81743 Government of Tajikistan Public Expenditure and Financial Accountability (PEFA) Assessment: Final Report 23rd November 2012 Financed by: THE WORLD BANK Executed by: Under: (i) World Bank contract Project No 71615531 (ii) Interested Parties Swiss Aid and DfID Government of Tajikistan – PEFA Assessment Table of contents Abbreviations and Acronyms iii SUMMARY ASSESSMENT 1 1. Introduction 12 1.1. Objective 12 1.2. Process of preparing the report 12 1.3. Scope of the Assessment 13 2. Tajikistan Background Information 14 2.1. General Information 14 2.2 Description of Budgetary Outcomes 15 2.3. Legal and Institutional Framework for PFM 18 2.4 The key features of the PFM system reform program 20 3. Assessment of the PFM Systems, Processes and Institutions 22 3.1. Introduction 22 3.2. Budget Credibility 22 3.3. Comprehensiveness and transparency 32 3.4. Policy based budgeting 47 3.5. Predictability and control in budget execution 54 3.6 Accounting, recording and reporting 86 3.7. External oversight and legislative scrutiny 93 3.8. Donor practices 98 4. Government reform process 104 4.1 Recent and on-going reforms 104 4.2 Current areas of focus 105 Annex 1: Detailed Indicator & Dimension Scores 110 Annex 2: List of Documents Used 124 Annex 3: Summary of State Budget Revenue and Expenditure 2008-2011 127 Annex 4: Tables for Indicator PI-1 129 Annex 5: Tables for Indicator PI-2 130 Annex 6: Analysis of Procurement Methods 132 Annex 7: List of People Met 135 Page i Government of Tajikistan – PEFA Assessment CURRENCY AND EXCHANGE RATES Currency unit = Tajikistan Somoni (TJS) US$1 = TJS 4.76 (as of 15 September, 2012) Government Fiscal Year (FY): Calendar year Page ii Government of Tajikistan - PEFA Assessment Abbreviations and Acronyms ACU Aid Coordination Unit AER Aid Effectiveness Review BO Budget Organization COFOG Classification of the Functions of Government (COFOG) CS Civil Service CSIP Centralized State Investment Program EBF Extra Budgetary Funds GBAO Gorno-Badakhshan Autonomous oblast GFS Government Financial Statistics GOT Government of Tajikistan ICAD Internal Control and Audit Department IDF International Development Fund IGFR Intergovernmental Fiscal Relations INTOSAI International Organization of Supreme Audit Institutions KBO Key Budget Organization KRU Kontrolno-Revisionnoe Upravlenie (Office for Control and Revision) MDAs Ministries, Departments, Agencies MOF Ministry of Finance MOET Ministry of Economy and Trade MLSP Ministry of Labour and Social Protection MSRD Ministry of State Revenue and Duties MTEF Medium-Term Expenditure Framework NDS National Development Strategy PA Procurement Agency (MOET) PARS Public Administration Reform Strategy PEFA PMF PEFA Performance Measurement Framework PET(S) Public Expenditure Tracking (Survey) PFM Public Financial Management PFM-PR Public Financial Management Performance Report PIP Public Investment Program PITAPU Public Investment and Technical Assistance Program Unit (MOET) PRSP Poverty Reduction Strategy ROT Republic of Tajikistan RRS Rayons of Republican Subordination SCFCFC State Committee on Financial Control and Fighting Corruption SCIMSP State Committee on Investment and Management of State Property SFCC State Financial Control Committee SN Sub-national SPF Social Protection Fund TIN Taxpayer Identification Number UNCITRAL United Nations Commission on International Trade Law WB World Bank Page iii Government of Tajikistan – PEFA Assessment SUMMARY ASSESSMENT Comparing this repeat PEFA assessment with the original 2007 assessment reveals overall improvement across most Performance Indicators, with slippage in some areas and no change in rating for others. This 2012 PEFA report also takes place at a time of considerable transition as various PFM reforms are either newly implemented or in the process of being implemented/close to being implemented (e.g. a new Chart of Accounts; a new supreme Audit Act; adoption of the Medium Term Expenditure Framework and the implementation of a Public Financial Management Reform Program). Credibility of the Budget (PIs 1-4) In some respects, the credibility of the budget has improved. Aggregate expenditure outturns are closer to original budgets due to improved estimation reflecting improved revenue forecasting, and to improved monitoring of expenditures during the year. The previous assessment noted conservative budgeting on revenue collections and when revenue exceeded expectations then reallocations of expenditure took place. This resulted in high fluctuations between planned and executed budgets. However, budget predictions, apart from 2009 when there was a fiscal crisis, have proved to be more accurate with deviations less than 5% Payments arrears can indicate a budget credibility problem, when overspending relative to budget comes at the expense of service delivery in some other area, either during the current year or in the future. The current system identifies the balance in liabilities and is assumed to be accurate from the records shown to the assessment team. However, there is little or no attention paid to identifying the arrears contained within the liabilities. There is no aging of the liabilities to gauge the extent of arrears – this is a major weakness in the system. Comprehensiveness and Transparency (PIs 5-10) The comprehensiveness and transparency of the Government’s Budget Papers has increased significantly since the 2007 PEFA report. The budget classification system (PI-5): In 2007 only functional and economic classifications were in use for budget preparation. Now the classifications have been expanded to include administrative, program and funding classifications, however they are not operating at full strength yet. A new Chart of Accounts is being formulated under the PFM program. Comprehensiveness of information included in Budget documentation (PI-6): The Budget Papers are quite comprehensive. Information is provided on macroeconomic assumptions, debt, revenue and expense estimates, prior year Budget out-turn and all new measures funded in the Budget are now listed by ministry whereas before it was only functional classification. Extent of unreported domestic Extra-Budgetary Operations (EBOs) (PI-7): The financial statement and system has improved over the period 2008 -2012 such that extra budgetary expenditure is low and the system for recording development partner loans, grants and state debt has improved. Transparency of Inter-Governmental Fiscal Relations (PI-8): Since 2007 there were new developments and initiatives introduced in general budget formulation and reporting processes which affected transparency and rules of the horizontal allocation of transfers among SN governments and the timelines of reliable information to SN governments. Extent of monitoring of fiscal risk (PI-9): The SOEs and Statutory Authorities represent a fiscal risk in terms of calls on the national Budget when financial difficulties arise. The assessment of Page 1 Government of Tajikistan - PEFA Assessment aggregate risk at the significant level of major AGA and PE is now monitored by an agency that was not fully operational during the PEFA of 2007. Whilst the monitoring of the budget execution system at SNL is strong there is no system for assessing aggregate risk at that level in a consolidated fashion. Consolidated risk reports are not available to the public on the operations of sub-national governments, and the provision of these, either as part of the above report or in a second document, would also be of benefit to Parliament and the public. Availability of fiscal information to the public (PI-10): There is an improvement in the information system through websites and to say that there is no information would be harsh. However, there are shortcomings basically in the oversight of an external auditor, but it is recognized that the government has made an initial start to appointment an external auditor and when this appointment is made then improvements will be seen. Policy orientation of the budget (PIs 11-12) The organisation and coordination of the annual Budget process has been strengthened since 2007 with the early release to all ministries of a clear Budget timetable. The parliamentary Committee of Majlisi Namoaydagon Majlisi Oli of RT on Economy and Finance has taken an active part in the budget formulation for 2012 and 2013 at all stages of the process, this contributes to a better link with policy directives and the policy orientation of the Budget has correspondingly increased. A medium-term perspective is evolving that will in time strengthen the policy-based nature of the Budget process. However, the implementation of a Medium Term Expenditure Framework appears to be meeting resistance from the Government. In order for the system to work it needs demonstrated government ownership and should not be Development Partner led. This probably needs a reorientation on the benefits to government of medium term planning. Nevertheless, despite overall improved links between policy statements and funding, the link between recurrent cost implications and capital investments (particularly donor-funded and central government investments in the provinces) remains weak, thereby limiting the meaningfulness of a medium term perspective to budgeting. This weakness should dissipate as detailed rolling forward estimates through an MTEF are introduced. Predictability and control in budget execution (PIs 13-21) Revenue Administration (PIs 13-15) Transparency of taxpayer obligations: The current Tax Code of the Republic of Tajikistan was adopted by the Resolution of Majlisi Namoyandagon Majlisi Oli of the Republic of Tajikistan on November 3, 2004 № 1207. Since then, 14 changes and additions have been made to the Code. The Tax and Customs Codes are generally clear, and set out the rights and obligations of taxpayers. There is a revised law on tax to take effect on January 1, 2013 before parliament, indeed it is holding up the passing of the 2013 budget because until it is passed the forecast revenue steams and resulting expenditure budget cannot be finalized. In 2007 the implementation of the codes in practice was less certain. However, since then the tax codes have been simplified, although there are still 21 types of taxation. The PEFA of 2007 identified lack of clarity for SMEs, however, that was simplified to 4% of total revenue in 2008. As mentioned the new law has been drafted and is before the legislators now which classify SME’s along with production companies who will have a tax regime of 5% for production companies and all others 6% tax on revenues – this will take effect on January 1, 2013. The Tax Committee assured the assessment team that full consultation have taken place with the public. Page 2 Government of Tajikistan - PEFA Assessment Effectiveness of measures for tax registration and assessment: Taxpayers have easy access to comprehensive, user friendly and up-to-date information on tax liabilities and administrative procedures for some of the major taxes, while for other taxes the information is limited. Given that a new tax law will come into effect on January 1, 2013 that simplifies the tax system it cannot be rated for the 2012 PFEA. However, it is recognized and confirmed by the Chamber of Commerce that the tax system has evolved over the last 4-years, with creation of websites and active awareness programs. The database is now in place but it needs linking to other systems to ensure its capture all potential taxpayers. Effectiveness in collections of taxes: There is evidence of improvement, but the systems need more attention. The penalties and fees system needs a re-think to ensure that there is incentives for taxpayers to pay their tax rather than stalling and the program of tax audits needs to be bedded in with risk assessment criteria. There is also a problem with identifying arrears on an aggregate basis which needs attention. Budget Execution and Cash and Debt Management (PIs 16-17) Cash planning is not based on the real needs of the budget organizations and there is no reliable indication of actual resource availability for commitments. There are significant in-year budget adjustments, however it is possible that MDAs are expecting only increases because of a historical under estimation of revenue generation. In order to show improvement in this area domestic and foreign debt records should be reconciled routinely and there should be clear guidelines, criteria and ceilings for the issuance of loans and government guarantees. The consolidation of a single treasury account enabling daily cash balance information is certainly an improvement. Internal Controls (PIs 18-21) The personnel and payroll system is decentralized and of course has the problems associated with decentralised systems which makes it difficult to review in the time allotted to a PEFA review. However, with policy, terms and conditions of civil servant being done at the central level and with the budget holders responsible through an authorization process, which in itself is subject to frequent audits, the system appears robust. However, there does not seem to be a compelling improvement in personnel data and payroll reconciliations, mainly due to the fact the system is not automated. Tajikistan’s procurement system is evolving with the legal framework in place, however the score is affected by the lack of independence in the complaints handling system. There is widespread understanding of expenditure rules and regulations, backed up with instructions, rules and manuals readily assessable to all government officers. The IMF have identified that further strengthening of commitment controls is warranted. Internal audit is being strengthened but it is not fully operational to international standards yet. The presence of internal audit departments and their development over the last 3-years have indicated that internal audit is going in the right direction, particularly with the amount of training being applied. However, to get a better score it needs to implement the translated International Standards and place more emphasis on systems improvement and risk management. Of course the absence of SAI to receive internal audit reports affects the rating. Page 3 Government of Tajikistan - PEFA Assessment Accounting, recording and reporting (PIs 22-25) In the last 3-years the government has moved to establish the Single Treasury Account which means the reconciliations processes has improved. No comprehensive data collection on resources to service delivery units in any major sector has been collected and processed within the last 3 years. This should be a regular occurrence in the ministries to ensure service delivery is maintained at a high level and to ensure that resources are being administered in the correct way. Overall the in-year budget reports are produced in a timely and regular manner on actual budget performance enabling all management levels, from Government down to managers of BOs, a tool for effective monitoring throughout the year. With a strong legal base the consolidated government statement is prepared in a timely manner meeting annual deadlines of July 15 for submission to Parliament and includes, with few exceptions, full information on revenue, expenditure and financial assets/liabilities, including a statement on accounting standards. External scrutiny and audit (PIs 26-28) External audit is not yet in place, however the Law on the Supreme Audit Institution was adopted in 2011 indicating progress, however no appointments have been made yet. The legislature through the Parliamentary Committee of Majlisi Namoaydagon Majlisi Oli of RT on Economy and Finance involves itself in the budget formulation much more than in previous administrations from the start of the budget process and the formulation of macroeconomic parameters, budget negotiations and to the final submission of the budget to parliament. Parliament is given adequate time for deliberations on the budget. Changes in support staff (civil servants) after elections could disrupt parliamentary procedures. Summary of Performance Indicator Ratings, 2007 and 2012 PEFA Assessments PFA: BUDGET CREDIBILITY Score Score Performance changes 2007 2012 PEFA PEFA PI-1 Aggregate expenditure B A Performance improved. The previous (M1) out-turn compared to assessment noted conservative original approved budgeting on revenue collections and budget when revenue exceeded expectations then reallocations of expenditure took place. This resulted in high fluctuations between planned and executed budgets. However, budget predictions, apart from 2009 when there was a fiscal crisis, have proved to be more accurate with deviations less than 5% PI-2 Composition of C C+ The 2007 assessment was according to (M1) expenditure out-turn (i) C a previous methodology and the results compared to original (ii) B are not directly comparable. Using the approved budget PEFA assessment methodology an analysis of expenditure composition highlights that there are significant Page 4 Government of Tajikistan - PEFA Assessment differences between the original plan and the actual allocation of funds to sectors and this will need more attention to achieve a higher score. The contingency funds should be reallocated to those votes against which the unforeseen expenditure is recorded not as in current practice of maintaining separate accounts, which distort the expenditure by sector. However, the contingency funds are not significant. PI-3 Aggregate revenue A B The 2007 assessment was according to (M1) out-turn compared to a previous methodology and the results original approved are not directly comparable. If we budget discard the special funds of budget organizations then the 2012 score would be A. Revenue has marginally exceeded budget in the last 2-years 2011 & 2012. Before this period forecasting was quite erratic, due to an historical tendency in former soviet controlled states to understate potential revenues. PI-4 Stock and monitoring C+ D+ Performance Unchanged. In 2007 there (M1) of expenditure (i) A (i) A appears to be a typo error in the rating payment arrears and the score should have been a B. In (ii) C (ii) D addition, the rating of Dimension (ii) may be too high in 2007 as there is no data on the stock of arrears, only the level and balance of liabilities. B. KEY CROSS-CUTTING Score Score Performance changes ISSUES: Comprehensiveness 2007 2012 and Transparency PEFA PEFA PI-5/ Classification of the D B Performance Improved. In 2007 only M1 budget functional and an economic classifications were in use for budget preparation. Now the classifications have been expanded to include Administrative and Program classifications, however they are not operating at full strength yet. PI-6/ Comprehensiveness of A A Performance Unchanged. The recent M1 information included budget documentation submitted to in budget parliament fulfills 7-9 of the 9 documentation information benchmarks and therefore the score is assessed as A. PI-7/ Extent of unreported C+ B+ Performance Improved. The financial M1 government operations (i) B (i) B statement and system has improved over (ii) C (ii) A the period 2008 -2012 such that extra budgetary expenditure is low and the system for recording development partner loans, grants and state debt has improved. PI-8/ Transparency of Inter- B B+ Performance improved. Since 2007 M2 Governmental Fiscal (i) C (i) B there were new developments and Page 5 Government of Tajikistan - PEFA Assessment Relations (ii) C (ii) B initiatives introduced in general budget (iii) A (iii) A formulation and reporting processes which affected transparency and rules of the horizontal allocation of transfers among SN governments and the timelines of reliable information to SN governments. At least 50% of SN transfers adhere to set allocation rules and budgets are determined well ahead of time. PI-9/ Oversight of aggregate C C+ Performance Improved. The M1 fiscal risk from other (i) C (i) A assessment of aggregate risk at the public sector entities (ii) C (ii) C significant level of major AGA and PE is now monitored by an agency that was not fully operational during the PEFA of 2007. Whilst the monitoring of the budget execution system at SNL is strong there is no system for assessing aggregate risk in a consolidated fashion. PI-10/ Public access to key D C Performance Improved. The M1 fiscal information assessment is based on an improved information system through websites and to say that there is no information would be harsh. Even in the 2 areas where the team has assessed a positive answer there are shortcomings. However, it is recognized that the government has made an initial start to appointment an external auditor and when this appointment is made then improvements will be seen. C. BUDGET CYCLE Score Score Performance changes 2007 2012 PEFA PEFA C (i) Policy-Based Budgeting Orderliness and B B+ Performance Improved. Whilst there PI-11/ participation in the (i) B (i) B has been some delays experienced in the M2 annual budget process (ii) D (ii) B last 3-years the Budget has always been (iii) A (iii) A approved by the legislators before the start of the year. It is therefore concluded that the system is robust With clear participation at all levels of government. The improvement stems from the Parliamentary Budget Commission being involved at a much earlier stage and is also actively following the budget process. PI-12/ Multi-year perspective D+ D+ Performance Unchanged. The new M2 in fiscal planning, (i) C (i) C Law on State finance was adopted in expenditure policy and (ii) C (ii) B 2011, which incorporated three-year budgeting (iii) C (iii) D forward-looking budget. Three year (iv) D (iv) D forward budget planning was introduced in social sectors. The debt strategy for 2009 – 2011 was adopted in 2008, in the last five years the debt sustainability Page 6 Government of Tajikistan - PEFA Assessment analysis reports were written annually and have being posted on the MoF website. C (ii) Predictability & Control in Budget Execution Revenue Administration PI-13/ Transparency of C B Performance Improved. There is a M2 taxpayer obligations (i) C (i) B marked change in performance over and liabilities (ii) C (ii) B 2007 PEFA. The legislation has been (iii) C (iii) B tightened and simplified. There is still some development to be done, but that will come in 2013. There is an active awareness campaign to keep taxpayers informed in both city and rural areas, reaction from the private sector consultation is reasonable. Finally the appeal process is working with a good number of appeals being considered, however it does lack independence. There is no data on successful/unsuccessful claims. PI-14/ Effectiveness of D+ C Performance Improved. There is M2 measures for taxpayer (i) D (i) C evidence of improvement, but the registration and tax (ii) C (ii) C systems need more attention. The assessment (iii) C (iii) C database is now in place but it needs linking to other systems to ensure its capture all potential taxpayers. The penalties and fees system needs a re- think to ensure that there is incentives for taxpayers to pay their tax rather than stalling and the program of tax audits needs to be bedded in with risk assessment criteria. PI-15/ Effectiveness in NR D+ Performance Improved. The practice of M1 collection of tax (i) NR (i) D publically and periodically issuing the payments (ii) D (ii) A names of taxpayers with arrears in (iii) D (iii) D excess of 500,000 Somoni is evidence that arrears are actively pursued. However, the aggregate assessment of arrears needs improvement. The new practice of all tax collection been paid directly into the Single Treasury Account is a significant improvement since 2007. Complete reconciliation of tax assessments, collections, arrears and transfers to Treasury does not take place annually although there are records for collections and reconciliation of the collections to Treasury there is little interaction on consultation with Treasury of the status of arrears. Budget Execution & Cash/Debt Management PI-16/ Predictability in the D+ D+ Performance Unchanged. Cash M1 availability of funds (i) B (i) C planning is not based on the real needs for commitment of (ii) B (ii) D of the budget organizations and there is expenditures (iii) D (iii) C no reliable indication of actual resource Page 7 Government of Tajikistan - PEFA Assessment availability for commitments. There are significant in-year budget adjustments, however it is possible that MDAs are expecting only increases because of a historical under estimation of revenue generation. PI-17/ Recording and C+ C+ Performance Unchanged. In order to M2 management of cash (i) C (i) C show improvement in this area domestic balances, debt and (ii) C (ii) A and foreign debt records should be guarantees (iii) C (iii) C reconciled routinely and there should be clear guidelines, criteria and ceilings for the issuance of loans and government guarantees. The consolidation of a single treasury account enabling daily cash balance information is certainly an improvement. Internal Controls PI-18/ Effectiveness of D+ D+ Performance Unchanged. The M1 payroll controls (i) D (i) D personnel and payroll system is (ii) C (ii) B decentralized and of course has the (iii) C (iii) B problems associated with decentralised (iv) B (iv) B systems which makes it difficult to review in the time allotted to a PEFA review. However, with policy, terms and conditions of civil servant being done at the central level and with the budget holders responsible through an authorization process, which in itself is subject to frequent audits, the system appears robust. However, there does not seem to be a compelling improvement in personnel data and payroll reconciliations, mainly due to the fact the system is not automated. PI-19/ Competition, value for C C+ The 2007 assessment was according to M2 money and controls in (i) (i) B a previous methodology and the procurement (ii) (ii) C results are not directly comparable. (iii) (iii) B Tajikistan’s procurement system is (iv) C (iv) D evolving with the legal framework in place, however the score is affected by the lack of independence in the complaints handling system. PI-20/ Effectiveness of C+ C+ Performance Unchanged. There is M1 internal controls for (i) B (i) C widespread understanding of non-salary (ii) B (ii) A expenditure rules and regulations, expenditures (iii) C (iii) C backed up with instructions, rules and manuals readily assessable to all government officers. The IMF have identified that further strengthening of commitment controls is warranted. Internal audit is being strengthened but it is not fully operational to international standards yet. PI-21/ Effectiveness of D+ C+ Performance Enhanced. The presence M1 internal audit (i) D (i) C of internal audit departments and their Page 8 Government of Tajikistan - PEFA Assessment (ii) C (ii) B development over the last 3-years have (iii) C (iii) C indicated that internal audit is going in the right direction, particularly with the amount of training being applied. However, to get a better score it needs to implement the translated International Standards and place more emphasis on systems improvement and risk management. Of course the absence of SAI to receive internal audit reports affects the rating. C (iii) Accounting, Recording and Reporting PI-22/ Timeliness and B B+ Performance Enhanced. In the last 3- M2 regularity of accounts (i) B (i) A years the government has moved to reconciliation (ii) B (ii) B establish the Single Treasury Account which means the reconciliations processes has improved. Bank reconciliations for all central government and Treasury managed bank accounts take place at least monthly at aggregate & detailed levels, usually within 4 weeks of end of period. SN Bank accounts are reconciled monthly and officially sent to treasury quarterly. PI-23 Availability of C D Performance deteriorated. No information on comprehensive data collection on resources received by resources to service delivery units in service delivery units any major sector has been collected and processed within the last 3 years. [This score seems harsh, since comprehensive data was collected 5 years ago, but neither score C nor B fit the current information situation.] It seems the 2007 indicator was over stated. PI-24/ Quality and timeliness C+ C+ Performance Unchanged. Overall the M1 of in-year budget (i) C (i) C in-year budget reports are produced in a reports (ii) A (ii) A timely and regular manner on actual (iii) B (iii) B budget performance enabling all management levels, from Government down to managers of BOs, a tool for effective monitoring throughout the year. PI-25/ Quality and timeliness D+ C+ Performance Improved. With a strong M1 of annual financial (i) C (i) B legal base the consolidated government statements (ii) D (ii) B statement is prepared in a timely manner (iii) D (iii) C meeting annual deadlines of July 15 for submission to Parliament and includes, with few exceptions, full information on revenue, expenditure and financial assets/liabilities, including a statement on accounting standards. C (iv) External Scrutiny and Audit PI-26/ Scope, nature and D+ D▲ Performance Unchanged. External M1 follow-up of external (i) D (i) D audit is not yet in place, however the Page 9 Government of Tajikistan - PEFA Assessment audit (ii) D (ii) D Law on the Supreme Audit Institution (iii) C (iii) D was adopted in 2011 indicating progress and therefore qualifies for an arrow. The rating in 2007 is overstated because there were no audit recommendations from a supreme audit, as the supreme audit did not exist. PI-27/ Legislative scrutiny of C B+ Performance Improved. The legislature M1 the annual budget law (i) C (i) B through the Parliamentary Committee of (ii) C (ii) A Majlisi Namoaydagon Majlisi Oli of RT (iii) A (iii) A on Economy and Finance involves itself (iv) C (iv) B in the budget formulation much more than in previous administrations from the start of the budget process and the formulation of macroeconomic parameters, budget negotiations and to the final submission of the budget to parliament. Parliament is given adequate time for deliberations on the budget. Current practice of changing support staff (civil servants) after elections could disrupt parliamentary procedures with a loss of institutional memory. PI-28/ Legislative scrutiny of D D Performance Unchanged. As discussed M1 external audit reports (i) D (i) D under PI-26, the Law on the Supreme (ii) D (ii) D Audit Institution was adopted in 2011, (iii) D (iii) D but no organization has yet been established. There are no external audit reports for parliament to examine. D. DONOR PRACTICES Score Score Performance changes 2007 2012 PEFA PEFA D-1/ Predictability of Direct D+ D+ Performance Unchanged. The M1 Budget Support (i) C (i) C deviation of actual budget support from (ii) D (ii) D forecast in 2010 was close to 15% and the in-year disbursement delays were 22% - both significant and have major effects on government activities and service delivery. D-2/ Financial information D+ C Performance Enhanced. Performance M1 provided by donors for (i) D (i) C is improving, as Ministry of Finance did budgeting and (ii) C (ii) C not have this information in the last reporting on project review. and program aid D-3/ Proportion of aid that D D Performance Unchanged. The share of M1 is managed by use of foreign aid funds allocated to the national procedures Government of RT and managed according to national procedures, in four areas of activity, such as public procurement, payments/ accounting, audit and submission of reports, is less than 50 per cent. The total score is D. Page 10 Government of Tajikistan - PEFA Assessment Page 11 Government of Tajikistan - PEFA Assessment 1. Introduction 1.1. Objective The purpose of the assessment is to assess the PFM system performance of the Government of Tajikistan, using the PEFA assessment methodology, and to gauge progress in strengthening performance since the last PEFA assessment conducted in 2007. The results of the assessment will principally be used by the Government to determine whether the Public Financial Management Economic Management Modernisation Program (PFMMP) that it is currently implementing should be refined. 1.2. Process of preparing the report In April 2012 a pre-PEFA briefing was delivered in two half-day workshops in Dushanbe, attended by Government of Tajikistan staff selected by MoF to be the PEFA Working Group. In the first workshop they were trained in the principles of the PEFA assessment. The second workshop allocated staff to responsibilities for obtaining information on the various PEFA performance indicators (PIs). In the period April – May, the PEFA Working Group worked individually on a self-assessment of performance indicators and collecting evidence. The PEFA Working Group then prepared a self-assessment report. The PEFA Consultants, consisting of Mr Stewart Maugham (Team Leader), Mrs Anna Shkuropat and Umeda Nabieva reviewed and revised the self-assessment report over the period May – July and then circulated the self-assessment report to MoF, World Bank, IMF and other development partners – it was also circulated by development partners to the PEFA Secretariat in Washington for preliminary comments. In September 2012 WYG International mobilized a new PEFA team, consisting of Mr Terry O’Donnell (Team Leader) and Umeda Nabieva, who found the self-assessment, along with stakeholder comments, to be of generally good quality and provided a very valuable basis for its own assessment, which began on 17th September. A preliminary draft, mainly comprising Section 3, was submitted to the Government of Tajikistan and Development Partners on 25th September, for presentation at the de-briefing workshop held on 26th September. Follow up meetings were held on September 27 and 28 to clarify issues raised in the workshop. The assessment is the result of meetings, interviews and viewing evidence to support performance across the whole of government, including departments within the Ministry of Finance such as Departments of Budget, Treasury, State Debt, Internal Audit and Control, Tax Policy, Customs Committee, then meeting with Ministry of Education and Ministry of Health and other government agencies such as Parliament, Tax Committee, and Procurement. In addition the private sector was consulted on issues such as procurement, transparency and information. The team greatly appreciates the work of the Ministry of Finance counterpart staff, in particular Mr Boboev Rustam Mirzoevich, Programme Coordinator, PFMP, MOF and Mr Kayumov Uliqbek, Acting Coordinator and Monitoring Expert, PFMP, MOF, in arranging meetings, obtaining and providing the documents requested and discussing these with the team, and providing a room as a base for the team’s work, including the meetings. The team also much appreciates the support provided by Mr Hassan Aliev, Public Sector Specialist, The World Bank (the PEFA assessment manager) in all areas of the assessment process, particularly in coordinating stakeholder comments, provision of useful background documents, co-ordinating with Tajikistan Government counterpart staff, arranging for meetings with critical agencies and other development partners and arranging of the DFR workshop. Without all this assistance, the assessment team would not have been able to Page 12 Government of Tajikistan - PEFA Assessment submit a preliminary draft report on 28th September, only 11 days after commencing the formal assessment. 1.3. Scope of the Assessment This PEFA assessment is focused on the Government of Tajikistan – at the Republican Level. It does not cover the sub-national level or provincial administrations. The assessment is mainly backward looking, assessing PFM performance to date. Depending on the context, the assessment under an indicator may be concerned with the current status of PFM (e.g. revenue administration, PIs 13-14) or performance over the last completed fiscal year (e.g. PI-16, concerning the in-year predictability of the budget), or performance over the last three completed fiscal years (e.g. PIs 1-3, concerning expenditure and revenue performance relative to the approved budget). Page 13 Government of Tajikistan - PEFA Assessment 2. Tajikistan Background Information 2.1. General Information Table 1: Tajikistan, Selected Economic Indicators 2008 2009 2010 2011 Total population (millions) 7.30 7.45 7.57 7.80 Annual population growth % 2.2 2.2 1.6 1.8 National income and prices GDP current prices (US$ millions) 5,207.9 5,031.3 5,745.3 6,330.4 GDP per capita (US$) 495 549 611 811 GDP current prices (Somoni 17,706.9 20,628.5 24,704.7 30,069.3 millions) GDP, annual real growth, % 7.9 3.4 6.5 7.4 CPI % change 11.8 5.0 9.8 9.3 Poverty Rate 53.5 46.7 - - External sector (US$ millions) Current account balance 47,571.1 - 179,856.2 - 382,812.2 -767,119.3 % of GDP 0.9% -3.6% -6.8% -11.8% Imports of goods & non-factor 3,272.6 2,569.6 2,656.9 3,186.4 services (US million) Net international reserves (end-year) 236 239 375 444 in millions of U.S. dollars External public debt outstanding (US 1,371.4 1,691.3 1,942.8 2124.30 million) % Of GDP 26.7 35.8 34.4 32.50 Average currency exchange rate 3.4 4.1 4.3 4.75 Source: MoF, macroeconomic department and www.imf.org *Tajikistan: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding, April 19, 2011 Table 1 indicates that a mixed looking macroeconomic picture is emerging from the adverse impact on Tajikistan of the global financial crisis. After falling by 4 percent in 2009, real GDP growth rebounded to 6.5 percent in 2010 and to 7.4 percent in 2011. Inflation reached 11.8 percent in 2008, but plummeted to 5 percent in 2009, but demand pressures remained robust and therefore increased again to 9.8 percent in 2010, remaining steady at 9.3 percent in 2011. Central Government debt rose sharply to 36 percent of GDP in 2009 and then eased slightly to 32.5 percent of GDP in 2011. In April 2011 the President of Tajikistan, His Excellency Emomali Rahmon wrote to the International Monetary Fund (IMF) expressing his gratitude to the IMF for its continued support of economic reform assistance. Expressed in that letter was that Tajikistan recognizes there are economic and financial risks remaining to the economy, and that work must continue to address the damage caused during the crisis of 2009. It is recognized that continued support from the international financial institutions (IFIs) and donors is critical. He requested a waiver for the non-observance of the continuous performance criterion on non- accumulation of external payments arrears. These arrears, which were linked with two government guaranteed loans, were cleared in a relatively short period, and the most recent instalment on one of these loans was paid in advance. Tajikistan is also seeking to institute a new accounting system for guaranteed loans to prevent accumulation of new arrears. Page 14 Government of Tajikistan - PEFA Assessment The president also informed IMF of a request for a Debt Management Performance Assessment (DEMPA) from the World Bank. The end result is hoped will be a substantial improvement in ability to track and deliver on external obligations and a strengthening of public financial management. Secondly, Tajikistan remains committed to producing a strategic plan to reform the tax regime—with a view to broadening the tax base, increasing tax revenue, and creating an environment conducive to private sector growth. 2.2 Description of Budgetary Outcomes Domestic revenues have increased steadily over the years as the tax and customs base improved their systems. This trend is likely to continue as the reforms continue and gather pace. Revenue receipts exceeded the budget target, with tax collection surging by 30% from 2010, reflecting high prices for key exports and increased imports. Nevertheless, a narrow tax base and heavy dependence on import-based taxes contributed to a fragile fiscal position. Total revenue equaled 24.4% of GDP. As mentioned further on in the PEFA report exceeding revenue budgets is not necessarily an indication of a good performance but can be merely the result of not budgeting correctly and understating the revenue streams, which does not contribute to a balance budget and good fiscal planning. Table 2: Domestic Revenues Somoni millions Budget Actual Budget Actual Budget Actual 2009 2009 2010 2010 2011 2011 Domestic revenues Current 4,267 3,659 4,353 4,400 5,514 5,892 Capital 317 211 253 329 492 501 Government expenditure, in particular capital spending on infrastructure, rose by close to 30%, reflecting strong revenue and heavy foreign financing. Government investment surged by 41%, with increased spending focused on energy and transport infrastructure projects, including rehabilitation of the massive Roghun hydropower plant. Spending for social insurance and social protection grew by about 7%, as the state budget focused on capital outlays. Total expenditure amounted to 27.6% of GDP. Table 3: Budgetary allocations by function (% of total expenditures) Actual budgetary allocations by sectors (as a % of total expenditures) 2008 2009 2010 2011 1. Public administration 12.00% 8.90% 7.70% 8.10% 2. Defense 5.60% 4.60% 4.70% 3.70% 3. Law enforcement 6.40% 5.50% 5.20% 5.00% 4. Education 19.20% 20.00% 19.90% 14.80% 5. Health 6.80% 6.80% 7.20% 6.10% 6. Social protection 16.40% 16.80% 17.30% 15.30% 7. Communal services (incl. utilities) 7.20% 7.70% 7.60% 8.50% Page 15 Government of Tajikistan - PEFA Assessment 8. Culture and sport 5.60% 4.20% 6.00% 3.60% 9. Heating and energy complex 9.00% 13.30% 13.90% 13.80% 10. Agriculture 3.00% 2.00% 2.00% 3.60% 11. Industry 1.40% 0.60% 1.00% 0.90% 12. Transport and communications 3.10% 2.20% 2.20% 12.40% 13. Other economic activities and services 0.70% 0.40% 0.90% 0.30% 14. Other services 3.60% 7.00% 4.40% 3.90% Total 100.00% 100.00% 100.00% 100.00% Table 4: Actual budgetary allocations by economic classifications Actual budgetary allocations by economic classification (as % of total expenditures) 2007 2008 2009 2010 2011 Current expenditure 57% 60% 72% 72% 64% - Wages and salaries 15% 15% 17% 16% 18% - Goods and services 26% 26% 28% 28% 28% - Interest payment 2% 1% 2% 2% 2% - Transfers 14% 17% 25% 26% 16% Capital expenditure 43% 39% 26% 20% 36% - Externally financed 38% 35% 22% 18% 32% - Domestically 4% 3% financed 5% 2% 3% Source –MoF, budget execution report 2007-2011 Table 5: Distribution across budgets (% of total expenditure) 2007 2008 2009 2010 2011 Republican budget 59% 58% 55% 53% 60.3% Local budgets 30% 30% 32% 33% 28.6% Social Protection Fund 12% 12% 13% 14% 11.1% Total 100% 100% 100% 100% 100% Source –MoF, Budget execution 2007-2010 Tajikistan's external debt hit $2.1 billion at the end of the third quarter of 2011, or 32.5 percent of the country's GDP. Tajikistan's main creditors include the Asian Development Bank1, the Islamic Development Bank, the World Bank and the Export-Import Bank of China The government is likely to continue external borrowing to finance infrastructure projects, mainly in energy and transport. However, the above-mentioned debt management framework requires all 1 Some of the indicators and commentary are extracted from the ADB Outlook Reports Page 16 Government of Tajikistan - PEFA Assessment new government borrowings to have at least a 35% grant element and to limit borrowings to priority projects. Total public debt is projected to stay below 40% of GDP over the foreseeable future. Foreign direct investment inflows are projected to continue rising gradually over the medium term, in line with current reform initiatives in tax administration and regulatory simplification. The bulk of investments will likely go to several large infrastructure projects, such as hydropower stations, toll roads, and supporting facilities for mining. Public and publicly guaranteed external debt is forecast to reach 37.2% of GDP at end-2012 and 37.5% of GDP 12 months later. Table 6: External Debt (US$ Millions) 2005 2006 2007 2008 2009 2010 2011 External debt 894.9 866.3 1119.9 1371.4 1691.3 1942.8 2124.3 Debt/GDP (%) 38.9 31.0 30.2 26.7 35.8 34.4 32.5 Source: MOF , execution of state budget, annual report 2010; 2011- MoF, External Debt Department The European Union, World Bank and Asian Development Bank have provided Direct Budget Support, however it needs to be a lot more systematic to gain full benefits, refer to the PEFA report findings further on in the report. Table 7: Direct Budget Support, Planned and Actual 2007-2011 2008 2009 2010 2011 Plan Actual Plan Actual Plan Actual Plan Actual EU FSP 38 million 596 million Somoni WB 10 million 20 million 25 million 10 million DPG (USD) ADB 40 million 20 million (USD) Source: MoF, Treasury Page 17 Government of Tajikistan - PEFA Assessment 2.3. Legal and Institutional Framework for PFM Legal framework for PFM The basic legal document on PFM is the “Law on Public Finances of the Republic of Tajikistan” (#77, December 2, 2002, with the latest amendments introduced in June 2008). The law defines three main components of the state budget: the republican budget, the budgets of state target funds and local budgets. Further important laws with regard to public financial management include: the Law of the Republic of Tajikistan “On Treasury” (#396, June 18, 2008), the Law of the Republic of Tajikistan “On the National Bank of Tajikistan” (#383, December 14, 1996 with the latest amendments introduced in July 2007), the Law of the Republic of Tajikistan “On the State Financial Control in the Republic of Tajikistan” (#66, December 2, 2002 with the latest amendments introduced in July 2007), the Law of the Republic of Tajikistan “On State and State Guaranteed Borrowing and Debt” (# 886, December 11, 1999), the Law of the Republic of Tajikistan “On Local Bodies of State Power” (#28, May 17, 2004) and the Law of the Republic of Tajikistan “On Self -Management Bodies in Urban and Rural Settlements” (#1094, December 1, 1994). A new Tax Code and a new Customs Code came into force in early 2005 (#61 and #62, December 3, 2004 with the latest amendments introduced in June 2008), the Law of the Republic of Tajikistan “On Public Procurement of Goods, Works and Services” was adopted in 2006 (#168, March 3, 2006). There are other significant laws relevant to Public Financial Management, many of which changed since the last PEFA in 2008: GoT (1994) Constitution of the Republic of Tajikistan, Dushanbe GoT (2008) Law on Treasury Dushanbe GoT (2011) Law on Public Finance. Dushanbe GoT (2008) Law on Right of Access to Information, Dushanbe GoT (2009) Three-Year Action Plan of the PFM Strategy of the Republic of Tajikistan GoT (2011) Three-Year Action Plan of the PFM Strategy of the Republic of Tajikistan GoT (2010) Budget Performance Report 2009. Dushanbe: Ministry of Finance GoT (2011) Budget Performance Report 2010. Dushanbe: Ministry of Finance GoT (2012) Budget Performance Report 2011. Dushanbe: Ministry of Finance (Final Draft Only) Law of Republic of Tajikistan On internal audit in the public sector (Ahbory Majlisi Oli of the Republic of Tajikistan, 2010, #7, article 563) Constitutional Law of the Republic of Tajikistan On Local bodies of state power (Ahbory Majlisi Oli of the Republic of Tajikistan, 2004 #5, art. 339; 2006, # 11, art. 472; 2009, #12) Law of the Republic of Tajikistan “On investments”, Dushanbe May 12, 2007, № 260 Tax code of the Republic of Tajikistan The Customs Code of the Republic of Tajikistan (currently being amended for effectiveness in 2013) The law “On banks and bank activities” The law “On state registration of legal entities and individual entrepreneurs” The law “On licensing of separate types of activity” The law "On joint stock companies" The law “On state procurement of goods, works and services” Law of the RT on public and publicly guaranteed Borrowing and Debt, Dushanbe, December 11, 1999, № 886 Page 18 Government of Tajikistan - PEFA Assessment Law of RT “On Internal Audit of Public Sector” Law on State budget of the RT for 2008, Law on State budget of the RT for 2009, Law on state budget of the RT for 2010, Law on state budget of the RT for 2011, 11th November 2010, #231, Dushanbe Law on state budget of the RT for 2012, 8th November 2011, #766, Dushanbe Law of the RT “Оn treasury”, №396 from 18.06.2008 Law of the Republic of Tajikistan "On Public Procurement of goods, works and services", 24 February 2006, # 184, Dushanbe Regulation of public procurement procedure - Approved by Decree of the Ministry of Economic Development and Trade of the Republic of Tajikistan, as of January 17, Registered in the Ministry of Justice of the Republic of Tajikistan, As of February 11, 2008 #357 Government decree from 1st July 2007, # 319 “on the establishment of qualification commission in defining and award status of "qualified procuring entity” Government decree from 2nd October 2010,# 500 “on set up of rules on the opening of tenders documents for purchase of goods, works and services in state investment projects in the Republic of Tajikistan” Institutional Framework for PFM2 The main responsibility for PFM rests with the Ministry of Finance of the Republic of Tajikistan (MoF). The MoF holds responsibility in the domains of development and implementation of fiscal policy, what includes strategic planning, budget preparation and execution, internal audit and accounting and reporting. The MoF interacts directly with a large number of Budget Organizations (BO) as well as with the 17 main sub-national governments and their budgeting processes (3 oblasts, the city of Dushanbe and 13 cities and rayons of republican subordination). The role of line ministries in formulation of budgets for relevant sectors has been relatively limited. Financial departments of line ministries primarily deal with the financing of the central apparatuses of ministries only. Other PFM duties are entrusted to:  The Executive Office of the President of the Republic of Tajikistan, which is also responsible for the implementation of the Public Administration Reform Strategy (PARS);  Agency of State Financial Control and Combating Corruption of the Republic of Tajikistan (ASFCCC);  Ministry of Economic Development and Trade of the Republic of Tajikistan (MoEDT), which holds responsibilities in the domain of economic forecasting, investments, PIP and monitoring of PRS-2;  State Committee on Investment and Management of State Property of the Republic of Tajikistan (SCIMSP);  State Statistics Committee of the Republic of Tajikistan (SSC);  Agency for Public Procurement of Goods, Works, Services and Organisation of Exchange Activities;  Tax Committee under the Government of the Republic of Tajikistan (TC); 2 Source: PUBLIC FINANCE MANAGEMENT STRATEGY OF THE REPUBLIC OF TAJIKISTAN FOR 2009-2018 Page 19 Government of Tajikistan - PEFA Assessment  Customs Service under the Government of the Republic of Tajikistan (CS). 2.4 The key features of the PFM system reform program At the time of PEFA assessment there are many reforms taking place in the PFM arena. Basically they are following the PFM Reform Strategy for 2009-20183. The objective is that by 2018 the budget will be stable and comprehensive covering all key components of public finance. The Treasury Single Account (TSA), which is now in operation, will capture all the resources of the republican and local budgets, including resources of special funds of BOs. In 2011 a SOE monitoring unit has been established to value and monitor fiscal risks of large SOEs on a regular basis. One of the other aims is for the deviation between the budget formulated at the beginning of the fiscal year and the budget execution report for that year will less significant than in the past. The Government of the Republic of Tajikistan and the Parliament of the Republic of Tajikistan will play an essential role in budget composition. The Parliament of the Republic of Tajikistan will be more actively involved in discussing budget formulation documents including draft budget statements and in-year amendments to the budget. A process is underway to establish a full MTEF by 2018, however at present this seems to be making little headway. National strategies will be translated into sector strategies with clearly defined and costed objectives, and with monitoring frameworks in place. Reliable aggregate and sector ceilings will be set. Line ministries will present budgets in which all programs are costed on an output basis. The annual budget and the medium term expenditure framework will be integrated. Initial pilots with programme and performance budgeting are being conducted. Another goal is that by 2018, the management of budget organisations will be responsible for the proper execution of their budgets and the results which will be achieved with their budgets. Budget organisations will have certain autonomy allowing them to reallocate funds over budget lines. The increased responsibility of budget organisations will be balanced by an effective system of internal control. Internal audits will shift emphasis from investigations of irregular transactions to providing recommendations on improving management processes of budget organisations. The Government of the Republic of Tajikistan aims to have an operational Finance Management Information System (FMIS), which will cover the Treasury functions across the whole country, including functions on planning and control of commitments. Additional modules for managing payroll and the administration of revenues will be provided. The preparation of the Annual Financial Statement will be timely and allow for audit by an independent External Audit Office, in 2011 a law was passed for this to happen, which will report its audit findings to the Parliament of the Republic of Tajikistan. The aim is that Annual Statements and reports from the External Audit Office will be actively discussed in the Parliament of the Republic of Tajikistan. All budget documents will be electronically available to the public and discussed in the media. 3 The Consultant relied on the PFM Progress Reports for up to date information. Page 20 Government of Tajikistan - PEFA Assessment A full report on the PFM Reform progress is presented in Section 4 below. Page 21 Government of Tajikistan - PEFA Assessment 3. Assessment of the PFM Systems, Processes and Institutions 3.1. Introduction The following sub-sections provide the detailed assessment of the PFM indicators contained in the PFM PMF (Public Finance Management-Performance Measurement Framework). The scoring methodology only takes into account the existing situation and does not cover on-going and planned activities that may result in higher scores under future assessments, but these are summarized at the end of the discussion on each section. Each indicator contains one or more dimensions in order to assess the key elements of the PFM process. Two methods of scoring are used. Method 1 (M1) is used for all single dimensional indicators and for multi-dimensional indicators where bad performance on one dimension of the indicator is likely to undermine the impact of good performance on other dimensions of the same indicator (in other words, the weakest link in the connected dimensions of the indicator prevails). A plus sign is given where any of the other dimensions are scoring higher. Method 2 (M2) is based on averaging the scores of individual dimensions of an indicator. It is prescribed for multi-dimensional indicators, where a low score on one dimension of the indicator does not necessarily undermine the impact of a high score on another dimension of the same indicator. A conversion table for 2, 3 and 4 dimensional indicators is used to calculate the overall score. The PEFA handbook (“PFM Performance Measurement Framework”, www.pefa.org) provides detailed information on the scoring methodology. Effective January 2011, a revised methodology is being used for PIs 2, 3 and 19. (Russian Language documents are also available on the website www.pefa.org) 3.2. Budget Credibility Good practice in public financial management emphasizes the importance of the budget being credible so that planned Government policies can be achieved. Budget credibility requires actual budgetary releases to be similar to voted budgets and requires appropriate fiscal discipline to be in place. The indicators in this group assess to what extent the budget is realistic and implemented as intended. Page 22 Government of Tajikistan - PEFA Assessment Assessment of Performance Indicators of Budget Credibility Summary of assessment of indicators for PIs 1-4 PI Score Score Assessment 2007 2012 PEFA PEFA PI-1: Aggregate B A Performance improved. The previous assessment noted expenditure conservative budgeting on revenue collections and when revenue performance exceeded expectations then reallocations of expenditure took place. This resulted in high fluctuations between planned and (M1) executed budgets. However, budget predictions, apart from 2009 when there was a fiscal crisis, have proved to be more accurate with deviations less than 5% PI-2: Variance in C C+ The 2007 assessment was according to a previous methodology expenditure and the results are not directly comparable. Using the PEFA composition assessment methodology an analysis of expenditure composition (M1) highlights that there are significant differences between the original plan and the actual allocation of funds to sectors and this will need more attention to achieve a higher score. The contingency funds should be reallocated to those votes against which the unforeseen expenditure is recorded not as in current practice of maintaining separate accounts, which distort the expenditure by sector. However, the contingency funds are not significant. PI-3: Domestic A B The 2007 assessment was according to a previous methodology revenue and the results are not directly comparable. If we discard the performance special funds of budget organizations then the 2012 score would (M1) be A. Revenue has marginally exceeded budget in the last 2-years 2011 & 2012. Before this period forecasting was quite erratic, due to an historical tendency in former soviet controlled states to understate potential revenues. PI-4: Extent of C+ D+ Performance Unchanged. In 2007 there appears to be a typo error expenditure in the rating and the score should have been a B. In addition, the arrears rating of Dimension (ii) may be too high in 2007 as there is no (M1) data on the stock of arrears, only the level and balance of liabilities. Page 23 Government of Tajikistan - PEFA Assessment 3.2.1. PI-1: Aggregate expenditure out-turn compared to original budget; The ability to implement the budgeted expenditure is an important factor in supporting the government’s ability to deliver the public services for the year as expressed in policy st atements, output commitments and work plans. PI-1 reflects this by measuring the actual total expenditure compared to the originally budgeted total expenditure (as defined in government budget documentation and fiscal reports), but excludes two expenditure categories over which the government will have little control. Those categories are (a) debt service payments, which in principle the government cannot alter during the year while they may change due to interest and exchange rates movements, and (b) donor funded project expenditure, the management and reporting of which are typically under the donor agencies’ control to a high degree. Table 8: Fiscal Years for Assessment The analysis is based on functional budgeting and execution due the methodology of budget formulation and expenditure reporting. In Tajikistan the budget is approved by function and reporting is also on this basis. Over the last two years however, there is a move to administrative classifications and in future a new Chart of Accounts will provide for this analysis. Table 9: Analysis of Year 2009 Source: Financial Statements produced by MoF Page 24 Government of Tajikistan - PEFA Assessment Table 10: Analysis of Year 2010 Source: Financial Statements produced by MoF Table 11: Analysis of Year 2011 Source: Financial Statements produced by MoF Table 12: Results Matrix Source: Calculations by PEFA Consultants In the last 3-years the budget has deviated by more than 5% of the original budget but less than 5% in two of the years (2010 and 2011). In 2009 the financial crisis is cited as the reason for a deviation of more than 5% from the original budget. The resultant score is then A for less than 5% deviation. Page 25 Government of Tajikistan - PEFA Assessment The Financial Statements for 2011 have not been circulated widely as yet, however the basis for the PEFA calculations is the set of Financial Statements signed by the Deputy Minister of Finance, Head of Treasury and Head of Budget Department. The assessment team have therefore accepted this as a valid set of Financial Statements. None of the financial Statements are audited, as there is no external audit body or person appointed yet (Auditor General or Supreme Audit). Refer to PI 26, PI 27 and PI 28 for further discussion on this point. PI Score Score Assessment 2007 2012 PEFA PEFA Performance improved. The previous assessment noted conservative PI-1: budgeting on revenue collections and when revenue exceeded Aggregate expectations then reallocations of expenditure took place. This resulted in B A expenditure high fluctuations between planned and executed budgets. However, performance budget predictions, apart from 2009 when there was a fiscal crisis, have proved to be more accurate with deviations less than 5% 3.2.2. PI-2: Expenditure composition variance and average contingency Where the composition of expenditure varies considerably from the original budget, the budget will not be a useful statement of policy intent. Also, there may be questions about both the rationale and the procedures for re-allocation of expenditures during budget execution. The methodology for assessment is different from that used in the 2007 assessment and therefore cannot be compared. Where the composition of expenditure varies considerably from the original budget, the budget will not be a useful statement of policy intent. Measurement against this indicator requires an empirical assessment of expenditure out-turns against the original budget at a sub-aggregate level. As budgets are usually adopted and managed on an administrative (ministry/department/agency) basis, this is the preferred basis for assessment, but a functional or program basis is acceptable, provided that the same basis is used for both appropriation and reporting execution. At the administrative level, variance is to be calculated for the main budgetary heads (votes) of ministries, departments and agencies, which are included in the approved budget. If a functional classification is used, variance should be based on the GFS/COFOG ten main functions. If a program basis is used, they should be high-level “main” programs. Dimension (i) Variance in expenditure composition, excluding contingency items The ‘composition of expenditure’ refers to the allocation of total expenditure between expenditure heads. Although the preferred analysis would be based on administrative units, as mentioned above, this classification was not in use for the whole of the period 2009-2011 and the analysis has therefore been based on GFS/COFOG functions. In addition to excluding debt service and donor funded project expenditure (as in PI-1), contingency items are not to be included in the calculation for PI-2 dimension (i). Items in the budget that are effectively contingency votes are: 45: Fund of unforeseen expenditure 46: Reserve fund of the President Page 26 Government of Tajikistan - PEFA Assessment 48: Reserve fund of local government executors. These funds are classified as contingency funds for the analysis as the allocation is made during the budget appropriation by parliament but special orders are required to confirm the expenditure. For example “President Order No AP 1522 on 12 Feb 2011” for 60,546 Somoni from the Presidential fund of 25,000,000 Somoni and “Order of Government of Tajikistan No 46 on May 5, 2011” for 1,000,000 Somoni from the Unforeseen expenditure account. Expenditures from these contingency funds are not re-allocated to administration or functional expenditures but are merely debited directly to the fund. From the Table 13: Results Matrix above the composition variance is:  2009 13.0%  2010 10.8%  2011 11.3% This means that PI 2 (i) will be graded C as the variance in expenditure composition exceeded 15% in no more than one of the last three years. A score of C implies that there are significant differences between the original plan and the actual allocation of funds to sectors. An analysis of the ‘gainers’ and ‘losers’ from these changes to the plan adds some understanding to how the variance arises. Figure 1 below shows the total differences between budget and actual allocation of expenditure to sectors in the period 2008 to 2011. Over this period the main gainers were housing, cultural services, social protection and government administration, whereas healthcare, education and defence received less than originally budgeted. Page 27 Government of Tajikistan - PEFA Assessment Figure 1: Total differences between budget and actual allocation to sectors, 2008-2011 Dimension (ii) The average amount of expenditure actually charged to the contingency vote over the last three years. The contingency items are: 45: Fund of unforeseen expenditure 46: Reserve fund of the President 48: Reserve fund of local government executors The reserve funds of Local Government executors are directly related to the revenue generated at the sub-national level (SNL) and is not part of the republican budgeting process. The expenditures under lines 45 and 46 are: Table 13: Contingency Funds (Somoni) 2009 Budget 2009 Actual 2010 Budget 2010 Actual 2011 Budget 2011 Actual Fund of 42,106,103 36,953,203 88,458,239 88,458,239 119,111,265 113,711,495 unforeseen expenditure Reserve 7,891,500 7,831,500 13,910,133 12,281,673 24,011,000 22,982,299 fund of the President Source: Financial Statements MoF Refer to “Table 13: Results Matrix” above to see the average actual expenditure charged to the contingency vote was on average 5.9% that is more than 3% but less than 6% of the original budget and therefore will score a B. Page 28 Government of Tajikistan - PEFA Assessment PI Score Score Assessment 2007 2012 PEFA PEFA The 2007 assessment was according to a previous methodology and the results are not directly comparable. Using the PEFA assessment methodology an analysis of expenditure composition highlights that there PI-2: are significant differences between the original plan and the actual Variance in C C+ allocation of funds to sectors and this will need more attention to achieve expenditure a higher score. The contingency funds should be reallocated to those votes composition against which the unforeseen expenditure is recorded not as in current practice of maintaining separate accounts, which distort the expenditure by sector. However, the contingency funds are not significant. The variance in expenditure composition over the last 3-years was on Dimension average 11.8% therefore it qualifies for a C rating assessed as has not C (i) exceeded 15% in no more than one of the last three years. The average actual expenditure charged to the contingency vote being the Reserve Fund of the President and the fund for unforeseen expenditure Dimension B was on average 5.9% over the last 3-years which is more than 3% but less (ii) than 6% of the original budget and therefore will score a B. 3.2.3. PI-3: Aggregate revenue out-turn compared to original approved budget Accurate forecasting of domestic revenue is a critical for determining budget performance, since expenditure allocations are based on that forecast. The main thrust of PFM reforms is generally to strengthen forecasting capacity and to promote the development of institutional forecasting systems that allow objective forecasts based on the best available data and methodology. A table of all state revenue, including grants and loans, is shown in Annex 2. The graphical depiction in Figure 2 is taken from this table. Indicator PI-3 focuses on the revenue that is directly controllable by the state. As with indicators PI- 1 and PI-2, it excludes revenue from donor grants and loans for development projects. The revenue scored in PI-3 is domestic revenue: taxes, non-tax revenue, and special funds revenue of budget organizations, as shown in Table 14. Page 29 Government of Tajikistan - PEFA Assessment Figure 2: Revenue including grants and loan drawdowns 2008-2011 Note: The scoring method for this indicator has changed since its original version. When the 2007 PEFA was carried out, a high score was given for PI-3 if actual revenue exceeded budget. Tajikistan scored an A because its revenue budgets were usually underestimated. The current version of the PEFA manual (2011) now recognizes that, as with expenditure, a high score should only be received if actual revenue is close to the budgeted figure. On this new basis, a reworking of the 2007 Tajikistan score for PI-3 would receive a D, not an A. Table 14: Total domestic revenue, 2008-2011 Somoni Million 2008 2009 2010 2011 Origina Original Original Original Actual Actual Actual Actual l budget budget budget budget Taxes 2,811 3,298 4,268 3,659 4,353 4,444 5,585 5,849 Non-tax revenue 171 149 317 211 253 329 488 504 Special funds of 130 323 183 318 284 696 504 504 budget organizations Total 3,112 3,770 4,768 4,188 4,890 5,469 6,577 6,857 121.1 111.8 Actual/budget % 87.8% % 104.3% Source: Ministry of Finance, budget department. On the basis of the above figures, the score of PI-3 for 2009 to 2011 is B: Actual domestic revenue was between 94% and 112% of budgeted domestic revenue in at least two of the last three years. This is a significant improvement over the result in the 2007 PEFA if the 2007 result was reworked. Note: The part of domestic revenue with the greatest uncertainty is special funds of budget organizations. If the calculation were repeated for just the sum of tax and non tax revenues, the score would be A, as seen below: Actual domestic revenue was between 97% and 106% of budgeted domestic revenue in at least two of the last three years. Page 30 Government of Tajikistan - PEFA Assessment Table 15: Revenue Analysis without special funds Somoni Million 2008 2009 2010 2011 Original Original Original Original Actual Actual Actual Actual budget budget budget budget Taxes 2,811 3,298 4,268 3,659 4,353 4,444 5,585 5,849 Non-tax revenue 171 149 317 211 253 329 488 504 Total 2,982 3,447 4,585 3,870 4,606 4,773 6,073 6,353 Actual/budget 115.6% 84.4% 103.6% 104.6% Source: Table 7 PI Score Score Assessment 2007 2012 PEFA PEFA The 2007 assessment was according to a previous methodology and PI-3: the results are not directly comparable. If we discard the special funds Domestic of budget organizations then the 2012 score would be A. Revenue has A B revenue marginally exceeded budget in the last 2-years 2011 & 2012. Before this performance period forecasting was quite erratic, due to an historical tendency in former soviet controlled states to understate potential revenues. 3.2.4. PI-4: Stock and monitoring of expenditure payment arrears Expenditure payment arrears are expenditure obligations that have been incurred by government, and for which payment is overdue; and can indicate problems such as inadequate commitment controls, poor cash rationing, inadequate budgeting for contracts, or under-budgeting of specific items. Dimension (i): Stock of expenditure payment arrears The Government of Tajikistan has no definition of the term arrears, but records unpaid expenditure (liabilities) of all budget organisations, which are consolidated by Treasury at the year-end. These are summarised in Table 16 below. The figures include all types of liabilities including wages, utilities and capital expenditures. Table 16: Outstanding liabilities at the end of each year (Somoni million) Year 2008 2009 2010 2011 Total expenditure liabilities (reported by Treasury) 82.4 78.3 80.5 97.9 Total actual primary expenditure (from PI-1) 3,457 4,602 5,485 8,256 % of total actual primary expenditure 2.38% 1.70% 1.47% 1.19% Source: Ministry of Finance and Treasury These figures show that recorded expenditure liabilities are low (below 2% of primary expenditure for the last three years). The main source of uncertainty over the figures is whether any unpaid liabilities exist which have not been recorded. The PEFA report of 2007 reported that commitment control was weak and that Page 31 Government of Tajikistan - PEFA Assessment arrears in wages and other statutory expenditures on a quarter-by-quarter basis can be significant. However, in 2012 interviews with Head of MoF Budget Department and Head of Accounting and Audit Department indicate that arrears in wages and other expenditures has improved to the extent that these type of arrears are no longer significant. Since total liabilities will by definition be higher than total arrears, on the basis of the information provided, that in each of the last 3-years the ratio of debt to total primary expenditure is less than 2%, the score for dimension (i) is A (refer table 10 above). Dimension (ii): Availability of data for monitoring the stock of expenditure payment arrears Treasury consolidates the figures for outstanding expenditure liabilities at the end of every year as part of its regular operations, but there is no age profile for these liabilities. There may possibly be missing data from some budget organisations, but this has not been quantified. On the basis of this information, a score of D has been awarded for this dimension. A meeting with Deputy Head of Treasury, which covered a comprehensive overview of the system and records, leads the assessment team to the inevitable conclusion that there is no system to age the liabilities and determine the extent of arrears. In the absence of a Commitment Control System the current accounting system will not produce the information required. A computerized FMIS and a Business Process Reengineering would help the Treasury conduct deeper analysis of government financial information. PI Score Score Assessment 2007 2012 PEFA PEFA PI-4: Extent In 2007 there appears to be a typo error in the rating and the score should of have been a B. In addition, the rating of Dimension (ii) may be too high in C D+ expenditure 2007 as there is no data on the stock of arrears, only the level and balance arrears of liabilities. Since total liabilities will by definition be higher than total arrears, on the basis of the information provided, that in each of the last 3-years the ratio Dimension A A of liabilities to total primary expenditure is less than 2%, then arrears (i) must be less than 2%. Then the score for dimension (i) is A. The systems at year end appear to be robust and liabilities are determined Dimension C+ D to be low, however there is no age profile of data and no data on arrears, (ii) therefore the score must be rated D. 3.3. Comprehensiveness and transparency The indicators in the Comprehensiveness and Transparency dimension of PFM assess to what extent the budget and fiscal risk oversight are comprehensive, as well as to what extent fiscal and budget information is accessible to the public. The matrix below summarises the assessment of indicators under this dimension. Page 32 Government of Tajikistan - PEFA Assessment Assessment of Performance Indicators for Comprehensiveness and Transparency Summary of assessment of indicators for PIs 5-10 PI Score Score Assessment 2007 2012 PEFA PEFA In 2007 only functional and economic classifications were in use for budget preparation and execution. Now the PI-5: Budget classification D B classifications have been expanded to include Administrative and Program classifications, however they are not operating at full strength yet. The recent budget documentation PI-6: Budget submitted to parliament fulfills 7-9 of the A A documentation 9 information benchmarks and therefore the score is assessed as A. The financial statement and system has improved over the period 2008 -2012 such PI-7 (M1): Extent of un- that extra budgetary expenditure is low reported government C+ B+ and the system for recording development operations partner loans, grants and state debt has improved. Performance improved. Since 2007 there were new developments and initiatives introduced in general budget formulation PI-8 (M2) Transparency and reporting processes which affected of inter-governmental B B+ transparency and rules of the horizontal relations allocation of transfers among SN governments and the timelines of reliable information to SN governments. The assessment of aggregate risk at the significant level of major AGA and PE is now monitored by an agency that was not PI-9 (M1): Oversight of fully operational during the PEFA of C C+ aggregate fiscal risk 2007. Whilst the monitoring of the budget execution system at SNL is strong there is no system for assessing aggregate risk in a consolidated fashion. The assessment is based on an improved information system through websites and to say that there is no information would be harsh. Even in the 2 areas where the team has assessed a positive answer there PI-10: Public access to are shortcomings. However, it is D C fiscal information recognized that the government has made an initial start to appointment an external auditor and when this appointment is made then improvements will be seen, therefore this ranking qualified for an arrow indicating on-going improvements. Page 33 Government of Tajikistan - PEFA Assessment 3.3.1. PI-5: Classification of the budget A comprehensive government classification system and chart of accounts allows the preparation and execution of budget to be based on the following heads: administrative unit, economic item, functional and program. At the time of the 2007 PEFA the functional and economic budget classifications were in use and have been continued. The administration classification has since been added in 2010 for central line ministries and 2011 across the whole of government. The functional classification used is broadly in accordance with the main functions listed in Government Financial Statistics (GFS) and Classification of the Functions of Government (COFOG) continuing to be the main basis of the budget classification, and the basis on which the budget is legally approved. The Public Investment Program (PIP) was integrated into the functional classification from 2007. The budget economic classification uses a different numbering system from the chart of accounts used by Treasury, but this does not prevent reporting actual against budget items by economic classification. There are differences between the charts of accounts used at republican and local level but these will disappear when the new Unified Chart of accounts is implemented, which is planned for 2013. However, the distinction between the budget economic classification and the chart of accounts is still likely to continue, as the opportunity to use a single numbering system does not appear to have yet been taken. The administrative classification was introduced into the Republican Budget from 2010 and into the administrative classification at local level was approved in May 2011 and used in Local Budget from 2012. Treasury is also able to report actual against budget using the administrative classification. The main problem with the use of the administrative classification is in the practical delegation of budget management authority. Although the classification shows a hierarchy of main budget organisations and subsidiary budget organisations, MoF deals directly with nearly all subsidiary budget organisations, both when assigning the original approved budget to administrative units and when making revisions to these allocations by functional classification. However, this is a matter for discussion under PI-16. As far as indicator PI-5 is concerned, there is now a comprehensive administrative classification, which is used to record the formulation and execution of the budget. Descriptions: Functional classification: The 10 main COGOG headings are included within the classification. Economic classification: The economic classification/chart of accounts is now capable of producing reports consistent with GFS standards. Administrative classification: The classification of administrative budget units exists, though the hierarchy of authority implied by the classification has only been used in 2011. Program classification: Program budgeting is not yet operating in Tajikistan, outside perhaps of the pilot ministries to some extent, and therefore the program classification is not relevant to the assessment of PI-5. Funding classification: Treasury report this has been operating since 2011. Page 34 Government of Tajikistan - PEFA Assessment This is all using GFS/COFOG standards that can produce consistent documentation according to those standards. If all of the above classifications were working then this assessment would be A, however as the administrative, program and funding classifications are only just being used and the program classification has yet to be implemented then the overall score will be B. PI Score Score Assessment 2007 2012 PEFA PEFA In 2007 only functional and economic classifications were in use for PI-5: Budget budget preparation. Now the classifications have been expanded to D B classification include Administrative, Program and Funding classifications, however they are not operating at full strength yet. 3.3.2. PI-6: Comprehensiveness of information included in budget Annual budget documentation as submitted to the legislature for scrutiny and approval should allow a complete picture of central government fiscal forecasts, budget proposals and out-turn of previous years. The PEFA Performance Measurement Framework sets out nine pieces of information and/or documentation that governments should be submitting to the legislature. Documentation of the annual budget, submitted by the Government to the Parliament for scrutiny and approval, contains complete information on budget projections, drafts of the budget and budget performance results for previous years. In addition to information on income and expenditures, recent annual budget documentation fulfils 8 out of the 9 information benchmarks, listed in the PEFA PFM Performance Measurement Framework document. Thus, this indicator is scored as A. The Table 11 below shows the elements of budget information which should be submitted to the legislature, in addition to the detailed information on revenues and expenditures, in order to be considered complete, and compares with the information actually submitted in Tajikistan. Table 11: Information Provided in the Budget Documentation No. Budget documentation benchmarks Availability 1. Macro-economic assumptions, incl. at least estimates of aggregate YES growth, inflation and exchange rate 2. Fiscal surplus or deficit is defined according to GFS or another YES internationally recognised standard 3. Deficit financing, describing anticipated composition YES 4. Debt stock, incl. details at least for the beginning of the current year YES 5. Financial assets, incl. details at least for the beginning of the current YES year 6. Prior year’s Budget out-turn, presented in the same format as the YES proposed Budget 7. Current year’s Budget (revised budget or estimated out-turn), presented YES in the same format as the proposed Budget Page 35 Government of Tajikistan - PEFA Assessment No. Budget documentation benchmarks Availability 8. Summarised Budget data for both revenue and expenditure according to YES the main heads of the classification used, incl. data for current and previous year 9. Explanation of Budget implications of new policy initiatives, with YES estimates of the budgetary impact of all major revenue policy changes and/or some major changes to expenditure programs PI Score Score Assessment 2007 2012 PEFA PEFA PI-6: Budget The recent budget documentation submitted to parliament fulfills 7-9 of A A documentation the 9 information benchmarks and therefore the score is assessed as A. 3.3.3. PI-7: Extent of unreported government operations Annual budget estimates, in-year execution reports, year-end financial statements and other fiscal reports for the public, should cover all budgetary and extra-budgetary activities of central government to allow a complete picture of central government revenue, expenditures across all categories, and financing. The indicator covers extra-budgetary activities of the government on the one hand, and expenditure information on donor funded projects on the other hand as the main categories of potentially unreported government operations. Dimension (i): The level of extra-budgetary expenditure (other than donor funded projects), which is unreported i.e., not included in fiscal reports Almost all state organizations, departments and agencies are engaged in commercial activities through the provision of paid services. The total expenditures of the State budget include, among other things, the category ‘special funds of budgetary organizations’, which totalled 464.4 million Somoni or 6.9% from the State budget in 2010. Traditionally, the Ministry of the Interior, customs, institutions of higher education, and the Ministry of Foreign Affairs are the main sources of these special funds (both on the expenditure and revenue sides). The following government departments and agencies at the central and local levels are major sources of revenues and expenditures of the special funds through the provision of services: higher education institutions, Ministry of Foreign Affairs, the Ministry of Education, Ministry of Culture, the State Committee for Television and Radio Broadcasting, Ministry of Justice, Ministry of Agriculture, the Committee on the Protection of the Environment, housing and communal services, Ministry of Transport and Communications, Ministry of Finance, the Academy of Sciences, secondary professional institutions, Ministry of Health, as well as educational institutions at the level of local authorities. Since 2009, the budget line items related to special funds are shown as part of the state budget, although special funds of the local budget haven’t been shown in the state budget yet. With regard to reporting on budget execution, the whole level of extra-budgetary expenditures is shown as special funds. Parliament approves the special funds in lump sum, but then disbursements have to be approved one by one and there is a reconciliation and recording of this. Page 36 Government of Tajikistan - PEFA Assessment If special funds are now shown in the budget and in the budget execution, then they are no longer ‘extra-budgetary’, except to the extent that no analysis is available at the time of budgeting. The IMF made an appropriate comment: “In Tajikistan, a budget is conceived of as a source of funds whereas the PEFA concept of a budget is what is covered by the parliamentary appropriation system. On the basis that the budgets of special funds are approved by parliament along with the regular budgets, it seems that they are covered by the parliamentary appropriation system. However, the special funds of local budget organizations are outside the parliamentary appropriation system and are not included in the fiscal reports, therefore they might constitute less than 1% of total expenditure, which would make the score for PI-7(i) A instead of B” Table 17: Share of the special funds of budget organizations in total government revenues without grants and loans, 2008-2011, thousands Somoni Of which Tax revenue Non-tax % of special ‘special Year/items Total revenue funds out of funds’ total 2008 Plan 3387.3 2874.5 512.8 336.8 11.0% Actual 3769.6 3298.2 471.4 322.9 9.4% 2009 Plan 4371.8 3693.0 678.8 475.3 12.2% Actual 4187.4 3659.0 528.4 317.6 8.2% 2010 Plan 5480.2 4400.2 1080.0 815.2 17.5% Actual 5469.0 4443.8 1025.2 696.2 14.6% 2011 Plan 6576.7 5584.5 992.2 503.7 8.0% Actual 6856.2 5848.9 1007.3 503.7 7.7% Source: Data of the MoF RT Unofficial Fees: Concerns have been raised in previous donor reports and in the 2007 PEFA concerning unofficial charges levied in the Education and Health sectors. No direct evidence of this practice has been uncovered; but there is anecdotal evidence from various sources about such fees. The extent of these revenues are likely to be low according to Public Expenditure Tracking Survey (PETS) World Bank 2008. Revenues raised at the Sub-National Level (SNL) are subject to a sharing formula with the Republican level. The Republican budget is directed at recurrent costs and donor funds are primarily used to fund the Public Investment program covering capital and investment costs in the health system. The extra budgetary funds – fees for service and the President special fund allocations – are focused on service delivery. The majority of expenditure at the SNL is on salaries and wages and in kind contributions are usually food, drugs and medical supplies (bandages and such like). In the same report it was stated that at the SNL in the Health Sector a survey of 75% of facilities indicated that auditing was frequent and mostly carried out mostly by the State Financial Control Committee. With an acceptable level of auditing one would expect any significant activity in unofficial fees would be reported. Dimension (ii): Income/expenditure information on donor-funded projects which is included in fiscal reports Page 37 Government of Tajikistan - PEFA Assessment Since 2007, grants and loans for investment projects and the Chinese government loan are included in the state budget. According to data from the Ministry of Finance, financial statements contain information on revenues and expenditures related to all projects financed by loans and grants. This excludes Grants in kind. Table 18: Development Assistance: Total amount for PIP, 2008 -2010, USD Millions 2008 2009 2010 Loans 350.1 243.5 179.4 Grants 39.7 48.1 78.4 Contribution of 17.9 14.3 27.6 GRT* Total 407.7 305.9 285.4 *with contribution of JSC “Barqi Tojik “ Source: MoF RT In the PEFA assessment in 2008 the aid coordination system was in transition from an Aid- Coordination Unit to State Committee on Investment and Management of State Property and it was unclear how the improvements would be implemented. This is the main difference between the two assessments and the fact that now the information is available. PI Score Score Assessment (M1) 2007 2012 PEFA PEFA PI-7 C B+ The financial statement and system has improved over the period 2008 -2012 such that extra budgetary expenditure is low and the system for recording development partner loans, grants and state debt has improved. (i) B B As there is no information on special funds of the local budget the score for this dimension is estimated as B (same as 2007 PEFA) – i.e. the level of extra budgetary expenditure (other than donor funded projects) constitutes 1-5% of total expenditure. (ii) C A The financial statements include loans, grant and state debt to China and therefore complete income/expenditure information of donor-funded projects is included in fiscal reports, except inputs provided in-kind. 3.3.4. PI-8: Transparency of Inter-Governmental Fiscal Relations This indicator reflects the fact that sub-national governments play an important role in service delivery, and that they are important recipients and users of budgetary funds. The indicator is assessed based on three dimensions. The MOF directly interacts with 17 sub-national budgets (Dushanbe, three oblasts, and 13 rayons of republican subordination). Governments of these SN entities in turn interact in the budget preparation and execution of the SN entities subordinated to them. Relevant legal acts are the 2011 Law on State Finance, and the 2004 Constitutional Law on Local Bodies of State Power, (including amendments made in 2006 and 2009) which contains articles regarding local public finance procedures and rules. In accordance with the 2011 Law on State Finance (article 23) local taxes are fully credited to local budgets. Nationwide distribution of taxes Page 38 Government of Tajikistan - PEFA Assessment between the Republican and local budgets is the responsibility of the Government of the Republic of Tajikistan and is approved annually by the law of the Republic of Tajikistan on State budget for the next fiscal year. Dimension (i): Transparent and rules based systems in the horizontal allocation among SN governments of unconditional and conditional transfers from central government (both budgeted and actual allocations) Since 2007 there were some improvements introduced into the budget formulation and reporting processes, which also affected the relevant improvements in connection to overall system of resource allocations between levels of government, and for the horizontal allocation among local governments. Thus, there is a set of rules and practices in Tajikistan which is based on bottom - up and top - down procedures, where top-down procedures are based on the per/capita planning and are in line with the sector strategies, and bottom- up procedures are revenue based. Such improvements are made within overall MTEF/budgeting process, which is stated now also in the MTEF set of instructions issued by the MoF on the early stage for the next 3 years budget preparation on a rolling basis. In accordance with the Article 41 (Law on State Finance, 2011) sectorial budget priorities and strategic sectorial plans are taking into account for the formulation of local budgets drafts, as well as minimum requirements to meet the standards of social budget guarantees. Local government authorities, based on the methodological instructions issued by the Ministry of Finance, formulate local budgets that are based on legal requirements. Responsibility for service provision (central, local, and joint) is set out in the Law on State Finance (2011), article 18 (with substantial responsibilities allocated to local levels). Furthermore, article 23 of the law specifies the principles of IGFR; and article 24 specifies what forms of financial assistance can be provided from the central to local budgets. The key principle is that the central government seeks to guarantee a minimum level of budget security to local governments and to ensure a financing of minimal state social standards in all localities. According to the MoF and other interlocutors, in highly subsidized regions, subventions will only be sufficient to cover protected expenditure items – mainly salaries and utility payments – and will not be sufficient to cover items such as school textbooks or maintenance. Funding allocations (including the share of taxes to be retained in each oblast as own revenue) are decided annually during budget negotiations between the oblast chairmen (or rayon chairmen in the case of the RRS) and the MoF. SN governments (as well as other budget users) can request additional funding from the MoF as well as from the presidential reserve fund during the year. The allocation of these additional presidential funds appears to be largely on an ad hoc basis. There are per capita based system of allocations in the social sectors (health, education, labour and social protection) has been introduced in 2011 for piloted rayons.4 Furthermore, in the context of the MTEF strategy, (which was approved by Parliament in June 2011 under The Public Finance Law (PFL), incorporating MTEF), efforts are underway to return to a greater level of centralization of responsibilities and management of funding (see also PI 12). Education has been selected as the pilot sector for these efforts (which are currently at very initial stages). 4 Per capita allocations change certain incentives for budget users, and they may lead to greater equalization of expenditures across localities. Page 39 Government of Tajikistan - PEFA Assessment SN governments have three sources of income: own revenues – based on revenue-sharing arrangements specified in the annual budget law; subventions from the republican budget to meet minimum funding levels in regions when there is not sufficient own revenue; and subsidies which are provided to finance specific spheres (housing complex; culture).5 In aggregate terms, more than two-thirds of local revenues are own revenues retained at local levels (see table 12), and this is a stable figure for the years since 2007.6 The table 12 also shows that the actual out-turns indicators for subventions and additional funds from republican budget are matching 100% to the planned ones. The level of subventions is calculated based on a funding gap between expenditure needs and own revenue capacity. Table 19: Local budget revenue 2007 – 2011 (Somoni Millions) 2007 2008 Plan Actual % Plan/ % Local Plan Actual % Plan/ % Local Actual Revenues Actual Revenues Own revenues 585.5 654.4 112.0 71.7 815.6 947.5 116.0 75.6 Balance of funds from 33.7 33.0 98.0 4.1 40.5 38.7 96 3.8 the previous year Targeted funds 156.7 156.7 100 19.2 181.6 181.6 100 16.8 (subvention) Additional funds from 35.5 35.5 100 4.4 35.1 35.1 100 3.2 republican budget Loans 0 0 0 0 0 - 0 Maintaining capital city 5.0 5.0 100.0 0.6 6.0 6.0 100 0.6 function of Dushanbe Total local revenues 816.5 885.0 108.0 100.0 1078.9 1208.9 112.0 100.0 2009 2010 Plan Actual % % Local Plan Actual % Plan/ % local Plan/ revenues actual revenues actual Own revenues 1119.5 1236.1 110.0 72.4 1406.0 1557.9 111 76,6 Balance of funds from 154.5 155.3 101 9.9 106.9 106.9 100 5,8 the previous year Targeted funds 261.8 261.8 100 16.9 292.4 287.2 98 15.9 (subvention) Additional funds from 3.8 3.8 100 0.3 23.6 23.6 100 1.3 republican budget Loans 0 0 0 0 0 - 0 Maintaining capital city 7.0 7.0 100 0.5 7.0 7.0 100 0.4 function of Dushanbe Total local revenues 1546.7 1667.1 108.0 100 1835.9 1961.9 107 100 2011 Plan Actual % % Local 5 In addition, the following functions at local levels are financed directly from the republican budget: law enforcement; land use committees; financial departments of local government; and courts. 6 The description here includes the allocation of revenue shares, as this is part of the resource transfer package between central and local governments. Page 40 Government of Tajikistan - PEFA Assessment Plan/ Revenues Actual Own revenues 1763.9 1876.6 106.0 74.8 Balance of funds from 197.9 197.9 100 8.4 the previous year а Targeted funds 341.7 341.7 100 14.5 (subvention) Additional funds from 45.3 45.3 100 1.9 republican budget Loans 0 0 0 Maintaining capital city 10 10 100 0.4 function of Dushanbe Total local revenues 2358.9 2439.2 103 100 Source: MoF (ii) Timeliness of reliable information to SN governments on their allocations from central government for the coming year. After 2007 the Budget Calendar was adjusted accordingly to improve the overall budget formulation process and to make it more predictable and efficient. In accordance with improved MoF budget instructions (posted on the MoF website), which are based on introduced MTEF (3 years forward looking budget) process integrated with the annual budget planning, the local organs of State power initially receive instruction on formation of their draft budgets (in the middle of February). Thus in accordance with the MTEF instructions for 2011- 2013, MoF is communicating the budget ceiling before March 15 and the draft of the MTEF is presented to the Government Committee of Majlisi Namoaydagon Majlisi Oli of RT on Economy and Finance before June 1. Some changes may still occur during the government and parliament’s review of the budget. The main outcome of budget negotiations is top-down cuts to budget proposals that have been collected bottom-up. These top-down allocations are in turn cascaded down, as higher levels distribute the reduced totals among sub-ordinated localities and budget organizations. In recent years, budgets have been adopted well in time before the beginning of the new fiscal year. By the time that the allocations from central government are firmly known, the main local budget planning process has already taken place. Actual revenues that have substantially exceeded planned revenues in some of the past years, and additional allocations from the centre to local levels during budget execution add some degree of reliability; in particular with regard to the effective allocation and use of funds. Local Treasury collect consolidated information on expenditure by sector. Quarterly and annual performance reports cover local expenses of a sectorial level, consistent with the financial statements of the Central Government. However, the local Treasury do not track or report information on the funds received by the individual budget organizations such as schools or health clinics. Dimension (iii): Extent to which consolidated fiscal data (at least on revenue and expenditure) is collected and reported for general government according to sectorial categories. Local treasuries collect and report consolidated information about sectorial spending. Quarterly and annual budget execution reports cover local level sector spending, consistent with central government fiscal reporting. However, local treasuries do not track or report on detailed Page 41 Government of Tajikistan - PEFA Assessment information of funds received by individual budget organizations such as schools or health clinics. (See also PI-23). Table 20: Local Budget Revenues and Expenditures (Somoni millions) Year Plan Actual % 2007 Total revenues 816.5 885.0 108.0 Total expenditures 816.5 823.6 100.8 2008 Total revenues 1078.9 1208.9 112.0 Total expenditures 1078.9 1042.6 97.0 2009 Total revenues 1546.7 1667.1 108.0 Total expenditures 1546.2 1461.6 94.0 2010 Total revenues 1835.9 1961.9 107.0 Total expenditures 1835.9 1757.6 96.0 2011 Total revenues 2358.9 2439.2 103.0 Total expenditures 2358.9 2253.1 96.0 Source: MoF, Department of local budgets Transfers to subnational governments are strictly controlled through the process of limiting the quarterly cash flow, and budget estimates will not be exceeded without the approval of the Government to increase the “subsidies” or the approval of local authorities in respect of its income. Local authorities will automatically receive a share of income in addition to government subsidies and can make additional revenue costs, which are collected in excess of the pledged budget. There is also a provision that allows local authorities to overspend around 3% in the case of insufficient financial resources. The structure of the fiscal relationship between local governments and the Ministry of Finance leaves only a limited impact of central ministries on strategy, policy and regulation of service delivery. Central ministries for health, education and social protection have the roles of setting general sector policy such as wage grids or curricula, but have very little role in budget preparation, execution or oversight at the local level as there is no formal budget negotiation or accountability between local governments and line ministries. Substantial intergovernmental fiscal relations reform is therefore critical to improving the policy and regulation roles of line ministries. Central government fiscal reporting of public spending by local authorities and is consolidated into annual reports within 6 months of the end of the fiscal year as reported by treasury. PI Score Score Assessment (M1) 2007 2012 PEFA PEFA PI-8 B B+ Performance improved. Since 2007 there were new developments and initiatives introduced in general budget formulation and reporting processes which affected transparency and rules of the horizontal allocation of transfers among SN governments and the timelines of reliable information to SN governments. (i) c b There are a set of rules and practices in Tajikistan which is based on bottom - up and top - down procedures, where top-down procedures are based on the per/capita planning and are in line with the sector strategies, and bottom- up procedures are revenue based. Such improvements are made within overall Page 42 Government of Tajikistan - PEFA Assessment PI Score Score Assessment (M1) 2007 2012 PEFA PEFA MTEF/budgeting process and are backed by Article 41 (Law on State Finance, 2011) on the inclusion of sectorial budget priorities and strategic sectorial plans in formulating local budgets drafts, as well as minimum requirements to meet the standards of social budget guarantees. At present it is estimated that at least 50% of the transfers adhere to these allocation rules. There are additional presidential funds allocated on an Ad Hoc basis, but these are not significant. (ii) c b Since 2007 budgets have been adopted well in time before the beginning of the new fiscal year. By the time that the allocations from central government are firmly known, the main local budget planning process has already taken place. Even if allocations from the central budget are not forthcoming the majority of expenditure at SN level has been covered through local revenues. (iii) a a Fiscal information from sector and SN level are consistent with central government fiscal reporting of SN government expenditure and is consolidated into annual reports within 6 months of the end of the fiscal year. 3.3.5. PI-9: Oversight of aggregate fiscal risk from other public sector entities Fiscal risks may emanate from autonomous government agencies (AGAs), sub-national governments (SNs) and Public Enterprises (PE). Central government should require and receive quarterly financial statements and audited year-end statements from AGAs and PEs, and monitor performance against financial targets. The government has created a SOE monitoring department for the monitoring and evaluation of autonomous government agencies (AGAs) and Public Enterprises (PE). The are 650 government enterprises (AGSs and PEs) registered in the Tax Committee Department7, however the monitoring unit only monitors those enterprises that have a capital in excess of 100,000 Somoni. The number of enterprises in with capital in excess of 100,000 Somoni is 16 and this is the focus of the unit: 1. State unitary enterprise “Tajik Aluminum Company” 2. State unitary enterprise “Aluminsokhtmon” 3. Open Joint Stock Holding Company “Barqi Tojik” (Electricity) 4. State Unitary Enterprise “Tojik air navigation” 5. Open joint Stock Company “Tojik Air” 6. Open Joint Stock Company “Furudgohi bainalmillalii Dushanbe” (“Dushanbe International Airport”) 7. Open Joint Stock Company “Furudgohi bainalmillalii Kurghonteppa” (“Kurgan-tube International Airport”) 7 The European Union disputed this figure stating that there is no official listing of SOE/AGA/PE, however this information was provided by the Head of the SOE Monitoring Unit – presumably this figure could be substantiated by the Tax Committee registration database, but time did now allow for the Consultant’s to check this figure. Page 43 Government of Tajikistan - PEFA Assessment 8. Open Joint Stock Company “Furudgohi bainalmillalii Kulob” (“Kulyab International Airport”) 9. Open Joint Stock Company “Furudgohi bainalmillalii Khujand” (“Khujand International Airport”) 10. Open Joint Stock Company “Tojiktelecom” 11. State Unitary Enterprise “Rohi ohani Tojikiston” (“Tajikistan Railway”) 12. Public Saving Bank “Amonatbonk” 13. Open Joint Stock Company “Tojikcement” 14. State Enterprise “Vostokredmet” (“Orient rare metals”) 15. State Unitary Enterprise “Naftugas & angisht” (“Oil, gas & coal”) 16. Open Joint Stock company “Tojiktransgas” Dimension (i): Extent of central government monitoring of AGAs and PEs The unit produces reports, under Decree of the Government in 2008, on a quarterly basis covering economic and financial analysis. The report is first sent to Government (Cabinet) and then to parliament. The report structure was created will the help of IMF and EU using the following indicators (IMF FI12): The report contains 40 Key Performance Indicators; refer Table 14. Table 21: Financial Ratios used for SOEs # Name of indicator Type of Indicator 1 Revenue from all activities Turnover 2 Including: from main activities Turnover 3 Expenditure from all activities Expenditure 4 Including: from main activities Expenditure 5 Profit and loss Profit 6 Profit on revenue ratio Profit 7 Tax on profit Profit 8 Number of employees HR Ratios 9 Salary expenses HR Ratios 10 Average salary per employee HR Ratios 11 Profit per employee HR Ratios 12 Equity capital Solvency 13 Working capital Liquidity 14 Including: accounts receivables Liquidity 15 Total liability Liquidity 16 Including: long-term liabilities Liquidity 17 Short-term liabilities Liquidity 18 Including: salary Liquidity 19 Social protection fund Liability 20 Budget Liability 21 Current ratio Liquidity 22 Quick ratio Liquidity 23 Working capital turnover Liquidity 24 Ratio of accounts receivables to accounts payables Liquidity Page 44 Government of Tajikistan - PEFA Assessment 25 Margin (net revenue to service) Profitability 26 Net profit from activities Profitability 27 Profit from current assets Profitability 28 Net Profit from current assets Profitability 29 Maturity of receivables Solvency 30 Current assets to profit from all activities Solvency 31 Working capital turnover ratio Solvency 32 Accounts payable to profit from activities Solvency 33 Current liabilities to own funds Solvency 34 Total liabilities to own fund Solvency 35 Assets to own fund Solvency 36 Current liabilities to material assets Solvency 37 Total revenue to profit from all activities Solvency 38 Total revenue to current liability Solvency 39 Total revenue to net profit Solvency 40 Coefficient likelihood of bankruptcy Solvency Source: SOE Monitoring Department in Ministry of Finance External audit is conducted for each SOE is completed by one of the 56 audit entities certified by government. The Boards of the various autonomous government agencies (AGAs) and Public Enterprises (PE) appoint the auditors. Of the remaining 634 AGAs and PEs the Line Ministries receive regular financial reports from those under their control. The MOF Department on State Debt and State Financial Assets receive quarterly and annual reports from each SOE. The State Property Committee controls the ongoing “privatization” process. The Tax Committee maintains a tax registry that includes SOEs. The State Financial Control Committee (SFCC) audits every two years the accounts of each SOE. In 2007 there was no government organization undertaking a consolidated exercise to establish the overall financial risk with which the government may be faced. So the SOE monitoring department has addressed this situation. There is only one AGA (Public Saving Bank “Amonatbonk”) which has a contingent liability and this is monitored quarterly by SOE monitoring department Dimension (ii): Extent of central government monitoring of SN governments’ fiscal position The MoF directly interacts with 17 sub-national budgets (Dushanbe, three oblasts, and 13 rayons of republican subordination). Governments of these SN entities in turn interact in the budget preparation and execution of the SN entities subordinated to them. Relevant legal acts are the 2011 Law on State Finance, and the 2004 Law on Local Bodies of State Power, which contains articles regarding local public finance procedures and rules. In accordance with the 2011 Law on State Finance (article 23) local taxes are fully credited to local budgets. Nationwide distribution of taxes between the Republican and local budgets is the responsibility of Page 45 Government of Tajikistan - PEFA Assessment the Government of the Republic of Tajikistan and is approved annually by the law of the Republic of Tajikistan on State budget for the next fiscal year Quarterly and annual budget execution reports cover local level sector spending, consistent with central government fiscal reporting. The structure of the fiscal relationship between local governments and the Ministry of Finance leaves only a limited impact of central ministries on strategy, policy and regulation of service delivery (refer PI-8). In the reporting lines to central government the SNL has to report against “loans”. Therefore it is assumed that the SNL can adopt liabilities. However, in all the reports reviewed for these there are no entries of SNL level loans. PI Score Score Assessment (M1) 2007 2012 PEFA PEFA PI-9 C C+ The assessment of aggregate risk at the significant level of major AGA and PE is now monitored by an agency that was not fully operational during the PEFA of 2007. Whilst the monitoring of the budget execution system at SNL is strong there is no system for assessing aggregate risk in a consolidated fashion. (i) C A All major AGAs/PEs submit fiscal reports to central government, through the SOE monitoring department, on a quarterly basis. In addition, annual audited accounts are submitted and central government through the SOE monitoring department consolidates fiscal risk issues into a report at least annually, therefore this dimension is rated A. (ii) C C As in the PEFA assessment of 2007 it is found that monitoring of the budget execution process is strong. Reports are received monthly for SNL financial activities but there is no consolidated overview of potential financial risk. Therefore a ranking of C is assessed. 3.3.6. PI-10: Public access to key fiscal information Accountability to citizens has become an increasingly important issue in recent thinking about PFM reforms. Accessibility of information is a key precondition for accountability. The PEFA methodology defines six elements of documentation which should be publicly accessible. As stated in the 2007 PEFA the 2002 Law on State Finances mentions “publicity (openness) of budgets” as one of the principles of Tajikistan’s budget system (article 8). According to the constitution, article 25, government organs are under obligation to provide documents to individuals whose interests or rights are affected. Tajikistan furthermore has a Law on Information (2002) and a Law on State Secrets (2003). Websites for key ministries have been enhanced and the PEFA assessment found a great deal on these websites. Page 46 Government of Tajikistan - PEFA Assessment Table 15 summarises the availability of the six elements of information stipulated under the PEFA methodology that contribute to Public access. Table 15: Fiscal information available to the public Elements of Availability Assessment information for public access Annual budget NO Fiscal information is available only after approval by the legislator. documentation when submitted to the legislature In-year budget YES Quarterly budget execution reports are published in the government execution reports newspaper “Giumhuriyat”; and in a magazine, “Moliya”; however, within one month of these are only selected reports and not a whole of government their completion consolidated report. Year-end financial NO Year-end financial statements are not available during this time statements within 6 frame and also there is no audit. months of completed audit External audit NO The State Financial Control Committee provides an overview of the reports within 6 financial statements, however, there is no external audit. A law was months of passed in 2011 to create an independent supreme audit division, completed audit however no appointments or budget allocations have been made at this stage. Contract awards YES Information is available to the public on procurement over this (app. USD 100,000 value, however as the Chamber of commerce has mentioned to the equivalent) team there is little in the way of contract details, deliverables and published at least evaluation outcomes. quarterly Resources available NO There is no reporting to the public in this area. to primary service unit at least annually PI Score Score Assessment 2007 2012 PEFA PEFA PI-10 D C The assessment is based on an improved information system through websites and to say that there is no information would be harsh. Even in the 2 areas where the team has assessed a positive answer there are shortcomings. However, it is recognized that the government has made an initial start to appointment an external auditor and when this appointment is made then improvements will be seen. 3.4. Policy based budgeting The indicators in this group assess to what extent the central budget is prepared with due regard to government policy. The table below summarises the assessment. Page 47 Government of Tajikistan - PEFA Assessment Assessment of Performance Indicators for Policy Based Budgeting Summary of assessment of indicators for PIs 11-12 PI Score Score Assessment 2007 2012 PEFA PEFA Whilst there has been some delays experienced in the last 3- PI-11: Orderliness years the Budget has always been approved by the legislators and participation in B B+ before the start of the year. It is therefore concluded that the the annual budget process system is robust With clear participation at all levels of government. The new Law on State finance was adopted in 2011, which PI-12: Multi-year incorporated three-year forward-looking budget. Three year perspective in fiscal forward budget planning was introduced in social sectors. The planning, D+ D+ debt strategy for 2009 – 2011 was adopted in 2008, in the last expenditure policy five years the debt sustainability analysis reports were written and budgeting annually and have being posted on the MoF website. 3.4.1 PI-11: Orderliness and participation in the annual budget process Full participation requires an integrated top-down and bottom-up budgeting process, involving all parties in an orderly and timely manner, in accordance with a pre-determined budget formulation calendar. Dimension (i): Existence of and adherence to a fixed budget calendar A fixed budget calendar is circulated every year refer Table 16 Table 22: Budget Calendar Activities Date of completion Responsible state ministry Budget Calendar Decree December 31 Minister of Finance Budget Instruction Stage 1 February 1 Ministry of Finance (MTEF) Identification of macroeconomic March 1 Ministry of Economic Development and indicators Trade of the Republic of Tajikistan Forecasting public revenues over March 1 Responsible ministries and departments the medium term Mid-term investment plan March 1 Ministry of economic development and trade of the Republic of Tajikistan Baseline budget for capital March 15 Ministry of Finance expenditure Prognosis of state expenditure in March 15 Responsible ministries and departments mid term period Identification of budget priorities April 1 Ministries and departments coordinated by of Government of Tajikistan Ministry of Finance Identification of budget ceilings May 1 Ministry of Finance by sectors Submission of budget draft May 1 Ministry of Finance MTEF to Committee of Majlisi Page 48 Government of Tajikistan - PEFA Assessment Namoaydagon Majlisi Oli of RT on Economy and Finance Identification of budget ceiling June 1 Ministry of Finance for main administrative budget allocation Allocation of expenditure June 5 Ministry of Finance ceilings main administrative budget allocation Budget instruction, stage 2 June 5 Ministry of Finance Annual Budget Budget Submissions July 25 Ministries and departments coordinated by Ministry of Finance Internal Budget Hearings August to September Ministry of Finance State Budget Submitted to September 20 Ministry of Finance Cabinet Budget Submitted to Parliament November 1 Ministry of Finance Source: Ministry of Finance, Budget Department Two key mileposts as a consequence of Budget Instruction Step 2 is that the budget preparation calendar is permanently fixed for stage 2 in the 2002 Law on State Finance: submission to the Government (Cabinet), Sept. 20; and submission to parliament: by Nov 1. Delays in the calendar never take place according to the budget department. Simply that any delays from the line ministries will result in the budget department of the Ministry of Finance creating the budget based on last years expenditure and the late ministry will have no say in its own budget. There is anecdotal evidence that based on this schedule, some line ministries have insufficient time for preparation of detailed estimates, and many of them are unable to make their estimates on time and therefore lose their ability to create their own budgets. There are 4 distinct stages to the budgeting process: 1. Stage 1: The organisation of the budget, including priorities and mechanisms in the budget plan 2. Stage 2: Macroeconomic analysis, setting ceilings and consolidating the revenues and expenditures 3. Stage 3: All ministries participate in negotiations 4. Stage 4: Final Preparation Dimension (ii): Clarity/comprehensiveness of and political involvement in the guidance on the preparation of budget submissions (budget circular or equivalent) Political involvement begins at an early stage with the parliamentary Budget Commission being involved at the start with the budget calendar and then with the macroeconomic assessment. In the forth stage of budget preparation, before final submission to the Parliamentary Budget Commission, all stake holders are invited to participate in budget discussions, such as media, every ministry, trade unions and SNL governments. Page 49 Government of Tajikistan - PEFA Assessment The President and his representatives are involved at all stages of the budget preparation. Dimension (iii): Timely budget approval by the legislature or similarly mandated body (within the last three years) Over the past three years Parliament approved the budget before the beginning of the fiscal year. PI Score Score Assessment (M2) 2007 2012 PEFA PEFA PI-11 B B+ Whilst there has been some delays experienced in the last 3-years the Budget has always been approved by the legislators before the start of the year. It is therefore concluded that the system is robust With clear participation at all levels of government. (i) B B A clear annual budget calendar exists and the calendar allows MDAs five weeks from receipt of the budget circular for them to meaningfully complete their detailed estimates on time. Dimension (i) therefore is rated a B. (ii) D B A comprehensive and clear budget circular is issued to MDAs, which reflects ceilings approved by Cabinet (or equivalent). This approval takes place after the circular distribution to MDAs, but before MDAs have completed their submission. (iii) A A The legislature has, during the last three years, approved the budget before the start of the fiscal year and therefore scores A. 3.4.2. PI-12: Multi-year perspective in fiscal planning, expenditure policy and budgeting Expenditure policy decisions have multi-year implications, and must be aligned with the availability of resources in the medium-term perspective. Therefore, multi-year fiscal forecasts of revenue, medium term expenditure aggregates for mandatory expenditure and potential deficit financing (including reviews of debt sustainability involving both external and domestic debt) must be the foundation for policy changes. The first presidential decree on the MTEF was signed in 2006. In 2011 the new Law on State Finances was issued which mainly incorporated the MTEF. The first MTEF was adopted for 2008 - 2010, but was suspended because of the global financial crisis. MTEFs were adopted for 2011- 2013, 2012-2014, with the support of donor projects. In 2012 MoF was able to prepare the MTEF for 2013-2015 on its own. The MTEF regulation approved in June 2010 states that in accordance with article 34 of the Law of the Republic of Tajikistan “on State Public Finance of the Republic of Tajikistan” (2011), and for effective use of the state finance resources under the purposeful state sectorial programs for medium term, the Government of the Republic of Tajikistan regulates an approval of MTEF for three years and sends it for information to Majlisi namoyandagon Majlisi Olii Republic of Tajikistan, as well as to Ministries, enterprises and organizations to implement the functioning sectorial program and to send the draft of regulation and order of the Government of the Republic of Tajikistan on new sectorial programs on medium term to implement within the indicators of MTEF. The MTEF document also states that the Ministry of Finance of the Republic of Tajikistan together with corresponding ministries and enterprises has to prepare the draft of State budget of the Republic of Tajikistan for the next year according to indicators of MTEF and on the set deadline to send the Page 50 Government of Tajikistan - PEFA Assessment draft of the Law of the Republic of Tajikistan on State budget of the Republic of Tajikistan for the next year for review of the Government of the Republic of Tajikistan. The 2010-12 budget preparation process was not implemented as originally planned by the government and was strongly influenced by the financial crisis and the need to revise the 2009 budget at the same time. Planned budget reform had a low priority this year and as a consequence the results of budget reform were generally disappointing. Nevertheless, some important achievements have been made.8 For the period of 2011-2013, in line with the Request of the Government of the Republic of Tajikistan from December 30, 2009, under # 133-f and the Decision of the Permanent Budget Commission under the Government of the Republic of Tajikistan, the Medium Term Expenditure Framework for 2011 is set for “Education”, “Health”, “Social Protection”, “Agriculture”, “Energy”, “Transport and Communication”, “Land Works”, “Water Economy” and “Culture” sectors. It appears the line ministries are weak in the application of MTEF, budget planning, and implementation. The fundamental idea of MTEF, that line ministries submit their budget plans (short and medium term) to be respectfully considered by MoF budget department including hearings and recordings of these hearings, although clearly stated in the budget calendar is not working as it should. Line ministries are lacking in capacity of PFM to the extent that they present budget plans that underestimate the cost of services that are legally binding to be delivered. It appears that this problem is so grave that it needs urgent addressing under the roll out of MTEF. Dimension (i): Preparation of multi –year fiscal forecasts and functional allocations An initial attempt to introduce an MTBF was made in 2003. Since 2008 a renewed effort at developing and introducing an MTEF, which entailed a range of major changes to the budgeting process, was resulted in introducing a new Law of State Finance (2010), which incorporates MTEF and in practical introduction of MTEF in major sectors. As a result, Ministry of Finance each year develops new Budget instructions, based on three-year budget planning integrated with the annual Budget law. These new regulative documents are facilitating the whole budget formulation process now and relative budget Calendar is taking into account a comprehensive process of early discussion of main budget parameters in connection to the National and sector strategic priorities and programmes. In accordance with the new Budget Calendar the MTEF ceilings should be sent to the Budget Commission of the Government before 1 June. Forward estimates of fiscal aggregates are undertaken in practice and for three years on a rolling annual basis. They are classified on the functional basis. There are links between multi-year estimates and the subsequent setting of annual budget ceilings based on the major strategic country documents such as NDS, PRS and Sectorial Strategies. Macro-economic projections are developed by the MOEDT. The MoF prepares forecasts of revenues initially in February/March, which are subsequently updated several times. These forecasts include a three-year perspective, which is being produced on a rolling basis. The MoF also prepares expenditure estimates in total and by main functions. However, experts working in this area commented that there are still some practical difficulties to integrate all sectorial strategic budgets with the state budget. 8 In accordance with the report on EU financed MTEF project for the MoF and line ministries in social sectors, October 2011. Page 51 Government of Tajikistan - PEFA Assessment In spite of the implementation of the multi year donor support project in the area of macroeconomic modelling and forecast, forecasting systems of MOEDT and MoF still target different objectives. MOEDT with the help of the EU funded project developed 3 macroeconomic models comprised of a interconnected modelling complex which was used for official macroeconomic forecasts in 2011 and 2012 in the MOEDT, but MoF is still using its own more conservative forecasts, which are included in the latest MTEF and the Budget planning documents. Forecasts of fiscal aggregates were being prepared. The introduction of BSPs has provided a medium term perspective in functional allocations, which was not present in 2007. But this is not enough to increase the score from C, as the linkages between multi year forecasts and subsequent setting of annual budget ceilings have not been fully developed and introduced into practice. Thus, financial projections for several years and appropriations by functional categories are assigned with the score of C, as forecasts of financial performance by major categories of economic and functional classifications are included into the State Budget and 3 years MTEF on annual basis. Dimension (ii): Scope and frequency of debt sustainability analysis Debt emerged as a major policy challenge in Tajikistan in the course of the 1990s. Existing debt is mainly external. The main responsibility for debt management rests with the Government Debt and Government Financial Assets Department in the Ministry of Finance. In 2008 the new Medium Term Strategy for the Management of Government Debt for 2009-2011 (covering both external and internal debt) was developed by the Ministry of Finance and was aimed at the improvement of government debt sustainability management by means of decreasing the risks, challenged by the external and internal factors. Sustainability analysis of the external and internal debt was held on an annual basis in the last several years. In the last five years debt status reports are prepared annually and are posted on the MoF website. The most recent report (number 7) for external users is posted on the MoF website is for 2010 situation. Government of Tajikistan also cooperates on a constant basis on the issue of debt sustainability with the IMF. IMF country reports contain debt sustainability analysis each year (for example see IMF Country Report No. 11/130, June 2011, page 15). The conclusions are based on the regular meetings with the experts from the specialized departments of the MoF and NBT. Ceiling by sector & Main administrative Budget Allocations MABA defined by MoF by concern to Economic Forecast – Current and Capital / Investments The main department of public debt within the ministry of Finance using the “Debt Pro Analyst” software carries out sustainability analysis of external debt. In accordance with the strategy for public debt management, thresholds are set for indicators of external debt. Analysis of external debt sustainability includes the following indicators for maximum thresholds: ratio of debt to GDP should not exceed 40%; debt servicing in relation to income should not exceed 25%; net present value (NPV) of debt to GDP ratio should not exceed 30%. Dimension (iii): Existence of sector strategies with multi-year costing of recurrent & investment expenditure The 2006 budget circular asked ministries to submit sector strategies; and in the 2007 budget circular, this is reinforced by demanding that budget organizations must link their priorities to those set out in the National Development Strategy, and to provide costing estimates, including estimates for investment projects. Page 52 Government of Tajikistan - PEFA Assessment However, the process of developing sector strategies is still in its infancy. Some ministries are moving ahead and are receiving external support. The only sector for which a detailed and costed sector strategy exists at the moment is education. Education accounts for about 20% of primary expenditure. For the PRSP2, strategies have been developed for the other main sectors (health, social protection, agriculture, public administration, energy, etc.), but these are not substantively and realistically costed yet. In general, the process of developing sector strategies will take time and will require substantial support for capacity development to sector ministries – especially as these have played limited roles in Tajikistan’s system of government to date. The process of designing meaningful sector strategies will in principle require a clearer structure of sectorial responsibilities. For example, in the education sector, many republican level educational institutions (PTUs – Professional Technical Schools) have been under the responsibility of the Ministry of Labour rather than of Education. In the re-organization of government that was undertaken in December 2006, some but not all of these issues of fragmented responsibilities have been addressed. If compared to the state of 2007, the budget instruction and MTEF documents state the clear methodology how to implement in practice the new introduced system of MTEF/budget formulation. The Medium- Term Strategy covers the current and major expenses directed to state funding of identified sectors through the major sectorial ministries on the basis of medium- term budgetary request and the detail explanation of sectorial medium- term goals, sectorial expenditure policy, priority programmes and foreseeing of sectorial expenses in accordance with functional grouping of budget for the 3 year period. In order to simplify the process of preparation of MTEF the Ministry of Finance of the Republic of Tajikistan established the Inter- Sectorial Working Group for relevant sectorial ministries to develop the Mid- Term Expenditure Framework, starting from February 01, 2010 prepared the “Guidance on preparation of the Mid- Term Expenditure Framework for the period of 2011- 2013 and the Draft of the State Budget for the period of 2011” and presented these documents to the relevant ministries. The MTEF document includes the description of MTEF objectives, the structure of MTEF for the period of 2010- 2013, medium-term priority directions of MTEF, description of the trends and projections of main macroeconomic indicators and government revenues, description of major policy and budget expenditure parameters for medium-term period (including parameters for government debt service), estimates of expenditures in social and economic sectors and detailed calculation of maximum level of State Budget expenditures based on the sectorial costed strategies for 3 years, as well as indicators of the expenditures of Foreign Investments and the contribution of the Republic of Tajikistan within the framework of implementation of joint investment projects with International Financial Organizations for the period of three years. As of today at least three social sectors are preparing their MTEF forward looking budget plans on the instructions issued by the support unit of MTEF, which present an essential part of the overall State Budget. For example, in 2009 actual expenditures for 3 sectors (education, health and social protection) were representing 44% of primary expenditure, in 2010 – 44%, in 2011 – 38%. At the same time PEFA team interviews with the two sectors and PFM experts reports are stating some inconsistency of sectoral strategies with finalized and approved aggregate fiscal plans by the MoF. Dimension (iv): Linkages between investment budgets and forward expenditure estimates Page 53 Government of Tajikistan - PEFA Assessment Since implementation of the new approach of MTEF in Tajikistan and linking it with the annual budget, planning process attempts have been made to link capital investments and forward expenditures on the basis of related sector strategies. Estimates of operating costs related to capital investments are prepared with regard to sector allocations. However, the PEFA interviews showed that even in those sectors where these programs were prepared with the help of donors (like in the framework of EU financed project on MTEF for MoF and social sectors), there was no clear understanding of how these forward estimates should be incorporated into the budget, as investment programmes are still prepared separately. For other sectors, where consultants were not involved in training, the process was even unclear. Although the intention is that steps are being undertaken to link investment and recurrent budgeting (based on annual updates of the PIP, budget circular demands, etc.), in the current system of budget preparation the two still remain rather separate. Estimates of future recurrent costs are still not part of the process of planning and selecting investment projects at the moment, even though the Budget Department are adamant that this is the case The domestically financed and the externally financed investment plans are still not linked. PI Score Score Assessment (M2) 2007 2012 PEFA PEFA PI-12 D+ D+ Performance Unchanged. The new Law on State finance was adopted in 2011, which incorporated three-year forward-looking budget. Three year forward budget planning was introduced in social sectors. The debt strategy for 2009 – 2011 was adopted in 2008, in the last five years the debt sustainability analysis reports were written annually and have being posted on the MoF website. Forecasts of fiscal aggregates (on the basis of economic and functional (i) c c classifications) are prepared and included in the State Budget and three- year MTEF on a rolling annual basis. DSA for external and domestic debt is undertaken at least once during the (ii) c b last three years. Sector strategies may have been attempted for some sectors, but none of (iii) d d them have substantially complete costing of investments and recurrent expenditure (iv) d d Budgeting for investment and recurrent expenditure are in practice separate processes with no recurrent cost estimates being shared, even though the Budget Department of the MoF are adamant that the linkage is there, the assessment team did not find adequate evidence that indeed the two systems are interlinked. 3.5. Predictability and control in budget execution This set of indicators reviews the predictability of funds for budget execution and the internal controls and measures in place to ensure that the budget is executed in an accountable manner. The set is divided into three sub-components: Revenue administration, budget execution and cash/debt management, and internal control systems. 3.5.1. Revenue Administration (PIs 13-15) Summary of assessment of indicators for PIs 13-15 Page 54 Government of Tajikistan - PEFA Assessment PI Score Score Assessment 2007 2012 PEFA PEFA There is a marked change in performance over 2007 PEFA. The legislation has been tightened and simplified. There is still some development to be done, but that will come in 2013. There is an PI-13: active awareness campaign to keep taxpayers informed in both city Transparency C B and rural areas, reaction from the private sector consultation is (M2) reasonable. Finally the appeal process is working with a good number of appeals being considered, however it does lack independence. There is no data on successful/unsuccessful claims. There is evidence of improvement, but the systems need more attention. The database is now in place but it needs linking to other PI-14: systems to ensure its capture all potential taxpayers. The penalties D C Controls (M2) and fees system needs a re-think to ensure that there is incentives for taxpayers to pay their tax rather than stalling and the program of tax audits needs to be bedded in with risk assessment criteria. The practice of publically and periodically issuing the names of taxpayers with arrears in excess of 500,000 Somoni is evidence that arrears are actively pursued. However, the aggregate assessment of arrears needs improvement. The new practice of all PI-15: tax collection been paid directly into the Single Treasury Account Collection and NR D+ is a significant improvement since 2007. Complete reconciliation Accounting of tax assessments, collections, arrears and transfers to Treasury (M1) does not take place annually although there are records for collections and reconciliation of the collections to Treasury there is little interaction on consultation with Treasury of the status of arrears. 3.5.1.1. PI-13: Transparency of taxpayer obligations and liabilities Effective assessment of tax liability is dependent on the direct involvement and co-operation of the taxpayers from the individual and corporate private sector. Their contribution to ensuring overall compliance with tax policy is encouraged and facilitated by a high degree transparency of tax liabilities, including clarity of legislation and administrative procedures, access to information in this regard, and the ability to contest administrative rulings on tax liability. Taxes in the Republic of Tajikistan consist of state taxes and local taxes, as described in Article 6 of the Tax Code:  State taxes are: (1) income tax on individuals; (2) tax on profits of legal persons; (3) value Added Tax; (4) excise; (5) social security tax; (6) land tax; (7) taxes on subsoil; (8) tax on road users; (9) tax payable under the simplified system; (10) single tax for producers of agricultural products; (11) customs duties and other customs fees; (12) state tax; (13) sales tax; (14) minimum tax on income; (15) tax on products for processing; (16) royalty on water; (17) other mandatory payments republic-wide.  Local taxes are: (1) tax on real estate; (2) tax on owners of vehicles; (3) tax on retail sales; (4) other local mandatory payments. The Tax Committee and the Customs Committee collects revenues, while the tax policy department in Ministry of Finance controls the regulatory framework. Page 55 Government of Tajikistan - PEFA Assessment Employees: Tax committee: As of January 2012, the total number of number of full-time employees of tax authorities amounts to 1760 people (support staff – 225), including 160 central department officers. Customs Committee: 64 offices with 1,166 staff, including 158 in the central department. The tax authorities generally regard staff numbers as sufficient. Dimension (i): Clarity and comprehensiveness of tax liabilities The current Tax Code of the Republic of Tajikistan was adopted by the Resolution of Majlisi Namoyandagon Majlisi Oli of the Republic of Tajikistan on November 3, 2004 № 1207. Since then, 14 changes and additions have been made to the Code. The Tax and Customs Codes are generally clear, and set out the rights and obligations of taxpayers. There is a revised law on tax to take effect on January 1, 2013 before parliament, indeed it is holding up the passing of the 2013 budget because until it is passed the forecast revenue steams and resulting expenditure budget cannot be finalized. In 2007 the implementation of the codes in practice was less certain. However, since then the tax codes have been simplified, although there are still 21 types of taxation. The PEFA of 2007 identified lack of clarity for SMEs, however, that was simplified to 4% of total revenue in 2008. As mentioned the new law has been drafted and is before the legislators now which classify SME’s along with production companies who will have a tax regime of 5% for production companies and all others 6% tax on revenues – this will take effect on January 1, 2013. The Tax Committee assured the assessment team that full consultation have taken place with the public. The 2007 PEFA also commented that there was no estimation of exemptions. However, the Tax Committee has completed a cost/benefit analysis on the new law with an estimated reduction in revenue of Somoni 18,543,000. There are 4 economic zones, and companies setting up there for export are allocated a tax code giving exemptions – with no time period. There is no calculation of the cost of these exemptions, as all goods produced in these areas will be exported it is felt there is no need. Local tax departments at the SNL hold public meetings every quarter to explain the tax codes to rural sector. There is also advertising on radio, TV, newspapers and also a tax magazine are distributed. There is only one discretionary tax collection activity and that is delegated to the police who collect taxes on motor vehicles. As mentioned a new draft tax code will be introduced from 1 January 2013 and was approved in law in September 2012. The MOF tax policy department reports that in this code special attention is paid to clarity and accessibility of obligations of taxpayers and of the state. The Tax Committee had Technical assistance in preparing this new policy. The Customs Code will also change, in line with Tajikistan’s wish to join the World Trade Organization. The Chamber of Commerce believes its members to be clear and informed on the tax regime. Page 56 Government of Tajikistan - PEFA Assessment However, what are less clear are the taxpayer’s rights and obligations on payment of advanc e taxes. Advance tax payments is an accepted modality in developed countries, normally referred to as “Provisional Tax” which is reconciled at the end of each financial year and applied against annual assessments, but there does not seem to be a regulation governing such advances in Tajikistan, merely anecdotal approaches by tax officers to entice taxpayers to pay in advance. Dimension (ii): Taxpayers’ access to information on tax liabilities and administrative procedures There are tax service areas in tax administration offices. Also, based on the Resolutions of the Government of Republic of Tajikistan dated 3 December 2008 #486 and 1 April 1 2011 #166, the Tax Committee maintains a web site (www.andoz.tj) as well as an e-mail portal «mail.andoz». Legislative acts, guidance materials, orders and directives of the Tax Committee, the data from the Unified State Register of taxpayers and other regulations are placed on this web site. In addition, all instructions and standard materials are published in the magazine “Bodju khirodj.” The Public Relations Department of the Protocol passes all the necessary information through the media. Similarly, the Customs Committee maintains a website (www.customs.tj) and publishes a regular magazine “Customs”. An interactive program on the website enables calculation of duties. The Tax Committee, on a regular basis, conducts press conferences, meetings, and round tables, in central and rural areas, with representatives of business associations regarding the provisions of tax legislation. Similarly, the Customs Committee has a consultative board which meets representatives of business associations. One of the amendments to the Tax Code (Law no. 193, July 28, 2006 “On the introduction of changes and amendments to the Tax Code of the Republic of Tajikistan”) strengthened the rights of taxpayers to demand information from the tax authorities with regard to any questions related to taxation and other obligatory payments to the budget. Whilst it has been reported in some areas that taxpayers have an access to some information on tax liabilities and administrative procedures, however, this information is not that useful as it is available only with regard to some taxes, and it is not that comprehensive and regularly updated. However, an interview with the Tajikistan Chamber of Commerce confirmed that its members are satisfied with the information. Dimension (iii): Existence and functioning of an appeals mechanism Key provisions for the appeals mechanisms available to taxpayers are set out in chapter 11 of the Tax Code. If taxpayers want to dispute a tax obligation, they can do so in written form to the tax inspectorate that specified the tax in the first instance; and the inspectorate is obliged to respond within a month. If the taxpayer is not satisfied with the response, he/she can turn to the next level (e.g. oblast level tax inspectorate); and from this level on to the Ministry of State Revenue and Duties (MSRD) where there is a special tax dispute forum staffed by specialists. Taxpayers can also immediately take their appeal to a court. In accordance with Article 100 (Article 81 New Tax Code) 1. A taxpayer who disputes a tax audit report, the assessment of tax, penalties, and interest, as well as other decisions by a tax authority, may file a petition (appeal) for a reconsideration of said decisions with the tax authority that took these decisions, a Page 57 Government of Tajikistan - PEFA Assessment higher-level tax authority, the authorized government body, or with the courts. The petition (appeal) must outline the arguments and indicate the documents on which the taxpayer is basing his request for a reconsideration of the decisions that have been made. The filing of a petition (appeal) with any of the aforementioned tax authorities shall not exclude the taxpayer's right to file a simultaneous or subsequent appeal with a higher-level tax authority or with the courts. 2. Appeals (petitions) by a taxpayer regarding tax audit reports, the assessment of taxes, penalties, and interest, as well as other decisions by tax authorities, which are filed with the courts shall be heard and decided following the procedure established by the civil procedural and economic procedure legislation of the Republic of Tajikistan. For the first eight months of 2012, 386 appeal statements have been presented to judicial bodies for a sum of more than 38.1 million Somoni from which the tax committee has collected 1.4 million Somoni. From the total of appeal statements, 8 statements are connected with bankruptcy of the taxpayer with back taxes of 2.6 million Somoni. There is a monthly meeting of the Tax Committee judiciary to receive all tax appeals. Failure to reach an agreed solution means it can then be appealed to the general judicial system. There are no external members of any review panel. PI Score Score Assessment (M2) 2007 2012 PEFA PEFA PI-13 C B There is a marked change in performance over 2007 PEFA. The legislation has been tightened and simplified. There is still some development to be done, but that will come in 2013. There is an active awareness campaign to keep taxpayers informed in both city and rural areas, reaction from the private sector consultation is reasonable. Finally the appeal process is working with a good number of appeals being considered, however it does lack independence. There is no data on successful/unsuccessful claims. (i) C B The first dimension: clarity and comprehensiveness of tax obligations could receive a score of B, as legislation and procedures for most, but not necessarily all, major taxes are comprehensive and clear, with fairly limited discretionary powers of the government entities involved. (ii) C B Taxpayers have easy access to comprehensive, user friendly and up-to-date information on tax liabilities and administrative procedures for some of the major taxes, while for other taxes the information is limited. Given that a new tax law will come into effect on January 1, 2013 that simplifies the tax system it cannot be rated for the 2012 PFEA. However, it is recognized and confirmed by the Chamber of Commerce that the tax system has evolved over the last 4-years, with creation of websites and active awareness programs. Therefore this dimension is rated B. (iii) C B This dimension is rated B: whilst the appeal can proceed to the general judicial system, the initial appeals system is still within the Tax Committee institutional structure. A tax appeals system of transparent administrative procedures is completely set up and functional, but because it is within the structure there could be some issues relating to access, efficiency, fairness or effective follow up on its decisions. There is no data regarding successful/unsuccessful claims. Page 58 Government of Tajikistan - PEFA Assessment 3.5.1.2. PI-14: Effectiveness of measures for taxpayer registration and tax assessment Effectiveness in tax assessment is achieved by an interaction between registration of liable taxpayers and correct assessment of tax liability for those taxpayers. Dimension (i): Controls in the taxpayer registration system The Tax Committee reports that: “Adoption of the Law “On State Registration of Legal Entities and Individual Entrepreneurs” and the “single window” approach has greatly simplified the procedure for registrati on of legal entities and individual entrepreneurs. In accordance with this Act, interagency cooperation is carried out between the tax authorities, the state statistical office and the state social insurance agency. In accordance with Article 45 of the Tax Code of Republic of Tajikistan all legal persons, including their regional sub-offices, as well as individuals attained the age of 16 shall be subject for registration with the tax authorities.” As of 1 January 2012 the Uniform State Register of taxpayers included information on about 1,037,935 taxpayers, as shown below. As regards individual taxpayers, this appears to be a large rise over the numbers reported in the 2007 PEFA. Table 23: Taxpayer registration numbers at 1 January 2012 Type of entity 1 Jan 2012 1 Jan 2007 Legal entities: Businesses 23,146 Branches and rep offices of foreign legal entities 289 Total legal entities 23,435 27,500 Individuals: Residents 1,013,900 Entrepreneurs (non residents) 600 Total individuals 1,014,500 102,060 Total registrations 1,037,935 129,560 Source: Tax Committee In the years 2008-2009 there was no routine exchange of information reported as taking place between tax and customs authorities, nor between tax authorities and other institutions (business registry, land committee, etc.) Customs Committee stated that they exchange information with the Tax Committee only when asked, but they are now working on an agreement for exchange of information. However, the Tax Committee in the second half of 2009 set up a “Single window” concept using a computerized system as a means of control in the framework of taxpayer registration. This database is related to local tax bodies, responsible for registration of legal entities and individuals, but it is not related to other public registration systems, except for company registration – a company cannot now be registered without a tax identification number. Tax inspectors conduct checks of compliance with tax registration. Page 59 Government of Tajikistan - PEFA Assessment Dimension (ii): Effectiveness of penalties for non-compliance with registration and tax declaration The Tax Committee reports that Chapter 33 of the Code of Republic of Tajikistan “On Administrative Offences” provides for penalties in tax law. According to this Chapter, the tax authorities are entitled to use administrative penalties provided for in 25 cases. Tax authorities discovered 12703 cases of violation of the law during the first eight months of 2012 for tax laws non-observance, including timely submission of declarations (tax reporting). The total sum of administrative penalties is 16.5 million Somoni. The Customs Committee expressed the view that there are many cases of avoidance and that penalties are not high enough. The 2007 PEFA reported that penalties are regarded as relatively low. Fines for non-registration (or late registration) are defined in terms of multiples of the minimum wage (up to a maximum of 30 minimum wages for legal persons who fail to register for more than 90 days), while fines for declarations lowering the tax obligation and non-payment of taxes are in the range of 10 to 20 per cent of the amount that has not been paid. Dimension (iii): Planning and monitoring of tax audit programs Tax inspection/verification is governed by Chapter 4 of the 2004 Tax Code, which describes three types of verification: (i) cameral/documentary inspections; (ii) on-site audits; and (iii) time-study surveys (Tax Code, art. 48). The Tax Committee reports that the total number of employees in its Department of Tax Control Management is 82 people (not including Tax Inspection of Large Taxpayers (TILT)). This compares with 45 employees in 2007. Until recently there has been no risk-based method of selection of entities for audit. However, the “System of tax risks assessment” was approved by the Resolution of the Chairman of the Tax Committee (TC) of the Government of Republic of Tajikistan dated January 23, 2012 № 12. In accordance with approved criteria and based on analytical calculations, this automated system will determine the level of tax risk and identify taxpayers for tax audit. In 2011 the audit of 3,103 economic entities was conducted to control the correctness of the calculation and payment of taxes. In the first 7-months of 2012 1,720 inspections of economic entities were conducted, which is 43% more compared to the same period in 2011 which resulted in 161.6 million Somoni additional assessed taxes. The Customs Committee departments that are involved in inspection/audit are: Department of Customs Offences and Department of Audit and Post-Customs Control Inspections. PI Score Score Assessment (M2) 2007 2012 PEFA PEFA PI-14 D+ C There is evidence of improvement, but the systems need more attention. The database is now in place but it needs linking to other systems to ensure its capture all potential taxpayers. The penalties and fees system Page 60 Government of Tajikistan - PEFA Assessment PI Score Score Assessment (M2) 2007 2012 PEFA PEFA needs a re-think to ensure that there is incentives for taxpayers to pay their tax rather than stalling and the program of tax audits needs to be bedded in with risk assessment criteria. (i) D C Taxpayers are registered in database systems for individual taxes but linkages to other registration/licensing functions are weak but are then supplemented by occasional surveys of potential taxpayers, therefore the ranking is C. The one-stop-shop is a good development but needs to be fully and consistently linked to other systems such as customs systems. (ii) C C The fines/penalties need substantial changes to their structure, levels or administration to give them a real impact on compliance. (iii) C C The score remains at C until there is clear evidence that the audit plan, based on a workable assessment of risks, is functioning properly. There is a continuous program of tax audits and fraud investigations, but audit programs have only just started to be based on clear risk assessment criteria, and time is needed to gather evidence of the effectiveness of this approach. 3.5.1.3. PI-15: Effectiveness in collection of tax payments Accumulation of tax arrears can be a critical factor undermining high budgetary outturns, while the ability to collect tax debt lends credibility to the tax assessment process and reflects equal treatment of all taxpayers. Prompt transfer of the collections to the Treasury is essential for ensuring that the collected revenue is available to the Treasury for spending. Aggregate reporting on tax assessments, collections, arrears and transfers to (and receipts by) the Treasury must take place regularly and be reconciled, where appropriate, in order to ensure that the collection system functions as intended, that tax arrears are monitored and the revenue float is minimized. Dimension (i): Collection ratio for gross tax arrears, being the percentage of tax arrears at the beginning of a fiscal year, which was collected during that fiscal year The Tax Committee has provided a schedule of tax liabilities as at January 2009 through to January 2012, along with tax assessments and collections for 3 years. Lists of taxpayers with large arrears are published. In accordance with Article 117 of the Tax Code of Republic of Tajikistan during the 6 months following the end of the fiscal year, the tax authority publishes in the public newspapers a list of individuals, entrepreneurs and legal entities, whose tax arrears are more than 500 indicators for calculation (200 thousand TJS) as at 31 December of the previous year. In addition, the “Rules for placement of taxpayers arrears” were adopted by order of the Chairman of the Tax Committee under the Government of RT on May 11, 2011 № 129 . According to this Order the information on tax arrears of taxpayers with the amount of debt exceeding 3000 indicators for calculation (120 thousand TJS) shall be placed on the web site of the Tax Committee on a quarterly basis. Page 61 Government of Tajikistan - PEFA Assessment However, these arrears are not aged and it is difficult to tell from the gross records the proportion of arrears at the start of a year that were collected during the year. Table 24: Tax Assessments & Collections for 3-years Meetings with the Tax Commission (Agency for policy, rules and regulations) and the Tax Committee provided evidence that on an individual basis taxpayer “aging” is possible, however there is no system employed for reporting or aggregating the arrears in the financial statements. This individual status on arrears is evidenced by the tax authority publishing arrears in the public newspapers by individuals, entrepreneurs and legal entities. From the above Table 18 it can be seen that the Tax Committee do have information, but it is not used in an aggregate sense to calculate arrears. The tax liability figure is a rolling balance, that is: opening balance, plus assessments, minus collections. Tax collected is firstly applied to new assessments and is not applied to older tax liabilities until the newly assessed tax is expunged first. In addition, if arrears cannot be collected within 3-years of the assessment and the amount is less than 500,000 Somoni then it has to be written off (Article 371 of the old tax code and Article 329 of the new tax code – 2013). In that case the Balance in 2010 of 531,750 is the maximum amount of arrears going back to 2007. 2010 was the only year in the last 3 where the amount of collection exceeded the amount of assessment; therefore there must have been a reduction in arrears. The Balance of tax liabilities in January 2010 was 14% of total collections for 2010 and is twice the average tax assessment for 1-month. So we can roughly conclude that arrears constitute around 2 to 3 months of arrears. Unless there is a requirement from the Ministry of Finance for the data on arrears to be produced – because it obviously can be - then there is no incentive for the Tax Committee to produce this figure. However, it is the opinion of the assessment team that the data can be recovered if required, unfortunately time did not allow the team to investigate this further to produce this figure. Dimension (ii): Effectiveness of transfer of tax collections to the Treasury by the revenue administration. For State taxes, taxpayers make payments directly into Treasury accounts which are consolidated daily in the Treasury Single Account system. All revenue transit bank accounts in commercial Page 62 Government of Tajikistan - PEFA Assessment banks were closed in 2010 and since then all revenues have been paid directly into the Treasury- controlled bank accounts. Dimension (iii): Frequency of complete accounts reconciliation between tax assessments, collections, arrears records and receipts by the Treasury The Tax Committee reports: “In order to control the completeness of budget revenue in accordance with the approved Regulations ‘On the procedure for conducting the tax inspection of operational taxes and other obligatory payments to the budget’, tax and financial authorities make daily reports on revenue in the budget”. The closure of the revenue transit accounts has made the reconciliation process easier; however there is no evidence to suggest these reconciliations takes place in the context of tax assessments, collections, arrears records and receipts by the Treasury. In addition, on the first day of the month following the reporting month, the tax authorities make reconciliation with the authorities of the Treasury on the submitted and returned amounts of taxes and other obligatory payments for the reporting month for each classification code of budget revenues and prepare an act of reconciliation.” There is anecdotal evidence to suggest that tax collectors with a view to collecting tax in advance of assessments, approach some taxpayers for “advance payments”. In other countries there is a system of “provisional tax” for advance payments by taxpayers but there are strict rules regarding how much should be paid in advance, however it would seems the system in Tajikistan is rather ad hoc. It is suggested this area be looked at closely. PI Score Score Assessment (M1) 2007 2012 PEFA PEFA PI-15 NR D+ The practice of publically and periodically issuing the names of taxpayers with arrears in excess of 500,000 Somoni is evidence that arrears are actively pursued. However, the aggregate assessment of arrears needs improvement. The new practice of all tax collection been paid directly into the Single Treasury Account is a significant improvement since 2007. Complete reconciliation of tax assessments, collections, arrears and transfers to Treasury does not take place annually although there are records for collections and reconciliation of the collections to Treasury there is little interaction on consultation with Treasury of the status of arrears. (i) NR D In this case the assessors conclude that whilst there is no system in place for calculating the aggregate amount of arrears the information can be collected given time and the introduction of an arrears system. In the meantime, in general and allowing for exceptions the amount of arrears is equal to 2-3 months of assessments and are approximately 14% of yearly collections. It is concluded therefore that the debt collection ratio in the most recent year was below 60% and total amount of tax arrears is significant (i.e. more than 2% of total annual collections). (ii) B A All tax revenue is paid directly into accounts controlled by the Treasury or transfers to the Treasury are made daily since 2010 and the closure of transit bank accounts in commercial bank. Page 63 Government of Tajikistan - PEFA Assessment PI Score Score Assessment (M1) 2007 2012 PEFA PEFA (iii) D D There is no effective reconciliation between tax assessment and actual collections, only a monthly update of tax arrears. The ‘complete accounts reconciliation’ described in this dimension therefore never takes place. This dimension is therefore rated D. 3.5.2. Budget Execution and Cash/Debt Management (PIs 16-17) Summary of assessment of indicators for PIs 16-17 PI Score Score Assessment 2007 2012 PEFA PEFA Cash planning is not based on the real needs of the budget organizations and there is no reliable indication of actual PI-16: Budget resource availability for commitments. There are D+ D+ execution significant in-year budget adjustments, however it is possible that MDAs are expecting only increases because of a historical under estimation of revenue generation. In order to show improvement in this area domestic and foreign debt records should be reconciled routinely and PI-17: Cash/Debt there should be clear guidelines, criteria and ceilings for C+ C+ the issuance of loans and government guarantees. The management consolidation of a single treasury account enabling daily cash balance information is certainly an improvement. 3.5.2.1. PI-16: Predictability in the availability of funds for the commitment of expenditures Effective execution of the budget, in accordance with the work plans, requires that the spending ministries, departments and agencies (MDAs) receive reliable information on availability of funds within which they can commit expenditure. This indicator assesses the extent to which the MOF provides reliable information on the availability of funds to MDAs. Dimension (i): Extent to which cash flows are forecast and monitored Following approval of the annual budget estimates, MOF allocates quarterly budget ceilings to Main Administrators of Budget Allocations (MABA), to their subsidiary Budget Organizations and also quarterly subventions to local governments. In most cases the quarterly amounts are allocated by dividing the annual budget by four. Budget organizations then prepare their smetas (quarterly expenditure estimates) for submission to MoF (Budget Department and Treasury). Two points of issue are:  The quarterly expenditure estimates of budget organizations must be fitted to the budgetary limits given. There is no ‘bottom-up’ signaling of cash requirements by budget organizations, based on their work plans. Thus, in effect, cash planning is not based on the real needs of the budget organizations.  Budget organizations mainly communicate directly with MoF rather than through their Main Administrator of Budget Allocations (MABA) – see also dimension (iii) below. Page 64 Government of Tajikistan - PEFA Assessment MOF verifies that the overall Rospis (total quarterly breakdown of expenditures) agrees with the functional breakdown of the budget and quarterly cash limits. The control figures based on the approved smetas are then entered into the Treasury computer system for each institution, by detailed economic classification. They are rigidly applied and cannot be exceeded. If Budget Organisations require any changes there are established procedures (described in dimension (iii) below) to amend the set limits. For the republican budget, Treasury monitors cash flow daily through the Treasury Single Account (TSA), but cash flow planning, based on the commitment requirements of budget organizations, is not regularly updated. Thus budget execution is not easily adaptable to the possible actual changing needs of budget organizations. Indeed, the quarterly limits are budgetary authority limits, not cash limits per se. Dimension (ii): Reliability and horizon of periodic in-year information to MDAs on ceilings for expenditure commitment The process described above gives heads of budget organizations an expenditure plan at the beginning of the fiscal year – a process in which the head will have had some involvement, but probably little influence (with variation depending on the level of the Budget Organisation). It is, nonetheless a reliable and understood process, which appears to give predictability for budget users at least for a quarter in advance. However, as opposed to budgetary authority limits there are no cash plans which gives budget organizations a reliable assurance in the course of the year that their expenditure plans and commitments will be funded, especially at particular points in time during the year. Having received the budget authority limits it is still not clear what commitments they can enter into without the assurance that cash will be available. The IMF has recently conducted a gap analysis on cash planning and management for the Treasury and subsequently priority is being given in the PFM reform agenda to establishing comprehensive cash planning and management and commitment control systems. Nevertheless, the system from 2008-2012 (that has to be assessed under the PEFA) cannot easily cope with irregular cash flows, especially those associated with capital expenditure, and neither can it quickly adapt to changing timing of cash requirements of budget organizations. In short, the lack of comprehensive cash planning forces budget organizations to ‘save’ for large expenditure items and therefore inevitably causes delays in budget execution, with a build-up of expenditure in the second half of the year. Dimension (iii): Frequency and transparency of adjustments to budget allocations, which are decided above the level of management of MDAs The agreed administrative structure for line ministries defines Main Administrators of Budget Allocations (MABAs) and Budget Organizations that report to these MABAs. It is intended that, as the administrative budget classification takes effect, budget authority will be increasing delegated by MoF to MABAs. Similarly, it is intended that budget authority will be set at a higher level of the new economic classification than applies at present. Page 65 Government of Tajikistan - PEFA Assessment However, neither of these reforms are yet happening and changes to the budget allocations of Budget Organizations are still decided by MoF at the detailed level. Budget increases or decreases: The present arrangements allow MoF to make upward or downward adjustments to the quarterly cash limits of BOs, in response to revenue surpluses or shortfalls. Priority for payment is established centrally, with staff payments, communal services and debt repayment taking precedence according to existing rules. There are clear guidelines for the priority areas, and these appear to be adhered to. If there are revenue surpluses and additional funds become available, MOF is able to allocate these funds without the need for Parliamentary approval provided the budget is not exceeded by more than 10 per cent. Note: Rules for when the legislature should be involved in such in-year budget amendments are assessed in PI-27 and not covered here. Virements: Virement procedures allow budget organizations to move monies from one budget head to another, but all virements require MoF approval. There are restrictions imposed on protected items, salaries, utility payments, etc. Apart from these protected items, virement limits are wide (up to 20 per cent of a BO’s budget allocation; and this limit can be exceeded if agreed between MoF and the BO. When BOs want to change their allocations (from the smeta originally approved by the MoF) they submit a written request to the MoF. A urator from the treasury department checks the current payment situation of the BO concerned and informs the budget department (ensuring all protected items have been appropriated). Only the budget department can change entries in the automated treasury system at the level of the Central Treasury. The Budget department then issues a prikaz (order), which is signed by the first deputy minister of finance. The procedure takes about 2- 5 working days. No statistic on the frequency of such requests is kept by the MOF; but an estimate of several dozen requests per month was given. PI Score Score Assessment (M1) 2007 2012 PEFA PEFA PI-16 D+ D+ ▲ Cash planning is not based on the real needs of the budget organizations and there is no reliable indication of actual resource availability for commitments. There are significant in-year budget adjustments, however it is possible that MDAs are expecting only increases because of a historical under estimation of revenue generation. The Consultant has viewed a new plan for cash management for implementation in 2013/2014, which gains the arrow. (i) B C A cash flow forecast is prepared for the fiscal year, but is only partially and infrequently updated on the basis of inflows and outflows. There is no ‘bottom-up’ signalling of cash requirements by budget organizations, based on their work plans. Thus, in effect, cash planning is not based on the real needs of the budget organizations. There is no evidence to suggest that cash flows are adjusted on basis of actual cash inflows and outflow and therefore this dimension obtains a ranking of C. It appears the 2007 PEFA mistakenly took budget authority levels issued on a quarterly basis as being quarterly cash limits are therefore ranked B. (ii) B D Whilst MDAs are provided commitment ceilings quarterly, there is no reliable indication at all of actual resource availability for commitments. It seems the assessment in 2007 was based on the fact that there was a history of only increases in resources, with no decreases, however this argument is flawed from prudent financial management practice. (iii) D C Significant in-year budget adjustments are frequent at several dozen requests per month, but undertaken with some transparency. Page 66 Government of Tajikistan - PEFA Assessment 3.5.2.2. PI-17: Recording and management of cash balances, debt and guarantees Debt management, in terms of contracting, servicing and repayment, and the provision of government guarantees are often major elements of overall fiscal management. Poor management of debt and guarantees can create unnecessarily high debt service costs and create significant fiscal risk. An important requirement for avoiding unnecessary borrowing and interest costs is that cash balances in all government bank accounts are identified and consolidated. Dimension (i): Quality of debt data recording and reporting Debt Management is done using Debt Tracking System (DTS) which is supported by IMF in Tajikistan, Azerbaijan and Kyrgyz Republic. Meetings with the Debt Management Unit in the MoF highlighted the lack of capacity in English Language and the cost of high-level debt management systems such as DMFAS as a constraint. Tajikistan relies heavily on external assistance to facilitate its quality of debt data recording and reporting. The following is an extract from International Monetary Fund and the World Bank Debt Sustainability Report in April 2011: Domestic debt has constituted a very small part of overall public debt owing to low primary fiscal deficits (excluding the externally financed public investment program) and a shallow government securities market. Domestic debt represented about 2 percent of GDP (6 percent of total public debt) at end-2010, consisting mostly of nontradable government securities held by the National Bank of Tajikistan (NBT). Since 2009, the government has undertaken regular issuance of Treasury-bills (T-bills), but only in small amounts, with short maturity, and at rates below the current NBT refinancing rate.4 Moreover, eight-year government bonds were issued to commercial banks in 2010 as part of the cotton debt resolution with rollover provisions and an interest rate of only 2 percent. The External Debt Unit at the Ministry of Finance has received technical assistance to improve the in-house capacity for debt sustainability assessment. The authorities’ results were in agreement with the staff findings. In response to the authorities’ request, a World Bank DEMPA mission will take place during April 14–24, 2011. Staff welcomed the authorities’ voluntary and swift action in this area that will help facilitate assessment of the strengths and weaknesses in debt management and design of actionable reform plans to improve debt management capacity. The existing system tracks external debt and sub-loans of the government. Reconciliations, particularly with development partners, are completed every time there is a payment due. The Debt Monitoring unit reports to Government (Cabinet) on a quarterly basis. Debt Management Reports are freely available on the MoF website http://www.minfin.tj Dimension (ii): Extent of consolidation of the government’s cash balances All revenue (including ‘special revenues’ of budget organizations) and expenditure bank accounts for the Republican Budget (68 organizations) and 5 local budgets are now in the Treasury Single Account system, maintained at the National Bank. The balances are consolidated daily. Page 67 Government of Tajikistan - PEFA Assessment All tax revenue is paid directly into accounts controlled by the Treasury or transfers to the Treasury are made daily since 2010 and the closure of transit bank accounts in commercial bank. Separate accounts are maintained for sub-national level revenues and expenditures at Amonat Bank. Local treasuries provide information on these bank balances to central treasury weekly by telephone. Consolidation is carried out monthly from hard copies of statements from the local treasuries and the bank. The local treasuries produce reports on a quarterly basis, stamped by the local treasury and by Amonat Bank. Sub national bank balances are targeted to be part of the TSA by 2014. Dimension (iii): Systems for contracting loans and issuance of guarantees The State Committee on Investment and State Property Management of the Republic of Tajikistan implements its activities in accordance with the “Regulation on the Committee on Investment and State Property Management of the Republic of Tajikistan” adopted under the Decree of the Government of the Republic of Tajikistan ¹590 dated December 28, 2006. The Decree states that the State Committee on Investment and State Property Management of the Republic of Tajikistan is the central executing body which within its authorities implements state policy and normative and legal regulation in investment sphere, public property management, management and implementation of the process of denationalization and privatization of the state property in the Republic of Tajikistan representing the interests of the state as an owner, and conduction of activities on implementation of the programs of support for entrepreneurship. According to its regulation the SCI has the following responsibilities in the sphere of investment activities and foreign aid:  Developing and implementing measures on improving investment climate in the country, creating legal and other conditions promoting attraction of investments; Promoting attraction of investments for implementation of state programs, priority social projects including loans and grants of international economic and financial institutions and donor countries; 
  Coordinating foreign aid provided to the Republic of Tajikistan; 
  Creating effective system of interaction with investors, assisting in ensuring adherence to guarantees established by the legislation of the Republic of Tajikistan and also in protecting legal rights and investors’ interests; The aid-based activities of SCI are:  Coordinating foreign aid, including its regional and sector component and managing its flows; 
  Cooperating with Development Partners; 
  Maintaining Database of the Aid Coordination and Project Monitoring System (ACPMS); 
  Improving the ACPMS Database and its placing in Internet; 
  Assisting line ministries and agencies, and local government authorities on issues relating to foreign aid and implementation of investment projects;
  Managing loan portfolio of international financial institutions; 
 Page 68 Government of Tajikistan - PEFA Assessment  Establishing relationships with donor organizations not represented in the Republic of Tajikistan in order to attract additional amounts of foreign aid; 
  Participating in implementation of the Public Investment Program and Technical Assistance Program;  
Annually preparing and publishing the “Development Partner Profiles” and “Foreign Aid Report»;  Advising organizations and communities concerned on the provision of foreign aid. The Database of Aid Coordination and Project Monitoring System was established and is being modernized under support of two ADB TA Projects to improve coordination and effective utilization of foreign aid. The Database contains information about all agreements on foreign aid provision and their connection to the Public Investment Program. The Database contains information on:  Actual commitments of Development Partners;
  Loans and grants provided and their utilization; 
  Foreign aid allocation by disbursement categories;
  Status of disbursements of Development Partners; 
  Project implementation status by economic sectors and regions; 
 SCI produces quarterly and end of the year reports on the executing agencies’ activities regarding implementation of joint investment projects to the Government and the Executive Administration of the President of the Republic of Tajikistan. The SCI will also review any applications for government guarantees from Autonomous Government Agencies (AGAs) and Public Enterprises (PE). However, at the time of writing there is only one government guarantee – Amonat Bank (State Bank). Ratification of loans and guarantees by the legislature is not relevant to this dimension, which is concerned only with executive approval. In that case SCI is the body that makes the recommendations to the legislature through the Executive Administration of the President of the Republic of Tajikistan. PI Score 2007 Score Assessment (M2) PEFA 2012 PEFA PI-17 C+ C+ In order to show improvement in this area domestic and foreign debt records should be reconciled routinely and there should be clear guidelines, criteria and ceilings for the issuance of loans and government guarantees. The consolidation of a single treasury account enabling daily cash balance information is certainly an improvement. (i) C C Domestic and foreign debt records are complete, updated and reconciled at least annually. In order to be rated B the reconciliations should be competed quarterly, however in this case reconciliations are completed on a needs basis – that is when a payment is due. Comprehensive management and statistical reports (cover debt service, stock and operations) are produced at least annually and indeed reports are prepared quarterly for Government review. Therefore this dimension is rated C Page 69 Government of Tajikistan - PEFA Assessment PI Score 2007 Score Assessment (M2) PEFA 2012 PEFA (ii) C A The assessment is based at the republican level and does not include the Sub National Level; where there is a certain amount of flexibility in raising and utilizing revenues and expenditure therefore all cash balances are calculated daily and consolidated at the national Level. This qualifies for A rating. (iii) B C Central government’s contracting of loans and issuance of guarantees are always approved by a single responsible government entity, but are not decided on the basis of clear guidelines, criteria or overall ceilings. 3.5.3. Internal control systems Summary of assessment of indicators for PIs 18-21 PI Score Score Assessment 2007 2012 PEFA PEFA The personnel and payroll system is decentralized and of course has the problems associated with decentralised systems which makes it difficult to review in the time allotted to a PEFA review. However, with policy, PI-18: terms and conditions of civil servant being done at the central level and Payroll D+ D+ with the budget holders responsible through an authorization process, control (M1) which in itself is subject to frequent audits, the system appears robust. However, there does not seem to be a compelling improvement in personnel data and payroll reconciliations, mainly due to the fact the system is not automated. The 2007 assessment was according to a previous methodology and PI-19: the results are not directly comparable. Tajikistan’s procurement Procurement C C+ system is evolving with the legal framework in place, however the score controls is affected by the lack of independence in the complaints handling (M2) system. PI-20: Non- There is widespread understanding of expenditure rules and regulations, salary backed up with instructions, rules and manuals readily assessable to all expenditure C+ C+ government officers. The IMF have identified that further strengthening controls of commitment controls is warranted. Internal audit is being (M1) strengthened but it is not fully operational to international standards yet. The presence of internal audit departments and their development over the last 3-years have indicated that internal audit is going in the right PI-21: direction, particularly with the amount of training being applied. Internal D+ C+ However, to get a better score it needs to implement the translated audit (M1) International Standards and place more emphasis on systems improvement and risk management. Of course the absence of SAI to receive internal audit reports affects the rating. 3.5.3.1. PI-18: Effectiveness of payroll controls The wage bill is usually one of the largest items of government expenditure and can be susceptible to weak control and corruption. Page 70 Government of Tajikistan - PEFA Assessment In Tajikistan there is no sole centralized database on public servants and no single automated payroll system for civil servants. The payroll accounting function is decentralised as well as the personnel records which are held at the different Budget Organisations, including ministries. However, all of these decentralized systems are subject to internal audits which are linked to the State Committee on Financial Control and Fighting Corruption. In the Executive Administration of the President of the Republic of Tajikistan there is a Department of Civil Servants who is responsible for setting the terms and conditions for all civil servant employment across the whole of government. Dimension (i): Degree of integration and reconciliation between personnel and payroll data There is a Civil Service Department in the Executive Administration of the President of the Republic of Tajikistan that is responsible for terms and condition policies for the employment of civil servants. Below this each ministry has it own personnel division. Each month after preparation by the accounting unit, the Director of the personnel division in each ministry prepares a payroll report for the minister outlining leave schedules and adjustments to payroll with references to personnel files. The payroll fund is set in advance each month with application to MoF for funding. The payroll data is reconciled with personnel profile each month and it is reconciled with relevant data as of the previous month, but these reconciliations are prone to error according to audit reports. There is a big improvement over 2007 with employee records and payroll now semi-automated used standard computerized system modules like excel and payments of wages and salaries encouraged through the banking system. However, this is not to say the payroll system is immune to risk. The Minister of the Budget Organisation ratifies any changes to the personnel records. The system is still manual essentially with a little bit of automation, which does not guarantee immunity to data manipulation. Payroll audits are still identifying “ghost workers”, which a regular reconciliation between payroll and personnel records would highlight. Dimension (ii): Timeliness of changes to personnel records and the payroll In general changes to personnel records are prompt. Even in Education sector where teachers are in remote areas changes are made to personnel and payroll quite quickly as a system has been set up for phone communications. Civil servants in remote locations are paid 3-months in advance and then changes are made retroactively with virements if required. Audit and inspection of the personnel and payroll is frequent and the newly formed anti-corruption unit oversees the Audit plans. The focus of audit is on compliance and on verifying the correctness of payroll calculations. The identification of “ghost” workers is not high profile and is considered to be insignificant. Page 71 Government of Tajikistan - PEFA Assessment Control systems are considered to be robust by management and the inspectorate is very active. Dimension (iii): Internal controls of changes to personnel records and the payroll All Personnel files, at Civil Service Department in the Executive Administration of the President of the Republic of Tajikistan and at ministry level are kept in simple excel and word files there is no Human resources software in the government. This makes the system vulnerable to unauthorized adjustments and the audit has to be very effective. Each ministry maintains a Human Resources Department that has its own personnel files and is responsible for records, adjustments and maintenance of these records. Salaries, wages, allowances and leave entitlements are set by the Civil Service Department in the Executive Administration of the President of the Republic of Tajikistan for the whole of government and any adjustments have to be authorized by the Minister or Head of BO and in the case of promotions they must be authorized by Ministerial Order. The Ministry of Finance has a “Department on Salary Allowances” who reviews all monthly salary calculations and claims, but this is a retrospective review as the payroll is paid in advance to ministries. Every 6-months each government official must submit a work plan to the respective HR Department in their ministry. This would include advance requests/notice for leave entitlements and business trips. State business trips must be then authorised by the Minister or in the absence of the Minister the Deputy Minister – then this is passed to the HR Department. Dimension (iv): Existence of payroll audits to identify control weaknesses and/or ghost workers Payroll audits are widespread and frequent. Each ministry has a payroll audit with two systems operating (i) inspectorate within each ministry and (ii) audits directed by the anti-corruption unit, both have a schedule which is submitted to the concerned minister. The PEFA Team reviewed a recent payroll audit for the Physical Training and Education Institute in September 2012. The report has been circulated to the auditee client, responsible Minister for Youth, Sport and Tourism and Ministry of Finance Deputy Minister. The Ministry of Finance Deputy Minister is the focal point for all payroll audit reports with copies to the Executive Administration of the President of the Republic of Tajikistan. There is also a half-yearly audit report which is submitted to the Financial Controller agency in the Ministry of Finance (all reports – not just payroll - from internal audit). As mentioned in dimension (i) the focus of audit is on compliance and on verifying the correctness of payroll calculations rather than on system weaknesses. The identification of “ghost” workers is not high profile and is considered to be insignificant and indeed very few have be identified over the years, even though anecdotal evidence points to widespread use of “ghost workers”. Page 72 Government of Tajikistan - PEFA Assessment PI Score Score Assessment (M1) 2007 2012 PEFA PEFA PI-18 D+ D+ The personnel and payroll system is decentralized and of course has the problems associated with decentralised systems which makes it difficult to review in the time allotted to a PEFA review. However, with policy, terms and conditions of civil servant being done at the central level and with the budget holders responsible through an authorization process, which in itself is subject to frequent audits, the system appears robust. However, there does not seem to be a compelling improvement in personnel data and payroll reconciliations, mainly due to the fact the system is not automated. (i) D D There does not seem to be an improvement in personnel data and payroll data which is supported by full documentation and reconciliations for all changes made to personnel records each month and checked against the previous month’s payroll data and therefore no compelling reason to score anything different to the 2007 PEFA assessment. (ii) C B In the education sector in particular up to three months delay occurs in updating of changes to the personnel records and payroll, but affects only a minority of changes for rural and remote based personal. This means retroactive adjustments are made occasionally for those staff in remote areas. This dimension is rated B. (iii) C B Authority and basis for changes to personnel records and the payroll are clear, therefore this dimension is ranked B. (iv) B B Payroll audit in budget organizations is carried out on a regular basis by internal audit departments in order to reveal ghost workers and eliminate errors in data. The audit, due to the payroll being a semi-manual system, is the main control method in the government with the aim to identify shortcomings in control system, with good circulation of the audit reports and a payroll audits on all public institutions is conducted, as minimum, once in the last three years. This dimension is rated B. 3.5.3.2. PI-19: Competition, value for money and controls in procurement Significant public spending takes place through the public procurement system. A well-functioning procurement system ensures that money is used effectively and efficiently. Open competition in the award of contracts has been shown to provide the best basis for achieving efficiency in acquiring inputs for value for money in delivery of programs and services by the government. Note: The official Russian translation of the PEFA manual has not yet been updated for the changes in the 2011 English version. The dimensions for this indicator changed in January 2011 and therefore are not compatible for comparison purposes with the PEFA assessment in 2007. Dimension (i) Transparency, comprehensiveness and competition in the legal and regulatory framework. The Law “On Public Procurement of Goods, Works and Services” was introduced on 3 rd March 2006. It revoked the previous legislation “On Public Procurement of goods, production, works and services” dated 12 December 1997. Page 73 Government of Tajikistan - PEFA Assessment The law closely follows models provided by the WB and ADB, and is similar to the model in the Kyrgyz Republic. It is considered UNCITRAL compliant. To support the law there have been several decrees:  Decree of the Ministry of Economic Development and Trade of the Republic of Tajikistan, as of January 17, 2: Regulation of Public Procurement procedure - approved by and registered in the Ministry of Justice of the Republic of Tajikistan, as of February 11, 2008 #357 (In the regulations there are 16 appendices which is available in the following web site http://www.goszakupki.tj/ru/legislation/the-provisions-of-the-procurement)  Government decree on 1st July 2007, # 319 “on the establishment of qualification commission in defining and award status of "qualified procuring entity”  Government decree on 2nd October 2010, # 500 “on set up of rules on the opening of tenders documents for purchase of goods, works and services in state investment projects in the Republic of Tajikistan”  The Law of Republic of Tajikistan № 815 of April 16, 20112, "On Amendments and Additions to the Law " covering complaints mechanisms Until this law (2006) became operational, the Procurement Agency (PA) was the only institution in Tajikistan through which procurement was undertaken above the specified minimum threshold (3,000 Somoni). Under the law, the PA became an oversight, advisory, training and regulatory organization and is referred to as the ‘Authorized Body’. The law aimed to decentralize procurement arrangements to qualified ‘Procuring Entities’, which include budgetary organizations, state owned enterprises, etc. Procuring Entities are awarded qualified status by the Qualifications Commission upon satisfying the conditions of article 10 of the law. Each Procuring Entity creates a Subdivision on Procurement and a Tender Commission. There are at present 19 procuring entities spread throughout the country. The Law stipulates the following Public Procurement methods: Table 25: Public procurement methods in Tajikistan (Articles 24-30 Procurement Law) Tendering with unlimited The main method of public procurement which must be used in all cases participation where the law does not specifically permit the use of another method Tendering with limited If expenses required to evaluate a large quantity of bids would be participation disproportionate to the value of the purchases (at least three bids required). If the goods, works or services have a specialized level of technical complexity or specialized character then the current situation of the market is assessed for the goods, works or services, if the supply is limited then justification needs to be written up for a limited source of suppliers/contractors. Short-list method Purchases are only available from a limited number of suppliers, owing to technical complexity, etc. Request for quotations Readily available goods or services for which there is an established market. Estimated value less than the maximum threshold (but in special cases no more than 5 times the maximum threshold). At least three quotes. Page 74 Government of Tajikistan - PEFA Assessment Single source procurement Small additional orders; research, etc.; sole supplier with exclusive rights; creative arts; unforeseen urgent need. Electronic procurement Rules to be determined by the Government of RT. Simplified procurement method For purchases by jamoats (rural communities) below the minimum threshold. Rules to be determined by the Government of RT. The Law stipulates that minimum and maximum threshold values of contracts will determine how some of the rules are applied (Article 3 term 15). The Government of Tajikistan sets the minimum and maximum thresholds annually. Table 26: Use of minimum and maximum threshold values of contracts Below minimum Procuring Entity can choose procurement No public announcement required threshold method. Jamoats can use simplified procurement. Above minimum Single source procurement can only be Tender announcement to be placed in threshold used with permission of the Authorizing Public Procurement Bulletin body. Above maximum Use of any method other than tendering Tender announcement to be placed in threshold with unlimited participation requires mass media and Public Procurement permission of the Authorized Body. Bulletin. Table 27: Schedule of Procurement Thresholds Year Lower Threshold Upper Threshold 2009 Goods 4,000 TJS 68,000 TJS Works & Services 2010 Goods 7,000 TJS 75,000 TJS Works & Services 10,000 TJS 2011 Goods 7,840 TJS 84,000 TJS Works & Services 11,200 TJS 2012 Goods 250 Index (for quarter as per 12,500 TJS economic budget classification) 10,000 TJS Works & Services 350 Basic Index 14,000 TJS Source: Agency for Public Procurement of goods and services (July 2012) The basic index is set each year in the budget law. The Deputy Chairperson of the Chamber of Commerce and Industry of the Republic of Tajikistan, which has more than 500 registered businesses as members, has endorsed the procurement system as being transparent, freely and easily accessible to the public through the Procurement Agency website and the service provided by the Chamber in alerting all members to potential tenders. Winners are announced freely but the basis on which they won or are engaged is not divulged. Page 75 Government of Tajikistan - PEFA Assessment Nevertheless, the private sector have the impression (justified or not) that government personnel have been suspected of interfering with the bidding process and there are perceived problems when members of the evaluation committees and tender committees have favourites or indeed the bidders are relatives. The Chamber was of the view that the complaints handling mechanism was adequate. Table 28: Legal and Regulatory Framework for Procurement Meet Explanation Minimum Requirements (M2) requirements? (Yes/No) (i) Be organized hierarchically and YES Law “On Public Procurement of precedence is clearly established; Goods, Works and Services” 2006, supported by various decrees each year to address developments. (ii) Be freely and easily accessible to the YES Clearly published on the Procurement public through appropriate means; Agency website and circulations through the Tajikistan Chamber of Commerce to its members, who are likely to be the ones bidding for government contracts. The use of newspapers is also evident. (iii) Apply to all procurement undertaken YES There is clear evidence to suggest that using government funds; the Procurement Agency is used for all major procurement at around 64.5% on value of government procurement and about 89.4% in number of contracts in 2011. All other procurement is below the threshold of tendering process. (iv) Make open competitive procurement YES Clear guidelines for the use of less the default method of procurement competitive methods are set out in and define clearly the situations in Articles 24 to 30 of the existing which other methods can be used and procurement law. how this is to be justified; (v) Provide for public access to all of the Partially The Chamber of Commerce confirmed following procurement information: that its members have full access to government procurement plans, government procurement plans, bidding opportunities, contract bidding opportunities, contract awards, awards, and data on resolution of and data on resolution of procurement procurement complaints; complaints. However, the amount of information particularly on contract awards, stating the basis and conditions of awards is less than desirable. However, this situation will soon change, by the order of the President of RT stated in his annual Message to Parliament on April 22 2012, regarding transition to electronic procurement of the goods, the Agency on State Procurement will develop a single web portal effective 2013 for transition to Page 76 Government of Tajikistan - PEFA Assessment electronic procurement by request of quotations method and placement of all necessary information on the state procurement are planned. (vi) Provide for an independent YES There is a complaints system under the administrative procurement review 2006 law and it has been revamped process for handling procurement under the Law of Republic of complaints by participants prior to Tajikistan № 815 of April 16, 20112, contract signature. "On Amendments and Additions to the Law " covering complaints mechanisms. The Government of Tajikistan’s legal framework is robust for the procurement system. However, the lack of information on winning bids and the basis of awarding contracts detract from the system. Therefore it is assessed that the legal framework meets four or five of the six listed requirements, which results in a B score. Dimension (ii) Use of competitive procurement methods. The Procurement Agency has computerized “tracking” procedures. The tables in Annex 5 are based on this data, showing numbers and values of procurement contracts for the Procurement Agency and for Procuring Entities, analysed by the type of tender method used, for the years 2010 and 2011 and the first quarter of 2012. The tables show that, over the period:  The Procurement Agency has handled just over 60% of the contracts by value, and Procuring entities just under 40%, and that these percentages have been fairly constant over the period 2010 to 2012 quarter 1.  An additional point is that the procurement in the frame of joint investment projects with international finance organizations, which are recognized in state budget, were not included. The State Committee on Investments and State Property Management (SCISPM) of the Republic of Tajikistan is the coordinating agency of such projects. If these procurements are taken into consideration then ratio of Agency from total amount of contracts is 43%.  Between 73% and 80% of contracts by value, and between 72% and 88% by number, have been tendered with unlimited participation.  Tenders using Limited Tender and Single Source Tender have been: o 2010 15.58% of total procurement value of government o 2011 24.68% of total procurement value of government o 2012 22.59% of total procurement value of government (1st Quarter Only) In Articles 24 to 30 of the existing procurement law clear guidelines for the use of less competitive methods are set out, as summarised above. The procurement agency explains: The use of other, less competitive methods, like “Restricted tendering bidders”, “Request of quotations”, “Single-source procurement” is strictly regulated. In accordance with Article 26 of the Law “On public procurement of goods and services” method of “Restricted tendering bidders” is used in case of goods, works and services are available only from a limited number of suppliers (contractors). Also here are the signs by virtue of which this situation appears. In accordance with Article 27 of the Law “On public procurement of goods and services”, the procuring entity uses the method of request for quotations for the purchase of available Page 77 Government of Tajikistan - PEFA Assessment goods and services produced and provided not by the particular specifications of the procuring entity, but for which the market amount is below 2500 calculation rate/index. In order to eliminate any possibilities of interpretation of the provisions of the Law, the amendment to the Article 27 were made by the Law of the RT № 815 on April 16, 2012, under which the special cases were determined (previously not specified), when it is allowed to use this method in the case of amount exceeding 2500 to 12500 rates/index only with specification and approval of the competent authority. In accordance with Article 28 of the Law “On public procurement of goods and services” the procuring entity in coordination with the competent authority may decide to hold a single-source procurement only in strictly defined cases:  if it carries out additional orders within 6 months from the date of the contract, not exceeding 15% of the value of previous purchases, and maintains the old rules, parameters and standards;  signing the contract for research, experimentation or scientific training of detention;  if given goods, works and services are available only from a particular supplier (contractor) or a supplier (contractor) has exclusive rights in respect of these goods and services;  for the procurement for a creative project or creative activity in the field of arts and culture;  when an urgent need to conduct procurement in connection with the circumstances that the procuring entity could not have foreseen. Dimension (iii) Public access to complete, reliable and timely procurement information. The Tajikistan Chamber of Commerce confirmed that it members have full access to government procurement plans, bidding opportunities, contract awards, and data on resolution of procurement complaints. However, the amount of information particularly on contract awards, stating the basis and conditions of awards is less than desirable. Nevertheless, government personnel have been suspected of interfering with the bidding process. All potential contracts are being published and tender days have been cut to 21 in most cases for open tender. By order of President of RT Agency on State Procurement is developing the single web portal where from 2013 transaction to electronic procurement is planned. Advertising by newspaper is not cost effective and also as the newspaper is only published 3 times a week advertising space is limited and expensive. It is estimated that at least three of the key procurement information elements are complete and reliable for government units representing 75% of procurement operations (by value) and made available to the public in a timely manner through appropriate means. This means qualification for a B rating. Dimension (iv) Existence of an independent administrative procurement complaints system. The Law of Republic of Tajikistan № 815 of April 16, 2012, “On Amendments and Additions to the Law on Public Procurement of Goods and Services” substantially changed the complaints mechanism for the benefit of participants of procurement procedures. Page 78 Government of Tajikistan - PEFA Assessment The timing of complaints before this amendment meant that complaints to the purchasing organization could be filed only up to the time when the procuring entity made the decision on the winner of tender, however this amendment allows for: i) The period for complaints is extended until the signing of the contract, ii) A complaint may be submitted simultaneously to the authorized body, iii) A contract does not limit the right of subsequent submission of a complaint to the authorized body. Articles 79-82 of the Law and Chapter 11 of the Regulations on public procurement procedures regulate complaints procedure. The procuring entity shall, upon consultation with the authorized body, for up to 3 days suspend the procurement procedure, to consider the complaint and by the expiration of this period make a written decision which states: o Justification/reasoning the decision; o Measures aimed at meeting the requirements in the case of full or partial satisfaction of the complaint. If the complaint of a supplier (contractor) is rejected, the authorized entity provides one or more of the following remedies: o Prohibit the procuring entity to commit unlawful acts, take unlawful decisions or apply the illegal procedures; o Fully or partially cancel the illegal decision of the procuring entity that violates the conditions of the tender procedure; o Make a decision on the termination of the procurement. Upon receiving the complaint the authorized entity shall suspend procurement procedure for up to 10 days and during this period shall make a reasonable decision in written form. The decision shall contain: o Justification/reasoning the decision motives; o Measures, aimed at meeting the requirements in the case of full or partial satisfaction of the complaint. The decision on the complaint is obligatory for execution of the procuring entity and shall be final unless it is appealed to the Court under Article 81/4 of this Law. On the whole the complaints procedure is described in detail and in case the supplier is not satisfied with the results of the complaint the latter may appeal to court. In the case of complaint, the Agency for Public Procurement of goods and services at the Government of Republic of Tajikistan promptly responds to it. Cases of complaint to the court relating to public procurement haven’t been reported. Evaluation: Although the complaints mechanism as described in the law and regulations is good, it depends on the Procurement Agency (Authorized Body) being an effective regulator of the Procurement Entities and being able to mediate between suppliers and Procurement Entities. However, as indicated by the statistics produced, the Procurement Agency is effectively still by far the largest Procurement Entity, being responsible for procuring about 80% more by value than all the other entities combined. Page 79 Government of Tajikistan - PEFA Assessment Under the law, the PA became an oversight, advisory, training and regulatory organization and is referred to as the ‘Authorized Body’. The law aimed to decentralize procurement arrangements to qualified ‘Procuring Entities’, which include budgetary organizations, state owned enterprises, etc. Procuring Entities are awarded qualified status by the Qualifications Commission upon satisfying the conditions of article 10 of the law. Each Procuring Entity creates a Subdivision on Procurement and a Tender Commission. There are at present 19 procuring entities spread throughout the country. However, as stated the PA is still heavily involved in the procurement system so the element of “Independence” is clouded. Given this doubt on independence and also that the new law covering the complaint mechanism was only passed in April 2012 and has not had time to “bed” into the system, Scoring Criteria Ranking (i) Is comprised of experienced professionals, including members NO drawn from outside government. (ii) Is not involved in procurement transactions or in the process NO leading to contract award decisions; (iii) Does not charge fees that prohibit access by concerned parties; YES (iv) Follows processes for submission and resolution of complaints YES that are clearly defined and publicly available; (v) Exercises the authority to suspend the procurement process; YES (vi) Issues decisions within the timeframe specified in the YES rules/regulations; and (vii) Issues decisions that are binding on all parties (without YES precluding subsequent access to an external higher authority). The procurement complaints system does not meet criteria (i) & (ii) as there are no members drawn from outside government and but it does exercise the right of suspending the tendering process until the issue is resolved and the issue must be resolved within 3-days. The PA has responsibility for continued involvement in procurement. The system therefore must be scored as C. Ongoing and planned activities There is a planned project funded by the World Bank commencing December 2012 for Capacity Building of 2000 people in procurement - 1,600 from all procurement agencies and 400 from the external private sector. The course will provide certification. Procurement Law revision 2012 – 815 16 April 2012 Amendment is going through operational procedures now. Web based tendering and procurement / waiting for cabinet approval – proposal already PI Score Score Assessment (M2) 2007 2012 PEFA PEFA PI-19 C C+ The 2007 assessment was according to a previous methodology and the results are not directly comparable. Tajikistan’s procurement (M-2) system is evolving with the legal framework in place, however the score Page 80 Government of Tajikistan - PEFA Assessment PI Score Score Assessment (M2) 2007 2012 PEFA PEFA is effected by the lack of independence in the complaints handling system. (i) C B The Government of Tajikistan’s legal framework is robust for the procurement system. However, the lack of information on winning bids and the basis of awarding contracts detract from the system. Therefore it is assessed that the legal framework meets five of the six listed requirements, which results in a B score. (ii) C C About 20% of total volume of contracts was awarded by Restricted tendering bidders method or Single-source procurement. This would qualify for a C rating. (iii) C B It is estimated that at least three of the key procurement information elements are complete. However, the amount of information particularly on contract awards, stating the basis and conditions of awards is less than desirable. (iv) D The procurement complaints system does not meet criteria (i) & (ii) as there are no members drawn from outside government and the PA has responsibility for continued involvement in procurement. The system therefore must be scored as D. 3.5.3.3. PI-20: Effectiveness of internal controls for non salary expenditure An effective internal control system is one that (a) is based on an assessment of risks and the controls required to manage the risks, (b) incorporates a comprehensive and cost effective set of controls (which address compliance and rules in procurement and other expenditure processes, prevention and detection of mistakes and fraud, safeguard of information and assets, and quality and timeliness of accounting and reporting, (c) is widely understood and complied with, and (d) is circumvented only for genuine emergency reasons. In addition to the procurement law, the current laws governing budget execution are the Law on Financial Management and Internal Control in the Public Sector (2010), the Treasury Law amendments 2008 and the Law on Accounting 2006. Treasury Instructions are dated 2005. There are some draft commitment instructions. The basic legal document on PFM is the “Law on Public Finances of the Republic of Tajikistan” (#77, December 2, 2002, with the latest amendments introduced in June 2008). The law defines three main components of the state budget: the republican budget, the budgets of state target funds and local budgets. Further important laws with regard to public financial management include: the Law of the Republic of Tajikistan “On Treasury” (#396, June 18, 2008), the Law of the Republic of Tajikistan “On the National Bank of Tajikistan” (#383, December 14, 1996 with the latest amendments introduced in July 2007), the Law of the Republic of Tajikistan “On the State Financial Control in the Republic of Tajikistan” (#66, December 2, 2002 with the latest amendments introduced in July 2007), the Law of the Republic of Tajikistan “On State and State Guaranteed Borrowing and Debt” (# 886, December 11, 1999), the Law of the Republic of Tajikistan “On Local Bodies of S tate Power” (#28, May 17, 2004) and the Law of the Republic of Tajikistan “On Self -Management Bodies in Urban and Rural Settlements” (#1094, December 1, 1994). A new Tax Code and a new Page 81 Government of Tajikistan - PEFA Assessment Customs Code came into force in early 2005 (#61 and #62, December 3, 2004 with the latest amendments introduced in June 2008), the Law of the Republic of Tajikistan “On Public Procurement of Goods, Works and Services” was adopted in 2006 (#168, March 3, 2006). Dimension (i): Effectiveness of expenditure commitment controls Payment procedures involve the BO submitting a payment request voucher to the treasury, which is checked both in terms of its compliance with the authorized procedures, and to ensure the availability of funds on the BO’s account. Protected items such as salaries and communal services are given payment priority. If the payment request is in respect of a procurement contract, already recorded in the Treasury systems (see below) the commitments will automatically be cancelled when the payment is made. The Central Treasury uses an “Electronic Payment System” to instruct the National Bank to make the payment to the creditors’ bank accounts. The Treasury system compares cash payments and major commitments against the quarterly budget allocations (smeta) of Budget Organisations (BO). BO are required to supply information for all agreed procurement contracts above the minimum threshold to either the Central or Local Treasury, who enter the details into the Treasury information system. Thus commitments for procurement contracts are taken into account when ensuring that total payments plus outstanding commitments do not exceed the quarterly budget allocations of the BO. This system works effectively, so far as it goes. However it is not a complete commitments system, as purchase orders are not raised. Treasury also reports that some heads of BO allow commitment violations and receive goods and services in excess of their budget allocation limits. The Treasury will produce reports showing payments against commitments – but only for contract commitments. The IMF recently produced (i) FAD report on the state of commitment control in Tajikistan; (ii) gap analysis on commitment controls undertaken for the Treasury; and (iii) the priority being given in the PFM reform agenda to establishing a comprehensive commitment control system. All these reports acknowledge that expenditure commitment control procedures exist however they are partially effective and do not comprehensively cover all expenditures. (ii) Comprehensiveness, relevance and understanding of other internal control rules/ procedures In the opinion of the Head of Accounting and Audit, and the Internal Audit Department all civil servants are aware of the rules for purchasing and expenditure. Every expenditure point where there might be occasion to deal with government resource has access to appropriate manuals – the manuals were produced within seconds! The existing internal controls/rules that are in place are basically sound and considered as adequate. However, it must be remembered that this is a manual system and prone to human error and deliberate mistakes. Dimension (iii) Degree of compliance with rules for processing and recording transactions The Internal Audit Department states that enhancement of internal control measures as a result of the Law on Internal Audit and the law on financial Management and Internal Control in the government sector of July 2010 have had the effect of reducing indiscretions by around 10-20% per year on year. Page 82 Government of Tajikistan - PEFA Assessment There are no specific records of reported incidents to the ministry from the Internal Audit, but a written report is completed monthly. Internal audit completes audits on treasury operations daily and since February 2012 there is a new audit regime aligned with international audit practices. PI Score Score Assessment (M1) 2007 2012 PEFA PEFA PI-20 C+ C+ There is widespread understanding of expenditure rules and regulations, backed up with instructions, rules and manuals readily assessable to all government officers. The IMF have identified that further strengthening of commitment controls is warranted. Internal audit is being strengthened but it is not fully operational to international standards yet. (i) B C Expenditure commitment controls need to be comprehensively reviewed and updated. At the moment there is no commitment control for central line ministries and SNG to base their operations on. The rating therefore is C. (ii) B A Other internal control rules & procedures are relevant, & incorporate a comprehensive & generally cost effective set of controls with instructions, guidelines and manuals, which are widely understood and are therefore rated A. (iii) C C Rules are complied with in a significant majority of transactions, but use of simplified emergency procedures in unjustified situations is an important concern. 3.5.3.4. PI-21: Effectiveness of internal audit Regular and adequate feedback to management is required on the performance of the internal control systems, through an internal audit function. Such an audit function should meet international standards and should focus on systemic issues in relation to: reliability and integrity of financial and operational information; effectiveness and efficiency of operations; safeguarding of assets and compliance with laws, regulations, and contracts. History 2006: An office of internal audit was established in the Tax Committee (№ 607 of December 28, 2006) 2007: The Ministry of Finance developed the Strategy of Public Internal Financial Control (№ 87 of March 3, 2007) in order to ensure compliance with financial legislation and fiscal discipline, and to prevent misuse of budget funds. In line with this strategy, internal audit units were established in the Ministries of Education, Health, Agriculture, Labour and Social Welfare (№ 603 of November 30, 2007). The 2007 PEFA assessment described internal audit as very weak, with limited experience and staffing at both central and local treasury levels. 2010: The laws ‘On financial management and internal control in the public sector’ (No 626 of 21 July 2010) and ‘On internal audit in the pubic sector’ (No 631 of 21 July 2010) were adopted, to facilitate implementation of the strategy of Public Internal Financial Control. 2011: Following the adoption of the above laws, Internal Audit Departments were created in the State Committee of National Security and the Ministry of Transport. Page 83 Government of Tajikistan - PEFA Assessment MoF approved the Action Plan of the Office of Internal Audit 2011-2015, and developed guidelines on preparation of the analytical report on the status of internal audit in the public sector. The first such analytical report (for internal audit in 2010) was prepared. Guidelines on preparation of annual plans for internal audit departments were prepared, The 2011 Law on Public Finance includes a definition of internal audit and activities to be carried out by MoF with respect to internal audit (see below). 2012: MoF internal audit department assisted ministries and departments to draw up their internal audit plans. The second analytical report (for internal audit in 2011) was prepared. International Professional Standards for Internal Auditing and Code of Ethics for Internal Auditors, of the Institute of Internal Auditors (USA), have been translated to Tajik and adopted under license. Staffing and training As at 2011, the number of approved internal audit staff of the Ministry of Finance, in the Central Office and the departments in the regions, cities and districts is 70 people. At present, internal audit departments operate in eight central government ministries, in the Agency for Pensions and Social Insurance and in 50 local authorities out of 73. The nominal size of the internal audit departments in the ministries is approved as four people. The structure of the Office of Internal Audit of the Tax Committee consists of two divisions and one sector of the approved amount of the nominal strength of 16 people. Management and internal audit units in ministries and departments operate within their approved Regulations. A training needs assessment has been carried out and training has been given on international internal control standards for internal auditors of the MoF. Training on internal audit has been conducted for specialists from the MoF and other pilot ministries. 2011 Law on Public Finance The 2011 Law on Public Finance defines internal audit (in the area of public finances) as independent and objective activity for the audit, evaluation, and counselling of managerial and other systems, which is implemented with a view to assist a legitimate, effective and efficient public sector. Article 30 of the Law on Public Finance includes the following activities for MoF:  Conducts audits of budget organizations which do not have internal audit departments;  Performs inspections/audits of the financial status of the recipients of budgetary funds, including recipients of budget loans, grants, subventions, subsidies and state guarantees;  Ensures operation of an internal audit system based on international standards, unified goals, principles and objectives of internal audit. Dimension (i): Coverage and quality of the internal audit function There are two levels of internal audit (i) each individual budget organization has an internal audit department reporting to its own minister, and (ii) the Internal Control and Audit Department (ICAD), of the Ministry of Finance has a “internal audit” role in conducting and overseeing BOs Page 84 Government of Tajikistan - PEFA Assessment that do not have an internal audit department. All Internal audit reports of the other ministries are copied to the Deputy Minister in the Ministry of Finance. The Internal Audit Department in ministries and in the Internal Control and Audit Department (ICAD), of the Ministry of Finance are separate and independent to the accounting and payments departments. The coverage of internal audit is very good and in particular there are many audits on the payroll. It is reported that there are 15-20 audit reports per Budget Organization per year, which on the face of it seems a bit excessive. It is reported that around 10% to 20% of staff time is devoted to systems audit, however that may change in the future with the adoption of risk audit planning and International Professional Standards for Internal Auditing and Code of Ethics for Internal Auditors, of the Institute of Internal Auditors (USA) from 2010. In 2012 the International Professional Standards for Internal Auditing and Code of Ethics for Internal Auditors, of the Institute of Internal Auditors (USA), have been translated to Tajik and adopted under license. However, this will not take effect at least until after 2012 has been completed, as there will need to be training and capacity building. Dimension (ii): Frequency and distribution of reports Internal Audit Unit are established in each Central Government body qualifying (by budget and number of staff according to the Internal Audit Law). This means 50 out of 73 Local Governments have Internal Auditors. Although appearing excessive there are approximately 15-20 internal audit reports produced per budget organization per year and distributed to the head the budget organization and to all parties concerned with the recommendations. The annual report is sent to MoF. There is no supreme audit institution to forward the reports to. In 2011 the internal audit of the ministry of Finance reported 11,500,000 Somoni in value worth of errors, however this is a decrease year on year of 10% to 20%. Dimension (iii): Extent of management response to internal audit findings Internal audit recommendations are usually address promptly by management and a fair degree of action or comprehensive action is taken by managers on major issues. Action taken but sometimes takes some time to enact. The internal audit reports some absolute figures, but consider everything reported as resolved (by recovery or budget cuts) at around 11.5 million Somoni for 2011. Internal Audit did not have any data on recommendations leading to changes in the public finance management however confirmed that repetitive findings were no happening in the reports. Training on internal audit is delivered several times each year for all internal audit units. There is 100% training coverage for all internal auditors in the public sector. At present, internal audit departments operate in 8 ministries, in the Agency for pensions and social insurance and 50 local authorities (out of 73). Since internal audit is carried out in 9 central public institutions and 75 % of local authorities and reports on the majority of audited institutions are prepared regularly and Page 85 Government of Tajikistan - PEFA Assessment submitted to the audited institution and the MoF and heads of many institutions take certain actions with regard to serious problems, however, substantial part of measures are punitive and do not address the cause of the problems. PI Score Score Assessment (M1) 2007 2012 PEFA PEFA PI-21 D+ C+ The presence of internal audit departments and their development over the last 3-years have indicated that internal audit is going in the right direction, particularly with the amount of training being applied. However, to get a better score it needs to implement the translated International Standards and place more emphasis on systems improvement and risk management. Of course the absence of SAI to receive internal audit reports affects the rating. (i) D C The function is operational for at least the most important central government entities and undertakes some systems review (at least 20% of staff time), but does not meet all recognized professional standards. Approximately 25% of the professional standards are met. Therefore dimension (i) is rated C. (ii) C B Reports are issued regularly for most audited entities and distributed to the audited entity, and to the ministry of finance (there is no Supreme Audit Institution SAI – see PI-26). (iii) C C Managers of BOs normally take adequate action within the recommended deadlines, usually addressing internal audit recommendations. All issues concerning losses of funds are resolved or recovered by budget cuts. However, a substantial part of the recommended measures are punitive, and do not address the underlying cause of the problems. No data has yet been collected on response to recommended changes in the systems of public financial management. 3.6 Accounting, recording and reporting Summary of assessment of indicators for PIs 22-25 PI Score Score Assessment 2007 2012 PEFA PEFA B B+ In the last 3-years the government has moved to establish the Single Treasury Account which means the reconciliations PI-22: processes has improved. Bank reconciliations for all central Accounts government and Treasury managed bank accounts take place at reconciliation least monthly at aggregate & detailed levels, usually within 4 (M2) weeks of end of period. SN Bank accounts are reconciled monthly and officially sent to treasury quarterly. PI-23: C D No comprehensive data collection on resources to service Information on delivery units in any major sector has been collected and resources processed within the last 3 years. [This score seems harsh, since received by comprehensive data was collected 5 years ago, but neither score service C nor B fit the current information situation.] It seems the 2007 delivery units indicator was over stated. (M1) Page 86 Government of Tajikistan - PEFA Assessment C+ C+ Overall the in-year budget reports are produced in a timely and PI-24: In-year regular manner on actual budget performance enabling all budget reports management levels, from Government down to managers of BOs, (M1) a tool for effective monitoring throughout the year. D+ C+ With a strong legal base the consolidated government statement PI-25: Annual is prepared in a timely manner meeting annual deadlines of July financial 15 for submission to Parliament and includes, with few statements exceptions, full information on revenue, expenditure and (M1) financial assets/liabilities, including a statement on accounting standards. 3.6.1. PI-22: Timeliness and regularity of accounts reconciliation Reliable reporting of financial information requires constant checking and verification of the recording practices of accountants – this is an important part of internal control and a foundation for good quality information for management and for external reports. Dimension (i): Regularity of bank reconciliations All revenue (including ‘special revenues’ of budget organizations) and expenditure bank accounts for the Republican Budget (68 organizations) and 5 local budgets are now in the Treasury Single Account system, maintained at the National Bank. These accounts are reconciled monthly, within 4 weeks of the end the month. Separate accounts are maintained for sub-national level revenues and expenditures at Amonat Bank. Sub national bank accounts are targeted to be part of the TSA by 2014. Although these sub national bank accounts are also reconciled monthly, the official bank reconciliation statement is presented only each quarter, stamped by the treasury and Amonat Bank. Dimension (ii): Regularity of reconciliation and clearance of suspense accounts and advances The MOF informed us that there are no suspense accounts in operation, and that advance accounts are controlled manually by BOs. There are well-documented procedures for advance payments and there is no evidence to suggest problems in this area. The system is set up as an incentive for Civil Servants to liquidate their advances as there are only given 50% of estimated costs – even if travelling overseas – and therefore there is high demand for liquidating reimbursable expenses. There is also a requirement that all balance sheet accounts are reconciled annually at 31 December. PI Score Score Assessment (M2) 2007 2012 PEFA PEFA PI- B B+ In the last 3-years the government has moved to establish the Single 22 Treasury Account which means the reconciliations processes has improved. Bank reconciliations for all central government and Treasury managed bank accounts take place at least monthly at aggregate & detailed levels, usually within 4 weeks of end of period. SN Bank accounts are reconciled monthly and officially sent to treasury quarterly. (i) B A Bank reconciliations for all central government and Treasury managed bank accounts take place at least monthly at aggregate & detailed levels, Page 87 Government of Tajikistan - PEFA Assessment PI Score Score Assessment (M2) 2007 2012 PEFA PEFA usually within 4 weeks of end of period. SN Bank accounts are reconciled monthly and officially sent to treasury quarterly - therefore achieving a rating of A. (ii) B B Reconciliation and clearance of suspense accounts and advances take place at least annually within two months of end of period. Some accounts have uncleared balances brought forward. Rating is B. 3.6.2. PI-23: Availability of information on resources received by service delivery units Problems frequently arise in front-line service delivery units providing services at the community level in obtaining resources that were intended for their use. These front-line service delivery units, being the furthest in the resource allocation chain, may be the ones to suffer most when overall resources fall short of budget estimates. Tracking of resource allocation is vital to ensure that PFM systems effectively support front-line service delivery. The 2007 PEFA assessment reported that no comprehensive data collection on resources to service delivery units in any major sector had been collected and processed within the previous three years. However, Public Expenditure Tracking Surveys (PETS) for two major sectors – health and education – were close to completion. The two PETS were published on 12 June 2008. The Education PETS commented that: “The goods news from the Tajikistan Education PETS is that at the upper tiers of the hierarchy, from the Ministry of Finance (MOF) to the rayons (regions), an effective system of financial accountability is in place, and while there are problems below that, e.g., schools lack budgets and record-keeping is weak at the jamoat (district) and school levels, they are being addressed through the introduction of the per capita financing (PCF) of education. The PCF reform program had been introduced in five pilot rayons as of 2006, when the PETS data collection occurred. It has since been extended to twelve more rayons, and the government has plans to extend it to the whole country. The PETS finds that under the PCF program, unlike under the traditional financing program, schools know their budgets and these are almost always consistent with rayon records, thus completing the financial accountability chain from the MOF to the frontline provider. If the PCF reform is implemented on a national scale as successfully as has been done in the pilot rayons, Tajikistan will have an effective education resource delivery system. Against this positive message, however, it must be borne in mind that:  In scaling up the PCF program to a national scale, it may be challenging for Tajikistan to replicate the success that has been achieved in rayons which, by virtue of their status as pilot rayons, have received more attention than it will be possible to devote to the upwards of fifty rayons where the PCF program is yet to be implemented. Though generally positive, PETS findings appear to show some variation among the PCF pilot rayons, and even minor problems observed at this stage could presage larger problems later.  For the time being, most of the country’s schools are under the traditional financing system of local discretion, under which it proved impossible for the PETS to track funds all the way Page 88 Government of Tajikistan - PEFA Assessment to schools. What happens to non-wage resources, in particular, in the last links of the financing chain, is unclear. Jamoats and to a lesser extent schools keep records on a transaction-by-transaction basis, and audits occur, but an effective financial accountability system that can keep track of financial flows over time, and enable top-down and bottom-up transparency and effective resource management, is missing.  There is one important spending category, investment, which the PETS was not designed to study in depth. Nonetheless, PETS findings highlight that investment needs are particularly acute. Moreover, there have recently been large increases in investment budgets.” The Health PETS commented: The main findings of the PETS are as follows: (a) The health sector continues to be severely under-funded. Budget allocations are low and donor assistance makes a large contribution to the overall spending on health services. (b) Few resources reach front line providers – in primary health care facilities – who are expected to provide the first level of care for the population, thus serving to exacerbate the pressures on secondary care. (c) The degree of discretion in the allocation of scarce resources is too large. This not only applies to distribution of stavkas but also to the bulk of inputs. (d) There is a wide dispersion in the availability of resources among rayons that translates into an inequitable distribution of quality health care. Since these reports, per capita financing has been significantly extended. However, we have not seen any data or reports from the last three years that have evaluated the availability and quality of information on resources received by service delivery units. The 2007 PEFA report discussed budget allocations and their predictability, however this indicator is not only about budget allocation but also actual resources required for service deliver units to carry out their responsibilities – and budget is only one aspect of this. There is no information available at the front line service delivery, especially on goods and services due to in-kind payment for goods and services and a lack of accounting reports. PI Score Score Assessment 2008 2012 PEFA PEFA PI- C D Rating D: No comprehensive data collection on resources to service 23 delivery units in any major sector has been collected and processed within (i) the last 3 years. [This score seems harsh, since comprehensive data was collected 5 years ago, but neither score C nor B fit the current information situation.] It seems the 2007 indicator was over stated. 3.6.3. PI-24: Quality and timeliness of in year budget reports The ability to successfully achieve budget execution depends upon timely and regular information on actual budget performance being available, throughout the year. This information is required at all management levels, from Government down to managers of BOs, to ensure that effective monitoring is undertaken throughout the year. Dimension (i): Scope of reports in terms of coverage and compatibility with budget estimates Page 89 Government of Tajikistan - PEFA Assessment The Treasury produces monthly budgetary control reports comparing actual revenues and expenditures against the latest version of the approved revised budget as recorded on the smeta. These reports are available for each budget organization and for the government as a whole. As they are intended as control reports, they do not compare actual results with the original approved budget. Treasury does not see its role as recording planning variances (differences between the original and revised budget) but as highlighting operational variances (differences between actual results and the revised budget). Nevertheless, should comparison against the original budget be required, this can be produced relatively easily by spreadsheet. The standard Treasury expenditure reports capture information at the payments stage. If information on commitments were added, it would not be complete, but Treasury can tailor the report to the requirements of each BO. Line Ministries, agencies and BOs are required to submit quarterly reports on revenue and expenditure execution to the MoF. At local level there is a similar requirement to submit quarterly reports on local budgets execution to the executive body of local authorities. The reports include information on outstanding liabilities (unpaid invoices) at the end of the quarter. The MoF drafts quarterly reports based on the results of state budget and Republican budget execution. Information is verified against Treasury figures. The MoF submits quarterly reports prepared on a commitment basis (including invoices outstanding but not yet paid) to the GoT. At local levels the reports are submitted to the executive body of local authorities. GoT approves the quarterly report and further submits it to the Parliament. Since 2012, Quarterly Reports on Budget Execution have been put on the website www.minfin.tj under the section on Budget. As at 1 July 2012 they are available for all of 2010, up to September 2011, and for March 2012. Dimension (ii): Timeliness of the issue of reports The reports for the MoF should be produced by the 15th of the following month, and this timetable appears to be met. The Treasury monthly and quarterly reports appear to be produced within 4 weeks of the end of the financial period. Dimension (iii): Quality of information The reports can only be as accurate as the information systems and controls allow. Given the procedures operative within the Central Treasury it is reasonable to assume that these monthly reports contain accurate information. The confidence in accuracy will be improved when the new Treasury information system SGB.net and Unified Chart of Accounts (UCOA) is installed, which is planned for 2013. This system will enable the duplication between the Treasury records and BO records to be eliminated. Commitment control is due to be incorporated in that system from 2014. At the moment, the reconciliation between the BO manual records and the Treasury records is a fundamental part of the system. We have not ascertained the extent of any problems in this reconciliation process, but the process itself gives some assurance on the quality and accuracy of the records. Page 90 Government of Tajikistan - PEFA Assessment PI Score Score Assessment (M1) 2007 2012 PEFA PEFA PI-24 C+ C+ Overall the in-year budget reports are produced in a timely and regular manner on actual budget performance enabling all management levels, from Government down to managers of BOs, a tool for effective monitoring throughout the year. (i) C C Comparison against the revised budget is possible at the detailed level but for expenditure this is only universally available at the payment stage, not the commitment stage. (ii) A A Reports are produced monthly and quarterly and issued within 4 weeks of the end of the period (iii) B B At the moment, the reconciliation between the BO manual records and the Treasury records is a fundamental part of the system. We have not ascertained the extent of any problems in this reconciliation process, but the process itself gives some assurance on the quality and accuracy of the records. 3.6.4. PI-25: Quality and timeliness of annual financial statements Consolidated year-end financial statements are critical for transparency in the PFM system. To be complete they must be based on details for all ministries, independent departments and deconcentrated units. Additionally the ability to prepare year-end financial statements in a timely fashion is a key indicator of how well the accounting system is operating. Dimension (i): Completeness of the Financial Statements In 2007 MoF was required under Article 57 of the Law on State Finances to draft an annual Report on the State Budget Execution and submit it to the Executive Administration of the President of the Republic of Tajikistan by 1 May. The Law then required the Government to submit these Annual Accounts to the Parliament by 1 June. This was updated in 2010 to alter the dates to June 1 and July 1 respectively. MOF also has to prepare a Public Sector Annual Financial Report (which forms part of the annual report of Budget Execution). This covers information on revenues and expenditures, treasury account balances, state loans and debts, budget deficit and the financing of the budget. There exists a strong legal foundation for preparing annual budget execution reports and financial statements (the annual budget execution reports are part of the annual financial statements). Article 57 of the Law on State Finance also stipulates the contents of the annual state budget execution report to be prepared at the end of each fiscal year. The annual budget execution reports are consolidated on a cash basis in accordance with the budget classification. Ministries, agencies and other budget organizations submit their annual financial statements, which are reconciled with the Treasury data for preparation of the consolidated annual financial statements. The annual financial statements prepared by the Government include information on: revenues and grants; expenditures according to budget classifications with comparisons between budget and outturns; Treasury bank account balances; report on state borrowing transactions and stock of debt and size of budget deficit and financing. The Public Financial Management Modernization Programme prepared an implementation and training strategy for Tajikistan national public sector accounting standards based on IPSAS as part of an overall public sector reform strategy by the Ministry of Finance. Page 91 Government of Tajikistan - PEFA Assessment Dimension (ii): Timeliness of submission of the Financial Statements In 2007 MoF was required under Article 57 of the Law on State Finances to draft an annual Report on the State Budget Execution and submit it to the Executive Administration of the President of the Republic of Tajikistan by 1 May. The Law then required the Government to submit these Annual Accounts to the Parliament by 1 June. This was updated in 2010 to alter the dates to June 1 and July 1 respectively. The compliance has been: 2009 – July 15, 2010 – submission 2010 - July 15, 2011 – submission 2011 – July 16, 2012 – submission The deadlines for submission to Parliament have been met for the last 3 financial years (financial statements 2008 to 2010). The change in law however has resulted in a situation whereby under the old law a PEFA assessment could rate an A for compliance, as the accounts would have been submitted to parliament within 6-months, however the law has now scheduled the submission of accounts for a period outside of this stipulation and therefore the rank would slip into the B grade. There was a stipulation in the law for the accounts to be submitted to the State Financial Control Committee, however this agency was dissolved in 2006 and replaced with the “Agency of State Financial Control and Combating Corruption” however its roll in reviewing financial statements is unclear, if indeed the intention was for this new agency to replace SFCC and audit the annual financial statements. It appears the roll of the “Agency of State Financial Control and Combating Corruption” is one of investigation and not audit. In 2007 it describes an audit function, however the SFCC was part of the MoF so this would seem inappropriate and at best an internal audit. In 2011 a law was passed establishing an external/supreme audit, however an appointment or operational procedures have yet to be confirmed. Dimension (iii): Accounting Standards Used As indicated above the consolidated government statements are not fully compliant with recognized International Accounting Standards. However, The law stipulates what standards are required and there are incorporated in legal requirements which are publicly available PI Score Score Assessment 2008 2012 PEFA PEFA PI-25 D+ C+ With a strong legal base the consolidated government statement is prepared in a timely manner meeting annual deadlines of July 15 for submission to Parliament and includes, with few exceptions, full information on revenue, expenditure and financial assets/liabilities, including a statement on accounting standards. (i) C B The consolidated financial statements are prepared on a cash basis according to standards incorporated in the relevant legal requirements. The consolidated government statement is prepared annually and includes, with few exceptions, full information on revenue, expenditure and financial assets/liabilities. This is ranked B. (ii) D B The PEFA rating system assumes that there is an external audit and in Page 92 Government of Tajikistan - PEFA Assessment PI Score Score Assessment 2008 2012 PEFA PEFA Tajikistan an external audit does not exist as yet. In this case the reference to external audit is ignored for the scoring and the score is based solely on the timeliness of the submission of consolidated government statement to parliament, which by proxy must act in the audit function. As the new law stipulates July 15 as the submission date, which is within 10-months of year-end and government has compiled in the entire last 3-years then the ranking is B. (iii) D C The consolidated government statements do have the benefit of a strong legal base and do, therefore, have the merit of consistency. All the accounting standards are disclosed. Therefore it is possible to score C. In 2007 it appears the accounting standards in the consolidated government statement were not declared. 3.7. External oversight and legislative scrutiny This set of indicators looks at the quality and timeliness of external scrutiny of the government’s budget estimates as well as the public accounts. Summary of assessment of indicators for PIs 26-28 PI Score Score Assessment 2007 2012 PEFA PEFA External audit is not yet in place, however the Law on the Supreme PI-26: Audit Institution was adopted in 2011 indicating progress and External audit D+ D therefore qualifies for an arrow. The rating in 2007 is overstated (M1) because there were no audit recommendations from a supreme audit as there was none. C+ B+ The legislature through the Parliamentary Committee of Majlisi Namoaydagon Majlisi Oli of RT on Economy and Finance involves itself in the budget formulation much more than in previous PI-27: administrations from the start of the budget process and the Legislative formulation of macroeconomic parameters, budget negotiations and scrutiny of budget (M1) to the final submission of the budget to parliament. Parliament is given adequate time for deliberations on the budget. Changes in support staff (civil servants) after elections could disrupt parliamentary procedures. PI-28: D D As discussed under PI-26, the Law on the Supreme Audit Institution Legislative was adopted in 2011, but no organization has yet been established. scrutiny of There are no external audit reports for parliament to examine. audit reports (M1) Page 93 Government of Tajikistan - PEFA Assessment 3.7.1. PI-26: The scope, nature and follow up of external audit A high quality external audit is an essential requirement for creating transparency in the use of public funds. Key elements of the quality of actual external audit comprise the scope/ coverage of the audit, adherence to appropriate auditing standards including independence of the external audit institution (ref. INTOSAI and IFAC/IAASB), focus on significant and systemic PFM issues in its reports, and performance of the full range of financial audit such as reliability of financial statements, regularity of transactions and functioning of internal control and procurement systems. Inclusion of some aspects of performance audit (such as e.g. value for money in major infrastructure contracts) would also be expected of a high quality audit function. In December 2006 Government Decree dissolved the SFCC. Its successor is the “Agency of State Financial Control and Combating Corruption”, which reports to the President. The combination of the external audit function with the function for corruption control does not conform to international practices. Although the “Agency for Financial Control and Fighting Corruption” was established to take over the functions of the SFCC it has developed a roll as an investigator and should not be perceived as performing an audit function and at best would be considered as an internal audit function. In 2007 the World Bank and GOT reached an agreement that a Supreme Audit Institution reporting to Parliament would be developed. The Law on the Supreme Audit Institution was adopted in 2011, but no organization has yet been established. Dimension (i): Scope/nature of audit performed (incl. adherence to auditing standards) External audit is not yet in place. Dimension (ii): Timeliness of submission of audit reports to legislature External audit is not yet in place. Dimension (iii): Evidence of follow up on audit recommendations External audit is not yet in place. PI Score Score Assessment (M1) 2007 2012 PEFA PEFA PI-26 D+ D▲ External audit is not yet in place, however the Law on the Supreme Audit Institution was adopted in 2011 indicating progress and therefore qualifies for an arrow. The rating in 2007 is overstated because there were no audit recommendations from a supreme audit as there was none. (i) D D External audit is not yet in place (ii) D NA Not Applicable – No Audit function (score as advised by PEFA Secretariat) (iii) C NA Not Applicable – No Audit function (score as advised by PEFA Secretariat) 3.7.2. PI-27: Legislative scrutiny of the annual budget law The power to give the government authority to spend rests with the legislature, and is exercised through the passing of the annual budget law. If the legislature does not rigorously examine and debate the law, that power is not being effectively exercised and will undermine the accountability of the government to the electorate. Assessing the legislative scrutiny and debate of the annual budget law will be informed by Page 94 Government of Tajikistan - PEFA Assessment consideration of several factors, including the scope of the scrutiny, the internal procedures for scrutiny and debate and the time allowed for that process. Tajikistan’s parliament – the Majlisi Oli – consists of two chambers, the Majlisi Milli and the Majlisi Namoyondagon. The Majlisi Milli (upper house) is based on indirect elections by regional councils (3/4) and presidential appointments (1/4). The Majlisi Namoyondagon (lower house) is directly elected by popular vote. Only the lower house is directly involved in the scrutiny of the budget. The current Parliament was elected in February 2010 for five years. In the current lower house, 45 out of a total of 63 deputies are members of the pro-presidential party, the People’s Democratic Party of Tajikistan. Others are: Communist Party of Tajikistan: 2; Islamic Revival Party of Tajikistan: 2; Agrarian Party of Tajikistan: 2; Economic Reform Party of Tajikistan: 2; Independent deputies:10. Resolutions of the Majlisi Namoyandagon resolution are passed by the majority of votes from the total number of deputies, if no other procedure is provided by the Constitution of the Republic of Tajikistan. Execution of resolutions adopted by Majlisi Namoyandagon is obligatory in the territory of the Republic of Tajikistan. The Parliamentary Committee of Majlisi Namoaydagon Majlisi Oli of RT on Economy and Finance (Committee on Economy and Finance) is one of nine parliamentary committees, and consists of 6 deputies (1 chairperson plus 5 members). The committee supported by 2 assistants and 2 senior inspectors. There are no sub-committees of the Committee of Majlisi Namoaydagon Majlisi Oli of RT on Economy and Finance, but the other parliamentary committees review the budget proposals according to their competencies. Dimension (i): Scope of the legislature’s scrutiny In 2012 the Parliamentary Committee of Majlisi Namoaydagon Majlisi Oli of RT on Economy and Finance (Committee on Economy and Finance) involved itself in the budget preparation at an early stage. It reviewed with the Presidential Budget team the macroeconomic parameters that would be used in the budget preparation, in March. Indeed this process was followed in 2011 as stated by a Parliamentarian during the Draft Report workshop who attended those meetings. In June the committee involved itself in the deliberations of the budget ceilings in the for budget priorities of Government of Tajikistan and the identification of budget ceilings by sectors. It finally took part in the government wide deliberations in September on finalizing the budget before submission to parliament. However, the finalization of the budget in 2012 for 2013 is delayed due to the significance of the new tax law on government revenues and it awaits parliamentary passing of this law. Parliament reviews the proposed budget once it has been finalized and adopted by the government. The deadline for forwarding the proposed budget to parliament is November 1 (Article 43 of the Law on Public Finance, 2011). The volume and quality of information submitted to parliament has improved since 2007 (see PI-6) but there is no provision in the Law on Public Finance for input by parliament before November. Thus the focus of the review is inevitably on the detailed proposals, however parliament relies on Page 95 Government of Tajikistan - PEFA Assessment recommendations from the Parliamentary Committee of Majlisi Namoaydagon Majlisi Oli of RT on Economy and Finance, which has earlier been engaged on a review of policies, medium term strategies and budget formulation. Parliament did not formally examine the administrative classification of the 2012 budget proposals, only the functional allocations. Dimension (ii): Extent to which the legislature’s procedures are well-established and respected The parliamentary internal procedures contain rules for the review of the budget. The Committee of Majlisi Namoaydagon Majlisi Oli of RT on Economy and Finance and all other committees and commissions of the Majlisi Namoyandagon review the draft budget. There is evidence that there exists a dialogue between all parties involved in the budget formulation, including a phase where the draft budget is presented to SN Government, Central Government, Parliament, private sector and media. There is a risk element and that is following elections it is traditional for support staff, and staff in the parliament’s secretariat to change together with MPs and therefore do not provide a base for institutional memory and continuity. The lack of parliamentary scrutiny over the administrative classification for the 2012 budget shows that the procedures need to be updated. Dimension (iii): Adequacy of time for the legislature to provide a response to budget proposals both the detailed estimates and, where applicable, for proposals on macro-fiscal aggregates earlier in the budget preparation cycle (time allowed in practice for all stages combined). Parliament reviews the proposed budget once it has been finalized and adopted by the government. The deadline for forwarding the proposed budget to parliament is November 1 (Article 43 of the Law on Public Finance, 2011). However, they are heavily involved in the budget formulation process from February onwards. Parliament then has until December 31 to review the budget. In practice the budget is always review and approved well in time to issue the budget to government for the start of the new fiscal year. Dimension (iv): Rules for in-year amendments to the budget without ex-ante approval by the legislature According to the 2011 Law on State Finances (article 51): “In case of decrease or increase of budget receipts, which can lead to changes in revenues of the state budget for less than 10% of the annual approved budget, the Government of the Republic of Tajikistan has a right to decide to amend the revenues and expenditures of state budget without changing the amount of budget deficit. The mentioned decision should be communicated with Majlisi Namoyandagon Majlisi Oli of the Republic of Tajikistan within 5 days and subjected to mandatory publication” “In case of reduction or increase of budget receipts, which can lead to changes in state budget revenues for 10% or more of annual approved budget, the Government of the Republic of Tajikistan submits to Majlisi Namoyandagon Majlisi Oli of the Republic of Tajikistan a draft law of the Republic of Tajikistan on amending the law of the Republic of Tajikistan on state budget of the Page 96 Government of Tajikistan - PEFA Assessment Republic of Tajikistan or draft law of the Republic of Tajikistan on supplementary state budget of the Republic of Tajikistan together with required documents”. Article 55 states that “Approved budget expenditures of ministries, agencies, and other budget organizations can be changed and reallocated by the resolution of the Government of the Republic of Tajikistan in cases provided for in the state budget law of the Republic of Tajikistan for the next fiscal year.” If there are revenue surpluses and additional funds become available, MoF is able to allocate these funds without the need for Parliamentary approval provided the budget is not exceeded by more than 10 per cent. The Government’s freedom to allocate excess revenue up to a limit of 10 per cent without parliamentary approval is of particular concern. The process is not transparent and parliament cannot easily determine whether the extra budgets are allocated on a rational and fair basis. The substantial allocations from the Reserve Fund of the President (amounting to 2 per cent of total expenditures – Article 46) are also outside normal parliamentary controls however disbursements are documented and communicated to parliament on a regular basis. PI Score Score Assessment (M1) 2007 2012 PEFA PEFA PI-27 C+ B+ The legislature through the Parliamentary Committee of Majlisi Namoaydagon Majlisi Oli of RT on Economy and Finance involves itself in the budget formulation much more than in previous administrations from the start of the budget process and the formulation of macroeconomic parameters, budget negotiations and to the final submission of the budget to parliament. Parliament is given adequate time for deliberations on the budget. Current practice of changing support staff (civil servants) after elections could disrupt parliamentary procedures with a loss of institutional memory. (i) C B The legislature’s review covers fiscal policies and aggregates for the coming year as well as detailed estimates of expenditure and revenue. Medium Term Fiscal Frameworks and Medium term Expenditure Frameworks are currently being introduced but do not yet form part of the official budget review by parliament. (ii) C A The legislature’s procedures for budget review are firmly established and respected. They include internal organizational arrangements, such as specialized review committees, and negotiation procedures. Parliament reviews the proposed budget once it has been finalized and adopted by the government. The deadline for forwarding the proposed budget to parliament is November 1 (Article 43 of the Law on Public Finance, 2011). (iii) A A The legislature has at least two months to review the budget proposals. (iv) C B Clear rules exist for in-year budget amendments by the executive, and are usually respected, but they allow extensive administrative reallocations. 3.7.3. PI-28: Legislative scrutiny of external audit reports Page 97 Government of Tajikistan - PEFA Assessment The legislature has a key role in exercising scrutiny over the execution of the budget that it approved. A common way in which this is done is through a legislative committee(s) or commission(s) that examines the external audit reports and questions responsible parties about the findings of the reports. As discussed under PI-26, the Law on the Supreme Audit Institution was adopted in 2011, but no organization has yet been established. There are no external audit reports for parliament to examine. Dimension (i): Timeliness of examination of audit reports by the legislature No reports exist, because the SAI does not yet exist. Dimensions (ii): Extent of hearings on key findings undertaken by the legislature No hearings are undertaken. Dimension (iii): Issuance of recommended actions by the legislature and implementation by the executive No recommendations are made. PI Score Score Assessment (M1) 2007 2012 PEFA PEFA PI-28 D D As discussed under PI-26, the Law on the Supreme Audit Institution was adopted in 2011, but no organization has yet been established. There are no external audit reports for parliament to examine. (i) D D No reports exist, because the SAI does not yet exist. (ii) D NA Not Applicable – No function existing (Score advised by PEFA Secretariat) (iii) D NA Not Applicable – No function existing (Score advised by PEFA Secretariat) 3.8. Donor practices This section assesses donor practices, which impact upon the performance of a country PFM system. These practices are the exclusive responsibility of the donors and are primarily outside the authority of the Government of Tajikistan. Summary of assessment of indicators for PIs D1-D3 PI Score Score Assessment 2007 2012 PEFA PEFA In no more than one out of the last three years has direct budget support outturn fallen short of the forecast by D-1: Budget support D+ C more than 15%, 2009 and 2010 fell short by 13% and 14% respectfully, it has to be less then 10% to qualify for B, therefore it is rated C D-2: Financial Performance is improving, as Ministry of Finance did information provided D+ C not have this information in the last review. by donors (M1) D-3: Use of country The share of foreign aid funds allocated to the Page 98 Government of Tajikistan - PEFA Assessment systems Government of RT and managed according to national D D procedures, in four areas of activity, such as public procurement, payments/accounting, audit and submission of reports, is less than 50 per cent. The total score is D. 3.8.1. D-1: Predictability of Direct Budget Support Direct budget support constitutes an important source of revenue for central government in many countries. Poor predictability of inflows of budget support affects the government’s fiscal management in much the same way as the impact of external shocks on domestic revenue collection. Both the shortfalls in the total amount of budget support and the delays in the in-year distribution of the in-flows can have serious implications for the government’s ability to implement its budget as planned. In accordance with the “Development partner profiles, 2011”9, currently foreign aid for development in Tajikistan involves approximately 80 partners including bilateral and multilateral donors as well as non-governmental organizations. The landscape of foreign aid in Tajikistan is constantly shifting. While some partners started phasing out, others have been expanding their activities. The share of so-called “new donors” has grown in the recent years. The number of projects implemented by NGOs at local level has been increasing. Aid modalities are also changing. A number of partners have started to provide direct budget support; cooperation with global programmes or vertical funds providing aid to address specific challenges, such as the fight against AIDS, tuberculosis and malaria, for instance, gained speed. Increasingly complex aid architecture requires adequate coordination and coherent actions to avoid overlaps and increase effectiveness. The State Committee on Investments and State Property Management is the Government body in the Republic of Tajikistan responsible for coordination of foreign aid. In November 2009 the Government of the Republic of Tajikistan and development partners signed a Joint Country Partnership Strategy (JCPS) for 2010-2012. The Chairman of SCI acting on behalf of the Government of Tajikistan together with 12 leading development partners signed this paper. JCPS is a result of joint efforts by the Government of Tajikistan and development partners to determine a common strategic vision and uniform guidelines for more effective aid coordination and distribution. The Common goals of JCPS partners and the Government aimed at increasing effective aid coordination and management are:  a single strategy – National Development Strategy of Tajikistan for the period to 2015;  a single mechanism of coordination stipulating interaction of Donor Coordination Council acting on behalf of the Development Partners and SCI on behalf of the Government and other ministries and agencies concerned; and  a single system of monitoring and evaluation based on the National Development Strategy and Poverty Reduction Strategy. 9 Development partner profile 2011, State Committee on Investments and State Property Management of the Republic of Tajikistan in cooperation with the UNDP and DFID, Dushanbe, 2011 Page 99 Government of Tajikistan - PEFA Assessment Dimension (i): Annual deviation of actual budget support from the forecast provided by donor agencies at least six weeks prior to the government submitting its budget proposals to the legislature The budget support figures are shown in the budget law and budget reports for each year. Table 29: Budget support, thousands Somoni Budget support, thousands somoni Planned Actual Devialtion, % 2008 357810 389809 -9% 2009 259127 291666 -13% 2010 226235 258818 -14% Source: Ministry of Finance It appears from the Table that there is no shortfall, however there is no indication as to when the support was received. This is important, because if the funds are received either in the 3rd or 4th quarter when they were promised in the 1st quarter then it is difficult for disbursement under current budget law for that year – usually the budget support funds are not insignificant. Table 24 below gives a quarter analysis. Assessment In no more than one out of the last three years has direct budget support outturn fallen short of the forecast by more than 15%, 2009 and 2010 fell short by 13% and 14% respectfully, it has to be less then 10% to qualify for B, therefore it is rated C (refer table 24 below). Dimension (ii): In-year timeliness of donor disbursements (compliance with quarterly estimates) Page 100 Government of Tajikistan - PEFA Assessment Table 30: In year timeliness of donor disbursements Data for year = 2008 agreed forecast actual planned actual delayed cumulative Quarter of fiscal year (amount) disbursed quarter for delayed in amount as delayed (amount) actual (*) each period share of total amount as quarter 1 45513 69452 49,583 -19869 -5.1% -5.1% quarter 2 190424 79291 207,454 128163 32.9% 27.8% quarter 3 59933 203601 65,293 -138308 -35.5% -7.7% quarter 4 61940 37465 67,479 30014 7.7% total for the year 357810 389809 389809 0 0.0% 15.0% Table 3 Data for year = 2009 agreed forecast actual planned actual delayed cumulative Quarter of fiscal year (amount) disbursed quarter for delayed in amount as delayed (amount) actual each period share of total amount as quarter 1 48165 80490 54,213 -26277 -9.0% -9.0% quarter 2 141035 39343 158,745 119402 40.9% 31.9% quarter 3 28900 47148 32,529 -14619 -5.0% 26.9% quarter 4 41027 124685 46,179 -78506 -26.9% total for the year 259127 291666 291666 0 0.0% 49.8% Table 4 Data for year = 2010 agreed forecast actual planned actual delayed cumulative Quarter of fiscal year (amount) disbursed quarter for delayed in amount as delayed (amount) actual each period share of total amount as quarter 1 26028 20806 29,777 8971 3.5% 3.5% quarter 2 57667 50968 65,972 15004 5.8% 9.3% quarter 3 27040 31895 30,934 -961 -0.4% 8.9% quarter 4 115500 155149 132,135 -23014 -8.9% total for the year 226235 258818 258818 0 0.0% 21.6% Table 5 - Results Matrix D-1 dimension (i) D-1 dimension (ii) deviation of actual budget in-year disbursement year support from forecast delays for budget support 2008 -8.9% 15.0% 2009 -12.6% 49.8% 2010 -14.4% 21.6% Scores Score for dimension (i): c Score for dimension (ii): d (Scoring Method M1) Overall score for indicator D-1: D+ It appears year 2010 provides the least amount of delay in disbursement of development partner funding. In previous years delays were fairly dramatic. Of course all development partners have huge governance hurdles to negotiate and obtain approvals, however this should be reflected in the planned and agreed forecast. Assessment The score of the second dimension - timeliness of in-year funds allocation by donors - is D, as the requirements for score c (or higher) are not met and quarterly estimates related to funds allocation were not reconciled with donors in the beginning of the fiscal year. PI Score Score Assessment 2007 2012 PEFA PEFA D-1 D+ D+ The deviation of actual budget support from forecast in 2010 was close to (i) C C 15% and the in-year disbursement delays were 22% - both significant and (ii) D D have major effects on government activities and service delivery. Page 101 Government of Tajikistan - PEFA Assessment 3.8.2: D-2: Financial information provided by donors for budgeting and reporting on project and programme aid Predictability of disbursement of donor support for projects and programs affect the implementation of specific line items in the budget. Dimension (i): Completeness and timeliness of budget estimates by donors for project support Table 31: Financing of Public Investment Program from all sources, in 2010, in USD million Plan Actual Donors Total Loans Grants GT Total Loans Grants GT China 87.2 82.2 0 5 111.3 105.8 0 5.5 ADB 70.9 43.4 15.6 11.9 62.8 37.3 13.8 11.7 World Bank 48.9 12 34.2 2.7 49.7 15.1 31.75 2.8 PHRD, JFPR 23.4 0 23.3 0.1 23.4 0 23.3 0.1 Islamic Bank 16.9 15.1 0 1.8 19.6 12.5 0 7.1 EBRT 7.3 2.4 4.9 0 4.3 0.4 3.9 0 Other donors 14.1 8.4 4.6 1.1 14.05 9.6 3.85 0.6 Total 268.8 163.5 82.6 22.6 285.2 180.7 76.6 27.8 Source: MoF 2010 report Table 32: Structure of Foreign funding projects by donors, in 2010, percentage of total Plan Actual Total Loans Grants GT Total Loans Grants GT China 32% 50% 0% 22% 39% 59% 0% 20% ADB 26% 27% 19% 53% 22% 21% 18% 42% World Bank 18% 7% 41% 12% 17% 8% 41% 10% PHRD, JFPR 9% 0% 28% 0% 8% 0% 30% 0% Islamic Bank 6% 9% 0% 8% 7% 7% 0% 26% EBRT 3% 1% 6% 0% 2% 0% 5% 0% Other donors 5% 5% 6% 5% 5% 5% 5% 2% Total 100 100 100 100 100 100 100 100 Source: derived from the data of the MoF 2010 report The first dimension is assigned the score of С, because at least half of donors (including five major ones - WB, EBRD, ADB, SECO, Japan) submit comprehensive budget estimate of resources, allocated for projects financing for the following fiscal year, not later than within three months before the beginning of the fiscal year. However, these reports are based on classification used by donors, which is inconsistent with the budget classification used by the government. Dimension (ii): Frequency and coverage of reporting by donors on actual donor flows for project support The second dimension is assigned the score of С, because donors submit quarterly reports related to all funds, allocated to cover, at least, 50 per cent of budgeted expenditures of projects, financed out of external sources, within two months after the end of the quarter. Nevertheless, this data is not always submitted with the breakdown, consistent with used budget classification. Page 102 Government of Tajikistan - PEFA Assessment PI Score Score Assessment (M1) 2007 2012 PEFA PEFA D-2 D+ C Performance is improving, as Ministry of Finance did not have this information in the last review. (i) D C The first dimension is assigned the score of С, because at least half of donors (including five major ones - WB, EBRD, ADB, SECO, Japan) submit comprehensive budget estimate of resources, allocated for projects financing for the following fiscal year, not later than within three months before the beginning of the fiscal year. However, these reports are based on classification used by donors, which is inconsistent with the budget classification used by the government. (ii) C C The second dimension is assigned the score of С, because donors submit quarterly reports related to all funds, allocated to cover, at least, 50 per cent of budgeted expenditures of projects, financed out of external sources, within two months after the end of the quarter. Nevertheless, this data is not always submitted with the breakdown, consistent with used budget classification 3.8.3. D-3: Proportion of aid that is managed by use of national procedures National systems for management of funds are those established in the general legislation (and related regulations) of the country and implemented by the mainstream line management functions of the government. The requirement that national authorities use different (donor-specific) procedures for the management of aid funds diverts capacity away from managing the national systems. This is compounded when different donors have different requirements. Conversely, the use of national systems by donors can help to focus efforts on strengthening and complying with the national procedures also for domestically funded operations. The share of foreign aid funds allocated to the Government of RT and managed according to national procedures, in four areas of activity, such as public procurement, payments/accounting, audit and submission of reports, is less than 50 per cent. The total score is D. PI Score Score Assessment 2007 2012 PEFA PEFA D3 D D The share of foreign aid funds allocated to the Government of RT and managed (i) according to national procedures, in four areas of activity, such as public procurement, payments/accounting, audit and submission of reports, is less than 50 per cent. The total score is D. Page 103 Government of Tajikistan - PEFA Assessment 4. Government reform process 4.1 Recent and on-going reforms The recent and on-going PFM reforms can be summarised as follows:  In 2009 a PFM Council was established that adopted a 10-year PFM reform strategy to be implemented on the basis of rolling 3-year PFM action plans. Overall implementation success has not kept pace with expectations, however is viewed as largely successful because important deferrals and lags can be explained by unexpected occurrences (EU support);  In 2010 new guidelines for internal auditing in ministries were introduced and the Ministry of Finance (MOF) adopted a medium-term expenditure framework (MTEF) with specific guidelines (EU MTEF project);  The Administrative Classification at Local Level was approved in May 2011 (EU support);  The Public Finance Law (PFL), which incorporates MTEF, was drafted by the EU MTEF project and was approved by Parliament in June 2011;  The law for a “Supreme Audit Institution” was approved in June 2011 (through support by SCO) and during the period of PEFA assessment in September 2012 staff were in the process of being appointed and the SAI being made operational;  Progress has been made regarding the treasury single account (TSA) and cash management and commitment control is being developed (assisted by the IMF regional advisor). The introduction of the new unified chart of accounts (UCOA) has been delayed due to the language problem. Laws need to be approved by the Government in their Tajik version, but the translation has constraints regarding terminology problems which are not represented in the Tajik language. Support is continuing for the UCOA; (Joint trust fund project supported by EU)  The Government of Tajikistan has accepted the Turkish offer to use their financial management information system (FMIS) software (SGB.net); (through the mentioned Joint Trust Fund project supported by EU).  Budget Execution Reports are published regularly and automation of budget execution implemented in all local branches of MOF (local treasury offices and local budget departments, supported by EU);  MOF has adopted the MTEF budget calendar (issued instructions in good quality to line ministries and according to schedule, and line ministries are preparing their plans) both without TA, (EU support);  Reforms of the tax administration have started with a significant change scheduled for January 2013 (supported by ADB);  Public procurement law is being addressed, as is the public debt management strategy (2012-2014), (World Bank support);  The Government committed itself to work out a new tax code in open discussion with private sector until September 2012 and the result will be modifications in January 2013, (IMF and IFC, and other donor support). However, there are also many weaknesses in the PFM system, which, inter alia, include:  The fiscal framework for budget planning is not yet fully reliable.  Insufficient linkages between the budget and the policies, notably because of the limited role of line ministries in sectorial policy formulation, fragmented budgeting processes and lack of analytical material in the budget documents on new policy initiatives and their budgetary implications. Page 104 Government of Tajikistan - PEFA Assessment  Weaknesses in financial reporting and accounting, including lack of proper expenditure commitment monitoring, lack of reporting of quasi-fiscal expenditures made by state owned enterprises (SOEs), despite their significant magnitude, lack of evaluation of fiscal risks and government expenditures. Data on arrears are captured by the budget organizations’ accounting system, but not by the Treasury’s accounting system. There is a split between the accounting systems used by the Treasury and by budget organisations.  Lack of administrative (organizational) budget classification, which is required for accountability.  Weak payroll control and internal audit.  Weak external audit. As mentioned the new external court of auditors is scheduled to become operational in 2012 but currently there is no audit of budget execution reports and it is currently not clear whether it will be organized according to the International Organization of Supreme Audit Institutions (INTOSAI) principles and whether it will be independent from the Executive. 4.2 Current areas of focus10 There are eight (8) current core reform components:  Strategic planning and budget preparation  Budget Execution and Treasury Operations  Public Sector Accounting  Internal and External Audit and Control  Monitoring, evaluation and feedback  PFM Information & Communications Technology  Institutional reforms, fiscal decentralization and capacity building  PFM Human Capacity Strategic planning and budget preparations Macroeconomic and fiscal forecasting: with EU TA support three forecasting models have been developed:  The Production and Trade Model  The Government Revenue Model  The Financial Flows Model The challenges are (i) to ensure these models are utilized by the MoF, NBT and MoEDT and (ii) consistent forecasts are developed by the above three organizations, which forecasts should then form the basis of the sector resource ceilings used for budget preparation. Policy based budgeting and 3-year Budgeting: Previous TA has developed guidelines and methodology and there have been improvements in the organization of the budget process. A major issue remains the integration of capital (investment) and recurrent expenditure budgets. “Guidelines on regulation of budget interrelationships in preparation process, execution and reporting on the budget within the departmental classification of local 10 This section is a summary of the latest PFM Monitoring Report Page 105 Government of Tajikistan - PEFA Assessment budgets of the RT” have been issued and should be approved in the near future. Also Key Performance Indicators (KPI) as the basis for allocating and monitoring expenditure and performance have been identified for the social sectors. Integration of investment (capital) budget: this has been deferred until 2014 Budget Classifications: As stated in the above PEFA Report the 2013 budget instructions have been based on the existing budget classification not the new Unified Chart of Accounts (UCOA). The target is to use the UCOA for 2014 budget. Monitoring Budget Execution: There are already in place systems for monitoring state budget execution. These are based on consolidated reports produced by Treasury. A methodological guideline on preparation of a "Report on Tajikistan state budget execution“ has been developed but not implemented. Budget capacity building: Because of the delay in mobilizing TA the budget Training Needs Assessment (TNA) has been delayed. Government borrowing and Public Debt Management: The “Public Debt Management Strategy for 2012\2014” has been adopted as Decree 199 of the Government of Tajikistan dated April 30, 2012. Internal guidelines on external debt statistics for the Main Department of Public Debt Management of the MOF are under development. Budget Execution and Treasury Operations Strategic development plan for Main Department of Central Treasury (MDCT) (approved): The restructuring of MDCT is part of the approved Treasury Strategy and has been documented in the MDCT Functional review of June 2007. It requires a Ministerial Order to be implemented. The restructuring will require TA support and this support has been delayed. Cash and commitment management: The principles of cash and commitment management have been approved as part of the Treasury Strategy. Implementation will require TA support, MDCT restructuring, Business process reform and functioning modules within SGB.net. Treasury staff capacity: This is behind schedule. Treasury Single Account (TSA): The Treasury Single Account (TSA) has been implemented at the Republican level. The TSA for local level budgets has been implemented on a pilot basis in five districts of Dushanbe city. Public Sector Accounting Public Sector Accounting Strategy: A Strategy has been adopted and a funding agreement between GoRT and SECO has been signed. However, TA support will be delayed until the end of 2012. Hence, it is unlikely that the new UCOA can be implemented until 2014. Unified Charts of Accounts: The UCOA has been approved. Page 106 Government of Tajikistan - PEFA Assessment Adoption of final set of IPSAS standards: Unclear when this might happen. Internal and External Audit and Control Supreme Audit Institution (SAI): The Law "On the Accounting Chamber of the Republic of Tajikistan" was enacted on June 29, 2011. A Presidential Decree!" On the Chamber of Accounts " has been signed. Parliamentary oversight: A plan has been approved for the Secretariat of the Parliament to strengthen capacity of the Committee of Majlisi Namoaydagon Majlisi Oli of RT on Economy and Finance. A Training Needs Analysis (TNA) has been carried out and a training plan designed for 2012\2013. Training has been initiated and a study tour undertaken. The objective is to ensure effective participation of the Committee of Majlisi Namoaydagon Majlisi Oli of RT on Economy and Finance in parliamentary hearings on budget execution for 2012\14. Internal audit and financial control: The “State Internal Audit and Financial Control Department” has been established. Within this Department a Central Harmonization Unit has been authorized but is not as yet operational. Some 25 internal audit units have been created. Monitoring, evaluation and feedback Improve the quality of information published by MoF: Since 2006 the MoF has regularly published on its web site budget execution reports, performance reports, instructions on the budget formation, information about public External debt and about fiscal policy. At present most of the information is only available in Russian. There is an ongoing process of improving the web site information. Monitoring of State Owned Enterprises (SOEs): The SOE Monitoring Unit has been formed and become operational. The Unit monitors 16 SOEs with capital greater than100,000 Somoni. Fiscal reports are submitted to the Unit, which then produces quarterly reports. These reports are based on 10 financial ratios. PFM Information & Communications Technology Concept for ICT modernization: A discussion paper on MoF restructuring has recommended as follows: “The IT Centre becomes the Intergovernmental Financial Operations Support Centre (IFOSC). The IFOSC will be the IT service provider for the MoF. The IT Division will be absorbed within the IFOSC. The IFOSC will be responsible for all MoF hardware, IT systems and networks. User departments will be responsible for the data. The IFOSC will be funded by service charges to user Departments and BOs.” It is unlikely that this restructuring will be implemented before 2013. IT Centre: The IT Centre construction has been completed. Government is procuring furniture. Information Security: An information security policy has been prepared. A request has been sent to the Main Department on State Secrets protection to create a Certification Centre. Page 107 Government of Tajikistan - PEFA Assessment Interim consolidation of the publication and local budgets: The Budget Preparation Software (BPS) and upgraded Treasury Management Information System (TMISv2) (the latter for budget execution and recording) has been installed at the 73 Local Finance Offices (LFOs). Interfaces for exchange of information between the two systems have been established. All LFOs are now using BPS/TMISv2 for preparing and executing the Republican Budget. Training of trainers was conducted in 2011 to support the above systems. Additional training is being conducted in 2012 funded from the Government budget. IT support to Treasury Single Account: Existing information systems are supporting the new concept of Treasury Single Account. Interim FMIS upgrade (SGB.Net): The Government of Tajikistan has signed a Protocol with the Government of Turkey for the use of the Turkish government financial management system “SGB.Net”. The adaption of SGB.Net is a second stage interim upgrade of the GoRT FMIS. This will replace both BPS and TMISv2. Preparation of unified network of information exchange: This is concerned with tax administration and new systems for revenue collection achievements to date include; (i) Preparing and approving electronic data formats, (ii) Developing and approving instructions for use in payment receipts, (iii) Training taxpayers and bank staff, (iv) Guidelines for communication and security, and (v) Modifying existing software for interface with new systems. In April 2012 a virtual test of the new systems was carried out. Acquisition of Commercial Off The Shelf (COTS) based FMIS: The intention is that ultimately a COTS application will be implemented as the final stage of upgrading FMIS. Institutional reforms, fiscal decentralization and capacity building PFM functions of line ministries: A discussion document on the restructuring of the MoF has been prepared and is under consideration. This incorporates where appropriate the recommendations of the Vertical Functional Review of the MoF, the approved Treasury and HR Strategies, and also the creation of intergovernmental Financial Operations Support Centre (IFOSC). Budget allocation among different levels of government: A training of trainers course was held for employees of the Office of Public Service at the Institute for Advanced Studies of Civil Servants. As a result 17 trainers from 50 selected Jamoats were trained to carry out a functional analysis. The functional analysis was then conducted in 50 Jamoats where 260 respondents were interviewed. The Research Centre “Zerkalo” processed the data. In addition the MoF and USAID completed collected information from all 427 Jamoats of the Country regions on Jamoats’ revenues and expenditures for 2009 –2012. This data has been analyzed to identify Jamoats’ fiscal capacity for financing Jamoats according to their Functional duties. Improve the efficiency and effectiveness of revenue collection: Systems, taxpayer registration and collection of taxes still pose major challenges. The Tax Administration Reform and Modernization Project has been mobilized and an Inception and Interim Reports submitted. An updated IT Development Strategic Plan for the Tax Committee is being prepared. Work has begun on designing, mapping and describing the future tax Page 108 Government of Tajikistan - PEFA Assessment administration and business processes. The design also encompasses processes for audit, appeals, collection processing, registration, filing and payments. A new electronic registration process has been developed and piloted. Large and medium taxpayers are gradually adopting “E\filing” of tax returns. PFM Human Capacity PFM Training: A PFM Training Strategy has been adopted. Finance Institute and Finance Research Centre: The Finance Institute has been the subject of considerable physical upgrading financed by the Government. MoF Training Centre: The Centre has been the subject of substantial physical upgrading and is equipped with the latest technology All of the above issues and components are being monitored on a quarterly basis jointly between the Government and Development Partners. Page 109 Government of Tajikistan - PEFA Assessment Annex 1: Detailed Indicator & Dimension Scores PFA: BUDGET CREDIBILITY Score Score Performance changes 2007 2012 PEFA PEFA PI-1 Aggregate expenditure B A Performance improved. The previous assessment (M1) out-turn compared to noted conservative budgeting on revenue original approved budget collections and when revenue exceeded expectations then reallocations of expenditure took place. This resulted in high fluctuations between planned and executed budgets. However, budget predictions, apart from 2009 when there was a fiscal crisis, have proved to be more accurate with deviations less than 5% PI-2 Composition of C C+ The 2007 assessment was according to a previous (M1) expenditure out-turn methodology and the results are not directly compared to original comparable. Using the PEFA assessment approved budget methodology an analysis of expenditure composition highlights that there are significant differences between the original plan and the actual allocation of funds to sectors and this will need more attention to achieve a higher score. The contingency funds should be reallocated to those votes against which the unforeseen expenditure is recorded not as in current practice of maintaining separate accounts, which distort the expenditure by sector. However, the contingency funds are not significant. c The variance in expenditure composition over the Dimension (i) Variance last 3-years was on average 11.8% therefore it in expenditure qualifies for a C rating assessed as has not composition, excluding exceeded 15% in no more than one of the last three contingency items years. b The average actual expenditure charged to the Dimension (ii) The contingency vote being the Reserve Fund of the average amount of President and the fund for unforeseen expenditure expenditure actually charged to the was on average 5.9% over the last 3-years which is contingency vote over more than 3% but less than 6% of the original the last three years. budget and therefore will score a B. PI-3 Aggregate revenue out- A B The 2007 assessment was according to a previous (M1) turn compared to methodology and the results are not directly original approved budget comparable. If we discard the special funds of budget organizations then the 2012 score would be A. Revenue has marginally exceeded budget in the last 2-years 2011 & 2012. Before this period forecasting was quite erratic, due to an historical tendency in former soviet controlled states to understate potential revenues. PI-4 Stock and monitoring of C+ D+ Performance Unchanged. In 2007 there appears to (M1) expenditure payment be a typo error in the rating and the score should arrears have been a B. In addition, the rating of Dimension Page 110 Government of Tajikistan - PEFA Assessment (ii) may be too high in 2007 as there is no data on the stock of arrears, only the level and balance of liabilities. Dimension (i) Stock of a a expenditure payment Since total liabilities will by definition be higher arrears (as a than total arrears, on the basis of the information percentage of actual provided, that in each of the last 3-years the ratio total expenditure for of liabilities to total primary expenditure is less the corresponding than 2%, then arrears must be less than 2%. fiscal year) and any Therefore score for dimension (i) is A. recent change in the stock Dimension (ii) c d The systems at year end appear to be robust and Availability of data for liabilities are determined to be low, however there monitoring the stock of is no age profile of data and no data on arrears, expenditure payment therefore the score must be rated D. arrears. B. KEY CROSS-CUTTING Score Score Performance changes ISSUES: Comprehensiveness 2007 2012 and Transparency PEFA PEFA PI-5/ Classification of the Performance Improved. In 2007 only functional M1 budget and an economic classifications were in use for budget preparation. Now the classifications have B▲ been expanded to include Administrative and Program classifications, however they are not operating at full strength yet. The arrow designates D ongoing improvement. PI-6/ Comprehensiveness of A A Performance Unchanged. The recent budget M1 information included in documentation submitted to parliament fulfills 7-9 budget documentation of the 9 information benchmarks and therefore the score is assessed as A. PI-7/ Extent of unreported C+ B+ Performance Improved. The financial statement M1 government operations and system has improved over the period 2008 - 2012 such that extra budgetary expenditure is low and the system for recording development partner loans, grants and state debt has improved. Dimension (i) The b b As there is no information on special funds of the level of extra- local budget the score for this dimension is budgetary expenditure estimated as B (same as 2007 PEFA) – i.e. the level (other than donor of extra budgetary expenditure (other than donor funded projects) which funded projects) constitutes 1-5% of total is unreported expenditure. Dimension (ii) Income c a The financial statements include loans, grant and /expenditure state debt to China and therefore complete information on donor- income/expenditure information for donor-funded funded projects which projects is included in fiscal reports, except inputs is included in fiscal provided in-kind. reports. PI-8/ Transparency of Inter- B B+ Performance improved. Since 2007 there were new M2 Governmental Fiscal developments and initiatives introduced in general Relations budget formulation and reporting processes which affected transparency and rules of the horizontal allocation of transfers among SN governments and Page 111 Government of Tajikistan - PEFA Assessment the timelines of reliable information to SN governments. Dimension (i) c b The first dimension is assigned with the score of B, Transparent and rules because allocation of transfers, apart from based systems in the Presidential allocations, horizontally is carried out horizontal allocation in the framework of transparent and rules-based among SN arrangements and at least 50% of the transfers governments of adhere to these allocation rules. unconditional and conditional transfers from central government (both budgeted and actual allocations); Dimension (ii) c b SN governments are provided reliable information Timeliness of reliable on the allocations to be transferred to them ahead information to SN of completing their budget proposals, so that governments on their significant changes to the proposals are still allocations from possible. central government for the coming year; Dimension (iii) Extent a a Fiscal information (ex-ante and ex-post) is to which consolidated consistent with central government fiscal reporting fiscal data (at least on of SN government expenditure and is consolidated revenue and into annual reports within 10 months of the end of expenditure) is the fiscal year. collected and reported for general government according to sectoral categories. PI-9/ Oversight of aggregate C C+ Performance Improved. The assessment of M1 fiscal risk from other aggregate risk at the significant level of major AGA public sector entities and PE is now monitored by an agency that was not fully operational during the PEFA of 2007. Whilst the monitoring of the budget execution system at SNL is strong there is no system for assessing aggregate risk in a consolidated fashion. Dimension (i) Extent c a All major AGAs/PEs submit fiscal reports to of central government central government, through the SOE monitoring monitoring of department, on a quarterly basis. In addition, autonomous annual audited accounts are submitted and central government agencies government through the SOE monitoring (AGA) and public department consolidates fiscal risk issues into a enterprises (PE), report at least annually, therefore this dimension is rated A. Dimension (ii) Extent c c As in the PEFA assessment of 2007 it is found that of central government monitoring of the budget execution process is monitoring of SN strong. Reports are received monthly for SNL governments‟ fiscal financial activities but there is no consolidated position. overview of potential financial risk. Therefore a ranking of C is assessed. PI-10/ Public access to key D C Performance Improved. The assessment is based M1 fiscal information on an improved information system through websites and to say that there is no information would be harsh. Even in the 2 areas where the team Page 112 Government of Tajikistan - PEFA Assessment has assessed a positive answer there are shortcomings. However, it is recognized that the government has made an initial start to appointment an external auditor and when this appointment is made then improvements will be seen. C. BUDGET CYCLE Score Score Performance changes 2007 2012 PEFA PEFA C (i) Policy-Based Budgeting Orderliness and B B+ Performance Improved. Whilst there has been PI-11/ participation in the some delays experienced in the last 3-years the M2 annual budget process Budget has always been approved by the legislators before the start of the year. It is therefore concluded that the system is robust With clear participation at all levels of government. The improvement stems from the Parliamentary Budget Commission being involved at a much earlier stage and is also actively following the budget process. Dimension (i) b b A clear annual budget calendar exists and the Existence of and calendar allows MDAs five weeks from receipt of adherence to a fixed the budget circular for them to meaningfully budget calendar complete their detailed estimates on time. Dimension (i) therefore is rated a B. Dimension (ii) d b A comprehensive and clear budget circular is Guidance on the issued to MDAs, which reflects ceilings approved preparation of budget by Cabinet (or equivalent). This approval takes submissions place after the circular distribution to MDAs, but before MDAs have completed their submission. Dimension (iii) Timely a a The legislature has, during the last three years, budget approval by the approved the budget before the start of the fiscal legislature year and therefore scores A. PI-12/ Multi-year perspective in D+ D+ Performance Unchanged. The new Law on State M2 fiscal planning, finance was adopted in 2011, which incorporated expenditure policy and three-year forward-looking budget. Three year budgeting forward budget planning was introduced in social sectors. The debt strategy for 2009 – 2011 was adopted in 2008, in the last five years the debt sustainability analysis reports were written annually and have being posted on the MoF website. Dimension (i) Multi- c c Forecasts of fiscal aggregates (on the basis of year fiscal forecasts economic and functional classifications) are and functional prepared and included in the State Budget and allocations three-year MTEF on a rolling annual basis. Dimension (ii) Scope c b DSA for external and domestic debt is undertaken and frequency of debt at least once during the last three years. sustainability analysis Dimension (iii) c d Sector strategies may have been attempted for some Existence of costed sectors, but none of them have substantially sector strategies complete costing of investments and recurrent expenditure Dimension (iv) d d Budgeting for investment and recurrent expenditure Linkages between are in practice separate processes with no investment budgets recurrent cost estimates being shared, even though and forward the Budget Department of the MoF are adamant expenditure estimates that the linkage is there, the assessment team did Page 113 Government of Tajikistan - PEFA Assessment not find adequate evidence that indeed the two systems are interlinked. C (ii) Predictability & Control in Budget Execution Revenue Administration PI-13/ Transparency of C B▲ Performance Improved. There is a marked change M2 taxpayer obligations and in performance over 2007 PEFA. The legislation liabilities has been tightened and simplified. There is still some development to be done, but that will come in 2013. There is an active awareness campaign to keep taxpayers informed in both city and rural areas, reaction from the private sector consultation is reasonable. Finally the appeal process is working with a good number of appeals being considered, however it does lack independence. There is no data on successful/unsuccessful claims. Dimension (i) Clarity c b▲ The first dimension: clarity and comprehensiveness and of tax obligations could receive a score of B, as comprehensiveness of legislation and procedures for most, but not tax liabilities. necessarily all, major taxes are comprehensive and clear, with fairly limited discretionary powers of the government entities involved. Dimension (ii) c b Taxpayers have easy access to comprehensive, user Taxpayer access to friendly and up-to-date information on tax information on tax liabilities and administrative procedures for some liabilities and of the major taxes, while for other taxes the administrative information is limited. Given that a new tax law procedures. will come into effect on January 1, 2013 that simplifies the tax system it cannot be rated for the 2012 PFEA. However, it is recognized and confirmed by the Chamber of Commerce that the tax system has evolved over the last 4-years, with creation of websites and active awareness programs. Therefore this dimension is rated B. Dimension (iii) c b This dimension is rated B: whilst the appeal can Existence and proceed to the general judicial system, the initial functioning of a tax appeals system is still within the Tax Committee appeals mechanism. institutional structure. A tax appeals system of transparent administrative procedures is completely set up and functional, but because it is within the structure there could be some issues relating to access, efficiency, fairness or effective follow up on its decisions. There is no data on successful/unsuccessful claims. PI-14/ Effectiveness of D+ C Performance Improved. There is evidence of M2 measures for taxpayer improvement, but the systems need more attention. registration and tax The database is now in place but it needs linking to assessment other systems to ensure its capture all potential taxpayers. The penalties and fees system needs a re-think to ensure that there is incentives for taxpayers to pay their tax rather than stalling and the program of tax audits needs to be bedded in with risk assessment criteria. Dimension (i) d c Taxpayers are registered in database systems for Controls in the individual taxes but linkages to other taxpayer registration registration/licensing functions are weak but are Page 114 Government of Tajikistan - PEFA Assessment system. then supplemented by occasional surveys of potential taxpayers, therefore the ranking is C. The one-stop-shop is a good development but needs to be fully and consistently linked to other systems such as customs systems. Dimension (ii) c c Given the level of interest rates charged by the Effectiveness of banking sector to enterprises these fines are penalties for non- probably insufficient to deter taxpayers from compliance with avoiding taxes as the opportunity cost of keeping registration and the money in the bank until the last possible declaration moment is an incentive not to pay the tax early. The obligations. fines/penalties need substantial changes to their structure, levels or administration to give them a real impact on compliance, possibly basing them on the banking sector overdraft rates. Dimension (iii) c c The score remains at C until there is clear evidence Planning and that the audit plan, based on a workable monitoring of tax audit assessment of risks, is functioning properly. There and fraud is a continuous program of tax audits and fraud investigation investigations, but audit programs have only just programs. started to be based on clear risk assessment criteria, and time is needed to gather evidence of the effectiveness of this approach. PI-15/ Effectiveness in NR D+ Performance Improved. The practice of publically M1 collection of tax and periodically issuing the names of taxpayers payments with arrears in excess of 500,000 Somoni is evidence that arrears are actively pursued. However, the aggregate assessment of arrears needs improvement. The new practice of all tax collection been paid directly into the Single Treasury Account is a significant improvement since 2007. Complete reconciliation of tax assessments, collections, arrears and transfers to Treasury does not take place annually although there are records for collections and reconciliation of the collections to Treasury there is little interaction on consultation with Treasury of the status of arrears. Dimension (i) NR d In this case the assessors conclude that whilst there Collection ratio for is no system in place for calculating the aggregate gross tax arrears, amount of arrears the information can be collected being the percentage given time and the introduction of an arrears of tax arrears at the system. In the meantime, in general and allowing beginning of a fiscal for exceptions the amount of arrears is equal to 2-3 year, which was months of assessments and are approximately 14% collected during that of yearly collections. It is concluded therefore that fiscal year (average of the debt collection ratio in the most recent year was the last two fiscal below 60% and total amount of tax arrears is years). significant (i.e. more than 2% of total annual collections). Dimension (ii) b a All tax revenue is paid directly into accounts Effectiveness of controlled by the Treasury or transfers to the transfer of tax Treasury are made daily since 2010 and the closure collections to the of transit bank accounts in commercial bank. Treasury by the revenue Page 115 Government of Tajikistan - PEFA Assessment administration. Dimension (iii) d d There is no effective reconciliation between tax Frequency of complete assessment and actual collections, only a monthly accounts update of tax arrears. The ‘complete accounts reconciliation between reconciliation’ described in this dimension tax assessments, therefore never takes place. This dimension is collections, arrears therefore rated D. records and receipts by the Treasury. Budget Execution & Cash/Debt Management PI-16/ Predictability in the D+ D+ Performance Unchanged. Cash planning is not M1 availability of funds for based on the real needs of the budget organizations commitment of and there is no reliable indication of actual resource expenditures availability for commitments. There are significant in-year budget adjustments, however it is possible that MDAs are expecting only increases because of a historical under estimation of revenue generation. Dimension (i) Extent b c A cash flow forecast is prepared for the fiscal year, to which cash flows but is only partially and infrequently updated on are forecast and the basis of inflows and outflows. There is no monitored. ‘bottom-up’ signalling of cash requirements by budget organizations, based on their work plans. Thus, in effect, cash planning is not based on the real needs of the budget organizations. There is no evidence to suggest that cash flows are adjusted on basis of actual cash inflows and outflow and therefore this dimension obtains a ranking of C. It appears the 2007 PEFA mistakenly took budget authority levels issued on a quarterly basis as being quarterly cash limits are therefore ranked B. Dimension (ii) b d Whilst MDAs are provided commitment ceilings Reliability and horizon quarterly, there is no reliable indication at all of of periodic in-year actual resource availability for commitments. It information to MDAs seems the assessment in 2007 was based on the fact on ceilings for that there was a history of only increases in expenditure resources, with no decreases, however this commitment. argument is flawed from prudent financial management practice. Dimension (iii) d c Significant in-year budget adjustments are frequent Frequency and at several dozen requests per month, but transparency of undertaken with some transparency. adjustments to budget allocations, which are decided above the level of management of MDAs. PI-17/ Recording and C+ C+ Performance Unchanged. In order to show M2 management of cash improvement in this area domestic and foreign debt balances, debt and records should be reconciled routinely and there guarantees should be clear guidelines, criteria and ceilings for the issuance of loans and government guarantees. The consolidation of a single treasury account enabling daily cash balance information is certainly an improvement. Dimension (i) Quality c c Domestic and foreign debt records are complete, Page 116 Government of Tajikistan - PEFA Assessment of debt data recording updated and reconciled at least annually. In order and reporting. to be rated B the reconciliations should be competed quarterly, however in this case reconciliations are completed on a needs basis – that is when a payment is due. Comprehensive management and statistical reports (cover debt service, stock and operations) are produced at least annually and indeed reports are prepared quarterly for Government review. Therefore this dimension is rated C Dimension (ii) Extent c a The assessment is based at the republican level and of consolidation of the does not include the Sub National Level; where government’s cash there is a certain amount of flexibility in raising balances. and utilizing revenues and expenditure therefore all cash balances are calculated daily and consolidated at the national Level. This qualifies for A rating. Dimension (iii) c c Central government’s contracting of loans and Systems for issuance of guarantees are always approved by a contracting loans and single responsible government entity, but are not issuance of decided on the basis of clear guidelines, criteria or guarantees. overall ceilings. Internal Controls PI-18/ Effectiveness of payroll D+ D+ Performance Unchanged. The personnel and M1 controls payroll system is decentralized and of course has the problems associated with decentralised systems which makes it difficult to review in the time allotted to a PEFA review. However, with policy, terms and conditions of civil servant being done at the central level and with the budget holders responsible through an authorization process, which in itself is subject to frequent audits, the system appears robust. However, there does not seem to be a compelling improvement in personnel data and payroll reconciliations, mainly due to the fact the system is not automated. Dimension (i) Degree d d There does not seem to be a compelling of integration and improvement in personnel data and payroll data reconciliation between which is supported by full documentation and personnel records and reconciliations for all changes made to personnel payroll data. records each month and checked against the previous month’s payroll data and therefore no compelling reason to score anything different to the 2007 PEFA assessment. Dimension (ii) c b In the education sector in particular up to three Timeliness of changes months delay occurs in updating of changes to the to personnel records personnel records and payroll, but affects only a and the payroll. minority of changes for rural and remote based personal. This means retroactive adjustments are made occasionally for those staff in remote areas. This dimension is rated B. Dimension (iii) c b Authority and basis for changes to personnel Internal controls of records and the payroll are clear, therefore this changes to personnel dimension is ranked B. records and the Page 117 Government of Tajikistan - PEFA Assessment payroll. Dimension (iv) b b Payroll audit in budget organizations is carried out Existence of payroll on a regular basis by internal audit departments in audits to identify order to reveal ghost workers and eliminate errors control weaknesses in data. The audit, due to the payroll being a semi- and/or ghost workers. manual system, is the main control method in the government with the aim to identify shortcomings in control system, with good circulation of the audit reports and a payroll audits on all public institutions is conducted, as minimum, once in the last three years. This dimension is rated B. PI-19/ Competition, value for C C+ The 2007 assessment was according to a M2 money and controls in previous methodology and the results are not procurement directly comparable. Tajikistan’s procurement system is evolving with the legal framework in place, however the score is affected by the lack of independence in the complaints handling system. Dimension (i) b The Government of Tajikistan’s legal framework is Transparency, robust for the procurement system. However, the comprehensiveness lack of information on winning bids and the basis and competition in the of awarding contracts detract from the system. legal and regulatory Therefore it is assessed that the legal framework framework. meets five of the six listed requirements, which results in a B score. Dimension (ii) Use of c At least 60% of the value of contracts awarded competitive through Limited Tender and Single Source Tender procurement methods. follow the legal requirements. This would qualify for a C rating. Dimension (iii) Public b It is estimated that at least three of the key access to complete, procurement information elements are complete. reliable and timely However, the amount of information particularly procurement on contract awards, stating the basis and information. conditions of awards is less than desirable. Dimension (iv) c d The procurement complaints system does not meet Existence of an criteria (i) & (ii) as there are no members drawn independent from outside government and the PA has administrative responsibility for continued involvement in procurement procurement. The system therefore must be scored complaints system. as D. PI-20/ Effectiveness of internal C+ C+ Performance Unchanged. There is widespread M1 controls for non-salary understanding of expenditure rules and regulations, expenditures backed up with instructions, rules and manuals readily assessable to all government officers. The IMF have identified that further strengthening of commitment controls is warranted. Internal audit is being strengthened but it is not fully operational to international standards yet. Dimension (i) b c Expenditure commitment controls need to be Effectiveness of comprehensively reviewed and updated. At the expenditure moment there is no commitment control for central commitment controls. line ministries and SNG to base their operations on. The rating therefore is C. Dimension (ii) b a Other internal control rules & procedures are Comprehensiveness, relevant, & incorporate a comprehensive & relevance and generally cost effective set of controls with Page 118 Government of Tajikistan - PEFA Assessment understanding of other instructions, guidelines and manuals, which are internal control rules/ widely understood and are therefore rated A. procedures. Dimension (iii) c c Rules are complied with in a significant majority of Degree of compliance transactions, but use of simplified emergency with rules for procedures in unjustified situations is an important processing and concern. recording transactions. PI-21/ Effectiveness of internal D+ C+ Performance Enhanced. The presence of internal M1 audit audit departments and their development over the last 3-years have indicated that internal audit is going in the right direction, particularly with the amount of training being applied. However, to get a better score it needs to implement the translated International Standards and place more emphasis on systems improvement and risk management. Of course the absence of SAI to receive internal audit reports affects the rating. Dimension (i) d c The function is operational for at least the most Coverage and quality important central government entities and of the internal audit undertakes some systems review (at least 20% of function. staff time), but does not meet all recognized professional standards. Approximately 25% of the professional standards are met. Therefore dimension (i) is rated C. Dimension (ii) c b Reports are issued regularly for most audited Frequency and entities and distributed to the audited entity, and to distribution of reports. the ministry of finance (there is no Supreme Audit Institution SAI – see PI-26). Dimension (iii) Extent c c Managers of BOs normally take adequate action of management within the recommended deadlines, usually response to internal addressing internal audit recommendations. All audit findings. issues concerning losses of funds are resolved or recovered by budget cuts. However, a substantial part of the recommended measures are punitive, and do not address the underlying cause of the problems. No data has yet been collected on response to recommended changes in the systems of public financial management. C (iii) Accounting, Recording and Reporting PI-22/ Timeliness and B B+ Performance Enhanced. In the last 3-years the M2 regularity of accounts government has moved to establish the Single reconciliation Treasury Account which means the reconciliations processes has improved. Bank reconciliations for all central government and Treasury managed bank accounts take place at least monthly at aggregate & detailed levels, usually within 4 weeks of end of period. SN Bank accounts are reconciled monthly and officially sent to treasury quarterly. Dimension (i) b a Bank reconciliations for all central government and Regularity of bank Treasury managed bank accounts take place at reconciliations least monthly at aggregate & detailed levels, usually within 4 weeks of end of period, therefore Page 119 Government of Tajikistan - PEFA Assessment achieving a rating of A. SN Bank accounts are reconciled monthly and officially sent to treasury quarterly. Dimension (ii) b b Reconciliation and clearance of suspense accounts Regularity of and advances take place at least annually within reconciliation and two months of end of period. Some accounts have clearance of suspense uncleared balances brought forward. Rating is B. accounts and advances. PI-23 Availability of C D Performance deteriorated. No comprehensive data information on resources collection on resources to service delivery units in received by service any major sector has been collected and processed delivery units within the last 3 years. [This score seems harsh, since comprehensive data was collected 5 years ago, but neither score C nor B fit the current information situation.] It seems the 2007 indicator was over stated. PI-24/ Quality and timeliness of C+ C+ Performance Unchanged. Overall the in-year M1 in-year budget reports budget reports are produced in a timely and regular manner on actual budget performance enabling all management levels, from Government down to managers of BOs, a tool for effective monitoring throughout the year. Dimension (i) Scope c c Comparison against the revised budget is possible of reports in terms of at the detailed level but for expenditure this is only coverage and universally available at the payment stage, not the compatibility with commitment stage. budget estimates. Dimension (ii) a a Reports are produced monthly and quarterly and Timeliness of the issue issued within 4 weeks of the end of the period of reports. Dimension (iii) b b There are some concerns about accuracy, but these Quality of information. do not compromise the overall consistency and usefulness of the reports PI-25/ Quality and timeliness of D+ C+ Performance Improved. With a strong legal base M1 annual financial the consolidated government statement is prepared statements in a timely manner meeting annual deadlines of July 15 for submission to Parliament and includes, with few exceptions, full information on revenue, expenditure and financial assets/liabilities, including a statement on accounting standards. Dimension (i) c b The consolidated financial statements are prepared Completeness of the on a cash basis according to standards financial statements. incorporated in the relevant legal requirements. The consolidated government statement is prepared annually and includes, with few exceptions, full information on revenue, expenditure and financial assets/liabilities. This is ranked B. Dimension (ii) d b The PEFA rating system assumes that there is an Timeliness of external audit and in Tajikistan an external audit submission of the does not exist as yet. In this case the reference to financial statements. external audit is ignored for the scoring and the score is based solely on the timeliness of the submission of consolidated government statement to parliament, which by proxy must act in the audit Page 120 Government of Tajikistan - PEFA Assessment function. As the new law stipulates July 15 as the submission date, which is within 10-months of year-end and government has compiled in the entire last 3-years then the ranking is B. Dimension (iii) d c The consolidated government statements do have Accounting standards the benefit of a strong legal base and do, therefore, used. have the merit of consistency. All the accounting standards are disclosed. Therefore it is possible to score C. In 2007 it appears the accounting standards in the consolidated government statement were not declared. C (iv) External Scrutiny and Audit PI-26/ Scope, nature and D+ D▲ Performance Unchanged. External audit is not yet M1 follow-up of external in place, however the Law on the Supreme Audit audit Institution was adopted in 2011 indicating progress and therefore qualifies for an arrow. The rating in 2007 is overstated because there were no audit recommendations from a supreme audit as there was none. Dimension (i) d d External audit is not yet in place Scope/nature of audit performed (incl. adherence to auditing standards). Dimension (ii) d d External audit is not yet in place Timeliness of submission of audit reports to legislature. Dimension (iii) c d External audit is not yet in place Evidence of follow up on audit recommendations. PI-27/ Legislative scrutiny of C B+ Performance Improved. The legislature through M1 the annual budget law the Parliamentary Committee of Majlisi Namoaydagon Majlisi Oli of RT on Economy and Finance involves itself in the budget formulation much more than in previous administrations from the start of the budget process and the formulation of macroeconomic parameters, budget negotiations and to the final submission of the budget to parliament. Parliament is given adequate time for deliberations on the budget. Current practice of changing support staff (civil servants) after elections could disrupt parliamentary procedures with a loss of institutional memory. Dimension (i) Scope c b The legislature’s review covers fiscal policies and of the legislature’s aggregates for the coming year as well as detailed scrutiny. estimates of expenditure and revenue. Medium Term Fiscal Frameworks and Medium term Expenditure Frameworks are currently being introduced but do not yet form part of the official budget review by parliament. Dimension (ii) Extent c a The legislature’s procedures for budget review are to which the firmly established and respected. They include legislature’s internal organizational arrangements, such as Page 121 Government of Tajikistan - PEFA Assessment procedures are well specialized review committees, and negotiation established and procedures. respected. Dimension (iii) a a The legislature has at least two months to review Adequacy of time for the budget proposals. the legislature to provide a response to budget proposals both the detailed estimates and, where applicable, for proposals on macro-fiscal aggregates earlier in the budget preparation cycle (time allowed in practice for all stages combined). Dimension (iv) Rules c b Clear rules exist for in-year budget amendments by for in-year the executive, and are usually respected, but they amendments to the allow extensive administrative reallocations. budget without ex-ante approval by the legislature PI-28/ Legislative scrutiny of D D Performance Unchanged. As discussed under PI- M1 external audit reports 26, the Law on the Supreme Audit Institution was adopted in 2011, but no organization has yet been established. There are no external audit reports for parliament to examine. Dimension (i) d D No reports exist, because the SAI does not yet exist. Timeliness of examination of audit reports by the legislature (for reports received within the last three years). Dimension (ii) Extent d NA No audit function of hearings on key findings undertaken by the legislature. Dimension (iii) d NA No audit function Issuance of recommended actions by the legislature and implementation by the executive. D. DONOR PRACTICES Score Score Performance changes 2007 2012 PEFA PEFA D-1/ Predictability of Direct D+ D+ Performance Unchanged. The deviation of actual M1 Budget Support budget support from forecast in 2010 was close to 15% and the in-year disbursement delays were 22% - both significant and have major effects on Page 122 Government of Tajikistan - PEFA Assessment government activities and service delivery. Dimension (i) Annual c c The deviation of actual budget support from deviation of actual forecast in 2010 was close to 15% and the in-year budget support from disbursement delays were 22% - both significant the forecast provided and have major effects on government activities by the donor agencies and service delivery. at least six weeks prior to the government submitting its budget proposals to the legislature (or equivalent approving body). Dimension (ii) In-year d d The deviation of actual budget support from timeliness of donor forecast in 2010 was close to 15% and the in-year disbursements disbursement delays were 22% - both significant (compliance with and have major effects on government activities aggregate quarterly and service delivery. estimates). D-2/ Financial information D+ C Performance Enhanced. Performance is M1 provided by donors for improving, as Ministry of Finance did not have this budgeting and reporting information in the last review. on project and program aid Dimension (i) d c The first dimension is assigned the score of С, Completeness and because at least half of donors (including five timeliness of budget major ones - WB, EBRD, ADB, SECO, Japan) estimates by donors submit comprehensive budget estimate of for project support. resources, allocated for projects financing for the following fiscal year, not later than within three months before the beginning of the fiscal year. However, these reports are based on classification used by donors, which is inconsistent with the budget classification used by the government. Dimension (ii) c c The second dimension is assigned the score of С, Frequency and because donors submit quarterly reports related to coverage of reporting all funds, allocated to cover, at least, 50 per cent of by donors on actual budgeted expenditures of projects, financed out of donor flows for project external sources, within two months after the end of support. the quarter. Nevertheless, this data is not always submitted with the breakdown, consistent with used budget classification D-3/ Proportion of aid that is D D Performance Unchanged. The share of foreign aid M1 managed by use of funds allocated to the Government of RT and national procedures managed according to national procedures, in four areas of activity, such as public procurement, payments/ accounting, audit and submission of reports, is less than 50 per cent. The total score is D. Page 123 Government of Tajikistan - PEFA Assessment Annex 2: List of Documents Used Major websites The 0fficial website of the President of the Republic of Tajikistan: www.president.tj Official website of the Ministry of Finance of the Republic of Tajikistan: www.minfin.tj Official website of the Parliament of the Republic of Tajikistan: www.parlament.tj Official website of the Ministry of Justice of the Republic of Tajikistan: http://www.minjust.tj/ Official website of the Agency on Statistics under President of the Republic of Tajikistan: www.stat.tj Official website of the Ministry of Economic Development and Trade of the Republic of Tajikistan www.medt.tj Official website of the Ministry of Foreign Affairs of the Republic of Tajikistan: www.mfa.tj Official website of the Ministry of Health of the Republic of Tajikistan: www.health.tj Official website of the Ministry of Education of the Republic of Tajikistan: http://www.education.tj Official website of the State Committee on Investments and State Property Management of the Republic of Tajikistan: www.amcu.gki.tj Official website of the Committee of Taxation under the Government of the Republic of Tajikistan http://www.andoz.tj/ Official website of the National Bank of Tajikistan: www.nbt.tj Official website of the Agency under the State financial control and a fight against corruption of Republic of Tajikistan: http://www.anticorruption.tj Official website of the Chamber of Commerce and Industry of the Republic of Tajikistan http://tpp.tj Official website of the United Nations in Tajikistan http://www.untj.org/ Official website of United Nations Development Programme in Tajikistan http://www.undp.tj/site/ The official website of the World Bank http://web.worldbank.org The official website of the IMF http://www.imf.org/external/country/tjk/index.htm Official website of the Asian Development Bank http://www.adb.org/countries/tajikistan/main Official website of the Swiss Agency for Development and Cooperation in Tajikistan http://www.swiss- cooperation.admin.ch/centralasia/ Official website of the Department for International Development, UK http://ukintajikistan.fco.gov.uk/en/about-us/working-with-tajikistan/dfid-in-tajikistan/ The official website of the EU http://www.eeas.europa.eu/delegations/tajikistan/index_en.htm Official site of the Interstate Statistical Committee of the Commonwealth of Independent States http://www.cisstat.com/eng/ Strategic Documents of the Government of the Republic of Tajikistan Public Finance Management Strategy of the Republic of Tajikistan for 2009-2018, Approved by the Decree of the President of the Republic of Tajikistan on “20” March 2009, # 639 Economic Development Program of the Republic of Tajikistan for the period until 2015 National Development Strategy of the Republic of Tajikistan for the period until 2015 (NDS) Poverty Reduction Strategy of the Republic of Tajikistan for 2007-2009 (PRS) Poverty Reduction Strategy of the Republic of Tajikistan for 2010- 2012 (PRS) Strategy of Management of the Government Debt for 2009-2011, Dushanbe, Ministry of Finance, 2008 The Decree of the Government of the Republic of Tajikistan as of September 07, 2006, #409 on “Implementation of Mid-Term Expenditure Framework in the Republic of Tajikistan” The Government Medium-Term Expenditure Framework 2011-2013, Ministry of Finance, Dushanbe 2010 The Government Medium-Term Expenditure Framework 2012-2014, Ministry of Finance, Dushanbe 2011 Major reports Annual analytical report on the internal audit of public sector for 2011, April 27, 2012 Page 124 Government of Tajikistan - PEFA Assessment Foreign Aid Report 2010, State Committee on Investment and State Property Management of the RT, Dushanbe 2011 International Monetary Fund: Republic of Tajikistan: Report on The Observance of Standards and Codes (ROSC), Fiscal Transparency Module, January 2007. International Monetary Fund: Republic of Tajikistan: Staff Reports. Country Reports. Republic of Tajikistan: Poverty Reduction Strategy Paper Progress Report; IMF Country Report 12/33; January 2011 IMF: Republic of Tajikistan: Sixth Review Under the Three-Year Arrangement Under the Extended Credit Facility - Staff Report; and Press Release, -- Country Report No. 12/110, May 15, 2012 Development Partner profile 2011, State Committee on Investments and State Property Management of the Republic of Tajikistan in cooperation with the UNDP and DFID, Dushanbe, 2011 GoT (2007) Budget Monitoring Report. Dushanbe: GOT Major laws GoT (1994) Constitution of the Republic of Tajikistan, Dushanbe: GoT GoT (2008) Law on Treasury Dushanbe: GoT GoT (2011) Law on Public Finance. Dushanbe: GoT GoT (2008) Law on Right of Access to Information, Dushanbe: GoT GoT (2009) Three-Year Action Plan of the PFM Strategy of the Republic of Tajikistan GoT (2011) Three-Year Action Plan of the PFM Strategy of the Republic of Tajikistan GoT (2010) Budget Performance Report 2009. Dushanbe: Ministry of Finance GoT (2011) Budget Performance Report 2010. Dushanbe: Ministry of Finance GoT (2012) Budget Performance Report 2011. Dushanbe: Ministry of Finance (Final Draft Only) Law of Republic of Tajikistan On internal audit in the public sector (Ahbory Majlisi Oli of the Republic of Tajikistan, 2010, #7, article 563) Constitutional Law of the Republic of Tajikistan On Local bodies of state power (Ahbory Majlisi Oli of the Republic of Tajikistan, 2004 #5, art. 339; 2006, # 11, art. 472; 2009, #12) Law of the Republic of Tajikistan “On investments”, Dushanbe May 12, 2007, № 260 Tax code of the Republic of Tajikistan The Customs Code of the Republic of Tajikistan The law “On banks and bank activities” The law “On state registration of legal entities and individual entrepreneurs” The law “On licensing of separate types of activity” The law "On joint stock companies" The law “On state procurement of goods, works and services” Law of the RT on public and publicly guaranteed Borrowing and Debt, Dushanbe, December 11, 1999, № 886 Law of RT “On Internal Audit of Public Sector” Law on State budget of the RT for 2008, Law on State budget of the RT for 2009, Law on state budget of the RT for 2010, Law on state budget of the RT for 2011, 11th November 2010, #231, Dushanbe Law on state budget of the RT for 2012, 8th November 2011, #766, Dushanbe Law of the RT “Оn treasury”, №396 from 18.06.2008 Law of the Republic of Tajikistan "On Public Procurement of goods, works and services", 24 February 2006, # 184, Dushanbe Regulation of public procurement procedure - Approved by Decree of the Ministry of Economic Development and Trade of the Republic of Tajikistan, as of January 17, Registered in the Ministry of Justice of the Republic of Tajikistan, As of February 11, 2008 #357 Page 125 Government of Tajikistan - PEFA Assessment Government decree from 1st July 2007, # 319 “on the establishment of qualification commission in defining and award status of "qualified procuring entity” Government decree from 2nd October 2010,# 500 “on set up of rules on the opening of tenders documents for purchase of goods, works and services in state investment projects in the Republic of Tajikistan” MoF instructions Budget Instructions MTEF instructions Audit instructions Instruction for state budget formulation on 2012-2015, RT Methodical instructions on preparation of annual internal audit plan in the public sector on the basis of a risk assessment (approved by Minister of Finance 2011) Improving salary scale of civil servants on base of single wage scale, Dushanbe-2010 Page 126 Government of Tajikistan – PEFA Assessment Annex 3: Summary of State Budget Revenue and Expenditure 2008-2011 Indicators PI-1, 2 and 3 require a comparison of the original budget against the actual out-turn. Sources of data for the tables below are: Original budget plan: Budget Department, Ministry of Finance Actual: Main Department of Central Treasury. 2008 2009 2010 2011 REVENUE and LOAN RECEIPTS Original Original Original Original budget Actual budget Actual budget Actual budget Actual plan plan plan plan Revenue from taxes 2,811 3,298 4,268 3,659 4,353 4,444 5,585 5,849 Non-tax revenue 171 149 317 211 253 329 488 504 Current Revenue 2,982 3,447 4,585 3,870 4,606 4,773 6,073 6,353 Capital revenue - - - - - - - - General revenue 2,982 3,447 4,585 3,870 4,606 4,773 6,073 6,353 Grants 68 24 78 318 204 175 164 156 General revenue and grants 3,050 3,471 4,663 4,188 4,810 4,948 6,237 6,509 Other receipts: Special funds of budget organizations 130 323 183 318 284 696 504 504 Grants for investment projects 167 151 281 166 323 375 492 534 Loans for investment projects 401 274 503 344 819 374 541 319 State debt (China) 729 953 379 577 301 476 572 630 Opening balance to cover expenses - 59 - 359 - 155 - - TOTAL STATE BUDGET 4,477 5,231 6,009 5,952 6,537 7,024 8,346 8,496 Page 127 Government of Tajikistan - PEFA Assessment 2008 2009 2010 2011 EXPENDITURE Original Original Original Original budget Actual budget Actual budget Actual budget Actual plan plan plan plan Government sector and government administration 314 383 412 377 366 384 556 691 Defence 211 177 300 195 266 232 331 329 Public order and safety 193 204 300 231 275 258 379 440 Education 599 613 910 845 976 990 1,363 1,443 Healthcare 208 218 313 288 367 355 593 564 Social insurance and social protection 462 522 706 714 781 860 1,355 1,230 Housing and community amenities 159 230 304 325 393 377 504 687 Cultural services, recreation and religion 126 178 154 178 197 297 294 376 Fuel and energy 208 286 593 563 701 692 1,219 1,139 Agriculture, forestry, fisheries and hunting 114 95 111 89 107 93 300 301 Mining, manufacturing and construction 24 46 66 24 60 49 75 82 Transport and communications 105 98 111 95 101 110 1,013 1,046 Other economic activities and services 12 22 25 15 50 45 26 30 Others 388 115 460 297 413 221 585 237 Total sector-analysed expenditure 3,123 3,187 4,765 4,236 5,053 4,963 8,593 8,495 Execution of special funds 130 254 183 351 284 484 - - Funds transferred to stabilisation fund of RT - 16 - 15 - 38 - - *Grants for investment projects 167 148 281 164 323 384 492 534 *Loans for investment projects 401 266 503 345 819 368 541 319 *State Debts (China) 729 953 379 577 301 476 572 630 TOTAL 4,550 4,824 6,111 5,688 6,780 6,713 10,198 9,978 *Note: Expenditure figures for amounts funded by grants, loans and China debt were not available for 2011. As an approximation, the equivalent revenue figures have been used. Page 128 Government of Tajikistan - PEFA Assessment Annex 4: Tables for Indicator PI-1 2008 2009 2010 2011 Original Original Original Original Actual budget Actual budget Actual budget Actual budget (draft) plan plan plan plan Total expenditure 4,550 4,824 6,111 5,688 6,780 6,713 10,198 9,739 Less: Expenditure from investment grants and loans and China debt 1,297 1,367 1,163 1,086 1,443 1,228 1,605 1,483 Estimate of total primary expenditure 3,253 3,457 4,948 4,602 5,337 5,485 8,593 8,256 Variance (actual – budget) 204 -346 148 -337 Variance as percentage of original budget 6.3% -7.0% 2.8% -3.9% Notes: The above figures are the best that is possible from the data available as at 1 July 2012. To make a more accurate analysis, the following additional data is needed:  Donor funded project expenditure  Debt service payments Also, the figures for 2011 are draft and will need to be confirmed before they can be used in the PEFA report. Page 129 Government of Tajikistan - PEFA Assessment Annex 5: Tables for Indicator PI-2 2008 2009 Expenditure by functions Adjusted Absolute Adjusted Absolute Planned Actual Deviation Planned Actual Deviation (Somoni million) budget deviation budget deviation Government sector 314 321 383 63 63 412 367 377 10 10 Defence 211 216 177 -38 38 300 267 195 -72 72 Public order & safety 193 197 204 7 7 300 267 231 -36 36 Education 599 611 613 1 1 910 808 845 37 37 Healthcare 208 212 218 6 6 313 278 288 10 10 Social insurance and social protection 462 471 522 51 51 706 627 714 86 86 Housing and community amenities 159 162 230 68 68 304 270 325 55 55 Cultural services, recreation and religion 126 128 178 50 50 154 137 178 41 41 Fuel and energy 208 213 286 74 74 593 527 563 36 36 Agriculture, forestry, fisheries and 114 117 95 -22 22 111 99 89 -10 10 hunting Mining, manufacturing and construction 24 24 46 22 22 66 58 24 -34 34 Transport and communications 105 107 98 -10 10 111 99 95 -4 4 Other economic activities and services 12 12 22 10 10 25 22 15 -7 7 Others 388 395 115 -281 281 460 409 297 -112 112 TOTAL 3124 3187 3187 0 701 4766 4235 4235 0 549 Absolute deviation, as percentage of 22.0% 13.0% adjusted budget Page 130 Government of Tajikistan - PEFA Assessment 2010 2011 (draft) Expenditure by functions Adjusted Absolute Adjusted Absolute Planned Actual Deviation Planned Actual Deviation (million somoni) budget deviation budget deviation Government sector 366 359 384 25 25 556 534 647 113 113 Defence 266 261 232 -29 29 331 318 324 6 6 Public order & safety 275 270 258 -13 13 379 364 444 79 79 Education 976 959 990 31 31 1363 1309 1230 -80 80 Healthcare 367 361 355 -6 6 593 569 469 -101 101 Social insurance and social protection 781 767 860 93 93 1355 1301 1357 56 56 Housing and community amenities 393 386 377 -8 8 504 484 647 162 162 Cultural services, recreation and religion 197 194 297 104 104 294 283 327 44 44 Fuel and energy 701 688 692 4 4 1219 1171 1138 -33 33 Agriculture, forestry, fisheries and hunting 107 105 93 -12 12 300 288 289 1 1 Mining, manufacturing and construction 60 59 49 -9 9 75 72 80 8 8 Transport and communications 101 99 110 10 10 1013 973 1042 69 69 Other economic activities and services 50 49 45 -5 5 26 25 30 5 5 Others 413 406 221 -185 185 585 562 232 -330 330 TOTAL 5055 4963 4963 0 534 8594 8254 8254 0 1086 Absolute deviation, as percentage of 10.8% 13.2% adjusted budget Page 131 Government of Tajikistan - PEFA Assessment Annex 6: Analysis of Procurement Methods Source: Procurement Agency Value of contracts 2010 Single-source Unlimited tender Limited tender Request of quotations Total procurement Total Amount Amount of Amount of Amount of Amount of # Name of the tender organizer % % % % % of Contract Contract Contract Contract Contract Agency for Public Procurement 1 546,338,217 408,703,123 74.81% 50,555,301 9.25% 53,365,021 9.77% 33,714,772 6.17% 61.85% of goods and services 2 Qualified procurement entities 337,054,711 302,147,019 89.64% 3,767,392 1.12% 29,942,842 8.88% 1,197,459 0.36% 38.15% 3 Total: 883,392,928 710,850,142 80.47% 54,322,693 6.15% 83,307,863 9.43% 34,912,231 3.95% 100.00% Number of contracts 2010 Single-source Unlimited tender Limited tender Request of quotations Total procurement Total Number Number of Number of Number of Number of # Name of the tender organizer % % % % % of Contracts Contracts Contracts Contracts Contracts Agency for Public Procurement 72.60 16.84 1 4,471 3,246 303 6.78% 169 3.78% 753 95.51% of goods and services % % 69.52 18.10 2 Qualified procurement entities 210 146 8 3.81% 38 18 8.57% 4.49% % % 72.46 16.47 3 Total: 4,681 3,392 311 6.64% 207 4.42% 771 100.00% % % Page 132 Government of Tajikistan - PEFA Assessment Value of contracts 2011 Single-source Unlimited tender Limited tender Request of quotations Total procurement Total Amount Amount of Amount of Amount of Amount of # Name of the tender organizer % % % % % of Contract Contract Contract Contract Contract Agency for Public Procurement 1 805,448,763 672,204,287 83.46% 74,079,743 9.20% 39,374,387 4.89% 19,790,346 2.46% 64.54% of goods and services 2 Qualified procurement entities 442,525,582 235,524,096 53.22% 53,778,405 12.15% 140,670,442 31.79% 12,552,639 2.84% 35.46% 3 Total: 1,247,974,345 907,728,383 72.74% 127,858,148 10.25% 180,044,829 14.43% 32,342,985 2.59% 100.00% Number of contracts 2011 Single-source Unlimited tender Limited tender Request of quotations Total procurement Total Number Number of Number of Number of Number of # Name of the tender organizer % % % % % of Contracts Contracts Contracts Contracts Contracts Agency for Public Procurement 1 5,237 4,630 88.41% 213 4.07% 156 2.98% 238 4.54% 89.69% of goods and services 2 Qualified procurement entities 602 388 64.45% 52 8.64% 77 12.79% 85 14.12% 10.31% 3 Total: 5,839 5,018 85.94% 265 4.54% 233 3.99% 323 5.53% 100.00% Value of contracts first quarter 2012 Single-source Unlimited tender Limited tender Request of quotations Total % procurement Total Amount Amount of Amount of Amount of Amount of # Name of the tender organizer % % % % % of Contract Contract Contract Contract Contract Agency for Public Procurement 1 223,406,369 191,197,848 85.58% 13,910,599 6.23% 15,846,193 7.09% 2,541,729 1.14% 62.71% of goods and services 2 Qualified procurement entities 132,874,815 81,667,849 61.46% 7,479,310 5.63% 43,247,355 32.55% 480,301 0.36% 37.29% Page 133 Government of Tajikistan - PEFA Assessment 3 Total: 356,281,184 272,865,697 76.59% 21,389,909 6.00% 59,093,548 16.59% 3,022,030 0.85% 100.00% Number of contracts first quarter 2012 Single-source Unlimited tender Limited tender Request of quotations Total % procurement Total Number Number of Number of Number of Number of # Name of the tender organizer % % % % % of Contracts Contracts Contracts Contracts Contracts Agency for Public Procurement 1 869 797 91.71% 16 1.84% 24 2.76% 32 3.68% 89.59% of goods and services 2 Qualified procurement entities 101 61 60.40% 2 1.98% 28 27.72% 10 9.90% 10.41% 3 Total: 970 858 88.45% 18 1.86% 52 5.36% 42 4.33% 100.00% Page 134 Government of Tajikistan - PEFA Assessment Annex 7: List of People Met # Full name of person Department and position held Contact details Sohibov Sahvkat Kizievich Deputy Minister, MoF 221-42-05 Hakimov Ismatullo Deputy Head of Treasury, MoF 221-51- 19 Abibulaev Nazullo Abulloevich Head of Budget Department, MoF 221-67-96 Ahmedova Rano Zabirova Deputy Head of Budget Department, MoF 221-39-05 Saidova Lola Treasury department, MoF 221-77-41 Samiev Saidkul Head of State Owned Enterprises Monitoring Department, MoF 227-25-67 Usmonov Firdavs Acting Head of Main Department of State Debts and State Assets of MoF of RT 221-37-64 Menlasheva Nailya Leading specialist of Department of State Debt Analyze 223-08-93 Sharapov Umed Sharifovich Head of Internal Audit Department, MoF 227-63-70 Hamroqulova Gulmira Abdullaevna Head of Accounting and Audit Methodology Department, MoF 221-65-38 Najmiddinov Adburahmon Head of Microeconomic Department, MoF 918-99-24-24 Nuriddin Najmiddinov Head of Special Fund Department, MoF 227-22-09 Barotov Askarali Head of Department, MoF 221-55-47 Gaffurov Bahtiyor Investment Department, MoF 221-60-26 Radjabov Safarali Khudoyorovich Head of Finance and Budget Committee, Parliament 907585819/ 221- 11- 42 Hafizov Faizali Aminovich Economic and Budget Department, Ministry of Health, 221-17-99 Saifuddinova Saodat Head Budget and Forecast Department, Ministry of Education, 221-38-36 Melikov Kabatullo Narzulloevich Head of Taxpayers Registration, Tax and Communications, Tax committee, 233-09-12 Karimov Ravshan Agency for Procurement of Goods, Works and Services under Government of RT 221-47-03 Nazarov Umed Agency for Procurement of Goods, Works and Services under Government of RT 221-47-03/ 918-93-10-01 Shoimov Jamshed Aid Coordination Unit, State Committee on Investment and State Property Management of 227 59 09 the RT Kislyakova Larisa Pavlovna Deputy Chairman, Chamber of Commerce and Industry of the RT 221-22-57 Aliyev Hazan Public Sector Specialist, World Bank (48)-701-58-09 Olivier Vandenbussche Team Leader - SPSP Social Sectors, MOF 227-85-29 Page 135 Government of Tajikistan - PEFA Assessment Greorge Gridilian Public Finance Management Expert, SPSP Social Sector, MoF 227-85-29 Boboev Rustam Mirzoevich Programme Coordinator, PFMP, MOF 221-58-11 Kayumov Uliqbek Acting Coordinator and Monitoring Expert, PFMP, MOF 221-58-11 Saidhojaev Odinamuhamad Head of Tax Policy Department, MoF 221-72-41/ Narzievich 95-195-08-80 Jaborov Rustamjon Tuhtasinovich Deputy Chairmen of Tax Committee 233-09-12 Zavqibek Saidov Head of Legal Department, Tax Committee 233-09-12 Saidahtam Abdulloev Head of Customers Service Department, Tax Committee 233-09-12 List of people attending the DFR workshop on 26 September 2012 at the Ministry of Finance № Full name Place of work Contact 1 Nazarov Umed Agency for government procurement , goods service 918-93-10-01 2 Samiev Saidqul Head of State Owned Enterprises monitoring department ,Ministry of Finance 227-25-67 3 Khakimov I.R Deputy head of treasury, Ministry of Finance 221-51-19 4 Kamroqulova G.A Head of accounting and audit methodology department , Ministry of Finance 221-65-38/907-705-159 5 Khakimov D Leading specialist, Ministry of Finance 918-92-66-70 6 Kholikova Z Head of budget policy department, Ministry of Finance 221-45-26 7 Sharipova M Specialist of budget department, Ministry of Finance 221-75-14 8 Menlasheva N Leading specialist of depth management department, Ministry of Finance 223-08-96 9 Odinaev Sh.A Deputy head of department, Ministry of Finance 221-34-08 10 Murodov I.N Leading specialist, Ministry of Finance 221-77-41 11 Kalomov U.Sh. Secretariat of PFM 221-58-11 12 Shoimardonov A.A Legal department, Ministry of Finance 918-50-04-00 13 Mihamadieva Gulnora Project manager, DFID 224-22-21 14 Nicolas Guigas SCO nicolas.guigas@sco.net 15 Hassan Aliev WB 904-400-500 16 Sobir Kurbonov DFID 907-501-052 17 Thiessen U EU 93-48-107-48 18 Nabieva U Consultant, PEFA 985-668-125 19 Shukuropat A.V International consultant, PEFA 93-44-77-093 20 Khakulov R.U ISD Consulting 907-708-469 Page 136 Government of Tajikistan - PEFA Assessment 21 Hafizov S.A Ministry of Health 918-16-41-50 22 Tomeva V SOFRECO-EC 907-80-10-80 23 Vandebush O EU-SPSP project 901-06-1971 24 Gaforov S Ministry of Education 907-84-86-09 25 Abibuaev Narzullo Head of Budget department, Ministry of Finance 26 Sohibov S.Q Deputy Minister, Ministry of Finance 27 Gulov Safarali Deputy Head of Finance and Budget committee, Majlisi Oli Page 137