J.10_Revised_Annex_2,_Revised_Technical_Instructions_for_ramp_up_activity(10-16-2017).pdf

Technical Instructions: Bridge Activities with the Government of Egypt’s Ministry of Finance

Background: On November 11, 2016, the Executive Board of the International Monetary Fund (IMF) approved a three-year US$12 billion Extended Fund Facility (EFF) for the Arab Republic of Egypt. The Government of Egypt (GOE) reforms supported by the EFF will help Egypt restore macroeconomic stability and promote inclusive growth. Under this program, the IMF will provide the GOE a loan facility and support implementation of GOE’s economic reform agenda that will arrest and narrow external imbalances and restore competitiveness by: a) meeting fiscal parameters that reduce the deficit and debt; b) liberalizing the exchange rate; and, c) improving the enabling environment to stimulate private sector investment.

The GOE has already undertaken significant reforms such as implementing a flexible and market-driven exchange rate, reducing fuel and electricity subsidies, as well as passing legislation that will reduce the size of the civil service over time. The GOE is continuing to work to reduce government debt to a more sustainable level by rationalizing subsidies and has implemented a Value-Added Tax (VAT); and has set itself an ambitious target of growing revenue by 1 percent of GDP a year.

Recognizing the importance of the GOE-IMF agreement, USAID/Egypt has offered to support the GOE’s efforts with a program of technical assistance in cooperation with the Ministry of Finance (MOF) aimed at assisting the GOE meet fiscal targets and advancing reform of Egypt’s public financial management. To identify technical assistance needs and improve coordination, USAID consulted with officials in the MOF and with the donor community. Based on consultations the Ministry of Finance (MOF) and other donors, USAID/Egypt has identified several potential areas to focus USAID technical assistance through the LPFM II contract.

Scope: USAID is requesting LPFM II to provide technical assistance to USAID’s counterparts at the Ministry of Finance to : 1) inform and train relevant offices within the MOF on the strategic use of information from the new Treasury Single Account and Government financial management information system and 2) develop understanding of relevant offices on various models for tax revenue forecasting and estimation of new tax measures; and 3) review the pilot scheme on introducing program-based budgeting.

Tasks: The Contractor will field a team of Public Financial Management, Budget, and Tax experts to travel Egypt to work with MOF officials on the following:

Technical Area 1: Utilizing information from the Treasury Single Account and the Government Financial Management Information System (GFMIS) for Management Decisions

Target Result: Utilization of information from the TSA and GFMIS in Egypt to enhance liquidity management and fiscal consolidation.

Background: As part of an effort chaired by the President to move fully over to electronic payments, the MOF has begun to implement a single treasury account. Working in conjunction with Egypt’s Central Bank, the MOF took the decision to close all other 2,600 existing units’ accounts by December 2017. As of April 2017, accounts for 1000 units have been closed and paper checks have been destroyed. MOF is on track to close all necessary accounts by the end of 2017 including the remaining 1,600 accounts despite some resistance from certain GOE units.

Payments are now largely undertaken through the TSA and the MOF began processing all government salaries in the GOE budget electronically. The MOF intends to move the revenue accounts over to the TSA by July 2018. The GFMIS has been utilized for payments processing.

The MOF has requested assistance in determining how the information from the TSA and GFMIS can be utilized for strategic decision making in the Government. MOF has asked for support in determining the functionality for strategic decision making that the TSA/GFMIS structures provide, and in planning and providing relevant short- and long-term training for staff.

MOF has requested support in training for both senior managers and technical staff in the understanding, analysis, and utilization of information. Assistance began with a short discovery mission, with additional missions planned to refine trainings and begin delivery of the courses.

Technical Instructions: To achieve this result, the Contractor must assist the MOF in understanding the functions and limitations for reporting, oversight, and strategic decision making with a Treasury Single Account (TSA) and GFMIS. In order to support the GOE in being able to determine its cash position in real time, undertake cash planning with payments and revenues, gather information on receipts and payments with limited delay, support transparency and oversight, ensure controls over expenditure without hindering the execution process, and be able to access its cash resources anytime and at short notice. The work planning stage focused on characterizing the current state of the TSA and GFMIS system adopted by the MOF, and on reviewing implementation and alignment of GOE plans and procedures with international best practices in the following areas:

• The current banking regulatory framework, GOE accounting practices, and the state of financial technology in Egypt;

• The current coverage of government organizational units including line ministries, economic authorities, state-owned enterprises, and sub-national government units under the TSA and the GFMIS;

• The structure of the TSA the role of different entities (including central bank and commercial banks) on both the revenue and expenditure sides of the TSA;

• The structure/modules of the GFMIS and the nature of links between the GFMIS and the TSA, including information shared from bank accounts to the GFMIS (and the format of sharing);

• Current reporting formats and executive needs for reporting;

• Current cash management processes and cash planning;

• Understanding current levels of staff capability with the system, and current roles of departments; in order to determine the expansion of capabilities possible;

• The degree of decentralization of authority in the receiving of payments to the government and issuance of payments by the government;

• The current transaction processing design and its technical feasibility given the current communication and information infrastructure of the banking system;

• The existing rules and regulations that influence the functioning of the proposed TSA;

and

• The current communication and information technology and processes in place, specifically the current Government Financial Management Information System

(GFMIS).

After the work planning stage (Phase I), and based on the findings of the initial work planning mission, the Contractor will begin Phase II. As agreed with the MOF in Phase I, the Contractor will assist the Ministry in the developing a plan for the capabilities of the functions of GFMIS and the TSA for use in strategic decision making. This will include training and capacity building of public servants who will utilize the information for decision making (senior managers) and those who will be preparing and analyzing information (technical staff) in the gathering of information from the systems on how to identify needed information, evaluate the quality of information, present the information, and conduct analysis; the training of senior managers in how to utilize reporting and the functions of the systems for decision making; and the training of HR staff in how to ingrain these training functions on an ongoing basis into the work of the Ministry (including evaluation methodologies, training methods, and course outlines).

The LPFM II project team must have the credentials and capacity to provide technical advice as part of the trainings and support to meet international best practices , in the following areas:

• Optimal utilization of information from the current TSA/GFMIS structure including knowledge of reporting formats, reporting requirements, and system capabilities.

• The use of TSA/GFMIS, particularly in the area of electronic payments.

• Management of cash transactions of all government organizational units including line ministries, economic authorities, and sub-national government units under the TSA and through the GFMIS.

• Optimal transaction processing that is consistent with TSA infrastructure, including receiving of payments to government, issuance of payments by government, and consolidation of cash balances.

• Automated reporting with accurate information on a timely basis.

• Hardware and software infrastructure options (e.g. additional modules) that are consistent the MOF’s goal of expanding utilization of these systems for decision making.

Technical Area 2: Tax Revenue Forecasting

Target Result: Improved forecasting and revenue estimation for the budget process, and improved ability to undertake analysis of tax gaps and tax expenditures.

Background: The MOF is requesting assistance to develop understanding of tools and techniques to forecast tax revenue, estimate the impact of tax revenue changes, and analyze tax policies; as well as review and make suggestions on the forecasting process. This would require the MOF, with technical assistance, to explore appropriate forecasting models focused on specific sectors to be able to guide tax policy decisions through: (a) determining their revenue impact; (b) determining their impact on the economy (how distortionary are they; where does the burden fall; etc.); and (c) determining areas of collection weakness through tax gap and tax expenditure estimation. Support will be provided on reviewing current forecasting techniques including the macro-framework model; support in developing an understanding of new model types; and support to defining roles in the forecasting process. LPFM II will provide support through trainings to understand models; and close work with the Tax Policy Unit on developing requirements for models. .

Technical Instructions: To achieve this result the contractor should support the MOF in understanding the current techniques, tools and processes for forecasting, and should be able to identify potential areas of improvement and provide support in developing them. As a result the contractor must have technical skills in the following areas:

• The understanding of forecasting processes, and how they link into the budget and any mid-year update process

• An understanding of different types of estimation models (including IO models, micro-simulation models, etc.)

• An understanding of different types of tax analysis techniques (including AETR/METR analysis)

• An understanding of forecasting techniques and tools (including buoyancies and elasticities)

• An ability to develop and impart trainings and provide workshops, as well as work to develop the models with a small team.

Technical Area 3: Implementing Program-Based Budgeting

Target Result: Improved preparedness of GOE for the introduction of program-based budgeting and improved understanding of the areas of potential risk.

Background: The Government and Parliament of Egypt aims to strengthen budgetary frameworks to improve efficiency and effectiveness of resource allocations by connecting resource allocation decisions with achieving results; as well as presenting resource information by policy area to improve management oversight. To this end, MOF intends to introduce programmatic budgeting. The MOF included seven ministries in a pilot for program budgeting:

the Ministries of Communication, Education, Higher Education, Health, Housing, Social Solidarity, and Transportation. In the 2017/18 budget cycle, three of these Ministries submitted budgets formatted by programs to the Parliament (Communication, Housing, and Transportation). This exercise is intended to pave the way for full transition from input-based budgeting to program-based budgeting. The Government intends to set up an entity within the Ministry of Finance to oversee program budgeting. The MOF requested assistance in evaluating the efforts of the initial pilot ministries in adopting a program-based budget, and in determining the next steps and areas of consideration (including potential pitfalls) for once the new unit is established.

Technical Instruction: To achieve this result, the Contractor will assist the MOF in evaluating the program-based budgets developed by the initial GOE ministries submitting program budgets for the 2017/8 budget cycle; and determining the degree of progress and implementation (e.g.

whether or not the implementation just represents reporting formatted by programs, or if anything has changed in processes). This will include a comprehensive review of the methodology used by the ministries relative to international standards and best practices. The technical assistance will use this work in order to inform the new PBB coordination unit on:

• Lessons learned from the pilot program budgets in the light of best practices in transitioning to program-based budgets including considerations for scaling up;

• Lessons learned on where countries typically stall in implementing program-based budgets.

• System requirements for PBB;

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Additional Instructions:

Technical assistance will be provided through regular, short-term trips to Egypt by a team of experts with relevant experience and expertise in the technical areas listed above.

The Contractor will be responsible for logistics for all travel, including any necessary translation/interpretation. The Contractor will coordinate directly with counterparts in both

Washington, DC as well as with USAID personnel in-country. Trip in-briefs/out-briefs will be offered to both USAID Washington and Mission staff. Reporting for this activity will include trip reports from the consultants as well as quarterly updates on overall progress of the effort. A final report will be prepared outlining the support provided and results. Given the high level visibility associated with this initiative, success stories will be prepared for all training and technical assistance provided in accordance with USAID branding guidelines.

Key Deliverables/Workplan:

Phase I:

• Mobilization plan for the initial “work planning” trip to Cairo including timelines, initial team composition, CVs, flight etc.

• Completion of an initial report overviewing the forecasting process, and areas of improvement, and forecasting/estimation tools and areas of improvement. Incorporating:

o Data request templates to support model building o Work plan for ongoing interventions o Overview of models and weaknesses

• Completion of an initial report on how training can be conducted to improve senior and technical staff understanding of how to utilize TSA/GFMIS for strategic decision making, incorporating:

o Course outlines for initial and long term trainings o Checklist of reports that can be generated from the system

• Meetings with staff of the Ministry of Finance, and other relevant authorities to support information gathering, and, in the revenue forecasting stream, support the Tax Policy Unit building connections with relevant statistics gathering entities (e.g. CAPMAS).

• Initial training to provide an overview of potential major new concepts/models under the revenue stream.

Phase II:

Deliverables based on the work planning trips may include:

• Consultant trip reports, quarterly reports, and final report for the activity.

• Update of revenue report based on Ministry of Finance requests (including for example, setting out limitations of models, and how these limitations could be overcome with improvements over time).

• Update of TSA/GFMIS framework document, in line with Ministry of Finance comments.

• Development of a training plan to cover a number of trips, including workshops on practical model development to cover: tax forecasting and estimation and methods and tools, and estimation of tax expenditures and the tax gap.

• Further information gathering on the revenue stream (gathering data to populate models), under the TSA stream (understanding the structure of the TSA and GFMIS) and the PBB stream (understanding of pilot performance and gathering of documents submitted, and gathering information on current decisions/preparations made related to the PBB introduction).

• Completion of a review of the PBB pilot.

• Preparation of a “checklist” for the PBB implementation unit on areas they should focus on initially in order to implement PBB.

• Initial training for the TSA/GFMIS with senior managers, on some of the course areas.

• Work with the tax policy unit to develop illustrative synthetic models (for example, I-O model) using data on Egypt for training purposes such as in the area of tax policy estimation for budget preparation.

• Support in developing other illustrative synthetic models (e.g. microsimulation models) using data on Egypt for training purposes such as in the areas of data requirements, model structures, and the use and limitations of those models.

• Discussion of next steps on the TSA/GFMIS, including on developing content for the remainder of the course areas, and any extension to the course areas.