Somalia - Economic and Financial Governance Institution Support Project Phase II - IPR April 2023

IMPLEMENTATION PROGRESS AND RESULTS REPORT IPR A. Report summary and proposed actions Report Data Project name: ECONOMIC AND FINANCIAL GOVERNANCE INSTITUTION SUPPORT PROJECT PHASE II Project code: P-SO-KF0-006 Country Somalia Sector: Institutional Support Environmental categorization - Report type: Date of report: 22.05.2023 Mission: ACHIEVEMENT MISSION 0001 From: 29.03.2023 To: 11.04.2023 Prepared by Task Manager: Mosllem Ahmed ALAMIR AHMED Alternate Task Manager : Division Manager : GEBRE -SELASSIE Kalayu ECGF2 Project Data PROJECT FINANCING in UAC Financing sourceinstrument Foreign currency Local currency Total Fragile States Facility ProjCycleGrant 3,301,000.00 2,199,000.00 5,500,000.00 GOVERNMENT ProjCycleGrant 0.00 0.00 0.00 T O T A L 3,301,000.00 2,199,000.00 5,500,000.00 PROCESSING MILESTONES bank approved financing only Loan Number Date approved Date signed Date of entry into force Date effective for first disbursement Disbursement deadline 5900155012902 15.12.2017 16.01.2018 16.01.2018 16.01.2018 30.06.2023 LOAN AMOUNT in UAC Loan Number Net loan Approved UAC Signed UAC Cancelled UAC Net Loan UAC 5900155012902 5,500,000.00 5,500,000.00 5,500,000.00 0.00 5,500,000.00 T O T A L 5,500,000.00 5,500,000.00 0.00 5,500,000.00 DISBURSMENT STATUS at supervision date in UAC Loan Number Disbursed to date Disbursed to date UAC Disbursed to date Undisbursed to date in UAC Undisbursed to date 5900155012902 5,403,560.70 5,403,560.70 98.25 96,439.30 1.75 T O T A L 5,403,560.70 98.25 96,439.30 1.75 Executing and Implementation agencies Borrower GOVERNMENT OF SOMALIA MINISTRY OF FINANCE Guarantor Ministry of Finance and Planning Executing Agency GOVERNMENT OF SOMALIA MINISTRY OF FINANCE Performance status Progress towards development objective Rating on Development Objective DO Performance rating Summary of key findings Current Previous Overall, the project's development objective performance is rated satisfactory. Both the project's outcomes and outputs are rated at least satisfactory, and the project is expected to achieve its development objective as reflected in the discussions below. satisfactory highly satisfa ctory The project has achieved its development objective and complemented Somalia' efforts at strengthening its PFM systems. The projects contributed to the enhanced capacity of fiscal institutions in addressing the identified challenges and ensuring that the country's PFM system promotes allocation of resources in line with strategic priorities. The projects positively impacted strengthening of domestic revenue mobilization, improving budget oversight and execution, and enhancing public procurement transparenc y. The project has also helped to consolidate and deepen achievements under the Bank's role in Somalia's preparation for arrears clearance and access to HIPC through its support to improve economic and financial governance. Implementation progress Rating on Implementation Progress IP Performance rating Summary of key findings Current Previous The project's implementation progress is rated satisfactory. A Medium -Term Fiscal Framework was developed and has i nformed the expen diture and revenue estimates for 2020, 2021 2022. Produced and published in year -end budget performance reports for fiscal year 2022, citizens budget re fiscal year 2022, and the 2021 year -end fiscal report. This contributed significant ly to Somalia's improvement in the Open Budget Index budget transparency score from 3 in 2019 to 20 in 2021. Construction work completed in regard to the re -construction of the seven revenue centers. Modern tax administration and policy functions have b een established. KPI of increased domestic revenue collection performance already achieved; with 6.8 FY 2019 and 10.1 2020 compared to the project's target 2.5 2020. The share of budget allocated to social sectors increased to 14.8 2020, actual compared to target of 5 2020. The amended procurement act was approved in 2020. Implementation of the activity was dependent on this law. Public debt stock has been reconstructed and all loans reconciled and validated, which contributed to Somalia's re aching the HIPC decision point. Debt Relief expert was brought on board on March 2020 to help with Paris Club engagements that include arrears clearance, the development of a public debt reporting framework and dashboard, and the drafting of a new debt man agement procedure manual that includes the institutional and legal frameworks. Since 2021 Somalia produces quarterly public debt bulletins and are posted on the MOF website. External audit management has improved, now producing timely and unignorable audit reports. satisfactory satisfactory Overall project performance classification Overall Project Performance PP, PPP or NPPP Performance rating Summary of key findings Current Previous The DO and IP are rated satisfactory therefore, the project is classified a NPPP. Generally, the project implementation is on track and going forward, the implementation of activities is expected to accelerate. Non Potentialy Problematic Project Non P otentialy Problematic Project Issues, risks and actions for management consideration Issues affecting project implementation Key issues Corrective actions Responsible Deadline Status Project is at close out phase and implementation of activities are progressing as planned. Currently, there are no major issues that will have negative impact on the project. NA NA 01.12.2022 Completed Main risks and mitigation Risks Mitigation measures applied or proposed Responsible Deadline NA NA NA NA 01.12.2022 B. Results reporting and assessment Progress towards development objective project purpose State the project development objective usually the project purpose as set out in the Results -based Logframe and assess progress The overall development objective of the project is to strengthen macroeconomic management and enhance transparency and accountability in the use of public resources. Outcome reporting Outcome indicators as per RLF Baseline value Most recent value End target Progress toward endtarget Assesment Domestic revenue mobilization enhanced Increased domestic revenue collection performanceas a of GDP 1.900 6.700 2.500 800.00 AchievedLikely to be achieved Achieved. A Medium -Term Fiscal Framework MTFF for 2020 -2022 was constructed and was updated to reflect covid -19 effects and other dynamics. The updated MTFF and formed basis for forecasts used in the 2021 and 2022 budget strategies. The MTFF is largely underpinned by macro forecasts developed by the IMF. Increase fiscal space allowing increase in share of budget allocated to social sectors Share of budget allocated to social sector 2.800 17.000 5.000 645.45 AchievedLikely to be achieved Overachieved. Seven policy measures were proposed and included in the 2020 FGS budget strategy. All seven policy measures were executed. In 2021 several measures were also taken although they were mostly tax relief me asures to try to neutralize the devastating covid impacts on the economy and livelihoods. In 2022, eight 8 measures were proposed but four implemented, and the four brought up again in the 2023 budget. These measures include: Adopt and apply a simple imp ort duty tariff schedule at all ports in the Federal Republic of Somalia; Enact the Extractive Industry Income Tax Law; Implement a tax audit strategy for large and medium taxpayers' office; Introduce the use of harmonized HS codes in the country's major p orts; Prepare an ad -valorem tariff schedule to prepare for a single tariff schedule for the country; Develop a customs guidance manual; Build the capacity of customs staff; Install a common IT system for revenue administration. Increase fiscal space allowing increase in share of budget allocated to social sectors Risk-based ICT audit of the SFMIS expenditure ICT Audit Guideline produced and QUALITY ASSURANCE AUDIT OF THE SFMIS HAS BEEN UNDERTAKEN BY ICT audit of the SFMIS produced NA AchievedLikely to be achieved AAchieved. Ministry of Finance internal audit translated into Somali CONSULTANTS PROCURED staff were trained on Certified Internal Auditor CIA Exam Part 1. Auditor General's staff were trained on special audit skills in 2020 through support from various development partners. Outcome rating Rating on project outcomes Performance rating Summary of key findings Current Previous The project's outcomes performance is rated highly satisfactory; despite exogenous risksfactors related to security and COVID -19 pandemic. Overall, 2 of the 3 project's outcomes were rated highly, while one outcome was fully achieved. 4 4 Output reporting Output indicators Most recent value Annual target End target Progress towards annual target Progress towards end of project target Assessment Budget planning and credibility enhanced Medium -Term Fiscal Framework MTFF developed with TA support REVENUE AND EXPENDITURE PROJECTIONS FOR FY2021 WERE SUPPORTED BY A MEDIUM -TERM F NA Medium -Term Fiscal Framework MTFF strengthened using statistical data in 2020 NA NA On track Target achieved. A Medium -Term Fiscal Framework MTFF for 2020 -2022 was constructed and was updated to reflect covid -19 effects and other dynamics. The updated MTFF and formed basis for forecasts used in the 2021 and 2022 budget strategies. The MTFF is largely underpinned by macro forecasts developed by the IMF. Inland tax administration capacity strengthened Tax administration system modernized into modern functional type, with TA support SEVEN 7 NEW REVENUE POLICY MEASURES FOR FY2021 WERE INTRODUCE D WITH TA SUPPORT NA Modern tax administration functions such as registration, filing assessment, payment, audit and arrears management established by 2019 NA NA On track Target achieved. Seven new tax measures were introduced in the FY2021 budget worth 29.9m of estimat ed additional revenue. These included: Increase khat rate per bundle from 2.50 to 4; additional excise charge on petroleum products; removal of 'covid induced' temporary lower rates on dates, rice, and flour; increase in excise rates for tobacco, plastic bags and cosmetics; resume full rate collections of electricity sales tax from 1 January 2021; and automation of rental income collection. In 2022, eight 8 measures were proposed. These include: Adopt and apply a simple import duty tariff schedule at all ports in the Federal Republic of Somalia; Enact the Extractive Industry Income Tax Law; Implement a tax audit strategy for large and medium taxpayers' office; Introduce the use of harmonized HS codes in the country's major ports; Prepare an ad -valorem tariff schedule to prepare for a single tariff schedule for the country; Develop a customs guidance manual; Build the capacity of customs staff; Install a common IT system for revenue administration. Modern tax admin. functions such as registration, fili ngassessment, payment, audit and arrears management have been established under the Large and Medium Taxpayers Office. Construction of the five inland revenue offices completed in December 2019. Construction of the Taxation Training Institute and Fisc al Police Headquarters were completed and launched in February 2021. Tax awareness programme was developed and continues to be implemented through campaigns via social media, radio and television networks. In 2022, eight 8 measures were proposed. The se include: Adopt and apply a simple import duty tariff schedule at all ports in the Federal Republic of Somalia; Enact the Extractive Industry Income Tax Law; Implement a tax audit strategy for large and medium taxpayers' office; Introduce the use of harm onized HS codes in the country's major ports; Prepare an ad -valorem tariff schedule to prepare for a single tariff schedule for the country; Develop a customs guidance manual; Build the capacity of customs staff; Install a common IT system for revenue admi nistration. New revenue policy measures introduced with TA support nbr 5.000 8.00 8.000 0.00 0.00 On track Target achieved. Seven new tax measures were introduced in the FY2021 budget worth 29.9m of estimated additional revenue. These included: Increase khat rate per bundle from 2.50 to 4; additional excise charge on petroleum products; removal of 'covid induced' temporary lower rates on dates, rice, and flour; increase in excise rates for tobacco, plastic bags and cosmetics; resume full rate collections of electricity sales tax from 1 January 2021; and automation of rental income collection. In 2022, eight 8 measures were proposed. These include: Adopt and apply a simple import duty tariff schedule at all ports in the Federal Republic of Somalia; Enact the Extractive Industry Income Tax Law; Implement a tax audit strategy for large and medium taxpayers' office; Introduce the use of harmonized HS codes in the country's major ports; Prepare an ad -valorem tariff schedule to prepare for a single tariff schedule for the country; Develop a customs guidance manual; Build the capacity of customs staff; Install a common IT system for revenue administration. Modern tax admin. functions such as registration, filingassessment, payment, audit and arrears management have been established under the Large and Medium Taxpayers Office. Construction of the five inland revenue offices completed in December 2019. Construction of the Taxation Training Institute and Fiscal Police Headquarters were compl eted and launched in February 2021. Tax awareness programme was developed and continues to be implemented through campaigns via social media, radio and television networks. In 2022, eight 8 measures were proposed. These include: Adopt and apply a sim ple import duty tariff schedule at all ports in the Federal Republic of Somalia; Enact the Extractive Industry Income Tax Law; Implement a tax audit strategy for large and medium taxpayers' office; Introduce the use of harmonized HS codes in the country's major ports; Prepare an ad -valorem tariff schedule to prepare for a single tariff schedule for the country; Develop a customs guidance manual; Build the capacity of customs staff; Install a common IT system for revenue administration. Debt Management fu nction enhanced Share of external debt reconciled and validated 67.000 90.00 90.000 0.00 0.00 On track Target achieved. 100 of multilateral and Paris Club debt, and 98 of non -Paris club creditors reconciled and validated. The pending reconciliation relates to debt from Russia. Institutional framework for public procurement and concessions established Public procurement legislation enacted PUBLIC PROCUREMENT LEGISLATION ENACTED, REGULATIONS AND GUIDELINES NOT PREPARED NA Procurement regulations and guidelines prepared by 2019 NA NA On track Target likely to be achieved. Procurement law was amended and approved by the parliament in 2019. The Procurement Act was accented into law in November 2019. Feb 2020, the Minister of Finance signed and issued amended procurement regulations. However, the operationalization of the Public Procurement Authority PPA has not been carried out. The activity had been planned for kick off in July 2020 following the recruitment of the Procurement TA in Jun 2020 however, the procurement TA resigned after one month. Recruitment process for another TA had been expected to be completed since Q2 of 2021 however this is yet to materialize. Basic PFM capacity at ministry level enhanced Ministry financial management staff trained nbr 30.000 30.00 30.000 100.00 100.00 On track Target achieved. Thirty -three members of staff from both the ministry of finance and the federal member states attended and completed a training on fisca l forecasting and public investment and project management during Q4 of 2020. 9 of the staff trained were female. Enhanced internal control and external oversight Internal audit function within MoF established INTERNAL AUDIT FUNCTION DOES NOT EXIST WITHIN MOF. IT IS PERFORMED BY THE AUDITO NA Internal Audit Strategy developed by 2019 NA NA Not on track Target achieved. Internal audit TA was recruited by WB i n Jan 2020 and contract ended after one year. In September 2021 EFGP embarked on the recruitment of a new TA however the MOF postponed the exercise pending confirmation of WB for further funding of the position. Recruitment of two local internal auditors t o work with international TA is yet to done, pending recruitment of an international TA with whom the local TAs will work. The IA strategy was drafted with support from WB TA including Internal Audit Manual, Internal Audit Charter, Audit Committee Charte r and PFM regulations. OAG function enhanced nbr 0.000 30.00 30.000 0.00 0.00 On track Ministry of Finance internal audit staff were trained on Certified Internal Auditor CIA Exam Part 1. Auditor General's staff were trained on special audi t skills in 2020 through support from various development partners. Output rating Rating on project outputs Performance rating Summary of key findings Current Previous The project is rated as satisfactory as 5 out of the 6 project outputs were achieved, and the remaining output is on track to reach the annual targets. 3 4 Development objective DO rating Progress towards development objective Rating on Development Objective DO Performance rating Summary of key findings Current Previous Overall, the project's development objective performance is rated satisfactory. Both the project's outcomes and outputs are rated at least satisfactory, and the project is expected to achieve its development objective as reflected in the discussions below. The project has achieved its development objective and complemented Somalia' efforts at strengthening its PFM systems. The projects contributed to the enhanced capacity of fiscal institutions in addressing the identified challenges and ensuring that the country's PFM system promotes allocation of resources in line with strategic priorities. The projects positively impacted strengthening of domestic revenue mobilization, improving budget oversight and execution, and enhancing public procurement transparenc y. The project has also helped to consolidate and deepen achievements under the Bank's role in Somalia's preparation for arrears clearance and access to HIPC through its support to improve economic and financial governance. satisfactory highly satisfa ctory 

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