Section Terms of Reference

Section 7. Terms of Reference

1. 
   Background and Context
   

The Republic of Armenia (RoA) has undertaken the implementation of the Strengthening Public Financial Management in Armenia with the support of the above-mentioned Multi Donor TF (MDPTF) grant mobilized by the World Bank, which provides support to the Ministry of Finance of RoA (MoF).

Armenia has had considerable success in strengthening its public expenditure management (PEM) system since the post-independence (1991) period. These reforms led to improvements in fiscal discipline and also improved allocative and operational efficiency by directing spending to policy priorities. Significant accomplishments have been recorded in strengthening treasury management and enhancing policy-budget linkages. An overall assessment of the quality and performance of Armenia’s PEM system shows that the budget is largely credible as an instrument of strategic and day-to-day management of public resources. The budget classification is based on GFS 2001. Armenia’s budget documentation also provides comprehensive information not only on the macroeconomic and fiscal assumptions that underpin the budget, but also some analysis of the previous year’s budget outturns and some explanation of the budgetary impact of new policy initiatives.

These accomplishments provide an important platform on which to build further strategic reforms. Despite the progress made in a broad range of PFM areas, some of the areas for further reform were identified by the 2008 PEFA assessment which broadly outlined weaknesses in the PFM system. In addition to the government’s self-assessment (PEFA), external assessments have been carried out by the International Monetary Fund (IMF) and World Bank’s (WB) technical teams. The IMF report¹ reviewed Armenia’s experience with MTEF and suggested improvements for the budget process, namely improvements of linkages between strategic planning and multiyear budgeting. The WB report on PFM reform priorities² reviewed the reform path thus far and suggested a 3-phaze approach of advancing PFM reforms in a sequenced and informed way to close gaps in development of specific sub-components of the system.³ More specifically the report drew attention to the necessity of examining the effects of program classification on the budget execution and control in Armenia. It also highlighted the need to develop feasible and meaningful program costing guidelines commensurate with the accounting capabilities. The Working Paper on public investment efficiency scored Armenia’s overall public investment index quite high (#8 among 71 developing and transition economies). However, the disaggregation to sub-indexes showed that Armenia received one of the lowest scores for its public investment appraisal system. Despite the fact that the country has a relatively well developed strategic framework for selecting public investment projects, it lacks a thorough screening and appraisal of Public Investment programs. These practices need serious improvements and strengthening to institutionalize the public investments appraisal system and make it an indispensible part of the budget process.

To address these remaining challenges, the Government has developed and approved several strategic documents by the Government’s Decrees in recent years:

1. 
   Concept Note on Advancing the Program-based Budgeting approved in 2009;
   
2. 
   Public Financial Management Development Strategy approved in 2010;
   
3. 
   Public Financial Internal Control (PIFC) Strategy approved in 2010;
   
4. 
   Concept Note on Introduction of the Public Investment Appraisal System approved in 2010.
   

Among other priorities these documents envisage further refinement of budget formulation procedures, including of the capital budget to enable the envisaged move towards program budgeting.

2. 
   Goals and Objectives
   

The objective of this assignment is to assist the Ministry of Finance and other relevant authorities in the design and implementation to enhance budget preparation procedures, including capital budgeting.

3. 
   Scope of Work
   

A consulting company shall be hired for the implementation of the following works (hereinafter the “Consultant”).

1. 
   Development of Program Segment of the new Chart of Accounts (CoA)
   

1. 
   Review of Current CoA Structure
   
2. 
   Development of CoA Program Classification Segment (to enable program based reporting of actual expenditures)
   

2. 
   Program costing:
   
   1. 
      Review current practices, norms, techniques and procedures of the budget program costing for selected agencies, programs and policy measures;
      
   2. 
      Develop recommendations for improving the budget program costing system based on the review of the current practice and system;
      
   3. 
      Prepare the first draft of program costing guidelines;
      
   4. 
      Conduct testing of the draft program costing guidelines in 5 selected agencies, programs and policy measures
      
   5. 
      Finalize program costing guidelines to be incorporated into ordinary budget preparation methodological instructions
      
   6. 
      Provide and implement a comprehensive training and capacity building program on program costing for MoF and selected line-ministry staff
      

1. 
   Assessment of the overall public investment management (PIM) system in Armenia, including the applied norms and institutional/legislative framework; techniques and procedures for the capital investment projects financed form the state budget, as well as an assessment of the existing administrative framework to clarify the current status of roles and responsibilities in the sector;Prepare a Concept Note on public investment system especially (but not exclusively) with a focus on capital project appraisal regulations and procedures, including benchmarking of good practice experience in 5 countries (selected in consultation with the MoF);
   
2. 
   Develop draft regulations on capital projects appraisal system; and prepare capital project appraisal guidelines in line with these regulations; Develop other draft regulations and guidelines related to the public investment process (in addition to those related to project appraisal system mentioned above) which will be identified and proposed by the Concept Note; and e;
   
3. 
   Provide training to the MoF and selected line ministry staff to develop adequate technical capacity “in-house” to enable efficient and effective implementation ofthe new capital project appraisal system.
   

4. 
   Deliverables:
   

1. 
   Concept Note on Program Costing
   
2. 
   First draft of program costing guidelines;
   
3. 
   Concept Note on Public Investment Management
   

Report 2 (in 7 months upon contract signing), shall include:

1. 
   Concept Note on CoA program classification segment
   
2. 
   Pilots of draft program costing guidelines implemented in 5 selected agencies
   
3. 
   Draft Regulations on Public Investment Management
   

Report 3 (in 11 months upon contract signing), shall include:

1. 
   CoA Program Classification Segment
   
2. 
   Program Costing Guidelines and Methodologies
   
3. 
   Training on program costing to MoF and selected line ministry staff
   
4. 
   Training on captal project appraisal to staff in MoF and selected line ministries
   

At least 40 trainees are expected to be trained. The format of training will need to be specified by the Consultant. The training will need to be conducted in Armenian. The expenditures, associated with the delivery of the training, will be covered by the Consultant.

5. 
   Reporting, Duration and Confidentiality
   

6. 
   Qualifications
   

7. 
   Organizational Issues
   

The Client will assist the Consultant in obtaining all the required documents and materials, as well as in communication with the main beneficiaries of the assignment. The MoF should provide an auditorium and basic classroom equipment (projector, screen, microphones, etc.) for training delivery by the consultant.

The FFPMC of MoF of RoA is responsible for the payments, based on the issued Letters of Acceptance and Consultant’s original Request for Payment.