Attachment_2-_Amended_Solicitation.pdf

Issuance Date: Monday, January 12, 2015 Deadline for Submitting Questions: January 23, 2015 - 9:30 AM (Pakistan Time), Closing Date for Receipt of Proposals: Wednesday, February 18, 2015 - 12:30 PM (Pakistan Time)

Request for Proposal (RFP) SOL-391-15-000013 – Financial Market Development Activity (FMD)

Dear Prospective Offerors:

The United States Agency for International Development (USAID), Pakistan, is seeking proposals from qualified firms to provide technical assistance to catalyze the development of Pakistan’s nascent debt capital market. Please refer to the Scope of Work in Section C of this RFP for a complete statement of goals and expected results. The authority for this RFP is found in the Foreign Assistance Act of 1961, as amended.

Under the USG’s Foreign Assistance Framework, the “Financial Market Development Activity” will support the Government of Pakistan (GOP) to meet its objectives to introduce financial sector reforms that will strengthen Pakistan’s Debt Capital Markers and improve management of Sovereign Debt. USAID’s long-term economic growth policy and strategy is for Pakistan to have a properly functioning and reliable debt capital market; one that reflects established debt elements and is integral to sustained, robust economic growth.

USAID/Pakistan plans to award a five-year Cost plus Fixed Fee (CPFF), Term (Level of Effort)-type contract with a total of 15,000 labor days for professional labor (not including support labor categories, such as, accountants, interpreters/translators, administrative assistants, secretaries,/receptionists, drivers, janitors, guards, etc.)

The Offeror must propose costs that it believes are realistic and reasonable for the work. USAID/Pakistan will conduct this procurement as a full and open competition under which any type of organization may submit a proposal. The procedures set forth in Federal Acquisition Regulation ("FAR") Part 15 will govern the procurement.

Offerors must submit a technical and cost proposal for achieving the results set forth in the attached Statement of Work by the above mentioned closing date. All proposals must be signed by an official who is authorized to bind your organization with the U.S. Government.

It is the Offeror’s responsibility to ensure that all necessary documentation is received on time and complete.

Offerors should retain for their records copies of all enclosures that accompany their proposals. Proposals received after the closing date and time will be processed as late and handled in accordance with FAR 52.215-1.

Proposals in response to this solicitation shall be valid for 150 days.

Any questions regarding this RFP should be submitted in writing to the attention of Mr. Sami Abbasi at sabbasi@usaid.gov with a copy to me at rweddle@usaid.gov by the date and time specified above. Offerors must not discuss this RFP or submit questions to any other USAID staff. USAID bears no responsibility for data errors resulting from email exchange.

Issuance of this RFP does not in any way obligate the U.S. Government to award a Contract, nor does it commit the U.S. Government to pay for costs incurred in the preparation and submission of a proposal. Furthermore, the Government reserves the right to reject your proposal, if such action is considered to be in the best interest of the mailto:sabbasi@usaid.gov mailto:rweddle@usaid.gov

U.S. Government.

Thank you for your interest in USAID/Pakistan’s “Financial Market Development Activity”.

Sincerely, /s/

Ryan Weddle Contracting Officer

SOL-391-15-000013

Financial Market Development Activity

SOL-391-15-000013

SOLICITATION, OFFER AND AWARD

4. TYPE OF SOLICITATION2. CONTRACT NUMBER 3. SOLICITATION NUMBER

7. ISSUED BY CODE 8. ADDRESS OFFER TO (If other than Item 7)

ORDER UNDER DPAS (15 CFR 700)

6. REQUISITION/PURCHASE NUMBER

NOTE: In sealed bid solicitations "offer" and "offeror" mean "bid" and "bidder".

NEGOTIATED (RFP)

SEALED BID (IFB)

5. DATE ISSUED

1. THIS CONTRACT IS A RATED RATING PAGE OF PAGES

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C. E-MAIL ADDRESS

EXT.NUMBERAREA CODE

B. TELEPHONE (NO COLLECT CALLS)A. NAME

10. FOR

INFORMATION

CALL:

CAUTION: LATE Submissions, Modifications, and Withdrawals: See Section L, Provision No. 52.214-7 or 52.215-1. All offers are subject to all terms and conditions contained in this solicitation.

(Date)(Hour) local timeuntildepository located in copies for furnishing the supplies or services in the Schedule will be received at the place specified in Item 8, or if hand carried, in the

SOLICITATION

9. Sealed offers in original and

PART IV - REPRESENTATIONS AND INSTRUCTIONS

OTHER STATEMENTS OF OFFERORS

EVALUATION FACTORS FOR AWARD

INSTRS., CONDS., AND NOTICES TO OFFERORS

REPRESENTATIONS, CERTIFICATIONS AND

LIST OF ATTACHMENTS

CONTRACT CLAUSES

PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH.

I

J

K

L

M SPECIAL CONTRACT REQUIREMENTS

CONTRACT ADMINISTRATION DATA

DELIVERIES OR PERFORMANCE

INSPECTION AND ACCEPTANCE

PACKAGING AND MARKING

DESCRIPTION/SPECS./WORK STATEMENT

SUPPLIES OR SERVICES AND PRICES/COSTS

SOLICITATION/CONTRACT FORM

PART II - CONTRACT CLAUSESPART I - THE SCHEDULE

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EXT.NUMBERAREA CODE

15B. TELEPHONE NUMBER

(Type or print)AND

ADDRESS

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16. NAME AND TITLE OF PERSON AUTHORIZED TO SIGN OFFER15A. NAME

DATEAMENDMENT NO.DATEAMENDMENT NO.

and related documents numbered and dated):

amendments to the SOLICITATION for offerors

(The offeror acknowledges receipt of

14. ACKNOWLEDGEMENT OF AMENDMENTS

CALENDAR DAYS (%)30 CALENDAR DAYS (%)20 CALENDAR DAYS (%)10 CALENDAR DAYS (%)

(See Section I, Clause No. 52.232.8)

13. DISCOUNT FOR PROMPT PAYMENT

designated point(s), within the time specified in the schedule.

by the offeror) from the date for receipt of offers specified above, to furnish any or all items upon which prices are offered at the price set opposite each item, delivered at the

12. In compliance with the above, the undersigned agrees, if this offer is accepted within ______________ calendar days (60 calendar days unless a different period is inserted

NOTE: Item 12 does not apply if the solicitation includes the provisions at 52.214-16, Minimum Bid Acceptance Period.

OFFER (Must be fully completed by offeror)

IMPORTANT - Award will be made on this Form, or on Standard Form 26, or by other authorized official written notice.

28. AWARD DATE

(Signature of Contracting Officer)

27. UNITED STATES OF AMERICA

25. PAYMENT WILL BE MADE BY

26. NAME OF CONTRACTING OFFICER (Type or print)

CODE 24. ADMINISTERED BY (If other than Item 7)

ITEM

(4 copies unless otherwise specified)

23. SUBMIT INVOICES TO ADDRESS SHOWN IN

41 U.S.C. 253 (c) ( 10 U.S.C. 2304 (c) (

22. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION:

21. ACCOUNTING AND APPROPRIATION20. AMOUNT19. ACCEPTED AS TO ITEMS NUMBERED

AWARD (To be completed by government)

CODE

REQ-391-14-00017701/12/2015

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PAKISTAN

Pakistan Program

1230 LT 02/18/2015

Sami Abbasi sabbasi@usaid.gov

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PAGE(S)

Ryan Weddle

AUTHORIZED FOR LOCAL REPRODUCTION

Previous edition is unusable

STANDARD FORM 33 (Rev. 9-97) Prescribed by GSA - FAR (48 CFR) 53.214(c)

ITEM NO. SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT

NAME OF OFFEROR OR CONTRACTOR

2 2

CONTINUATION SHEET

REFERENCE NO. OF DOCUMENT BEING CONTINUED PAGE OF

SOL-391-15-000013

(A) (B) (C) (D) (E) (F)

Under the USG’s Foreign Assistance Framework, the “Financial Market Development Activity” will support the Government of Pakistan (GOP) to meet its objectives to introduce financial sector reforms that will strengthen Pakistan’s Debt Capital Markers and improve management of Sovereign Debt. USAID’s long-term economic growth policy and strategy is for Pakistan to have a properly functioning and reliable debt capital market; one that reflects established debt elements and is integral to sustained, robust economic growth.

USAID/Pakistan plans to award a five-year Cost plus Fixed Fee (CPFF), Term (Level of Effort)-type contract with a total of 15,000 labor days for professional labor (not including support labor categories, such as, accountants, interpreters/translators, administrative assistants, ecretaries,/receptionists, drivers, janitors, guards, etc.)

Delivery Location Code: PAKISTAN

USAID/Pakistan c/o U.S. Embassy Diplomatic Enclave Ramna 5 Islamabad, Pakistan

0001 1. Funds for FMD

0002 2. Funds for FMD

OPTIONAL FORM 336 (4-86)

Sponsored by GSA

FAR (48 CFR) 53.110

NSN 7540-01-152-8067

TABLE OF CONTENTS

PART I—THE SCHEDULE

SECTION B—SUPPLIES OR SERVICES AND PRICES/COSTS

SECTION C—STATEMENT OF WORK

SECTION D—PACKAGING AND MARKING

SECTION E—INSPECTION AND ACCEPTANCE

SECTION F—DELIVERIES OR PERFORMANCE

SECTION G—CONTRACT ADMINISTRATION DATA

SECTION H—SPECIAL CONTRACT REQUIREMENTS

PART II—CONTRACT CLAUSES

SECTION I—CONTRACT CLAUSES

PART III—LIST OF DOCUMENTS, EXHIBITS, AND OTHER ATTACHMENT

SECTION J—LIST OF ATTACHMENTS

PART IV—REPRESENTATIONS AND INSTRUCTIONS

SECTION K—REPRESENTATIONS, CERTIFICATIONS, AND OTHER STATEMENTS OF OFFERORS

SECTION L—INSTRUCTIONS, CONDITIONS, AND NOTICES TO OFFERORS

SECTION M—EVALUATION FACTORS FOR AWARD

ACRONYMS LIST

ACO Administrative Contracting Officer ADB Asian Development Bank ADS USAID’s Automated Directives System AIDAR USAID Acquisition Regulation BIP Branding Implementation Plan CCN Cooperating Country Nationals CCR Central Contractor Registration CDNS Central Directorate of National Savings, Government of Pakistan CDC Central Depository Company Limited CFR Code of Federal Regulations CISO USAID Chief Information Security Officer CO Contracting Officer COP Chief of Party COR Contracting Officer’s Representative CPFF Cost plus Fixed Fee Type Contract CTO Cognizant Technical Officer DBA Defense Base Act DCA Development Credit Authority DEC USAID’s Development Experience Clearinghouse DFID Department for International Development, United Kingdom DMWG Debt Market Working Group DO Development Objective DOD Department of Defense, United States Government DPCO Debt Policy Coordination Office, Government of Pakistan DUNS Data Universal Numbering System EGA USAID’s Office of Economic Growth and Agriculture EXO/SSO USAID’s Executive Office/Security & Security Office FAR Federal Acquisition Regulation FMD Financial Market Development Activity FOIA Freedom of Information Act GAO Government Accountability Office, United States Government GDP Gross Domestic Product GOP Government of Pakistan IEE Initial Environmental Examination IMF International Monetary Fund IR Intermediate Results LECP Local Employee Compensation Plan LOE Level-of-Effort LPA USAID’s Bureau for Legislative and Public Affairs LPG Loan Portfolio Guarantee M&IE Meals and Incidental Expenses MEDEVAC Medical Evacuation MEP Monitoring and Evaluation Plan MOF Ministry of Finance, Government of Pakistan MSF Mission Strategic Framework MTDS Medium Term Debt Strategy NCCPL National Clearing Company of Pakistan Limited

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NICRA Negotiated Indirect Cost Rate Agreement NSS National Savings Scheme NTE Not To Exceed OCA Organizational Capacity Assessment OFAC Office of Foreign Assets Control OMB Office of Management and Budget, United States Government PII Personally Identifiable Information PSE Public Sector Enterprises RFP Request for Proposal SAM System for Award Management SBP State Bank of Pakistan SECP Securities and Exchange Commission of Pakistan SFP Support for Privatization Activity SME Small and Medium Enterprises STTA Short-Term Technical Assistance TCN Third Country Nationals TIN Taxpayer Identification Number USAID CST USAID Contractor Salary Threshold USG United States Government

PART I—THE SCHEDULE

SECTION B—SUPPLIES OR SERVICES AND PRICES/COSTS

B.1 PURPOSE

The purpose of this contract is to procure services to catalyze the development of Pakistan’s debt capital market, as described in Section C.

B.2 CONTRACT TYPE

This is a Cost-Plus-Fixed-Fee Term (Level of Effort)-type Contract. For the consideration set forth in the contract, the contractor for Financial Market Development Activity (“Contractor”) must provide the deliverables and outputs described in Section C and Section F.

B.3 TOTAL ESTIMATED COST AND OBLIGATED AMOUNT

The total estimated cost for the performance of the work required for the contract, exclusive of fixed fee, if any, is $[TBD]. The fixed fee, if any, is $[TBD]. The total estimated cost plus fixed fee, if any, is $[TBD]. USAID will not pay the Contractor any sum in excess of the total estimated cost.

The total obligated amount available for reimbursement of allowable costs incurred by the Contractor (and payment of fixed fee, if any) for performance under the contract is $[TBD]. The Contractor must not exceed the aforesaid obligated amount in accordance with Federal Acquisition Regulation (“FAR”) § 52.232.22, “Limitation of Funds.”

B.4 BUDGET

Labor Fringe Benefits Expatriate Allowances Travel Other Direct Costs (ODC) Subcontracts Indirect Cost Fixed Fee Total Cost

(a) The inclusion of any costs in the above budget does not obviate the requirement for prior approval by the Contracting Officer of cost items designated as requiring prior approval by any of the terms and conditions of this contract, including the applicable cost principles (see FAR 52.216-7, “Allowable Cost and Payment”); nor, does it constitute a determination of allowability by the Contracting Officer of any item of cost, unless specifically stated elsewhere in this contract. Also, the Contractor must not adjust these amounts without a written modification signed by the Contracting Officer. The Contractor must not bill any amounts against this contract in excess of the amounts specified for each line item.

(b) The Contractor agrees to furnish data that the Contracting Officer may request on costs expended or accrued under this contract in support of the budget information provided herein.

(c) Without the prior written approval of the Contracting Officer, the Contractor must not exceed the total estimated cost set forth in the budget or the total obligated amount, whichever is less.

B.5 INDIRECT COSTS

[To Be Determined at Award]

Pending establishment of revised provisional or final indirect cost rates, USAID/Pakistan will reimburse allowable indirect costs on the basis of the following negotiated provisional or predetermined rates and the appropriate bases pursuant to the contractor’s current executed Negotiated Indirect Cost Rate Agreement (“NICRA”):

Description Rate Base Type Period

% 1/ 1/ 1/ Fringe Benefits TBD Overhead G&A Materials & Subcontract a/ Base of application:

Type of rate:

Period:

b/ Base of application:

Type of rate:

Period:

The Contractor will make no change in its established method of classifying or allocating indirect costs without the prior written approval of the Contracting Officer.

B.6 REIMBURSABLE COSTS

The U.S. dollar costs allowable will be limited to reasonable, allocable, and necessary costs determined in accordance with FAR § 52.216-7, “Allowable Cost and Payment,” FAR § 52.216- 8, “Fixed Fee,” FAR § 52.232-20, “Limitation of Cost,” and FAR 52-232-22, “Limitation of Funds,” if applicable, and AIDAR 752.7003, “Documentation for Payment.”

B.7 PAYMENT OF FIXED FEE

USAID/Pakistan will pay a proportion of the contractor’s fixed fee each month pursuant to FAR § 52.216-8, “Fixed Fee,” upon the receipt of an invoice deemed proper by the Office of Financial Management in USAID/Pakistan.

Subject to FAR 52.216-8, Fixed Fee, after payment of 85 percent of the fixed fee, the Contracting Officer shall withhold further payment of fee until a reserve is set aside in an amount of ________ [TBD – 15% of

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fee]. The Contracting Officer will release 75 percent of all fee withholds under this contract after receipt of the certified final indirect cost rate proposal covering the year of physical completion of this contract, provided the Contractor has satisfied all other contract terms and conditions, including the submission of the final patent and royalty reports, and is not delinquent in submitting final vouchers on prior years’ settlements. The Contractor will not be paid any sum in excess of the contract ceiling price.

B.8 CANCELLATION UNDER MULTI-YEAR CONTRACTS

USAID/Pakistan considers this contract to be non-severable. Therefore, as a multi-year contract as defined in FAR § 17.103, the contract remains subject to the requirements contained in FAR §

17.106. However, as a cost-reimbursement contract, USAID/Pakistan will authorize the reimbursement for all allowable costs incurred by the Contractor pursuant to FAR 52.216-7, “Allowable Costs and Payment.” As a result, the Contractor may not incur any costs that would require amortization over the contract’s period of performance in the event that the Contracting Officer cancels the contract pursuant to FAR 52.217-2. Accordingly, no requirement to include cancellation dates in the contract exists. Therefore, the cancellation cost for each cancellation date is as follows:

Cancellation Dates Cancellation Ceiling Contract Year 1 (TBD- 2016) (TBD - based on Offeror’s final proposed first year budget) Contract Year 2: (TBD - 2017) (TBD - based on Offeror’s final proposed 1-2 year budget) Contract Year 3: (TBD- 2018) (TBD - based on Offeror’s final proposed 1-3 year budget) Contract Year 4: (TBD - 2019) (TBD - based on Offeror’s final proposed 1-4 year budget)

END OF SECTION B

SECTION C—STATEMENT OF WORK

C.1 PURPOSE

Debt is a major source of investment capital and is virtually missing from Pakistan’s financial landscape, hampering the country’s economic growth. Government of Pakistan (GOP) has set concrete objectives to introduce financial sector reforms that will strengthen Pakistan’s Debt Capital Markers and improve management of Sovereign Debt. USAID’s long-term economic growth policy and strategy is for Pakistan to have a properly functioning and reliable debt capital market; one that reflects established debt elements and is integral to sustained, robust economic growth.

Through the Financial Market Development (FMD) activity, USAID intends to procure the services of a contractor to catalyze the development of Pakistan’s nascent debt capital market.

FMD will develop and implement activities that result in significant policy reform, capacity building of sector actors, and investment to support the government, the private sector and civil society organizations in improving the availability and affordability of domestic capital. This should result in an improved, deep, and diverse debt capital market that will tend to keep downward pressure on interest rates (as well as the overall cost of borrowing) due to its competitive nature and pricing mechanisms. Lower cost of borrowing is well-known to be a major stimulant of growth in any economy and will expand the role private sector capital can play in funding infrastructure and social sector investments that Pakistan needs. At its most basic level, a debt capital market will broaden access to resources beyond domestic banking channels, remittances and external donors.

The Activity Goals will be achieved through the provision of technical assistance to public and private sector stakeholders within Pakistan's nascent domestic debt capital market, including:

1. Strengthening the capacity of the GOP to support full maturity spectrum debt security issuances;

2. Strengthening the debt market itself, through improvements to the policy/legal/regulatory framework as well as, primary and secondary market infrastructure; and

3. Building capacity of local financial institutions and augmenting their ability to provide access to credit for Small and Medium Enterprises (SMEs) in support of USAID's Development Credit Authority (DCA) activity.

FMD will help create a robust public debt market that can provide new and efficiently priced sources of funds for the GOP as well as other borrowers and it will improve financial management practices within the GOP for tapping domestic and international debt markets.

C.2 RELATIONSHIP TO MISSION STRATEGY

Activity Title: Financial Market Development Activity (FMD) Development Objective: DO2: Improved economic status of focus populations Intermediate Result: IR2.2: Improved business enabling environment

FMD contributes to USAID/Pakistan Mission Development Objective Two: Improved Economic Status of Focus Populations. More specifically, this program will serve to address the Intermediate Results (IR):

Improved Economic Performance and, Improved Enabling Environment. The activity is part of the Mission’s Economic Growth portfolio that is helping the GOP implement reforms affecting trade, the financial sector, and small- and medium- sized enterprise development. This portfolio directly supports the GOP’s focus on

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further liberalizing the investment and trade regime, improving the business enabling climate, and developing debt capital markets. (Please see Logical Framework for the Financial Markets Development Project in Attachment J.1)

C.3 BACKGROUND AND DEVELOPMENT CONTEXT

Debt (in the form of marketable debt instruments – to distinguish from bank debt) is a major source of investment capital and is virtually missing from Pakistan’s financial landscape, hampering the economy’s ability to achieve significant growth. Pakistan’s economy, taken as a whole, is significantly underleveraged and therefore is not utilizing its capital formation potential. According to one measure of capital utilization offered by the McKinsey Global Institute, estimated total financial assets in Pakistan as a percent of GDP have been hovering around 100% in recent years. By contrast, the average for tracked emerging markets, including India, is near 200%, and the world average is over 300%. The pervasive lack of available and affordable growth capital is among the primary constraints to Pakistan’s sustained economic growth.

Deepening Pakistan’s capital markets will help reverse the situation.

Debt capital markets, both primary and secondary, are significantly underdeveloped. Long-term debt capital to support infrastructure investments remains unavailable. An equity market (the Karachi Stock Exchange) has existed in Pakistan for over 60 years; however there is no comparable analog in the debt market. A deep government securities market would serve as the foundation for a more developed private debt capital market. To help address issues on the macro-economic front that affect both monetary and fiscal policy, the GOP is focused on developing the government debt market and recently announced a Medium Term Debt Strategy (MTDS) based on recommendations from the World Bank and the IMF. The MTDS calls for a gradual increase in maturity tenors and heightened emphasis on risk management. The vast majority of the GOP’s borrowings are in the form of short-term securities bought and held by a handful of banks. Pakistan’s performance in meeting long-term debt capital requirements and the lack of capital for SMEs is part of broader investment shortfalls which constrain investment and growth in the economy.

A well-functioning debt capital market infrastructure in Pakistan will accelerate the mobilization of short-and long-term domestic resources by encouraging the broad-based participation of issuers (private and public) and investors; improving the efficiency of the capital allocation process; and providing the basis for an efficient pricing (and interest-rate setting) mechanism. The corollary development of a long-term government yield curve will serve to define the “risk-free” benchmark for the pricing of securities issued by the corporate sector, thereby supporting the liquidity of those debt markets and, thus, increasing their attractiveness to investors. The existence of a liquid bond market will, importantly, also help to accelerate the development of the pension and insurance industries by providing long term investment alternatives that provide those industries a diversified and liquid source of investments that match their liabilities.

C.3.1 SCOPE

Technical assistance provided under FMD will enable Pakistani policy-makers, issuers, investors, market makers, traders, and other actors to effectively and efficiently operate, participate in and ensure the integrity of a deepened and liquid debt capital market such that policies, regulations and laws supportive of national domestic bond issuances, secondary market trading and an efficient mechanism for overall management of debt obligations will be in place. The activity is expected to expand the availability of long-term capital for the national government and improve the efficiency and availability of long-term credit beyond current sources for better funding and investment planning, which is essential to Pakistan’s long-term growth and prosperity. Additionally, technical assistance will be provided as a short-term activity with input from the DCA office to develop capacity of partner banks for lending to SME businesses.

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A well-functioning debt capital market infrastructure in Pakistan will accelerate mobilization of short- and long-term domestic resources by encouraging broad-based participation of issuers (private and public) and investors, improving the efficiency of the capital allocation process, and providing the basis for an efficient pricing (and interest-rate setting) mechanism. The corollary development of a long-term government yield curve will serve to define the “risk-free” benchmark for the pricing of securities issued by the corporate sector, thereby supporting the liquidity of those debt markets, thus increasing their attractiveness to investors. The existence of a liquid bond market will, importantly, also help to accelerate the development of the pension and insurance industries by providing long term investment alternatives that provide those industries a diversified and liquid source of investments that match their liabilities, which does not now exist.

Attractive returns on short-term sovereign debt reduce the incentive for banks to expand private sector lending. Moreover, with no active secondary market on which to trade the debt, bank resources remain committed in sovereign debt, and resources available for private sector lending are limited accordingly.

Bank credit is, thus, very tight for private sector firms that fall below the top tier elite few, and is even tighter below at the level of SMEs. This dearth of available and affordable capital is among the primary constraints to the country’s sustained economic growth. To the greatest extent possible, FMD will facilitate and catalyze development of debt capital markets and support the redirection of bank lending towards the private sector, in particular the SME segment. FMD will also create synergies between key stakeholders and promote the best possible use of resources to implement program activities in a way that ensures sustainability, coordination and efficiency.

The Contractor is expected to leverage the planned USAID Support For Privatization (SFP) Activity, which is focused primarily on enhancement of capacity of the Privatization Commission and line ministries to support and implement the country’s privatization program and assist the GOP in setting the direction and parameters for restructuring, revitalization, better management, performance monitoring and potential divestment of Public Sector Enterprises (PSE). In addition, the Contractor is expected to complement work to be carried out through the planned USAID DCA facility, which will use a loan portfolio guarantee (LPG) in favor of selected financial institutions with the objective of developing a comfort level in lending to SMEs perceived to be riskier vis-à-vis other investments.

C.3.2 INTERNATIONAL DONOR AND FINANCIAL INSTITUTION EFFORTS:

The activities of several donors/IFIs including the ADB, IMF, World Bank, and DFID complement the work of FMD in the debt capital market. DFID’s Enterprise and Asset Growth Program aims to support access to finance for SMEs through a guarantee facility; equity investments; grants for innovation; establishment of a technology center in collaboration with Bill & Melinda Gates Foundation; and support for improving the regulatory and business environment.

The ADB and the World Bank are actively seeking to support, in some fashion, sovereign debt management and the development of debt capital markets. The World Bank, jointly with the IMF, recently completed an analysis of the GOP debt portfolio. Their report was issued in Feb 2014 and contains recommendations to the GOP for a Medium-Term Debt Management Strategy. These recommendations were formally adopted and announced by the Ministry of Finance (MoF) in April 2014 in a parallel MTDS report published under its own name with the full endorsement of Finance Minister Ishaq Dar. The World Bank says it stands ready to provide assistance as and when asked by the GOP. The ADB is currently considering a program to strengthen the financial management and debt management practices of the national government. This could include support to issue and manage sovereign domestic and foreign debt. USAID/Pakistan EGA anticipates coordinating with the ADB and the World Bank in many areas including strengthening the GOP’s debt

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management practices and debt issuance capacity and reforming selected public sector enterprises (PSEs).

Areas of cooperation already laid out with the WB include engaging closely with the MoF’s Debt Policy Coordination Office in its efforts to reorganize and consolidate/rationalize its functions for more streamlined decision-making on debt policy matters and borrowing activities as well as building staff capacity and providing assistance to the DPCO in implementing the MTDS.

Finally, depending upon the scope of the ADB and WB programs and with an explicit invitation from the GOP, the US Department of the Treasury has shown a keen interest and willingness to partner with USAID in this undertaking.

C.4 TASKS AND EXPECTED RESULTS

C.4.1 TASK 1: SUPPORT THE GOP IN CREATING AN ENABLING ENVIRONMENT FOR

THE DEVELOPMENT OF DEBT CAPITAL MARKETS

C.4.1.1 Activities

The Contractor must conduct baseline work to ensure that the common elements – the building blocks to support debt market activities - are in place. This will entail examining the policy, legal and regulatory environment, market infrastructure and the willingness, readiness and capacity of the GOP to issue debt securities with varying maturities.

The Contractor shall assist key regulators (i.e. MoF, SBP, SECP) to reform policies governing the financial sector in Pakistan based on recommendations stemming from and agreed to through the debt market working group. The activities listed below are considered “medium term”. They will be contingent mainly upon political opportunities as they arise.

Accordingly, the Contractor shall undertake the following activities:

Baseline and Diagnostics

a) Review bankruptcy laws, collateral laws, pension and provident fund laws and other creditor rights legislation that affects the speed of recovery of defaulted debt securities (issued by non-sovereign entities). Review tax laws that affect the development of debt capital markets and an improved issuance of debt instruments. Identify the key policy, political, regulatory and institutional constraints to the development of a robust debt capital market.

b) Review the fiscal and monetary policy coordination mechanism and conduct a diagnostic on the sovereign debt issuance and management mechanism in Pakistan to improve coordination of monetary policy and debt (fiscal) policy. At present, the overlap of SBP and the MoF's short-term borrowing activities causes interest rate volatility in the securities market. The Contractor will map out their respective areas of responsibility so as to minimize competition and resulting volatility in the shorter end of the debt maturity spectrums.

c) Establish a Debt Market Working Group (DMWG) to engage relevant stakeholders to create buy-in for a reform and implementation agenda comprised of representatives of: 1) Securities and Exchange Commission of Pakistan 2) relevant departments of the Ministry of Finance (MoF), 3) the SBP and 4) stakeholders in the private sector (including stock exchanges, commercial banks, investment banks, SOL-391-15-000013 brokerage firms, law firms and the Central Depository Company). The Contractor must convene the first DWMG meeting within 180 days of award and at least on a quarterly basis thereafter.

d) Through the Debt Market Working Group and other coordination efforts, clarify the roles and responsibilities for on-budget domestic financing and external financing within the MoF and build consensus on a reform agenda.

e) Identify potential market makers willing to support development of the secondary market for debt securities; encourage regulators to allow commercial banks to participate as market makers.

f) Organize and carry out a conference for a national audience of financial sector stakeholders, including the MoF, SBP, SECP, other government ministries / institutions, relevant private sector actors and prospective institutional investors, to raise awareness and stimulate interest in the project. The anticipated impact of the conference should be to galvanize interest in development of debt capital markets and support for project objectives. The conference shall be carried out within six months of award.

Policy Reform:

g) Work closely with the key GOP departments and agencies to reform bankruptcy, tax, collateral, pension and provident fund laws to strengthen creditor rights. To this end, the Contractor shall build consensus on the draft regulations as well as a timeline for submission of these to the legislature through the Debt Market Working Group.

h) Work with the SBP to ensure that primary dealers are fulfilling their market making obligations; create incentives for banks to sell/trade sovereign securities and not simply buy-and-hold.

i) Work with the SECP to improve the regulatory and business environment for insurance companies, pension and provident funds, mutual funds and others to invest in sovereign securities with ease, transparency and at minimum costs.

j) Provide technical assistance to the Central Directorate of National Savings (CDNS), which is the office within the MoF responsible for the National Savings Scheme (NSS), to eliminate or reduce distorting elements. Focus on assisting the CDNS as it attempts to eliminate institutional eligibility to invest, impose penalties for early redemption, impose market-based interest rates, and remove subsidies or artificial interest rates, all of which cause distortions in the debt market and inhibit its development.

Assist CDNS in coordinating NSS instruments with overall national fiscal and debt policy. The Contractor shall work to build consensus at the Debt Market Working Group for reforms to the NSS and, within one year, present conclusions to the DWMG summarizing the consensus reached.

C.4.1.2 Deliverables

Unless otherwise specified, the deliverables below must be submitted to the COR by the deadline prescribed below unless the CO or COR authorizes an extension in writing. The contractor shall provide both written and electronic copies of all written deliverables. The deliverables will be considered complete only when written approval is provided be the COR.

Baseline and Diagnostics

a) Provide a macroeconomic study (no more than 100 pages) containing written analysis of key policy, political, regulatory and institutional constraints to the development of a robust debt capital market. The study must be accompanied by a presentation if requested by the COR.

Due Date: Within 60 calendar days of the award.

b) Provide diagnostic study of sovereign debt issuance and management mechanisms in Pakistan along with recommendations to improve coordination of monetary policy and fiscal (debt) policy with a detailed mapping of areas of responsibility.

Due Date: Within 120 calendar days of the award.

c) Establish Terms of Reference for the DMWG

Due Date: Within 90 calendar days of the award.

d) Provide written minutes of the DMWG meetings

Due Date: Within one week of each DMWG meeting

e) Provide a report of the consensus reached by the DMWG on a reform agenda accompanied by an implementation plan clearly outlining responsibilities and timelines for achievement of reforms. The report and plan should be introduced to the DMWG through a presentation held at meeting.

Due Date: Within 365 calendar days of the award.

f) Submit a list of potential market makers willing to support development of the secondary market for debt securities to the COR along with a written plan on how the contractor would encourage regulators to allow commercial banks to participate as market makers.

g) A report on the conference discussed in task C.4.1.1.1 (f) listing each of the conclusions reached at the conference, summarizing the consensus, and assigning action items Due Date: Within 2 weeks after the conference.

Policy Reform

h) Submit an action plan (NTE 15 pages) outlining a timeline for reforming laws in support of the sovereign debt market indicating a clear timeline for submission of new draft regulations.

i) Submit a report (NTE 50 pages) on the “supply side” of the sovereign debt capital market, explaining how the Contractor would support the SBP in (i) ensuring that primary dealers are performing their market making duties, and (ii) creating incentives for banks to sell/trade sovereign securities and not simply buy-and-hold, along with an action plan.

Due Date: Within 360 calendar days of the award.

j) Submit a report on the “demand side” (NTE 50 pages) of the sovereign debt capital market on how the

Contractor would support the SECP to improve the regulatory and business environment for insurance companies, pension and provident funds, mutual funds along with an action plan.

Due Date: Within 360 calendar days of the award.

k) Submit a report (NTW 30 pages) on how the Contractor will support the CDNS, to eliminate or reduce distorting elements along with an action plan for a reform of the NSS.

Due Date: Within 270 calendar days of the award.

l) Written discussion of the consensus reached and minutes of the presentation conducted in C.4.1.2.1 (d)

Due Date: Within one week of the presentation.

C.4.1.3 Expected Results

a) Roadmap for reform developed with significant buy-in from relevant GOP counterparts and a cohesive functional working group to guide implementation of reforms is created.

b) Bankruptcy, collateral, pension and provident fund laws as well as other creditor rights to facilitate speedy recovery of defaulted debt securities reformed and strengthened; financial contract enforcement strengthened.

c) Greater private sector incentives for debt market deepening introduced.

d) NSS reformed to improve efficiency of savings mobilization.

C.4.2 TASK 2: SUPPORT THE GOP IN IMPROVING SOVEREIGN DEBT ISSUANCE

C.4.2.1 Activities

The Contractor shall build institutional capacity of key GOP institutions critical for debt market development through improved coordination, planning, and execution of responsibilities necessary for financial deepening. The objective is to ensure the adoption of sound and sensible financial management practices as well as good governance practices that safeguard accountability and transparency.

Accordingly, the Contractor shall undertake the following activities:

a) Provide technical assistance and capacity building to the GOP (MoF, SBP, SECP), leading to increased efficiency of resource mobilization; optimize government utilization of debt capital market for funding needs; identify measures for improving the attractiveness of trading financial instruments on the secondary debt market - such as improved liquidity and efficiency; and develop mechanisms for provision of long-term capital.

b) Engage closely with the MOF’s Debt Policy Coordination Office in its efforts to reorganize and consolidate/rationalize its functions for more streamlined decision-making on debt policy matters and borrowing activities. Through this engagement, the Contractor should recommend a reformed management structure; perform a skills analysis to support hiring of appropriate personnel at all levels, including its leadership, in order to build capacity of the DPCO to play a central role as the GOP implements the MTDS.

c) Support the SBP in adoption of a volume-driven approach to securities auction that conforms to best practices; review SBP’s oversight of its appointed primary dealers and provide recommendations to ensure development of a liquid secondary market facilitated by their required market making activities in domestic national debt.

d) Provide assistance to the SECP (including the Specialized Companies Division) in:

i) Developing and adopting new regulations that support development of financial market infrastructure;

ii) Building capacity of key staff charged with management of debt markets and adoption of best practices;

iii) Ensuring transparent listing of sovereign debt securities meeting international best practices;

iv) Strengthening the recently established "Price Discovery System" promoting the availability of free and accurate information; and

v) Evaluating regulations on the financial market infrastructure following which assist the regulator in drafting new regulations to improve the same.

e) Improve clearing, settlement and depository/custodian functions through targeted advisory and technical support to the National Clearing Company of Pakistan Limited (NCCPL) and the Central Depository Company Limited (CDC).

f) Partner with selected private sector banks and brokerage firms to improve their ability to become

“market makers.” Increase their financial and debt instrument literacy; train investment banks to act as underwriters (for listed securities) and placement agents (for unlisted securities) that distribute securities through institutional and retail networks; train select lawyers and law firms to be knowledgeable in all aspects of bond structuring and the legal environment generally regarding creditors and credit markets.

g) Provide support in designing and implementing investor education programs existing at the SECP, SBP and through any other means. Engage with these stakeholders to strengthen their technical capacity.

Explore other avenues for institutionalizing financial literacy outside of the regulators.

C.4.2.2 Deliverables

Unless otherwise specified, the deliverables below must be submitted to the COR by the deadline prescribed below unless the CO or COR authorizes an extension in writing. The contractor shall provide both written and electronic copies of all written deliverables. The deliverables will be considered complete only when written approval is provided be the COR.

a) Submit a needs-assessment (NTE 30 pages) carried out by the contractor to gauge short gaps in key GOP departments (including but not limited to the Ministry of Finance, State Bank of Pakistan and Securities and Exchange Commission of Pakistan) involved in sovereign debt issuance and management. The assessment should identify areas where targeted USG assistance to selected private sector banks, brokerage firms, investment banks and law firms would result in a significant increase in their capacity to support the debt market. This needs assessment should also contain the skills analysis of the DPCO referenced in C.4.2.1(b).

Due Date: Within 10 months of award

b) Create an action plan to build capacity of institutions for which a needs assessment was carried out.

Complete capacity building activities in accordance with the action plan and submit a training completion report clearly indicating the gains accrued by these institutions as a direct result of USG assistance.

Due Date: The draft plan shall be submitted within 280 calendar days of award. Within 180 calendar days after COR approval of the action plan, the training completion report shall be submitted to the

COR.

c) Submit a final report (NTE 20 pages) recommending a new structure and authorities as well as the skill analysis of the DPCO to optimize implementation of the MTDS. The target audience of the report shall be GOP stakeholders, and should be accompanied by a presentation to these stakeholders if requested by the COR.

Due Date: Within 18 months of award.

d) Draft an action plan to support the SBP adoption of a volume-driven approach to securities auction that conforms to best practices over the life of the activity with timelines and benchmarks for its achievement. The report shall be comprehensive and accompanied by relevant graphs and tables. The target audience of the report shall be the SBP, and the report should be accompanied by a presentation to MoF and other stakeholders if requested by the COR.

Due Date: Within 2 years of award.

e) Submit a report (NTE 20 pages) on SBP’s oversight of its appointed primary dealers and provide recommendations to ensure development of a liquid secondary market. The target audience of the report should be the SBP, and should be accompanied by a presentation to SBP leadership Due Date: Within 30 months of award.

f) Submit an action plan (NTE 15 pages) depicting milestones and timelines for the delivery of technical assistance to the SECP. This technical assistance should be aimed at ensuring the transparent listing of sovereign debt securities meeting international best practices throughout the life of the activity.

Due Date: Within 10 months of award.

g) Submit an action plan clearly indicating how the Contractor will support the strengthening of the Price

Discovery System at the SECP.

Due Date: Within 30 months of award.

h) Provide an assessment of the progress made in reforming the regulatory framework of the SECP, clearly indicating the gains accrued as a direct result of USG assistance to promote price transparency and information availability. The assessment should be accompanied by draft versions of new regulations that have received approval from the SECP with a timeline for submission to the legislature for approval.

Due Date: The assessment (and draft regulations) should be submitted within two years of the award.

i) Submit an action plan clearly indicating how the Contractor would improve clearing, settlement and depository/custodian functions at the NCCPL and the CDC. Provide an assessment, clearly indicating the gains accrued as a direct result of USG assistance.

Due Date: The action plan is due within one year of award and the assessment is due within 180 calendar days of the approval of the action plan.

j) Submit a report on the existing investor education programs of the GOP followed by an action plan indicating how targeted USG assistance could provide the most value for money.

Due Date: The report is due within one year of award and the action plan is due 30 calendar days following COR approval of the report.

C.4.2.3 Expected Results

a) Lengthening maturity of outstanding sovereign debt securities

b) Increase in number of investors for sovereign debt securities

c) Enhanced average trading volume in debt securities

d) Establishment of a yield curve for risk-free securities through fair market pricing

e) Strengthen debt instrument trading participants and systems which improve market liquidity

C.4.3 TASK 3: SUPPORT FOR DEVELOPMENT CREDIT AUTHORITY (DCA) LOAN

PORTFOLIO GUARANTEES

C.4.3.1 Activities

As a related activity to this project’s support for broader access to finance, USAID is initiating a program of loan portfolio guarantees (LPG) which have been offered to local banks in order to facilitate access to finance for Small and Medium Enterprises (SME). Under USAID/Pakistan’s DCA activity, the mission is partnering with selected Pakistani lending institutions who will utilize a 50/50 pari passu LPG for new loans made to qualifying SMEs. Complementing the guarantee program, FMD will offer a technical assistance activity to help the beneficiary financial institutions improve their product offerings and lending capacity to this sector. This component will focus on working with partner financial institutions to help them develop products that will serve SME clients while building their capacity to lend to SMEs and to other previously ignored sectors and clients in a cost-effective and profitable manner.

Accordingly, the Contractor shall undertake the following activities:

a) Provide technical assistance to enhance lending capability of banks; promote innovation; leverage maximum domestic credit against the DCA guarantee; and improve the financial infrastructure for lending to SMEs.

b) Work with partner banks to train loan officers on how to use the DCA guarantee in an optimal manner.

Trainings should include reviewing the guaranteed target sector and borrower, the length of the guarantee, and the guarantee’s terms, among other areas.

c) Conduct training for partner bank employees on sector-specific lending, cash-flow based appraisal and lending as well as risk analysis, with a particular focus on SME lending. The training should cover sector-specific lending, cash-flow based appraisal and lending as well as risk analysis, with a particular focus on SME lending. The specific nature of the training will be dependent on the results of the needs assessment identified in C.3.4.2(4)

d) Work with banks to assist with marketing efforts to increase demand and drive utilization of the DCA product.

C.4.3.2 Deliverables

Unless otherwise specified, the deliverables below must be submitted to the COR by the deadline prescribed below unless the CO or COR authorizes an extension in writing. The contractor shall provide both written and electronic copies of all written deliverables. The deliverables will be considered complete only when written approval is provided be the COR.

a) Draft a needs assessment (NTE 20 pages) for selected financial institutions participating in the DCA activity.

b) Based on the needs assessment, identify areas where targeted USG assistance would lead to gains in the financial institution’s ability to innovate, leverage domestic credit and would result in…