World Bank Approves Restructuring of $380 Million Financial Management Program

The World Bank has approved the restructuring of the financing agreement of the Public Financial Management (PFM) and Accountability for Service Delivery Program worth $380 million.

The Bank initially approved the program on December 19, 2017, and became effective on December 29, 2017.

The Program was restructured twice: (i) on November 22, 2021, to extend the closing date to June 30, 2023, and to reduce the size of the Program to $380 million; and (ii) on June 25, 2023, to extend the closing date to October 31, 2023. This proposed restructuring aims to reallocate financing across Disbursement Linked Results (DLRs).

The Ministry of Economic Affairs requested on October 18, 2023, that the funds attached to these DLRs, in the amount of $5.5 million, be reallocated to DLR 2.7: An additional 5 percent of baseline or additional Rs. 50 billion brought under the Treasury Single Account (TSA).

TSA is a key intervention aimed at consolidating and centralizing government funds. The PFM program has supported the inclusion of Rs 150 billion into the TSA. The TSA also has the potential to create savings of Rs 33 billion – or an annual saving of US$117 million. The allocation of this DLR was reduced in the first restructuring due to limited progress.

The increase in allocation by $ 5.5 million partially restores the original assessment of the level of ambition and effort required to make this significant achievement.

The Bank has informed the Ministry of Economic Affairs that the International Development Association (IDA) concurs with the request, and consequently, the financing agreement is amended.

The Program aims to improve PFM and procurement systems for better management and accountability in service delivery for health and education sectors, through the following five key result areas:

  1. Strengthening the Legal Framework and Internal Management Systems in Line Ministries and Service Delivery Units ($110 million)
  2. Improved Procurement Performance ($45 million);
  3. Payroll and Pension Payment Systems ($65 million);
  4. external Audit, Legislative Scrutiny, and Social Accountability ($80 million); and
  5. Performance-based Grants ($80 million).

The Program continues to operate under a strong authorizing environment, as reflected in the Government of Pakistan’s PFM Reform Strategy (2017) and initiatives following the PFM Act 2019, such as the federal government’s transitioning toward the Treasury Single Accounting (TSA) system, decentralized payment process and delegation of full financial powers to Principal Accounting Officers (PAOs) to support the management of budgets for improved service delivery.

Program implementation remains on track, with progress towards achievement of the Program Development Objective (PDO) rated Moderately Satisfactory and Implementation Progress rated Satisfactory.

Progress against implementation of the five key result areas and achievement of the PDO level indicators is as follows: (i) Result Area 1 focuses on strengthening the legal framework and internal management systems of line ministries and service units. The enactment of a PFM Law has helped empower the principal accounting officers, lay principles and foundation for TSA, and improve discipline in Public Investment Management.

A Cash Management and TSA policy (2019-2029) has also been implemented to save costs and increase efficiency in cash management. The State Bank has linked the bank accounts in commercial banks to the tune of Rs 150 billion through a sweeping arrangement under the Real Time Gross Settlement (RTGS) system.

Electronic Fund Transfer is implemented in the federal government and is expected to be replicated across the country. The budget reforms mandated by the PFM Law have contributed to improvements in the Budget Transparency Index Score of Pakistan from 28 points in 2017 to 46 points in 2022, (ii) Result Area 2 pertains to improved procurement performance.

The E-Procurement system has been piloted in the Federal Ministries of Health and Education and has been adopted by the Government of Punjab. A Memorandum of Understanding was signed between the Federal Public Procurement Regulatory Authority (PPRA) and Provincial PPRAs. Punjab, Sindh, and Khyber Pakhtunkhwa (KPK) are adopting the systems developed by the Federal Government and Baluchistan has already implemented an e-procurement system that will be aligned with the Federal System.

Improvements in the Public Procurement Rules and regulations are being undertaken to support seamless implementation of the e-procurement systems and interoperability with different entities.

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