"REPUBLIC OF TAJIKISTAN"
REPUBLIC OF TAJIKISTAN PUBLIC SECTOR REFORM PROJECT (PSRP) TERMS OF REFERENCE Consultancy Services (Firm) on Development of the Public Financial Management Strategy and Action Plan for Tajikistan I. Introduction 1. Since 1997, the Government of Tajikistan has made significant progress in reform of the public financial management system. The regulatory frameworks for the budget process and treasury management have been strengthened. Budget preparation and execution have been streamlined and strengthened, including the revision of functional and economic budget classification in consistency with GFS 1986, improvements in availability of budget documents to the public. An audit institution to improve pubic financial accountability has been established. Recently, the authorities have also undertaken initial steps to integrate the various allocation mechanisms and to enhance the multi-year perspective mechanisms in fiscal planning, budgeting and expenditure policy. As a result, the fiscal discipline has been strengthened as indicated in a decline in the overall fiscal deficit and reductions in the stock of expenditure arrears. 2. However, challenges remain and require modernization of Public Finances management. Further, the budget classification is not consistent with the current international standards GFSM 2001; there is no administrative classification; there is no rule-based system for intergovernmental relations; aggregate fiscal risks are not adequately addressed; the link between policies and budgeting is still weak; the bank account structure is not yet fully integrated, the cash planning and management system is at an early stage of development; the commitment control system is not comprehensive; payroll control is weak; internal audit is limited; there is ineffective control of procurement; accuracy of accounting information is undermined by the low quality of the accounting system; the coverage and quality of the annual financial statements do not meet international standards; and external audit is still at an early stage of development 3. In this regard the Government of the Republic of Tajikistan by the support of international financial institutions has started implementing large-scale economic reforms program, including reforms of structure and methods of work of public administration bodies. One of the most important areas is the reform of public finances management. The following projects are being implemented here: ff2b095c-47da-4423-80c9-536f120ac7ac.doc 1 Macroeconomic Forecasting – by the support of the European Union and USAID; Debt Management – under support of the IMF; Development of Internal Public Financial Control – by the support of the European Union; Capacity building in the Ministry of Finance on training – by the support of DFID; Medium-term Budget Program – by the support of the European Union, DFID and Program Loan of the International Development Association (IDA) for political measures; Procurement System Reform – at the expense of the Grant of the IDA Institutional Development Fund; Capacity building in public financial management – by the support of the European Union, DFID, Asian Development Bank, USAID and the Government of Switzerland. 4. The government of Tajikistan is committed to advance the reform of the public financial system. On 15 March 2006 the President adopted Public Administration Reform Strategy that reviews public sector management issues in the context of strategic policy planning, civil service development, local government functioning, inter-fiscal relation, and public finance management. The strategy serves as a platform for the reform of public financial management that in its turn, calls for an integration of the budget process and the national development plan, strengthening budget formulation and execution process at central and local governments, and improving transparency and accountability through procurement and external audit. In this context, the government needs to develop a holistic approach towards the development of an integrated public financial management system that will support all public finance operations, provide accurate, timely, comprehensive, and reliable public financial information that is consistent with international standards necessary for management and policy decisions, and auditing. In 2006 the government established a cash management unit and developed an electronic payment system as part of its effort towards improving public financial management system. To support the reform of Tajikistan’s public financial management system, the World Bank has approved a Public Sector Reform Project (PSRP) that has provided grant funds for consulting service to develop a strategy and action plan towards improving public financial management system (PFMS). 1 II. Background related to the ToR 5. The types of activities defined within this ToR are mainly designed to support the Ministry of Finance of the RT in defining strategic areas concerning modernization of PFM system of Tajikistan. In accomplishing the task the consultant should take into account that in public finances management of the Republic of Tajikistan the projects indicated in Chapter I item 3 are being implemented. ff2b095c-47da-4423-80c9-536f120ac7ac.doc 2 III. Objectives Development of a strategy and an action plan for the introduction of an integrated public financial management system that takes into account country context and existing institutional capacity for introduction of the appropriate Information financial management system (IFMS) at national level. Developing plans for introducing a new Budget Classification integrated with a unified chart of accounts for the general government sector to enable compliance with GFSM 2001 and compatibility with IPSAS. IV. Activities 6. In close collaboration with the PCT specialists, representatives of the Ministry of Finance in the Technical Group-3 for Budget management capacity development, Technical Assistance Team for application of the Japan Grant to prepare the Project of modernization of the public finances management system (percentage of time to be spent on these are shown in parenthesis) the consultant will conduct: Activity 1: Detailed work on improving Budget Classification and Accounting System (20%) in public sector. On the basis of the design of a new budget classification and unified chart of accounts for the general government sector prepared by the Fiscal Affairs Department of the International Monetary Fund as agreed with the authorities: a. Budget Classification Produce a detailed plan for introduction of the new Budget Classification, including the economic, administrative, functional and fund classifications, incorporating all training, amendments to procedures for applying the classifications and bridge tables that may be required between the existing and new classifications; b. Accounting System in the general government sector Produce a detailed plan for introduction of the new unified chart of accounts, to be applied by both the Treasury and Budget Organizations, to enable compliance with GFSM 2001 and compatibility with IPSAS. The plan should incorporate training and amendments to accounting standards, policies and procedures that may be required. Activity 2: Functional Review of the System and Development of the Public Financial Management Strategy and Action Plan for Tajikistan (80%). Activity 2.1 Functional Review of the PFM System ff2b095c-47da-4423-80c9-536f120ac7ac.doc 3 Review existing laws and regulations, normative documents and guidelines governing public financial management in Tajikistan; Review institutional and organizational framework for budget and treasury management including human resource capacity; Identify main challenges related to budget formulation and execution and propose improvements; administrative procedures, transactions documents, information flows, forms and documents covering all organizations involved in the key functional areas. These areas include coverage of the budget, key functions of budget and treasury including macroeconomic forecasting, budget preparation, core treasury functions (general ledger, accounts payable and receivable, purchasing and commitment, cash management, asset/inventory management, and financial reporting), debt management, human resource management, payroll system, and auditing; Identify best practice solutions applicable to the PFM system; Clarify the roles and responsibilities of main organizations involved in PFM (Ministry of Finance, taxation bodies, customs etc.); Review the organizational structure of the Ministry of Finance; Based on review of some representatives of the Main Budget organizations and their structural subdivisions identify capacity constraints; Review the horizontal and vertical cooperation of government departments, and recommend how to address the weaknesses; Analyze deficiencies, weaknesses in the existing systems and departure from good practices; Describe functions and distribution of authorities at different levels of the PFM system (central, local); Build a rational organizational model including effective horizontal and vertical interactions; Recommend amendments in legislation required for institutional reforming and implementation of an integrated PFM system; Recommend necessary changes to business processes for the proposed PFMS; Determine the detailed list of Performance Specification of Public Financial Management System; Activity 2.2 Development of the PFM Strategy The Consultant will review the IMF Reports on Performance of Public Finances Management and Treasury (2005), On adherence to standards and codes with reference to the report on the module of budget transparency (2007) and Budget Classification Reforms (2007) as well as the Public expenditures and Public Expenditure and Financial Accountability (PEFA) Assessment completed by the World Bank in 2007, as well as WB ff2b095c-47da-4423-80c9-536f120ac7ac.doc 4 Consultant’s report on “Financial Management Reform in Tajikistan” (2007) and “Government Public Financial Management Capacity” (2007); Develop a public financial management strategy and a time-bound action plan and schedule with the deadlines for implementation of intermediate tasks. The Consultant will be required to suggest the sequenced approach to the PFM development taking into account mixed level of capacity among levels of the PFM system. While development of public financial management strategy the Consultant will be required, based on the recommendations of TG and /or PCT, to conduct the workshops with the participation of the appropriate concerned parties. V. Outputs 7. The Consultant shall deliver: 1) Mission reports: A scope mission report (week 4) outlining the initial results, final work plan and timetable for advisory services and potential problems; An interim mid-term report (month 3); The final report (month 6 and not later than 2 weeks prior to the date of work acceptance) that combines all outputs requested in the activities, including the analysis of gaps and issues in the existing systems and proposed changes to business process. 2) Technical Reports on: Introduction of the new Budget Classification integrated with the unified chart of accounts for the general government sector (Annex 1) Functional Reviews of the PFM System (Annex 2); Draft of the Public Financial Management Strategy (Annex 3) VI. Work arrangements 8. The Ministry of Finance will provide office space, administrative assistance, communications, meeting space, meeting logistics, and other such resources as required carrying out the design and presentation aspects of the assignment. 9. The company will be responsible for accommodation and logistic support including transportation and translation services required to carry out the assignment. 10. The company will provide at least two local consultants to conduct legal and institutional background research, functional review and participate in development of Public Financial Management Strategy. 11. During his/her mission, the Consultant will closely cooperate with the appropriate agencies (Departments, Units and Divisions) of the Ministry of Finance and other appropriate ff2b095c-47da-4423-80c9-536f120ac7ac.doc 5 ministries, budget organizations and local authorities, State Committees, agencies, Civil Service Department (CSD) and National Bank of Tajikistan. The Consultant shall liaise closely with the regional advisor of the Fiscal Affairs Department of the International Monetary Fund on Activity 1. The Consultant shall also liaise with the regional advisor and on Activities 2 and 3 as required by the Ministry of Finance. On Administrative Classification issues the consultant should closely interact with Budget Support Project under the European Commission involved in designing of this Classification. VII. Period of work 12. Period of the mission will be not more than 6 months starting from the date of signing the contract. During the mission the Head of Consulting Company/Group will stay in Tajikistan for not less than 4 months. VIII. Reporting requirements and arrangements 13. Consultant will agree on the Plan for work with the Technical Group 3 (TG3) led by the Deputy Minister of Finance. The consultant will closely collaborate with the Project Coordination Team (PCT). 14. The consultant’s reports are subject to review and clearance by TG3. The reports shall combine all suggestions of the Ministry of Finance and the World Bank as well as to be formally approved by the Ministry of Finance. The final report should be approved by the TG3 and formally endorsed by the Ministry of Finance, as the conditions for final payment. All reports should be submitted in English and Russian and the final report should be submitted in Tajik as well. All reports and studies produced under this assignment are the property of Executive Office of President (EOP) and cannot be published, copied, or otherwise disseminated without prior written EOP approval. IX. Consultant Qualifications A consulting firm with extensive experience (minimum 5 years) in the design and development of integrated public financial management systems. Prior experience with the PFM issues and system in CIS countries is desirable. Consulting team members should have minimum 5 (five) years of international consulting experience and hold a university degree (4-year program or more) in relevant fields of their assignments. These include a budget and treasury specialist, public accounting and auditing specialist, and information technology specialist with specialization on public sector finance. Excellent report writing skills. ff2b095c-47da-4423-80c9-536f120ac7ac.doc 6 Ability to communicate in Russian is preferable. ff2b095c-47da-4423-80c9-536f120ac7ac.doc 7 Annex 1 Report on Budget classification and Accounting System for general government sector 1. Introduction; 2. Detailed plan for introduction of the new Budget Classification, including the economic, administrative, functional and fund classifications, incorporating all training, amendments to procedures for applying the classifications and bridge tables that may be required between the existing and new classifications; 3. Detailed plan for introduction of the new unified chart of accounts, to be applied by both the Treasury and Budget Organizations, to enable compliance with GFSM 2001 and compatibility with IPSAS, incorporating all training and amendments to accounting standards, policies and procedures that may be required. Attachment 1. Revised structure of the Budget Classification aligned with GFS 2001 and including Administrative Classification. Attachment 2. A new Structure of the Chart of Accounts aligned with the revised Budget Classification. Attachment 3. Tables to transfer the data from the old Budget Classification and old Chart of Accounts to the new ones. ff2b095c-47da-4423-80c9-536f120ac7ac.doc 8 Annex 2 Proposed Outline Review of the PFM System Review existing laws and regulations, normative documents and guidelines governing public financial management in Tajikistan; Review of capacity of organizations in Tajikistan involved in PFM; Review institutional and organizational framework for budget and treasury management including human resource capacity; Main challenges related to formation and application of budget and proposed solutions of the problems; Functional analysis of budget and treasury operations including administrative procedures, transactions documents, information flows, forms and documents covering all organizations involved in the key functional areas. These areas include coverage of the budget, key functions of budget and treasury including macroeconomic forecasting, budget preparation, core treasury functions (general ledger, accounts payable and receivable, purchasing and commitment, cash management, asset/inventory management, and financial reporting), debt management, human resource management, payroll system, and auditing; Review of best practices in the PFM system; Roles and responsibilities of main organizations involved in PFM (Ministry of Finance, taxation bodies, customs house etc.); Organizational structure of the Ministry of Finance; Organization of lead agencies and their structural subdivisions; Cooperation of all government departments, horizontal and vertical interaction; Analysis of deficiencies, definition of weaknesses in the existing systems and departure from the best practices; Description of functions and distribution of authorities at different PFMS levels (central, local); Build rational organizational model including horizontal and vertical interactions; Recommendations on amendments in legislation for institutional reforming and implementation of integrated PFMS; Prepare recommendations on improving paperwork necessary for the proposed public finances management System of the RT; Formulate detailed list of functional requirements to the proposed system of public finances management Procedural Changes: Identification of procedural changes necessary for implementation of the integrated PFMS ff2b095c-47da-4423-80c9-536f120ac7ac.doc 9 ff2b095c-47da-4423-80c9-536f120ac7ac.doc 10 Annex 3 PFM Strategy Possible Sample (Draft): I. General provisions Purpose of strategic document Definitions II. Strategic vision III. Public Financial Management System Analysis (PFMS) 1. Key problems; 2. Reasons of problems; Legislation; Functions and responsibilities; Undeveloped systems; Other. 3. PFMS Concept and PFM Model Comparative Analysis in Tajikistan and other countries of the Region. 4. PFMS Functions and authorities in Tajikistan. 5. Analysis of Legal framework regulating the activity of some PFM entities. IV. PFMS development perspectives in Tajikistan: 1. Development Suggestions; 2. Consistency with reforms and time. ff2b095c-47da-4423-80c9-536f120ac7ac.doc 11