Completion Report

Project Number: 41041-013 Loan Number: 2338 September 2017

Uzbekistan: Public Finance Management Reform Project This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency Unit – sum (SUM)

At Appraisal At Project Completion (18 April 2007) (15 June 2017)

SUM1.00 = $0.000796 $0.000256 $1.00 = SUM1,255.55 SUM3,903.19

ABBREVIATIONS ADB – Asian Development Bank COA – chart of accounts GFMIS – government financial management information system IMF – International Monetary Fund IT – information technology MOF – Ministry of Finance MTBF – medium-term budget framework PFM – public finance management PMO – project management office PSC – Project Steering Committee TA – technical assistance TSA – treasury single account US – United States UzASBO – Uzbekistan Automated System for Budget Organizations

NOTES

(i) The fiscal year (FY) of the government and its agencies ends on 31 December. (ii) In this report, “$” refers to United States dollars.

Vice-President W. Zhang, Operations 1 Director General S. O’Sullivan, Central and West Asia Department (CWRD) Country Director T. Konishi, Uzbekistan Resident Mission, CWRD Team leader B. Gafurov, Senior Private Sector Development Officer, CWRD Team members F. Djumabaeva, Associate Project Analyst, CWRD D. Mukhammadaliyev, Social Sector Officer, CWRD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 2

A. Relevance of Design and Formulation 2

B. Project Outputs 3

C. Project Costs 8

D. Disbursements 8

E. Project Schedule 8

F. Implementation Arrangements 9

G. Conditions and Covenants 9

H. Related Technical Assistance 9

I. Consultant Recruitment and Procurement 10

J. Performance of Consultants, Contractors, and Suppliers 10

K. Performance of the Borrower and the Executing Agency 10

L. Performance of the Asian Development Bank 11

III. EVALUATION OF PERFORMANCE 11

A. Relevance 11

B. Effectiveness in Achieving Outcome 11

C. Efficiency in Achieving Outcome and Outputs 12

D. Preliminary Assessment of Sustainability 12

E. Impact 12

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13

A. Overall Assessment 13

B. Lessons 13

C. Recommendations 14

APPENDIXES

1. Updated Design and Monitoring Framework 16

2. Compliance with Loan Covenants 19

3. Review of Government Financial Management Information System Compliance with Key Requirements 27

BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Name of Executive Agency 6. Amount of Loan 7. Project Completion Report Number

Republic of Uzbekistan 2338 Public Finance Management Reform Project Republic of Uzbekistan Ministry of Finance $20,700,000 1660

B. Loan and Grant Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity – Grace Period

22 March 2007 18 April 2007 3 May 2007 8 May 2007 28 June 2007 10 December 2007 9 March 2008 14 December 2007 0 31 July 2012 21 November 2012 0 Sum of the London interbank offered rate and 0.60% per year 25 years 4 years

8. Disbursements a. Dates

Initial Disbursement 31 March 2008

Final Disbursement 30 July 2012

Time Interval 52.0 months

Effective Date

14 December 2007 Actual Closing Date 21 November 2012

Time Interval 59.3 months

ii

b. Loan Amount ($’000)

Category Original

Allocation

Last Revised

Allocation Amount

Canceled Amount

Disbursed Undisbursed

Balancea

1. Goods 18,837 6,597 12,240 6,194 403 2. Consulting Services 380 0 380 0 0 3. Project Management 203 203 0 161 42 4. Unallocated 1,280 0 1,280 0 0 Total 20,700 6,800 13,900 6,355 445

a Canceled on the loan closing date. Note: A total of $14.35 million or 69.29% of loan proceeds were canceled. Numbers may not sum precisely because of rounding.

C. Project Data

1. Project Cost ($’000) Cost Appraisal Estimate Actual

Foreign Exchange Cost 20,700 6,355 Local Currency Cost 16,600 16,289 Total 37,360 22,644 Note: The Detailed Cost Estimates and Financing Plan was not published in the report and recommendation of the President as this information was deemed confidential per the Asian Development Bank Public Communications Policy.

2. Financing Plan ($’000) Cost Appraisal Estimate Actual

Implementation Costs Borrower Financed 16,660 16,284 ADB Financed 20,700 6,335 Other External Financing 0 0 Total 37,360 22,619 IDC Costs Borrower Financed 0 5 ADB Financed 0 0 Other External Financing 0 0 Total 0 5

ADB = Asian Development Bank, IDC = interest during construction.

3. Cost Breakdown by Project Component ($’000) Component Appraisal Estimate Actual

Establishment of a Treasury Institutional Network and Support for Capacity Building

10,200 11,683

Modernization of Treasury Operations 22,740 10,794 Project Management 530 206 Total 33,470 22,683

4. Project Schedule

Item Appraisal Estimate Actual

Establishment of a Treasury Institutional Network and Support for Capacity Building

Treasury Office Refurbishment August 2008 August 2008 MOF IT Staff Training and Certification October 2008 October 2008 Modernization of Treasury Operations GFMIS Software and Main Servers (1 pack)1 October 2009a Did not proceed

1 At appraisal, the COTS package and Servers were to be procured together.

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Item Appraisal Estimate Actual

Main Servers October 2009 October 20142 Engagement of Software Developer N/A3 March 2016 Computers and Network for Treasury Offices

(2 packs) March 2010 December 2011

Telecom and Networking Equipment (3 packs) December 2009 December 2011 Project Management PMO Operation, Monitoring, and Evaluation December 2011 December 2011 IT and/or Procurement Adviser (international) May 2009 Did not proceed GFMIS = government financial management information system, IT = information technology, MOF = Ministry of Finance, PMO = project management office. a The procurement packages were to (i) change servers and (ii) engage a software developer.

5. Project Performance Report Ratings

Implementation Period

Ratingsa Development

Objectives Implementation

Progress

From 29 June 2007 to 28 February 2008 Satisfactory Satisfactory From 28 February 2008 to 27 February 2009 Highly Satisfactory Highly Satisfactory From 27 February 2009 to 31 December 2009 Satisfactory Satisfactory From 1January 2010 to 31 December 2010 Satisfactory Satisfactory From 1 January 2011 to 30 June 2011 Potential Problem From 1 July 2011 to 31 March 2012 Actual Problem From 1 April 2012 to 30 June 2012 Potential Problem From 1 July 2012 to 21 November 2012 On Track a Effective 1 January 2011, the project performance report system was replaced by a new project performance rating

system that no longer provides separate ratings of development objectives and implementation progress and instead gives an overall project rating.

Note: No project rating was indicated in the system for 2013–2016 since the loan account was closed.

D Data on Asian Development Bank Missions

Name of Mission Date No. of

Persons No. of

Person-Days Specialization of Members

Appraisal Mission 2–18 April 2007 a, b, c, d b, c, d

Inception Mission 15 April 2008–6 May 2008 1 5 b, c, d Review Mission Multiple datesa 1 2 Midterm Review 12 December 2011–20 January

2012 2 10 b, c, d

Loan Review July 2012 2 10 b, c Project Completion Review

June 2017 2 30 b, b, c

a = senior portfolio specialist, b = national officer, c = project analyst, d = staff consultant. a ADB HQ delegated project administration to the Uzbekistan Resident Mission (URM). In addition to official

missions, the URM reviewed project activities through daily discussions, weekly and/or monthly meetings, and quarterly reviews under quarterly portfolio review exercises.

2 Changes to procurement resulted is separate procurement of Servers 3 At appraisal the proposal was for procurement of a COTS package, there was no engagement of a separate

software developer.

I. PROJECT DESCRIPTION 1. On 28 June 2007, the Asian Development Bank (ADB) approved a loan of $20.7 million from its ordinary capital resources for the Public Finance Management Reform Project in Uzbekistan and an associated technical assistance (TA) grant of $600,000 for Supporting Public Finance Management Reform in Uzbekistan.1 2. The project aimed to improve public resource planning and use. Its intended outcome was improved effectiveness, efficiency, transparency, and accountability of budget execution processes. The project had five outputs: (i) establishment of a modern treasury with a nationwide network of treasury offices servicing budget organizations of national and subnational governments and revenue collection agencies, and development of a functioning government financial management information system (GFMIS) to facilitate treasury operations; (ii) consolidated and streamlined treasury banking operations under an established treasury single account (TSA); (iii) creation of a central accounting system using a unified chart of accounts (COA) in line with the revised budget classification, the Government Finance Statistics Manual 2001 of the International Monetary Fund (IMF), and International Public Sector Accounting Standards; (iv) a refined legal framework; and (v) application of the revised budget classification to budget preparation and execution, with improved pilot program budgeting in selected sectors. 3. The project was organized into three components: (i) establishment of a nationwide institutional network of treasury offices and support for capacity building; (ii) modernization of treasury operations; and (iii) project management, monitoring, and evaluation. Component 1 was to help establish a nationwide institutional network of treasury offices and provide associated capacity building in areas where gaps were identified and the needs were acute. Capacity building included supporting the Ministry of Finance (MOF) in maintaining the GFMIS and managing its associated databases. Component 2 comprised the development and implementation of the GFMIS and provided financing for (i) the procurement, the setting of parameters, and the installation and deployment of an integrated treasury software application package with associated documentation and training services; (ii) the main servers for the central treasury office and a backup processing center in Tashkent; (iii) the computers and networking items for the treasury offices being established throughout Uzbekistan; (iv) the procurement of telecommunications equipment; and (v) local area networking, including dedicated local telecommunication lines, local area network infrastructure, power supply, monitoring, and alarm systems for local offices. Component 3 funded a project management office (PMO) under the MOF to manage day-to-day project activities. The PMO was expected to work closely with the MOF, the Treasury, and treasury offices at central and local levels. 4. Since 2000, the government has been engaged in long-term cooperation with many international partners in preparing public finance management (PFM) reform. After 7 years of pilot testing various elements of fiscal reforms, the government adopted a long-term strategic approach to advancing the PFM reform process. ADB was not directly involved in these activities but closely followed up with the government and international partners to coordinate activities, given ADB’s strong involvement in financing public sector investment projects. The project was initially to be financed by the World Bank. In 2007, that financing became unavailable and the government requested ADB to support its strategic aim to establish a comprehensive treasury system and implement unified budget and accounting systems, which

1 ADB. 2007. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical

Assistance Grant to the Republic of Uzbekistan for the Public Finance Management Reform Project. Manila.

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was needed to undertake its PFM reform strategy. ADB responded quickly. In May 2007, the MOF developed the Public Finance Management Reform Strategy, 2007–2018 with support from the IMF Fiscal Affairs Department and ADB. The strategy outlined a 12-year action plan to (i) establish a functioning treasury system, (ii) adopt and implement a modern unified budget and accounting system, and (iii) introduce a medium-term budget framework (MTBF) and program budgeting. The project provided support for implementing and refining the PFM strategy. PFM reform was expected to have significant implications for the country’s economic management, leading to more effective and efficient public resource management.

II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 5. The project was relevant at appraisal and was consistent with the government’s comprehensive plan and key priority agenda for PFM system reforms. These long-term reforms were expected to continue through 2018. In early 2000, Uzbekistan set the goal of improving its fiscal management system by reducing central budget expenditure to below 50% of gross domestic product and gradually reducing its fiscal deficit, largely eliminating it in 2004. The public finance reforms were initially supported by substantial TA from the IMF, the United States (US) Agency for International Development, the US Treasury, and the World Bank. The IMF and the US Treasury have each provided one long-term adviser to assist the MOF in implementing the budget and PFM reforms outlined in the Budget System Law, 2000 and in drafting the proposed treasury law. The World Bank worked with the MOF from 2001 on preparing a project to help finance the creation of the Treasury and a treasury system within the MOF, including hardware and software. France’s MOF also provided advice and training. The reforms aimed to modernize tax administration, thereby reducing and ultimately eliminating the use of commercial banks for this purpose; work on the procurement law and systems; and identify fiscal measures to reduce regional inequities in overall revenue distribution. 6. ADB assistance for PFM reform did not fall into its four country strategy and program, 2006–2010 priority areas for Uzbekistan and was not originally envisaged as a project. 2 However, ADB approved the project because the government prioritized PFM reforms and other funding for this initiative became unavailable. ADB supported the government’s determination to keep the momentum and continue to improve public resource planning and use through improved effectiveness, efficiency, transparency, and accountability of budget execution processes. Other international donors provided TA support to the government for other aspects of the PFM reform strategy. 3 At the same time, ADB recognized sector-related risks by indicating the existence of technical and other challenges rooted in the country’s economic and political system that could take longer to address. The project was adequately formulated through project preparatory TA. ADB also provided a TA grant to help the government prepare a project that would help improve public resource planning and use [footnote 1]. 7. The project was less than relevant at completion. 4 The government continues to emphasize the need for public finance reforms. During 2007–2016 the government took

2 ADB. 2006. Country Strategy and Program: Uzbekistan (2006–2010). Manila. 3 The government also received TA from the United Nations Development Programme and the European Union

Technical Assistance to the Commonwealth of Independent States. 4 Although the ADB loan closed in November 2012, the project was substantially completed only in June 2017.

ADB’s Project Administration Instructions on Project Completion Report for Sovereign Operations stipulate that “a project is completed when components and facilities to be constructed or provided have been substantially completed and are ready for operation. Q The fact that ADB loan disbursement is complete is not in itself the basis

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significant steps to improve the accountability, transparency, and efficiency of budget planning and execution. This required the adoption of new laws, regulations, and instructions, such as the introduction of a new Budget Code in 2014 and the MOF’s approval of the first Budget Accounting Standard, which sets requirements for the accounting policies of budget organizations, in 2016. The government implemented other legislative and normative changes to adjust the institutional arrangements between the Treasury and the budgetary organizations and to improve state procurement. At the same time, slippages from the original timeline were quite substantial, extending project completion by 4.5 years because of implementation delays in activities planned under the PFM Reform Strategy, 2007–2018. While slippages, changes, and corrections to the original plan are understandable, this delay resulted in project design changes and the delay of expected benefits to government and other beneficiaries. B. Project Outputs 8. The project was expected to deliver five outputs (para. 2). The project missed critical deadlines and was extended beyond the original 5-year period. Thus, it took the executing agency almost twice as long to complete the project. Delays in developing procurement documents, contract repackaging, an extremely prolonged procurement process, and unsuccessful bidding affected the use of the ADB loan. The updated design and monitoring framework is in Appendix 1. The summary of outputs, achievements, and activities under the three components is as follows.

(i) The first output was achieved but with substantial delays. The project modernized and adequately staffed the treasury office and its provincial departments and district branches. The refurbishment of the treasury offices, including the provision of basic information technology (IT) equipment and adequate staff, took place relatively quickly in 2007–2009. But procurement of GFMIS-related communication lines was delayed by 3 years and equipment by 5 years, while the development of customized GFMIS software and its rollout were delayed by 6 years. Similarly, staff training on GFMIS operations was postponed due to the delay in software development. The latest training was in October 2016. Detailed information on the activities completed to establish the treasury offices, support capacity building, and develop the GFMIS are provided in paras. 9–15.

(ii) The second output was achieved. The TSA became operational on 1 January 2012. Moving the treasury accounts to the TSA was gradual, beginning with 14 territorial 5 and 1 central republican treasury accounts in operation. Extra-budgetary accounts were progressively closed as reported by the Treasury.

(iii) The third output was partially achieved. The MOF introduced the Uzbekistan Automated System for Budget Organizations (UzASBO) central accounting system in 2014. However, it took longer than expected to develop a modern unified COA, which the MOF adopted in 2010.6 But the MOF postponed the implementation of the unified COA several times and replaced it in 2016. The new unified COA, which the MOF approved in March 2016, has a different classification system and is now used internally by the Treasury. But the document has not yet been officially registered with the Ministry of Justice and

to commence the PCR. The whole project, and not just ADB disbursement, must be either complete or substantially complete." ADB. 2009. Project Completion Report for Sovereign Operations. Project Administration Instructions. PAI 6.07A (Appendix 1, para. 1). Manila.

5 Treasury accounts for the Republic of Karakalpakstan, 12 provinces, and Tashkent city. 6 MOF Order. No. 26 dated 2 April 2010 on the adoption of a unified chart of accounts for the Treasury’s budget

execution. The MOF postponed the implementation of the document and canceled the order in 2016.

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therefore not used by all budgetary organizations. This postponement was linked to delays in the launch of GFMIS. The government adopted the first public accounting standard at the end of 2016 and is expected to adopt 11 standards, developed with the help of a United Nations Development Programme project, in the next two years.

(iv) The fourth output was achieved. The government introduced necessary amendments to the Budget System Law, 2000 and the Treasury Law in December 2007.7 The government enacted a Budget Code in 2014 to replace the Budget System Law and other normative acts, unifying them into a single improved document.8

(v) The fifth output was achieved. Treasury applied a revised budget classification in budget preparation and execution in selected sectors. ADB supported TA developed and provided manuals to the MOF. MOF adopted the application of new budget classification requirements in 2010. ADB supported TA and Treasury provided initial training on the classification in 2010 but was unable to provide GFMIS-specific training because of delays in procurement. The MOF reported that training was completed as required when the GFMIS was commissioned in 2016.

9. Component 1: Establishment of a nationwide institutional network of treasury offices and support for capacity building. This component helped establish a nationwide institutional network of treasury offices and provided associated capacity building, including support to build the MOF’s capacity to maintain the GFMIS and manage its associated databases. The activities were partially completed. 10. There were two subcomponents, the first being the refurbishment of treasury offices. Treasury offices in regions and districts had been established before the GFMIS was introduced. During the preparation stage in 2007, the government (i) approved the organizational structure and staffing plan for the central treasury and treasury departments and branches in provinces and districts;9 (ii) approved the regulation on the Treasury under the MOF and appointed a head of Treasury; and (iii) developed and adopted the PFM Reform Strategy, 2007–2018.10 In 2007–2009, the government financed the refurbishment of treasury offices in two phases, spending an equivalent of $5.8 million in 2008 and $4.2 million in 2009. The ADB loan provided IT office and other equipment to support treasury operations (paras. 13–14). 11. The second subcomponent included specialized training and certification for about 10 MOF IT specialists in GFMIS maintenance and associated database management, including (i) database administration, (ii) operational systems engineering, and (iii) network technology engineering. This training was provided by a specialized IT certification company to build the capacity of treasury staff during the transition period and help coordinate implementation during the software design and development phase. The GFMIS vendor was responsible for providing hands-on training on GFMIS functions, operation, and maintenance.

7 Law of the Republic of Uzbekistan No. ZRU-130 dated 17 December 2007 on amendments to the budget system

and treasury laws. 8 Laws of the Republic of Uzbekistan No. ZRU-360 dated 27 December 2013 on the Budget Code and No. ZRU-361

dated 27 December 2013 on amendments and abolishment of some legislative acts due to the adoption of the Budget Code.

9 The Presidential Resolution No. PP-594 on measures for the further development of a system of treasury execution of the state budget was issued on 28 February 2007.

10 The Resolution of Cabinet of Ministers No. 53 on the regulation on the Treasury Office under the MOF was issued on 20 March 2007. The regulation was amended in 2009, 2011, and 2016.

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12. Component 2: Modernization of treasury operations. The project modernized the Treasury on a different basis than what was proposed in the appraisal and with substantial delays. The Treasury is currently well integrated into MOF’s structure, with central, provincial, and district offices established and functional for over 9 years.11 The original procurement plan included six procurement packages:

(i) Package 1: Development and implementation of government financial management information system software. This included the (i) supply of an integrated software package; (ii) setup of the parameters of the package following the MOF’s specific requirements; (iii) development of integration modules for data exchange with other organizations, including the Central Bank of Uzbekistan, commercial banks, the State Customs Committee, and the State Taxation Committee; (iv) development of user documentation and training modules in local languages; (v) GFMIS installation, testing, and deployment in all treasury locations; (vi) training of treasury staff on the use of the GFMIS; and (vii) technical training of MOF and Treasury IT staff to enable them to support the GFMIS. Procurement of this package was expected to start as soon as possible after loan effectiveness in 2008 and to be rolled out by the first quarter of 2010.

(ii) Package 2: Supply of main servers. This package covered the supply, installation, commissioning, and support of the main server hardware and data storage equipment required to operate the GFMIS application in the main treasury computer center in Tashkent, plus the supply of equipment for the Business Continuity Center. These sites were to be linked by high-speed data lines and/or cables and connected to the full treasury network. As the technical specifications of these items depended on the design and specification of the GFMIS software to be procured in package 1, the bidding documents for package 2 were to be finalized in consultation with the contractor for package 1.

(iii) Package 3: Supply of computers and networking equipment for treasury offices. This package covered the procurement of 580 computers, printers, related local servers, and electronic security facilities for the treasury offices. These items were to be used for standard office functions and to access MOF’s interim Treasury One software system, and subsequently to be available for use with the GFMIS.

(iv) Package 4: Further computers and networking equipment for treasury offices. This package was to procure 1,048 computers (including uninterruptible power supplies and office software) to fully equip provincial and district treasury offices by the time the GFMIS application was ready for pilot testing.

(v) Package 5: Supply of telecommunication networking equipment. This package covered the networking equipment (including routers, firewalls, and internet telephony devices) required to interconnect all treasury locations.

(vi) Package 6: Local support systems. This package covered the supply and installation of cabling, local area network switches, telecommunications cabling, uninterruptible power supplies, fiber-optic connections, alarm and monitoring systems, and fire detection and suppression equipment.

13. Procurement of the six packages was to be financed by the ADB loan and procured through international competitive bidding. However, Government repackaged the contracts in 2008 to optimize procurement by combining six contracts into three new contract packages.

11 Ministry of Finance of the Republic of Uzbekistan. Treasury Division (organizational structure).

https://www.mf.uz/media/file_en/treasury/treasury_str.pdf.

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This delayed procurement further and resulted in ADB financing only two of the revised packages. 14. Revised package 1 was to procure a commercial off-the-shelf GFMIS application software and main servers. ADB used a two-stage bidding procedure for the package, with bidding announced in December 2009. Bid opening was originally planned for March 2010 but was postponed to 28 April 2010. The evaluation of technical proposals took longer than expected and was completed in May 2011. The delays resulted from the need to finalize technical requirements, the use of a complex procurement procedure, and a slow evaluation process. Executing agency staff was unfamiliar with the two-stage bidding procedure. On occasion, this led to different interpretations of ADB procedures and bidding documents between the executing agency’s evaluation team and the ADB team. Three bidders were found technically responsive and passed to the second stage, and another three were requested to submit price proposals and revised technical proposals. Only one bidder submitted its proposal for the second stage in June 2011. The bidder’s price proposal was 43% above the budget and the executing agency’s bid committee rejected the proposal and suggested rebidding in August 2011. In September 2011, the executing agency requested ADB to consider rebidding for this package. The assessment for the rebidding timeline indicated that rebidding may result in a 2- or 3-year loan extension to complete procurement and execute the contract. Given the uncertainties associated with rebidding, ADB did not agree with the proposal.12 Alternative options were sought by the Project Steering Committee (PSC), which decided to split the package into two contracts, separating procurement of hardware and software development. The executing agency proposed to finance the development of a GFMIS software based on Treasury-4, the Treasury’s existing application software.13 The executing agency assessment showed that Treasury-4 has 80 percent of the required functional requirements envisioned under a new GFMIS. Thus, the executing agency proposed to change the approach and develop Treasury-4 into a modernized in-house application using the already approved schedule of technical requirements for the GFMIS. These were to be financed in 2013–2015 from the state budget following government procurement procedures. The loan amount related to this package ($10.4 million) was canceled along with savings (para. 22). 15. During 2013–2017, ADB’s further involvement with the procurement of revised package 1 stopped because the loan was closed. ADB did not provide financing for this package. In 2013, the executing agency, using the schedule of technical requirements for software and hardware developed under the project, split GFMIS procurement into two contracts: (i) procurement from local software developers for services to complete the transformation of Treasury-4 into a modernized GFMIS with software support until 2023, and (ii) procurement of main and backup servers from international suppliers.14 Some changes resulted in the need for the MOF to prepare new budget requirements and seek budget approvals to fund the software development costs and the equipment. In 2013–2014, two bid opportunities using the national procurement system were organized by the MOF for GFMIS software development and server procurement. The procurement of servers was funded by the 2014 and 2015 state budget, with installation commencing in June 2015. The procurement of software developer services took longer. After receiving three bids, the MOF selected an Uzbek IT firm and Treasury-4 developer to design and develop the GFMIS. The process was expected to be completed by 2015. However, delays in contract signing resulted in development taking place in 2015–2016. The modified GFMIS

12 Rebidding could have resulted in need for loan extension for at least 3 years. 13 Treasury-4 is an upgraded software package run by the Treasury during 2007–2011 to ensure operations. It was

supposed to be replaced by the new GFMIS procured under the project. 14 The technical requirements were developed under ADB-funded TA on Supporting Public Finance Management

Reform.

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was ready for testing in February 2017 in one selected province and one district and is expected to be rolled out in the remaining provinces beginning in June 2017. 16. Revised package 2 was to procure computers and office equipment for the treasury offices. Revised package 3 was to procure telecommunications equipment, local area networking, infrastructure equipment, and support systems. ADB loan proceeds were used to procure these packages. The executing agency initially decided to postpone procurement of these packages as it wanted to first procure the GFMIS contract package. This decision delayed the process. Bidding documents were approved in May 2011, bid proposals were opened in July 2011, and proposal evaluation was completed in August 2011. In November 2011, ADB issued no-objection letters to contract awards for both packages. The contracts totaled $6.194 million and were submitted to ADB on 27 December 2011. ADB and the PMO developed a detailed contracts implementation plan to ensure timely delivery of goods and related services before the loan closing date. The delivery of goods was completed as planned. 17. ADB also provided consulting services under the associated TA grant to help prepare the technical requirements of; bidding documents for; and revised budget, revenue, functional, and economic classification of state budget expenditures for all packages.15 18. Component 3: Project management support. The project executing agency was the Treasury of the MOF. The MOF established the PMO under the Treasury in March 2008 to manage project activities. Treasury hired PMO personnel and provided them with office space at the Treasury. The PMO adopted the standard accounting system for budgetary organizations. The government established a PSC on 1 November 2007, headed by the first deputy prime minister. The PSC comprised higher-level officials at the Agency for Communications and Information; the Central Bank of Uzbekistan; the Ministry of Economy; the Ministry of Foreign Economic Relations, Investment and Trade; the MOF; the State Customs Committee; and the State Tax Committee. In February 2008, the PSC established a working group comprising line ministry staff to review technical and functional requirements, develop and endorse the schedule of technical requirements, and review and endorse the selection of the GFMIS vendor. A budget execution specialist funded by the TA supported the PMO in preparing the bidding documents, including the schedule of technical requirements. While necessary management structures were in place at the start of the project, frequent PMO staff turnover and a lengthy inter- and intra-ministerial approval process contributed to delays. 19. Status of Public Finance Management Reform Strategy, 2007–2018 and government financial management information system implementation. The project’s original strategy of procuring a commercial off-the-shelf system and an implementing contractor responsible for the rollout over three phases did not materialize during the project implementation period (2007–2016). The key difference in modernizing treasury operations from appraisal was the government decision to internally develop the UzASBO accounting software that budget organizations will use, which affected the way implementation was managed. The Treasury and the MOF, with support from the local software developer, are responsible for the GFMIS rollout. The Treasury also internally supports UzASBO. The equipment financed from the ADB loan has been installed, is operational, and is being used efficiently. The Government of Uzbekistan adopted an internally developed budget classification based on the Government Finance Statistics Manual 2001 as part of the PFM reforms. However, compared with the original plan of full implementation during 2016–2018, rollout only began in June 2017 with full

15 The technical requirements were developed under ADB-funded TA on Supporting Public Finance Management

Reform.

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implementation expected by 2021. This means that implementation of the PFM Reform Strategy, 2007–2018 has been postponed. C. Project Costs 20. ADB approved a loan of $20.70 million to finance a portion of the total project cost of $37.36 million. The government contributed $10.00 million for the refurbishment of treasury offices nationwide, $2.61 million for interest and commitment charges during implementation, and $3.95 million for taxes and duties. The loan was closed in November 2012. At loan closing, the audited project financial statements for 2012 indicated interim cumulative expenditure of $18.24 million: $6.36 million by ADB and $11.88 million by the government. ADB financed three contracts totaling $6.194 million and project management costs of $0.161 million. The loan in the amount of $14.35 million was canceled (69.3%).16 21. The government funded project costs in 2013–2017. During this period, an additional $4.44 million was incurred for GFMIS development (equivalent to $1.10 million) and server procurement (equivalent to $3.34 million). The total project cost at project completion in 2017 was $22.68 million. In general, project costs were lower than planned. D. Disbursements 22. Disbursements under the loan were equal to $6.36 million (30.7%): $6.2 million for IT equipment (97.5%) and $0.16 million (2.5%) for project management support. PIU promptly established and maintained an imprest account following ADB’s Loan Disbursement Handbook (2007, as amended from time to time). There was no increase in the ceiling amount. The use of the imprest account was satisfactory. The loan proceeds were disbursed (i) directly to suppliers for the provision of goods and services ($6.194 million) and (ii) via an imprest account for PMO expenditures ($0.161 million). The first advance was made on 31 March 2008. Delay in the issuance of final payments and liquidation of the imprest account advance resulted in a 3.5-month delay before the loan was closed. Overall, disbursements did not follow the original timeline because of procurement delays. The loan disbursement ratio was below 1.00% until 2012, and improved only in the last year of loan operations. High PMO staff turnover, slow contracting, and the decision not to rebid the GMFIS contract package resulted in considerable underutilization of 69.3% of loan proceeds. E. Project Schedule 23. ADB was actively involved in project implementation until the loan was closed in 2012. During 2013–2017, the government handled all aspects of project implementation and financed all project-related costs. The project was approved on 28 June 2007 and the loan agreement was signed on 10 December 2007 with a 5.3-month delay. 17 However, the loan became effective quickly on 14 December 2007. The original implementation period was 5 years, with a project physical completion date of 31 January 2012 and a loan closing date of 31 July 2012. The loan closing date was not extended. The winding up period was 3.6 months18. The loan

16 The amount represents the unused portion for GFMIS procurement, savings from the procurement of packages 2

and 3, and the unused portion for consulting services. 17 Presidential Resolution No. PP-721 on measures to implement the Public Finance Management Reform Project

with participation of the Asian Development Bank was issued only on 1 November 2007. 18 The main reasons included the (i) repackaging of the six procurement packages into three; (ii) delay in opening the

bids for the GFMIS and server procurement opportunities; (iii) time taken to complete the technical evaluation of

9

account closed on 21 November 2012. Project implementation experienced initial delays in loan signing to meet government assurances and to ensure quick loan effectiveness and a smooth start, but later faced interruptions linked to the need to develop technical requirements and repackage the contracts, time lost to agree on a new procurement plan and develop new bidding documents, and extensive delay in the evaluation of its major contract. Frequent turnover of PMO staff further affected progress. The executing agency’s decision to postpone the procurement for packages 2 and 3 was not justified. F. Implementation Arrangements 24. Project management arrangements are explained in para. 18. The PMO was responsible for day-to-day operations covering (i) recruitment of staff and consultants; (ii) establishment and maintenance of records and an accounting system; (iii) procurement of goods and services; (iv) submission of quarterly progress reports and annual audit of project accounts; (v) compliance with loan covenants; and (vi) preparation and submission of withdrawal applications and the use of the imprest account. The PMO had six staff members. G. Conditions and Covenants 25. Compliance with covenants was generally satisfactory as the project complied with most covenants. However, the project had delayed compliance with covenants related to sector and government assurances, and some covenants were no longer relevant after the government changed implementation arrangements after the loan was closed. PMO did not comply with the covenant which required it to develop the gender action plan (GAP) within six months of the effective date. This was mainly due lack of expertise and resources. The GAP targets for recruiting and promoting female staff in the Treasury operations, integrating women's needs in the design and operation of project outputs, and establishing targets for women’s participation in training were also not clearly defined, thus resulting in different interpretation. In general, it was not prudent to impose such requirement for a project classified as having no gender elements. The project’s compliance with assurances under the PFM Reform Strategy, 2007–2018 was generally satisfactory but did not always follow the initial timeline. Details on compliance with loan covenants are in Appendix 2. H. Related Technical Assistance 26. ADB provided a TA grant of $600,000 to build government capacity to implement PFM reforms, which covered (i) support for budget preparation, and (ii) support for budget execution through treasury operations using the GFMIS. Individual national and international consultants, funded by the TA and recruited following ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time), supported the PMO. ADB prepared a TA completion report in 2011.19 The TA was rated as successful. The TA reports and workshops were well received by MOF and were developed into specific training programs. The TA shared best practices on development of performance-based indicators for budget organization in budget preparation and execution. While the TA was not able to provide support to development of a detailed GFMIS user manual, the Treasury was expected to complete this task under the ongoing Project. The TA assisted in preparing bidding document for the GFMIS package, which was crucial for

the bids; and (iv) rejection of the procurement under revised package 1 by the bid committee for being 43% more than the budget, and decision by ADB not to rebid.

19 ADB. 2011. Technical Assistance Completion Report: Supporting Public Finance Management Reform in Uzbekistan. Manila.

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expediting implementation of PFM reform after delays. With the support provided by the TA, the EA launched the GFMIS procurement process. The TA required extension for one year. The recommendation from the evaluation was for the implementation period of future TA and PFM loan projects to be conterminous to enable continuous support. I. Consultant Recruitment and Procurement 27. The loan was supposed to finance the recruitment of an IT and procurement adviser, but the executing agency decided not to use external assistance in 2011 and this engagement did not proceed. The project financed procurement of goods and services (details are provided in paras. 12–17). In total three contracts for a total amount of $6.2 million were awarded following international competitive bidding procedures. The project also engaged the PMO staff and financed its daily expenditures to administer the project. The PMO manager was appointed by PSG, while other staff was hired on competitive basis following ADB guidelines. The PMO budget was regularly reviewed by ADB. J. Performance of Consultants, Contractors, and Suppliers 28. The completion report (footnote 19) discussed the performance of the TA consultants. The ADB loan financed contracts with three suppliers,20 whose delivery of goods and provision of services followed the contract schedule with no substantial delays. All suppliers performed satisfactorily. K. Performance of the Borrower and the Executing Agency 29. The performance of the PMO, the borrower, and the executing agency on loan administration is less than satisfactory. Higher ownership of the reform process and regular engagement with ADB did not result in timely project implementation. Issues that contributed to significant delay were the (i) 5.3-month wait between loan approval and loan signing; (ii) changes in the packaging arrangements that contributed to late procurement, starting only in December 2009; (iii) conflict between government and ADB procurement guidelines, which required the government to adjust its procedures during the procurement process; (iii) lack of coordination of procurement activities between (a) the PMO and the executing agency; and (b) the executing agency’s bidding committee, whose membership comprised government officers who were not made available to attend meetings related to project procurement; and (iv) frequent changes in PMO staff. The combination of these factors slowed procurement significantly, ultimately delaying the implementation of the project and resulted in some changes to the design after the loan was closed. 30. At the same time, ownership by the borrower and the executing agency of the PFM reform process is commendable. It demonstrated their commitment to meet their overarching goal of implementing PFM reforms successfully, resulting in the commissioning of the government-tailored GMFIS in 2017. The borrower and the executing agency achieved major reform agenda items needed to ensure the efficient execution of the treasury budget. The treasury system is now well established and operational. Changes to the legal framework are being gradually introduced and the government is moving forward with its long-term PFM strategy to improve the PFM system. Considering that policy reforms are sometimes key to the

20 Online Datensystems GmbH (Germany); Huawei International Pte. Ltd (People’s Republic of China); and Shanghai

Electric Import & Export Co., Ltd. (People’s Republic of China).

11

future success of the government’s initiatives and ownership of the process and actions taken by the borrower and the executing agency, the overall performance was evaluated satisfactory. L. Performance of the Asian Development Bank 31. ADB’s performance is rated satisfactory. ADB promptly supported an important government initiative at appraisal, provided regular inputs and feedback during project implementation, and kept regular contact with the PMO and the executing agency. In addition to regular portfolio reviews, ADB conducted five missions from loan inception in 2008 to project review in July 2012. The midterm review mission was completed late in December 2011–January 2012. The decision not to rebid the GFMIS package may be questioned but it was justified under the circumstances as it allowed the government to save significant resources. ADB reviewed bidding and evaluation documents and demonstrated flexibility when changes were required to move the project forward. However, there were delays because contract packages were changed, procurement procedural differences between the government and ADB delayed bid opening, and technical evaluation completion and review were delayed. ADB could have been more assertive and required the engagement of a resident long-term IT and procurement expert to support PMO building capacity in the executing agency for such complex procurement. It would have been better if ADB also continued to support the government by approving an additional TA grant to help with PFM reforms after the loan was closed.

III. EVALUATION OF PERFORMANCE A. Relevance 32. The project is less than relevant at completion. The project was not implemented on time, and the planned PFM reforms did not occur as planned. The delay in GFMIS procurement resulted in delayed benefits to beneficiaries. The project is marginally completed as of June 2017, as the GFMIS rollout started only in June 2017. The project also deviated from the government’s approach to the PFM Reform Strategy, 2007–2018. In addition, the government is undergoing changes following its new development strategy of delegating more responsibilities to provinces. Evaluating the project’s impact is difficult as the revised strategy, which was adopted only in February 2017, is required to accurately evaluate progress to date and devise the way forward.21 33. ADB’s involvement with the IMF was important in developing the PFM Reform Strategy, 2007–2018. ADB’s financing of major costs was critical in designing an adequate schedule of software requirements and technical specifications that provided a sound basis for procurement. The equipment procured helps the government implement its PFM reform strategy and improve the country’s economic management, leading to more transparent, effective, and efficient public resource management. While the project experienced difficulties, the problems are related more to procurement issues and less to the PFM reform. B. Effectiveness in Achieving Outcome 34. The project is rated less than effective because it did not fully achieve the outcome. While the project achieved most outputs, it only partially achieved the critical output related to

21 The Tashkent Times. 2017. Uzbekistan's Development Strategy for 2017–2021 has been adopted following Public

Consultation. 8 February. http://www.tashkenttimes.uz/national/541-uzbekistan-s-development-strategy-for-2017-2021-has-been-adopted-following-discussion.

12

GFMIS development and use. The impact of the GFMIS will only be seen after the national rollout and testing, which just started. The treasury institutional network and upgraded treasury and accounting systems are in place, enabling the government to monitor the budget expenditure and its execution more efficiently. However, the revised budget classification system developed in line with the Global Finance Statistics Manual 2001 was not yet adopted. It is still too early to assess the quality of budget execution efficiency and the link between budgeting and policy objectives as well as program outcomes. Progress in the introduction of the MTBF and program budgeting may have been affected by the late GFMIS rollout and prospects are still unclear. C. Efficiency in Achieving Outcome and Outputs 35. The project is rated less than effective because of significant implementation delays and procurement issues. The installed and commissioned equipment and the TA that developed the technical requirements for the hardware and software helped the government modernize its treasury operations. TSA implementation resulted in efficiency gains, transparency, and greater accountability through (i) improved cash management, (ii) the establishment of a centralized accounting system, and (iii) the implementation of the Budget Code and the Treasury Law. But GFMIS development was delayed by 6 years and the system is only being rolled out. Any cost savings are difficult to evaluate since the opportunity cost of lost benefits can be significant. Furthermore, the main economic benefits of the project are indirect. 36. The project’s direct economic benefits are savings derived from better cash management, expenditure control, accounting, and reporting. Estimates on the economic and financial internal rates of return were not prepared during appraisal. ADB completed a qualitative assessment of returns for this completion report to rate the project’s efficiency. Project beneficiaries include policy makers, government institutions, the public, and Parliament. Recent changes by the Government requiring financial authorities to report regularly to local and national Parliament is therefore a positive move. D. Preliminary Assessment of Sustainability 37. The project is rated likely sustainable. Despite implementation delays and the cancellation of a significant portion of ADB loan funds, the project was completed. Government ownership and commitment are in place within the Treasury and the MOF. There is existing internal software development capacity built to support UzASBO and the updated GFMIS within the Treasury. Moreover, the Treasury is supported by a local IT firm that is under contract until 2023. Similarly, the government has sufficient resources, remains committed to upgrade its hardware and operating systems, and has in-depth in-house technical skills. Treasury with the support of the local software developer has trained all users of the new systems. To improve sustainability, a central IT support center established within the Treasury provides user support assistance. E. Impact 38. At completion, the impact is evaluated moderate. This project, along with support from other international financial institutions, helped the government modernize the Treasury. Modernization is apparent from the efficient operations and processes at all budget execution levels, resulting in more effective public expenditure management. Treasury has tested the updated software, which it is progressively implementing from June 2017. Including the revenue module in Treasury and recording budget commitments will improve planning and reduce the

13

under collection of revenues and over-budget expenditures. The project has implemented the TSA, which will assist in the efficient use of funds. However, the project did not achieve all impact-level indicators and has not yet prepared a multiyear rolling budget. 39. Social impact. At project appraisal, the benefits of the project were assessed to be indirect and will be reflected in (i) improved budget quality; (ii) budget execution efficiency and link between budgeting and policy objectives as well as program outcomes; (iii) greater PFM transparency and accountability, underpinned by the established treasury institutional network and modern treasury system; and (iv) gradual progress in preparation for the MTBF and program budgeting. The project’s direct economic benefits will be savings derived from better cash management, greater accountability, and reduced tax and other burdens. It is too early to complete a full analysis but the expected benefits will be realized over time. 40. Gender and development. The project had no gender elements but will benefit the overall public. It was not prudent and consistent with ADB categorization (gender classification system) to impose a loan covenant requiring GAP preparation during implementation stage for a project. Lack of proper and detailed guidance on preparation of GAP and absence of resources resulted in this covenant not being delivered. Treasury provided training to about 3,000 managers and employees and 44 IT staffers.22 41. Environmental impact, involuntary resettlement, and land acquisition. The project was classified category C for the environment and category C for involuntary resettlement and indigenous peoples. It had no adverse environmental impacts. The PMO assigned environmental monitoring to the construction supervision engineer. ADB review missions confirmed that no land was acquired for the project. No ethnic minority or indigenous people lived in the project area or were affected by the project.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS A. Overall Assessment 42. Overall, the project was less than successful. 23 The project was implemented with substantial delays and major changes in the financing plan, within project cost but with 69.3% of ADB loan proceeds canceled. It was completed with a delay of over 4 years and required the use of additional government resources. The total project cost was reduced because ADB and the government did not extend the loan. The government has continuous ownership and leadership of the Treasury’s modernization, but has reduced its commitment to the PFM reform timeline. 43. The project’s expected outcome of improved effectiveness, efficiency, transparency, and accountability of budget execution processes has only been partially achieved since the GFMIS is still being rolled out. This is likely to be achieved between 2017 and December 2018. B. Lessons 44. PFM reform is complex and requires a longer resource allocation period. The PFM action plan was quite ambitious. Projects financed by different donors on a similar initiative are not easily transferable. For example, establishment of the Treasury was planned for January

22 No gender disaggregated data on trainees was provided to ADB. 23 ADB. 2013. Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations. Manila.

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2007–January 2011 and GFMIS procurement was planned for February 2007–December 2011. The PMO was established to manage the procurement process with TA support, but central treasury staff were still being hired and had to carry out tasks for both major activities while still performing their day-to-day tasks. Priorities between their own jobs and project input requirements often clashed, causing conflict with the PMO and delays in dealing with project issues. Projects require additional planning to ensure that the requirements of day-to-day activities can be more adequately apportioned for the needs of the project activities. 45. PMO and executing agency staff need to improve their understanding of the agreed timing, ADB’s procurement guidelines, and government laws and regulations on procurement to minimize any conflict between ADB guidelines and government requirements before starting procurement. This includes involving the executing agency’s bidding committee members early in the project to avoid any possible conflict during procurement. 46. One of the more significant issues was managing borrower expectations, particularly (i) the time needed to complete the procurement process under ADB guidelines and (ii) the expected versus the actual bid prices. Both issues caused distress between the donor and the executing agency—expectations of the time needed to complete a transaction are often unrealistic and bid prices are higher than expected—especially when the executing agency has limited exposure to ADB procedures and to the prices of the goods and services proposed under the project.

47. Gender action plan preparation is not required for projects classified as having no gender elements. Therefore, inclusion of this requirement in the loan agreement was not necessary. C. Recommendations

1. Project Related 48. Future planning and design. The report and recommendation of the President listed major external assistance for PFM, including those from the European Union, France’s MOF, and the US Treasury. Coordination in providing the reform approach was not consistent, and staff had to learn how to deal with the different messages various specialists provided. Proposals for similar TA projects should allocate additional time for staff for relearning the approach of the new external assistance agency financing the project. 49. The procurement of IT systems (hardware, software, and related communications equipment) requires the involvement of specialized staff. It is recommended to have a resident consultant to support the executing agency.

50. Future monitoring. The project had appropriate project monitoring, evaluation, and reporting procedures, which should be strengthened by having a more open discussion and exchange of opinions between ADB and the executing agency and/or borrower to significantly speedup delay resolutions. 51. Further action or follow-up. ADB should check the status of PFM reforms and Treasury operations on an annual basis. 52. Additional assistance. While additional assistance is not required, it can be discussed with the government during the next country program strategy preparation.

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2. General

53. Proposals for policy reforms should be more realistically assessed for the time required to implement and allocate TA resources to support implementation. 54. Implementation and contract schedules should be prepared with due regard to the location of contractors and suppliers, travel requirements, and office accommodation and infrastructure.

16 Appendix 1

UPDATED DESIGN AND MONITORING FRAMEWORK Design Summary

Performance Targets/Indicators Achievements at Project Completion

Impact Improved planning and utilization of public resources

Improved linkage between the budget and policy objectives and programs. Reasonable forecasts of fiscal aggregates prepared for 3 years on a rolling basis. Allocation of fiscal resources made with a multiyear perspective. Selected sector strategies costed; investment and recurrent budgets integrated. Published budget preparation and execution reports covering all public resources and expenditures.

Moderate Partially achieved. The government started the GFMIS rollout in June 2017. The impact of the GFMIS and the additional time and resources needed to ensure smooth implementation are difficult to assess at this stage. Partially achieved. The Treasury prepared a 1-year budget and is gradually implementing certain elements. Treasury authorities are committed to undertake the necessary institutional and process changes required to implement the MTBF and program budgeting, but the timeline was extended because of the global financial and economic crisis. The Treasury has done the initial work on the MTBF and program budgeting, but the decision to adopt is still pending. Not achieved. The capacity of the MOF and the line ministries in strategy formulation and budget preparation is yet to be developed. The overall sequence and pace of the PFM reforms were slower than expected. The reforms are likely to be extended beyond 2018 through 2023. Partially achieved. Information on the approved budget and aggregated annual performance has been published.a The investment budget remains separate from the recurrent budget.

Outcome Improved effectiveness, efficiency, transparency, and accountability of the budget execution processes.

Existence of a clear annual budget calendar. Appropriation of expenditures by Parliament. Expenditure commitment control in place and effective limits on commitments to actual cash availability and approved budget allocation for most types of expenditures.

Partially achieved Achieved. The Treasury uses a clear budget calendar and prepares quarterly and annual progress reports. Partially achieved. Detailed appropriation by Parliament as recommended by international guidelines is not done. Budget appropriation still done by the government and presented to Parliament. Upon approval, the annual publication of budget summary is published on the MOF website. An annual presentation of comprehensive fiscal accounts is not done. Achieved. The Treasury exercises effective control over commitments and cash use.

Appendix 1 17

Design Summary

Performance Targets/Indicators Achievements at Project Completion

Cash flow forecast is prepared and updated regularly on the basis of actual cash inflows and outflows.

Achieved. The Treasury introduced the TSA in 2012 and regularly prepares the cash flow forecast.

Outputs 1. GFMIS developed and operational.

GFMIS-related equipment and communication lines are installed by the first quarter of 2010. Customized GFMIS software developed and ready to be rolled out by the first quarter of 2010. Relevant staff in operations of the GFMIS are trained by the fourth quarter of 2010.

Achieved Done, but with significant delays. The treasury offices were refurbished and given basic IT equipment and staff in 2006–2009. Some communications equipment was installed in 2012, while the GFMIS main servers were installed in 2015–2016. The central treasury, along with its provincial departments and district branches, was modernized and is operational. Achieved but with substantial delay and modification from the original plan. The project upgraded the existing Treasury-4 system to a customized GFMIS instead of procuring a commercial off-the-shelf system. After unsuccessful bidding, the government financed the cost of development and procurement of servers from its own resources. Procurement and implementation of the GFMIS was done during 2013–2016. Testing the revenue module was delayed and the GFMIS was rolled out in June 2017. The Treasury is expecting to complete the process by the end of 2017. Achieved. Training of GFMIS operations was delayed and had to be sequenced with the customization exercise. The latest GFMIS training was conducted in October 2016.

2. Treasury banking operations streamlined and consolidated.

All budgetary accounts of budget organizations at commercial banks are closed and all cash resources are held in a TSA at the CBU. Extra-budgetary accounts of the budget organizations are progressively closed.

Achieved. The TSA became operational on 1 January 2012. Before that accounts were consolidated into 14 provincial accounts and 1 central republican treasury account in operation. Achieved. Extra-budgetary accounts were progressively closed by the Treasury.

3. A central accounting system created, using a COA built to reflect the revised budget classification in line with IMF’s GFSM 2001 and IPSAS.

The revised budget classification system is introduced by 1 January 2009. A unified COA is approved and introduced before the operation of the GFMIS.

Partially achieved. A central accounting system was created but a modern unified COA was developed later than expected and adopted in 2010.b Partially achieved. Introduction of the unified COA was delayed. In 2016, the MOF revoked the order that adopted the initial unified COA and replaced it with a different version that is now being tested. The delay was linked to the slow launch of the GFMIS. The Treasury is currently using a different system (UzASBO).

18 Appendix 1

Design Summary

Performance Targets/Indicators Achievements at Project Completion

4. Steps undertaken for refining the BSL and Treasury Law

MOF prepares and circulates a draft amendment by January 2008 for review by other government agencies.

Achieved. The MOF introduced necessary amendments to the BSL and the Treasury Law in December 2007.c The Government of Uzbekistan introduced a Budget Code that replaced the BSL and some normative acts beginning in 2014 and unified them into a single improved document.d Changes are continuously being made as systems get tested.

5. Application of the revised budget classification in the preparation and execution of the budget.

User manuals and training materials developed on time. Training of trainers conducted as scheduled.

Achieved. MOF adopted the application of new budget classification requirements in 2010. MOF applied the revised budget classification in the budget preparation and execution in selected sectors. ADB developed and provided manuals to the MOF. Achieved. ADB provided initial training in 2010 but was unable to provide GFMIS-specific training because of delays in the project. The MOF reported that training was completed as required when a new GFMIS was commissioned in 2016.

BSL = Budget System Law, CBU = Central Bank of Uzbekistan, COA = chart of accounts, GFMIS = government financial management information system, GFSM = Government Finance Statistics Manual, IMF = International Monetary Fund, IPSAS = International Public Sector Accounting Standards, IT = information technology, MOF = Ministry of Finance, MTBF = medium-term budget framework, PFM = public finance management, TSA = treasury single account, UzASBO = Uzbekistan Automated System for Budget Organizations. a Ministry of Finance of the Republic of Uzbekistan. https://www.mf.uz. b MOF Order. No. 26 dated 2 April 2010 on the adoption of a unified chart of accounts for treasury budget execution.

The MOF postponed the implementation of the document and canceled the order in 2016. c Law of the Republic of Uzbekistan No. ZRU-130 dated 17 December 2007 on amendments to the budget system

and Treasury laws. d Laws of the Republic of Uzbekistan No. ZRU-360 dated 27 December 2013 on the Budget Code and ZRU-361

dated 27 December 2013 on the amendments and abolishment of some legislative acts due to the adoption of the Budget Code.

Source: Asian Development Bank.

Appendix 2 19

COMPLIANCE WITH LOAN COVENANTS

As of 31 December 2016

Loan Covenants

Reference in Loan

Agreement Status of Compliance

1. The Borrower shall cause the Project to be carried out with due diligence and efficiency and in conformity with sound administrative, financial, engineering, environmental and technological practices. In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to the Loan Agreement.

Section 4.01 Complied with.

2. The Borrower shall make available, promptly as needed, the funds, facilities, services, land and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of the Project and for the operation and maintenance of the Project facilities.

Section 4.02 Complied with. The borrower provided the required office space for the PMO and permits for contractors and TA consultants. The government financed a significant portion of the project.

3. In the carrying out of the Works and in the engagement of consulting services, the Borrower shall cause competent and qualified consultants and contractors, acceptable to ADB, to be employed to an extent and upon terms and conditions satisfactory to the Borrower and ADB. The Borrower shall cause the Works to be carried out in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to ADB. The Borrower shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request.

Section 4.03 Complied with. The project did not engage consultants under the loan. The PMO staff was competitively selected, with the PMO manager appointed by the government in agreement with ADB.

4. The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.

Section 4.04 Partially complied with. MOF Order No. 173 dated 29 December 2007 established the PMO and the Project Steering Committee. Frequent delays occurred because some experts lack understanding of ADB procurement procedures.

5. The Borrower shall (i) maintain, or cause to be maintained, separate accounts for the Project; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications,

Section 4.05 Complied with. The MOF opened a separate bank account in the National Bank of Uzbekistan and a special treasury account for project management purposes.

20 Appendix 2

Loan Covenants

Reference in Loan

Agreement Status of Compliance

experience and terms of reference are acceptable to ADB; (iii) furnish to ADB, as soon as available but in any event not later than 6 months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on the use of the Loan proceeds and compliance with the financial covenants of the Loan Agreement as well as on the use of the procedures for imprest account/statement of expenditures), all in the English language; and (iv) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request. The Borrower shall enable ADB, upon ADB's request, to discuss the Borrower's financial statements for the Project and its financial affairs related to the Project from time to time with the auditors appointed by the Borrower pursuant to Section 4.05(a) above, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of the Borrower unless the Borrower shall otherwise agree.

PIU regularly audited project accounts and provided audited project financial statements for the period when the loan was active. After 2012, such reports were not provided as the government was financing most of the activities using the centralized budget. During the PCR mission, the Treasury provided information on expenditures made for revised package 1 and office refurbishment under the project. A significant portion of the loan, totaling $14.35 million or 69.3% of the loan amount, was unutilized and canceled in 2012.

6. The Borrower shall enable ADB's representatives to inspect the Project, Project facilities, and any relevant records and documents.

Section 4.06 Compliance ongoing. ADB conducted regular reviews during 2008–2012. The PCR mission in June 2017 also visited project facilities.

7. The Borrower shall ensure that the Project facilities are operated, maintained and repaired in accordance with sound administrative, financial, engineering, environmental, technological and maintenance and operational practices.

Section 4.07 Complied with.

Implementation arrangements (a) The Ministry of Finance (MOF) shall be the Project Executing Agency and shall be responsible for overall execution and coordination of the Project. The Head of the Treasury–Deputy Minister of Finance shall be the project director and shall oversee overall Project administration and implementation; and (b) The Project Steering Committee (PSC) comprising senior staff of the Borrower’s MOF, Central Bank, Ministry of Economy, Ministry of Foreign Economic Relations, Investment and Trade, State Tax Committee, State Customs Committee, and other relevant ministries and agencies shall be formed to provide policy guidance on the implementation of the Project activities, to monitor its impacts, and to ensure close inter-ministerial coordination.

Schedule 5 para. 1.

Complied with. The Ministry of Finance was the EA. Deputy minister of finance/ Head of Treasury was appointed as Project Director. Government established PSC.

Appendix 2 21

Loan Covenants

Reference in Loan

Agreement Status of Compliance

To facilitate Project implementation, the Project Management Office (PMO) shall be established within the MOF to undertake day-to-day Project management and implementation functions including: (i) monitoring the progress of Project implementation, including policy and monitoring activities; (ii) preparing Loan withdrawal applications and Project progress reports to MOF and ADB; (iii) maintaining Project accounts and completing Loan financing records for auditing the Project; (iv) carrying out the due diligence and procurement of consulting services, training, and equipment for the Project activities; and (v) developing the PPMS and GAP.

Schedule 5, para. 2.

Complied with. PMO was established in March 2008 based on MOF Order No. 173 dated 29 December 2007.

The Borrower shall ensure that at all times throughout Project implementation PMO is adequately staffed with professional and clerical personnel with the necessary experience and expertise in finance, accounting, treasury, IT systems, procurement and contract administration.

Schedule 5, para. 3.

Complied with. An adequately staffed PMO was established in March 2008 based on MOF Order No. 173 dated 29 December 2007. However, there was high PMO staff turnover due to low salary and workload. The PMO manager also changed three times over 2008–2012.

PROJECT COVENANTS

Legal and Regulatory Framework The Borrower shall initiate actions to improve the Law of the Republic of Uzbekistan on Budget System, dated 14 December 2000, and the Law of the Republic of Uzbekistan on Treasury Execution of State Budget, dated 26 August 2004, and shall ensure that MOF prepares and submits draft amendments thereto for inter-ministerial review by January 2008.

Schedule 5, para. 4

Complied with. Parliament approved the amendments on 17 December 2007.a

The Borrower shall ensure that all necessary implementing rules and regulations on budget preparation and execution are adopted or revised in compliance with the Budget System Law and Treasury law or their successor law(s) prior to implementation of the revised budget classification and new chart of accounts.

Schedule 5, para. 5

Partially complied with. A unified COA was approved by the MOF but implementation was delayed. b The MOF postponed the document’s implementation and canceled the order in 2016. The Treasury is currently using a different classification.

22 Appendix 2

Loan Covenants

Reference in Loan

Agreement Status of Compliance

The Borrower shall ensure that a nation-wide Treasury network under direct subordination to the MOF is established by January 2008.

Schedule 5, para. 6

Complied with. The system of treasury offices is operational and properly staffed. The government adopted several documents to establish a nationwide network of treasury offices.c

Revised Budget Classification The Borrower shall ensure that the revised budget classification based on the GFSM classification structure is approved during 2007.

Schedule 5, para. 7

Complied with. MOF approved new budget classifications in May 2008.

The Borrower shall ensure that all staff in budget organizations and in the MOF who are engaged in budget preparation have completed training on the revised budget classification during 2008.

Schedule 5, para. 8

Complied with. Training was completed at the MOF’s training center. Training for trainers on the new budget classification was held in April 2009 and 2010.

The Borrower shall ensure that all staff in budget organizations and in the MOF who are engaged in budget execution have completed training on the revised budget classification and unified chart of accounts during 2008.

Schedule 5, para. 9

Partially complied with. Treasury regularly provides training on executing the new budget classification, but training for the newly revised COA will depend on introduction of the new COA.

The Borrower shall use its best efforts to introduce the revised budget classification by January 2009 but in any case, prior to GFMIS becoming fully operational. The Borrower shall ensure that the unified chart of accounts, that is consistent with the revised budget classification and International Public Sector Accounting Standards (IPSAS) and that has been approved by MOF and registered by the Ministry of Justice, will be included in the bidding documents for the GFMIS, and shall further ensure that an instruction on accounting entries using the chart of accounts is approved by January 2008.

Schedule 5, paras. 10 – 11.

Complied with. MOF approved new budget classifications in May 2008. Instructions on accounting entries using the COA were developed by the ADB TA and are being revised by the MOF. However, MOF is evaluating the current relevance of the COA.

Budget Coverage The Borrower shall take necessary steps to include extra-budgetary revenues and expenditures of all budgetary organizations in preparing and reporting the budget.

Schedule 5, paras. 12.

Complied with. Treasury operations covered all state funds and extra-budgetary revenues and expenditures beginning in 2012.

Appendix 2 23

Loan Covenants

Reference in Loan

Agreement Status of Compliance

Not later than January 2009, the Borrower shall establish an inter-ministerial task force comprising representatives of the MOF, Ministry of Economy and other relevant agencies with a mandate to review and develop appropriate business processes for reporting expenditures on externally-financed investment projects to the MOF for their integration into the budget and treasury accounting.

Schedule 5, para 13.

Complied with Treasury operations covered externally financed grants beginning in 2009. Large investment projects are not yet covered.

The Borrower shall ensure that its Cabinet of Ministers undertakes necessary measures so that parliamentary appropriation progressively covers extra-budgetary funds of budget organizations.

Schedule 5, para 14.

Complied with. Steps were taken to cover extra-budgetary funds of budgetary organizations since 2010.

Banking Operations The Borrower shall ensure that the Treasury bank account for the Republican budget established in March 2007 covers all Treasury operations of the Republican budget by January 2008, and that the Treasury single account is established not later than GFMIS becoming fully operational.

Schedule 5, para 15.

Complied with. The Treasury moved to TSA on 1 January 2012. The coverage of virtually all budgetary expenditures by the Treasury was completed in December 2007 and expended in 2008–2011.

The Borrower shall ensure that all extra-budgetary accounts of budget organizations at commercial banks are progressively closed and consolidated under Treasury single account.

Schedule 5, para 16.

Complied with. All accounts were closed and consolidated under the treasury bank accounts.

Change of Ownership or Operation In the event that (i) any change in ownership of any of the Project facilities, (ii) any sale, transfer, or assignment of interest or control of any of the Project facilities, or (iii) any delegation or other modification of the MOF functions and authority over treasury operations and the Project facilities is anticipated, the Borrower shall consult with, and obtain the consent of, ADB at least six (6) months prior to the implementation of such plan. The Borrower shall ensure that such change is carried out in a lawful and transparent manner.

Schedule 5, para 17.

Complied with. Such event did not occur.

Gender and Development The Borrower shall ensure that within six (6) months of the Effective Date PMO develops the GAP and shall cause PMO to ensure that such GAP is fully implemented in a timely manner over the Project period, and that adequate resources are allocated for this purpose. The GAP shall: (a) establish targets for recruiting and promoting female staff in the Treasury operations; (b) integrate women's needs in the design and operation of Project outputs; (c) establish targets for women’s participation in training; and (d) ensure women's effective involvement in the monitoring and

Schedule 5, para 18.

Not complied with. PMO did not develop the GAP. Treasury followed internal government procedures in hiring and promoting staff. No resources were envisaged under the project. At the same time, existing laws and regulations are not discriminative to female staff.

24 Appendix 2

Loan Covenants

Reference in Loan

Agreement Status of Compliance

evaluation of the Project. Gender-related indicators shall be included in PPMS and the progress shall be reported to ADB semiannually.

It was not prudent and consistent with ADB categorization (gender classification system) to impose a loan covenant requiring GAP preparation during implementation stage for a project with no gender elements. Lack of proper and detailed guidance on preparation of GAP and absence of resources resulted in this covenant not being delivered.

Anticorruption The Borrower shall (i) undertake necessary measures to create and sustain a corruption-free environment, (ii) ensure that its anticorruption laws and regulations and ADB’s Anticorruption Policy (1998, as amended to date), are strictly enforced and are being complied with during Project implementation, and that relevant provisions of ADB’s Anticorruption Policy are included in all bidding documents for the Project, (iii) facilitate in ADB’s exercise of its right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive or coercive practices relating to the Project, (iv) ensure that the Project Executing Agency conducts periodic inspections on the contractors’ activities related to fund withdrawals and settlements, and (v) ensure that all contracts financed by ADB in connection with the Project include provisions specifying the right of ADB to audit and examine the records and accounts of the Project Executing Agency and all contractors, suppliers, consultants and other service providers as they relate to the Project. In relation to the Project, the Borrower shall ensure disclosure of Project related procurement actions in local newspapers and on Internet. Such disclosed information will include, among other matters, the list of participating bidders, the winning bidder, reference to the tender procedures adopted, amount of the contract awarded,

Schedule 5, paras. 19-20.

Complied with.

Land Acquisition and Resettlement The Borrower shall ensure that no land acquisition and resettlement is required for any of the Project components and that all Project facilities remain and Project activities are conducted, within existing rights-of-way. In the event of any unforeseen land acquisition or resettlement needs, the Borrower shall inform ADB and prepare a Resettlement Plan (RP) in

Schedule 5, para. 21

Complied with. No land acquisition or resettlement was involved.

Appendix 2 25

Loan Covenants

Reference in Loan

Agreement Status of Compliance

accordance with Borrower’s applicable laws and regulations and ADB’s Involuntary Resettlement Policy (1995). No Works contract shall be awarded until the RP, as may be applicable to a Project component financed under the Loan, has been approved by ADB; and contractors shall only be mobilized for such Works after the RP has been implemented in accordance with its terms. Project Performance Management System The Borrower through PMO shall establish within six (6) months of the Effective Date a PPMS acceptable to ADB to monitor the progress of the Project in achieving its outcome and outputs. A matrix of indicators shall be developed in a participatory manner to substantiate the performance indicators agreed with ADB. Baseline data shall be gathered for the indicators, and shall be updated on a semi-annual basis during Project implementation.

Schedule 5, para 22.

Complied with.

Midterm Review The Borrower and ADB shall jointly review implementation of the Project at least once a year. During the third year of implementation, the Borrower and ADB will jointly carry out a midterm review of the Project, to identify any problems or constraints encountered and assess the need for modification of project scope, implementation and financing arrangements. Project objectives will be measured against the performance criteria agreed between the Borrower and ADB. The parameters for assessing the implementation milestones will include (i) implementation status; (ii) GFMIS functionality and quality; (iii) physical progress and disbursements related to the implementation schedule; (iv) status of compliance with loan covenants; (v) achievement of the Project’s development objectives; (vi) progress of policy reforms; and (vii) the need for any changes in the project scope to achieve project impact. The results of the midterm review, including an evaluation of the progress made in relation to the targets set, shall be discussed by the relevant parties and if required, appropriate corrective measures shall be formulated to ensure successful Project implementation and achievement of the Project outputs.

Schedule 5, para 23.

Complied with. Regular portfolio review meetings and reviews were conducted during 2008-2012. Midterm review was postponed to end-2011 due to delays in procurement of package 1. However, ADB and EA continued to review jointly and address project implementation issues.

ADB = Asian Development Bank, BSL = Budget State Law, COA = chart of accounts, GFSM = Government Finance Statistics Manual, GFMIS = government financial management information system, IPSAS = International Public Sector Accounting Standards, MOE = Ministry of Economy, MOF = Ministry of Finance, PCR = project completion report, PMO = project management office, TA = technical assistance, TSA = treasury single account. a Law of the Republic of Uzbekistan No. ZRU-130 dated 17 December 2007 on amendments to the budget system

and treasury laws.

26 Appendix 2

b MOF Order No. 26 dated 2 April 2010 on the adoption of a unified chart of accounts for treasury budget execution. c Presidential Resolution No. PP-594 dated 28 February 2007 on measures for the further development of a system

of treasury execution of the state budget, and Resolution of Cabinet of Ministers No. 53 dated 20 March 2007 on the regulation on the Treasury Office under the MOF. The regulation was amended in 2009, 2011, and 2016. The latest organizational structure of the Treasury under the MOF is at

https://www.mf.uz/media/file_en/treasury/treasury_str.pdf. Source: Asian Development Bank.

Appendix 3 27

REVIEW OF GOVERNMENT FINANCIAL MANAGEMENT INFORMATION SYSTEM

COMPLIANCE WITH KEY REQUIREMENTS As of June 2017

GFMIS Requirements: Functional Modules New Treasury

(GFMIS) Comments

1. Accounting for and changes to budget allocations, including off-budget funds

Available

2. Recording of expenditure for off-budget funds

Available

3. Recording of legal, financial obligation, and payment documents

Available

4. Treasury single account Available In place since 1 January 2012. All other treasury accounts were closed.

5. Detailed breakdown of budget revenues Available 6. Management of appropriations Available 7. Cash management Available 8. Recording of loans Available 9. Management of financial resources and

recording of foreign currency transactions Available

10. Accounting Available Budget organizations use the UzASBO software for accounting and accessing the GFMIS.

11. Financial reporting Available Accounting is currently based on a cash method. Treasury has not adopted accrual reporting, which is in the process of being developed.

GFMIS = government financial management information system, UzASBO = Uzbekistan Automated System for Budget Organizations. Source: Asian Development Bank.