholds for Procurement Methods and Prior Review'

>$50,000 fo r individuals I (usS3.94 mil l ion) I Total value of contracts subject to prior review:

Frequency o f procurement supervision missions proposed:

U S $ 52.30 m i l l i on

One every 6 months (includes special procurement supervision for post-reviewlaudits)

Overall Procurement Risk Assessment: High

- 62 -

Table B1: Preliminary Procurement Plan

(US$ 000s)

Contract Estimated Procurement I End 1 Endcontract I IDA 1 DFID IRemarks :om1 Description 1 Type I Costs I Method I pro:i::kent procurement implementation finance finance

(USS (US$ 000s) 000s)

process process

5

6

7

8

9

10

1 1

12

1 3

1 Procurement Assistance1 Indeuendent Bid

Managcment TA packagc 1 Supplementary Financial Managcmcnt T A packagc 2 Supplementary Financial Management TA package 3 supplementary Financial Management TA package 4 Supplementary Financial Management TA packagc 5 Supplementary Financial Managcment TA packagc 6 Supplemcntary Financial Management TA packagc 7 Supplementary Financial Managcment TA package 8 Supplcmentary Financial Management TA package 9 Supplcmentary Financial Managemcnt TA

Evaluation ,-&&E-

Chicf Technical Adviser

Consultine Pool 1 16 MTEF Pilots S 400 QCBS 3104 7104

"tum-key" solutior

Vcrification and

7106 400

Val idat ion

Financial

S

sc

S

S

S

S

S

- 200

- 42,130

2,000 -

- 100

- 100

- 100

- 100

- 100

- 100

- 100

- 100

- 100

- 100

- 9,756

sss

ICB

sss

Ind. Cons.

Ind. Cons.

Ind. Cons.

Ind. Cons.

Ind. Cons.

Ind. Cons.

Ind. Cons.

Ind. Cons.

Ind. Cons.

SOEs

09103 1104 6/04

3/04 3105 8/08 40,024

4104 4105 3/08

6/04 9104 9105

~

9/06

6107 9/07 9/08

6107 9107 9108

1104 8108 7,804

- 63 -

22

23

24

25

Component 3 I 26 Debt Management G 50

27 Dcbt and Risk sc 750 Office Equipmcnt

Management Systcm

Databasc

Risk Assessmcnt Model

28 Public Debt sc 200

29 Middle Office sc 250

30 Software (e.g. G 25

MTEFLcad S 200 Ind. Cons. 5104 8104 8/06 200 Adviser 4 MTEFLead S 200 Ind. Cons. 5/04 8/04 8/08 200 Adviscr 5

and Training Seminars Budget Preparation SC 1,000 ICB 5/05 12/06 8/08 950 System

MTEF Workshops 200 SOEs 8/03 12/05 200

networking)

40

43 Component 1 Coordinator

Explicit Contingcnt Liabilitics Consultant

35 Sovcreign Debt & Risk Management Consultant

36 Risk Managcment

S 118.8 Ind. Cons. 9/03 9/03 8/08 118

I I I I I

S

S

75

175 Expcrts

Rcgulatory Expert

Liabilitics Identification Consultant

and Guarantec Pricing Consultant

Monitoring

Training

37 Lcgaland S 50

38 Contingent S 25

39 SOE Risk Analysis S 25

40 SOE Liabilities 100

41 In-country 220

/Workshop - Dcbt I 42 loverscas I I 275

/Workshops

- 64 -

Note: All costs above exclude contingencies. Contingencies are a flat 10% (5% price contingency and 5% physical contingency) o n all items except TABMIS operating costs.

Summary of Agency Procurement Capacity Assessment and Action Plan to Strengthen Procurement Capacity o f the PMU

The Borrower i s responsible for project implementation including al l procurements. The PMU has some useful relevant technical knowledge and experience gained over the last five years o f implementing ICT programs financed f rom the MOF’s own budget, with procurement fol lowing local procedures. However, these are inadequate to implement the procurement o f the large and complex modem information systems foreseen in the project. Therefore, MOF will undertake a procurement capacity building action plan.

MOF has agreed to take the fol lowing actions:

Regulation

0 Issue a Ministerial Instruction on Procurement under the P F M W , by September 2003

Organization

Establish an Evaluation Committee for project procurements, chaired by the Project Director with appropriate membership, by July 2003

PMU’s staffing

0 0

0

Appoint full-time local procurement specialists, August 2003 Appoint o f full-time local IT specialists, August 2003 Appoint part-time international IT procurement management consultants, December 2003

- 65 -

Training

In-country training on World Bank basic procurement for project staff (completed in January 2003) In-country training on World Bank IT procurement for the Project I T Procurement Committee, November 2003 Two-stage IS procurement seminar, Turin, April 2003

Documents

0 Completion o f updated project procurement plan by April 2003 Completion o f bidding document for procurement o f TABMIS by November 2003

In addition, World Bank procurement specialists from Hanoi and Washington w i l l provide support and supervision during implementation.

Estimated date o f Project Launch Procurement Workshop: October 2003. Estimated date o f Publication o f General Procurement Notice: July 2003. Are bidding documents for the f i rs t year ready by negotiations? No. These are being prepared by consultants financed by a PHRD grant I s there procurement subject to mandatory SPN in Development Business? Yes. Domestic Preference for Goods: Yes, if requested by MOF. Advance procurement: No. Retroactive Financing: No. Co-financing: U S $ 9.99 mill ion from UK DFID.

Thresholds generally differ by country and project. Consult "Assessment o f Agency's Capacity to Impleinent Procurement" and contact the Regional Procurement Adviser for guidance.

- 66 -

Annex 6(B): Financial Management and Disbursement Arrangements VIETNAM: Public Financial Management Reform Project

Financial Manapement

1. Summary o f the Financial Management Assessment

Summary Project Description

The total project amount i s US$71.45 million, which will be co-financed by IDA, the UK Department for International Development and Government contribution. The Ministry o f Finance (MoF) will have overall implementation responsibility for this project. The proposed Credit and Grant will be disbursed over a period o f f ive years. The PFMRP wil l focus primari ly o n improving public financial management, information and transparency. The Treasury and Budget Management Information System (TABMIS), to be developed as part o f the project, will constitute a key ICT application for the Government o f Vietnam and will fo rm a platform for further such reform. Project implementation will be carried out as described elsewhere in the PAD, with procurement responsibilities described in the above procurement paragraphs.

Country Issues

IDA recently conducted a Country Financial Accountability Assessment (CFAA) o f Vietnam, which provides a diagnosis o f the country’s financial management environment. The CFAA helps the Government and IDA to, among other things, assess and manage the risk that publ ic funds might be used for unintended purposes and identify the key risks, capacity gaps and constraints to progress in this area. An action plan to address the key findings o f the CFAA has been agreed to by the Government.

Among the key findings o f the CFAA that are relevant to financial management aspects o f the project are the following: (a) reports f rom the public expenditure accounting system attempt to capture too much detailed data, and management reports for effective decision-malung are not widely used; (b) as the requirements o f publ ic expenditure accounting are very comprehensive and detailed, compliance with the requirements i s challenging for a l l units, particularly at lower levels; and (c) as accounting staff focus o n more easily accomplished requirements l ike mechanical verification o f payments and receipts, the regular and efficient monitoring o f state budget information for effective use o f publ ic funds at times i s not carried out in a t imely manner.

The C F A A also reports that “the current budget arrangement in Vietnam suffers f rom a lack o f transparency for achievement o f objectives.” The conclusion o f the assessment i s that there i s a certain degree o f fiduciary risk in the use o f public resources, although overall the fiduciary risk for this project i s manageable fo r on-budget items considering the steps that are envisioned to be taken under the financial management plan.

Risk Analysis

There i s certain degree o f control risk for the PFMRP relating to the Ministry o f Finance’s l imi ted direct experience with IDA’S fiduciary requirements. However, with the good background o f the PMU staff together with the completion o f the proposed Act ion Plan covering the project financial management manual, additional functions for accounting software and training provided from IDA, the control for the project could be significantly improved. The risk relating to project financial management i s considered low.

- 67 -

Strengths and Weaknesses

Signi4cant Weaknesses Lack o f experience in handling IDA projects and fol lowing IDA requirements in the area o f disbursement and financial reporting. Lack o f comprehensive guidance to fo l l owFM IDA’S requirements on accounting and financial reporting. L imi ted capacity o f the current computerized

The P M U has staff with good backgrounds, and they are familiar with the financial regulations o f the government. However, areas o f weakness still exist, as tabulated below.

Resolution Practical training o n financial management and disbursement to project staff will be given by IDA.

manual for project wil l be prepared.

Addit ional computerized functions to support accounting system to produce Financial Monitor ing Reports (FMRs) as required by IDA and also fo r the management purposes o f the PMU.

the current accounting software in producing the FMRs will be created by the PMU.

Implementation Arrangements

The project w i l l be implemented by a Project Management Unit (PMU) to be established within the Ministry o f Finance. The P M U i s headed by a full-time Project Director, who works closely with other senior officials o f the MPI, the SBV and o f key l ine ministries and provinces. The P M U i s overseen by the Steering Committee o f the Public Financial Management Reform Initiative.

Accounting Policies and Procedures

The P M U wil l use the accounting system o f Public Administration promulgated under Decision 999 dated November 2, 1996. With that accounting system, the projects under M o F can open sub-accounts f lexibly to record project expenditures by expenditure category o r by project component. This will apply for the PFMRP. The chart o f accounts wil l be developed to capture the expenditure data classified by project components and expenditure categories. Physical progress reports, which are l inked to financial costs, will be available in the project management information system. The system will facilitate reporting o f financial transactions and enable the accountant to maintain accounting records, including receipt and disbursement o f funds and commitments and accruals, in a timely manner.

Sta fJins

The P M U wil l have a full time Finance Off icer with support f rom an Accountant, a Cashier and an Assistant. The Finance Officer and Accountant in the P M U must have a strong background in accounting and finance. The current appointee has ten years o f work experience in relevant areas and i s very well-versed in the nature o f the project. In addition, she has already participated in the implementation o f the PHRD grant to prepare for the PFMRP.

Reporting and Monitoring

Annual financial statements wil l be prepared fol lowing the accounting system under Decision 999 with suitable modifications to meet IDA reporting requirements.

- 68 -

For periodic project monitoring purposes, the project wil l use the Financial Monitor ing Reports (FMRs) developed by the Wor ld Bank and will be tailored to meet practical monitoring requirement o f the project. A set o f FMR formats will be agreed upon during negotiations. The P M U wil l submit to the Wor ld Bank the FMRs on a quarterly basis. The FMRs will comprise the fol lowing reports:

Sources and Uses o f Funds; Uses o f Funds by Project ActivitieslComponents; Special Account Statement; Implementation Progress; Procurement Process Monitoring; Contract Monitor ing Report.

Information Systems

The P M U wil l use accounting software developed by the MoF, which has been widely used in various departments under accounting system 999. For this project, an appropriate financial management software capable o f producing financial statements as we l l as the periodic Financial Monitor ing Reports (FMRs) in accordance with IDA requirements has already be contracted f rom a software company using the PHRD Grant for project preparation. The software development together with the training wil l be completed before negotiation. This accounting software has already been used by the project preparation team for the PFMRP project and the P M U feels satisfied with i t s functions.

The above accounting software has the functionality to record project transactions by expenditure categories and also by expenditure componentsiactivities. In addition, it could also keep track o f the source o f finance for each transactions. However, we note that the above accounting software i s merely for financial reporting and s t i l l lacks capacity to produce full Financial Monitor ing Reports (FMRs) as required by IDA and other relevant reports for management purposes.

The IDA team has checked and discussed with the client on practical solutions and has agreed that additional computerized functions would be created to be used in parallel w i th the existing accounting software to afford additional reporting requirements for IDA. This has been included in our action plan.

Impact of Procurem ent A rrangem ents

The procurement arrangement mentioned in the procurement assessment was taken into consideration when designing the project’s financial management system. There i s an inter-relationship between procurement and financial management. Therefore the fund f l ow and accounting system has been designed to accommodate procurement responsibilities.

Disbursement Arrangements

The project wil l use traditional disbursement methods. For more details on Special Accounts Allocations, SOE limits and disbursement mechanisms, please refer to the Special Account section and the Fund F low section.

- 69 -

Financial Management Action Plan and related Conditions

Action

Provide practical training on financial management and disbursement to project staff Adopt a financial management manual for the project, acceptable to IDA Establish a computerized project financial management system to enable production o f financial management reports acceptable to IDA. Appoint project accountant with qualifications acceptable to IDA Appoint an independent auditor with qualifications acceptable to IDA, to carry out project audit in accordance with Terms o f Reference acceptable to IDA.

Responsibility To be completed

IDNPMU Effectiveness

PMU Effectiveness

P M U Effectiveness

bY

PMU Effectiveness

P M U December 3 1, 2003

Financial Covenants

The fol lowing will be listed in the dated financial covenants in the Credit Agreement.

To be completed by effectiveness:

0

0

e

e

Provide practical training on financial management and disbursement to project staff. Adopt a financial management manual fo r the project, acceptable to IDA. Establish a computerized project financial management system to enable production o f financial management reports acceptable to IDA. Appoint a project accountant with qualifications acceptable to IDA.

T o be completed by December 3 1,2003:

e Appointment o f an independent auditor with qualifications acceptable to IDA, to carry out project audit in accordance with Terms o f Reference acceptable to IDA.

Supervision Plan

Supervision will be carried out every six months.

2. Audit Arrangements

Internal Audit

As mentioned in the CFAA, with the current control environment in Vietnam, the country i s not yet ready for the establishment o f an internal audit function in the public sector due to 3 factors: (i) weak capacity o f staff; (ii) a very l o w salary structure resulting in a lack o f motivation o f staff; and (iii) dif f icul ty in recruiting staff o f a high caliber. However, the requirement o f internal audit function seems not relevant, given the nature o f this PFMFW.

- 70 -

External Audit

Goods for FMISs :rating costs -- P M U

costs -- T A B M I S IUnallocated

No critical issues arise f rom the audit o f the current TAs under the MoF. T o date there are n o overdue audit reports relating to those TAs. The P M U will appoint an independent auditor acceptable to IDA. The project account will be audited on an annual basis in accordance with intemational auditing standards and in compliance with the independent auditing regulations o f Vietnam. The auditor's report wi l l be made available to IDA and DFID within six months o f the close o f the fiscal year. The audits will include a separate opinion o n the SOEs other than the Special Accounts and Project Accounts. A management letter addressing internal control weaknesses o f implementing agencies wil l also be provided by the auditor together w i th the audit report.

items procured local ly 42.11 95% 0.09 70% 7.80 80% 4.23

3. Disbursement Arrangements

The P M U will fo l low disbursement arrangements acceptable to IDA and in accordance with appropriate Government guidelines o n disbursement o f Off ic ia l Development Assistance.

Allocation of credit proceeds (Table C) The total credit proceeds wil l be disbursed against: (i) 100 YO o f foreign expenditures; 100 ?LO o f local expenditures (ex-factory cost); or 75% o f local expenditure for other items procured locally, in the case o f goods; (ii) 95% o f system contracts; and (iii) 80% o f incremental operating costs. Incremental operating costs for the P M U include communication costs, office rent, but not staff salaries. Incremental operating costs for the TABMIS include the costs o f hardware maintenance, software maintenance and connectivity (bandwidth leasing).

Table C: Allocation of Credit Proceeds

I I Financing Percentage Expenditure Category I Amount in US$million 1 Goods (other than Financial Management Information Systems I (FMISs))

0.10 100% o f foreign expenditures

100% o f local expenditures (ex-factory cost)

I 75% o f local expenditures for other 1

ITotal Project Costs I 54.33 I I I 54.33 I

Allocation of Grant Proceeds (Table D)

The total DFID grant proceeds will be disbursed against: (i) 100 % o f consultant services; and (ii) 100% o f workshop and training expenses. DFID i s conducting a general pol icy review on financing o f local taxes on consultants' services. Given the urgency o f this project, however, DFID headquarters in London has given a specific exemption and approved a 100% financing for consultant services f rom the proceeds o f i t s grant for the Vietnam Public Financial Management Reform Project.

- 71 -

TABLE D: Allocation of DFID Grant Managed by IDA

1 Expenditure Category IAmount in US$ millions1 Financing Percentage I 100%

Workshops and 100% Training Unallocated TOTAL 9.99

Use of statements of expenditures (SOEs):

For goods costing less than US$lOO,OOO equivalent per contract; services provided by consulting f i r m s costing less than US$lOO,OOO equivalent per contract; services provided by individual consultants costing less than USS50,OOO equivalent per contract; workshops and training; and incremental operating costs, withdrawals under the Credit Agreement or Grant Agreement wou ld be made o n the basis o f SOEs. These documents wil l be made available for the required audits, as we l l as to the Bank supervision missions upon request. All other expenditures above the SOE thresholds will be submitted o n the basis o f full documentation.

Special account: T w o Special Accounts will be opened by the P M U (one for IDA and one for DFID funds). Each o f these Special Accounts will be held in U S dollar currency in a commercial bank acceptable to IDA. Payments out o f the Special Accounts are to be made for eligible expenditures in accordance with the Credit Agreement, the Grant Agreement and Bank guidelines. The authorized allocations for Special Accounts would be as follows: (i) US$2 mi l l ion for the IDA Special Account and (ii) USS500,OOO for the DFID Special Account. The IDA Special Account wil l be l imited to US$1 mi l l ion until IDA credit disbursements exceed SDR (Special Drawing Rights) 12 mil l ion. The DFID Special Account wil l be l imi ted to US$250,000 until the DFID grant disbursements exceed GBP (Pounds Sterling) 2 mil l ion. Replenishment applications would be submitted monthly or when amounts withdrawn equal 20% o f the init ial deposit, whichever comes first.

- 72 -

Annex 7: Project Processing Schedule VIETNAM: Public Financial Management Reform Project

/Time taken to prepare the project (months) I 12 I 12 I I First Bank mission (identification) I 061201200 1 I 061201200 1 I 1 Appraisal mission departure I 0311012003 I 0311012003 I I Negotiations I 0412 112003 I 0412 112003 I

I 0910 112003 I 1 Planned Date of Effectiveness I Prepared by: Ministry o f Finance, assisted by World Bank staff and consultants

Preparation assistance: Government o f Japan, PHRD Grant No. TF05 1127

Bank staff who worked on the project Name

Edward Mountfield Nguyen Van Minh Konstantin Atanesyan Geoff Dixon Duong D o @yen Gloria Elmore Sudarshan Gooptu Jesper Kammersgaard Kieu Phuong Hoa L e Viet Hung Vilas Mandlekar Allister Moon Ronald Myers Nguyen Chien Thang Nguyen Hoi-Chan Barbara Nunberg Ronald Points Hung Kim Phung Martin Rama David Shand

ncluded: SDecial itv

Task Team Leader Co-Task Team Leader Operations Analyst Senior Public Sector Specialist Disbursement Analyst Program Assistant Senior Economist Special Assistant Program Assistant Financial Management Specialist Senior Information Technology Specialist Peer Reviewer Peer Reviewer Senior Procurement Specialist Senior Counsel Sector Manager Regional Financial ManagerlSenior Project Adviser Senior Finance Officer Lead Economist Peer Reviewer

- 73 -

Annex 8: Documents in the Project File* VIETNAM: Public Financial Management Reform Project

A. Project Implementation Plan

Project description and timeline Project procurement manual Project financial management manual

B. Bank Staff Assessments

1999: Vietnam: Towards Fiscal Transparency (with IMF) 2000: Public Expenditure Review 200 1 : Country Financial Accountability Assessment 2002: Country Procurement Assessment Report 2002: Vietnam: Modernizing Management o f Public Debt and SOE Fiscal R isks Aide Memoires o f preparatory missions

C. Other

State Budget Law, Law No. 01/2002/QHll o f the National Assembly o f the Socialist Republic o f Vietnam Booz Allen Hamilton Inc: Inception Report o f Technical Assistance for Preparation o f An Integrated Financial Management Information System (3 1 January 2003) Booz Allen Hamilton Inc: System Design for the Treasury and Budget Management Information System (13 March 2003) *Including electronic files

- 74 -

Annex 9: Statement of Loans and Credits VIETNAM: Public Financial Management Reform Project

16-A~x-2003 Difference between expected

and actual disbursements” Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev‘d PO51838 2002 VN-PRIMARY TEACHER DEVELOPMENT 0.00 19.84 0.00 20.32 2.92 0.00

PO59936

PO66396

PO73305

PO72601

PO62748 P 0 4 2 9 2 7

P 0 5 2 0 3 7

P 0 4 2 5 6 8

P 0 5 6 4 5 2

P 0 5 9 8 6 4 PO04828

PO04845

PO04833

PO51553

P 0 0 4 8 3 9

PO04843 PO45628

PO04844

PO04830

P 0 0 4 8 4 2

PO36042

PO04841 PO04838

PO04834

2002 Northern Mountains Poverty Reduction 0.00

2002 VN-SYSTEM ENERGY, EQUlTlZATlON 8 RENE 0.00

2002 VN-Regional Blood Transfusion Centers 0.00

2002 Rural Finance II Project 0.00

2001 COMMUNITY BASED RURAL INFRASTRUCTURE 0.00 2001 VN-Mekong TransporVFlood Protection

2001 VN-HCMC ENVMTL SANIT.

2000 COASTAL Wetliprot Dev

2000 VN-RURAL ENERGY

2000 VN-Rural Transport II 1999 VN-HIGHER EDUC.

1999 MEKONG DELTA WATER

1999 VN-Urban Transport Improvement

1999 VN-3 CITIES SANITATION

1998 FOREST PROT.8 RUL DE

1998 VN-Inland Waterways 1998 VN-TRANSMISSION 8 DISTR

1998 AGRl DIVERSIFICATION

1997 VN-WATER SUPPLY

1997 VN-Hwy Rehab II 1996 BANKING SYSTEM MODERNIZATION

1996 VN-POPULATION a FAMILY HEALTH 1996 VN-NATIONAL HEALTH SUPPORT

1995 IRRIGATION REHABlLlT

0.00 0.00 0.00

0.00

0.00 0.00

0.00

0.00

0.00

0.00

0.00 0.00 0.00 0.00

0.00

0.00 0.00 0.00 0.00

110.00

225.00

38.20

200.00

102.78

110.00

166.34

31.80

150.00

103.90 83.30

101,80

42.70

80.50

21.50

73.00 199.00

66.90

98.61

195.60

49.00

50.00 101.20

100.00

0.00 0.00

0.00 0.00 0.00

0.00

0.00

0.00

0.00

0.00 0.00

0.00 8.19

0.00

0.00

0.00

0.00 0.00

31.28

0.00

0.00 0.00 0.00 0.00

11 3.57

246.76

41.61

218.77 108.79

112.33

169.78

29.09

84.77

54.17

65.94

85.87

23.02 67.12

17.95

54.96

141.56

35.63 19.69

23.43

25.64

4.92

38.57 14.26

14.54

6.32

5.63

0.00

-3.11

56.65

6.59

18.78

67.43 17.75

42.34

69.19

31.04

26.57 14.50

52.28

143.77

13.73

56.37

38.59

30.66

8.93

48.05 25.19

0.00 0.00

0.00 0.00 0.00 0.00

-1.89

0.00 0.00 0.00

11.55

0.00

0.00

0.00

4.50

10.71

138.68 1.82

2.24

30.47

30.65 0.00

0.00 25.23

Total: 0.00 2520.97 39.47 1818.54 794.72 253.94

- 75 -

VIETNAM STATEMENT OF IFC's

Held and Disbursed Portfolio Jun 30 - 2002

In Millions U S Dollars

Committed Disbursed IFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2002 CyberSofi 0.00 1.25 0.00 0.00 0.00 0.00 0.00 0.00 2002 F-V Hospital 8.00 0.00 0.00 0.00 5.10 0.00 0.00 0.00 1998 MFL Vinh Phat 0.15 0.00 0.00 0.00 0.15 0.00 0.00 0.00 1996 MomStar Cement 21.54 0.00 0.00 42.47 21.54 0.00 0.00 42.47 1997 NATL 16.80 0.00 0.00 16.80 16.80 0.00 0.00 16.80 1995197 Nghi Son Cement 19.12 0.00 0.00 15.24 19.12 0.00 0.00 15.24 2001 RMIT Vietnam 7.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 SMH Glass Co. 7.22 0.00 0.00 1.69 7.22 0.00 0.00 1.69 2002 VEIL 0.00 0.00 12.00 0.00 0.00 0.00 6.00 0.00 1996 VILC 0.00 0.75 0.00 0.00 0.00 0.75 0.00 0.00

Total Portfolio: 80.08 2.00 12.00 76.20 69.93 0.75 6.00 76.20

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 2000 Interflour 8.00 0.00 0.00 5.00 2002 AZIAGF Vietnam 0.00 0.00 1 S O 0.00 2002 Dragon Capital 0.00 2.00 0.00 0.00 2002 F-V Hospital 1 S O 0.50 0.00 0.00

Total Pending Commitment: 9.50 2.50 1.50 5.00

- 76 -

Annex 10: Country at a Glance VIETNAM: Public Financial Management Reform Project

1981-91 1991-01 2ooo (average annual growth)

Industry .. 11.7 10.1 10.3 Manufacturing .. 12.1 11.7 11.3

6.1 S e N i c e s 7.4 5.3

Private consumption .. 11.1 3.1 4.5 General government consumption .. 10.6 5.0 5.5 Gross domestic investment .. 18.6 10.1 10.5 Imports of goods and services .. 29.1 27.3 2.3

Agriculture 4.3 4.7 4.6 2.8

POVERTY and SOCIAL Vietnam

Growth of exports and imports ("A) 50 40 30 2o 10 0

96 97 98 99 00 01

---Exports *Imports -

2001 Population, mid-year (millions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions)

Average annual growth, 1995-01

Population (%) Labor force (%)

Most recent estimate (latest year available, 1995-01) Poverty (% of population below national poverty h e ) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) Access to an improved water source (?A of population) Illiteracy (% ofpopulation age 15+) Gross primary enrollment (% of school-age population)

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1981

GDP (US$billions) Gross domestic investmentlGDP Exports of goods and services/GDP Gross domestic savings/GDP Gross national savings/GDP

Current account balance/GDP Interest payments/GDP Total debt/GDP Total debt service/exports Present value of debtlGDP Present value of debtlexports

1981.91 1991-01 (average annual growth) GDP 4.9 7.7 GDP per capita 2.5 6.1 Exoorts of ooods and services .. 21.3

78.7 420 33.4

1.5 1.7

32 25 69 37 34 56 6

110 113 107

1991

9.6 15.0 32.6 16.5 16.9

-2.0 0.3

243.4 6.3

2000

6.8 5.4

14.8

East Asia & Pacific

1,826 900

1,649

1.1 1.3

37 69 36 12 74 14

107 106 108

2000

31.2 29.6 55.0 27.1 31.4

1.6 0.9

41.2 7.5

35.7 64.3

2001

6.8 5.4 4.5

Low- income

2,511 430

1,089

1.9 2.3

31 59 76

76 37 96

103 88

2001

32.7 30.9 54.7 28.9 32.2

1.8 1.1

38.4 6.7

2001-05

7.0 5.6

Development diamond*

Life expectancy

3NI Gross ?er __ primary zapita nrollment

Access to improved water source

Vietnam Low-income group

iconomic ratios*

Trade

Indebtedness

-Vietnam Low-income group

STRUCTURE of the ECONOMY

(% of GDP) Agriculture Industry

Services

Private consumption General government consumption Imports of goods and services

Manufacturing .. 13.3 18.6 .. 36.7 38.9

77 1 665 6 5 0 96 97 98 99 00 01 6 3 6 4 6 2

31 1 575 568 "-flGDI *GDP

- 77 -

Vietnam PRICES and GOVERNMENT FINANCE

Domestic prices (% change) Consumer prices Implicit GDP deflator

Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overall surplus/deficit

TRADE

(US$ millions) Total exports (fob)

Rice Fuel

Total imports (cif) Food Fuel and energy Capital goods

Export price index (1995=100) Import price index (1995=100) Terms of trade (1995=100)

BALANCE of PAYMENTS

(US$ millions) Exports of goods and services Imports of goods and setvices Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including gold (US$ millions) Conversion rate (DEC, /ocal/US$)

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

IBRD IDA

Total debt service IBRD IDA

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

I981

1981

1981

-720

-72 17

-775

534 241

0.6

1981

26 0

19

0 0 0

104 19 0

18 0

0 17 0

17 0

17

1991

82.7 72.5

13.5 0.0

1991

2,042 225 581

2,377 82

485 714

1991

2,491 2,377

114

-339 35

-1 90

472 -282

7,979.2

1991

23,395 0

56

160 0 1

126 -45 50

229 10

0 0 1

-1 0

-1

2000

-1.7 3.4

20.4 4.5

-2.8

2000

14,448 667

3,503

15,635

2,058

2000

17,144 17,381

-237

-597 1,341

507

-391 -116

14,170.0

2000

12,835 0

1,113

1,303 0 9

236 1,022 -717

1,298 0

286 174

2 173

8 165

2001

-0.4 2.7

20.4 4.3

-3.3

2001

15,100 588

3,175

16,000

1,871

2001

17,910 17,782

128

-635 1,100

593

-268 -325

14,806.0

2001

12,578 0

1,344

1,216 0

10

973 -590

739 279

2 277

8 268

I 1 Inflation r/.) 30 -

-GDP deflator - 0 - C P I I

i Export and import levels (US$

' O 0 T

I 95 96 97 98 99 00 01

E3 Exports Imports 1

Current account balance to GDP (Oh) 1 5 -

-15 1

Composition of 2001 debt (US$ mill.)

G: 784 6: 1.344

E: 6,961

A - IBRD B - IDA D - Other multilateral F - Private C - IMF

E - Bilateral

G - Short-term

- 7% -