The World Bank KG Financial Sector Development Project (P125689) REPORT NO.: RES35745 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF KG FINANCIAL SECTOR DEVELOPMENT PROJECT APPROVED ON MARCH 8, 2012 TO MINISTRY OF FINANCE FINANCE, COMPETITIVENESS AND INNOVATION EUROPE AND CENTRAL ASIA Regional Vice President: Cyril E Muller Country Director: Lilia Burunciuc Senior Global Practice Director: Ceyla Pazarbasioglu-Dutz Practice Manager/Manager: Marialisa Motta Task Team Leader: Hermanus Johannes Marc Schrijver, Fatima Eshimbekova The World Bank KG Financial Sector Development Project (P125689) I. BASIC DATA Product Information Project ID Financing Instrument P125689 Investment Project Financing Original EA Category Current EA Category Not Required (C) Not Required (C) Approval Date Current Closing Date 08-Mar-2012 30-Jun-2020 Organizations Borrower Responsible Agency Ministry of Finance Kyrgyz Post Office,National Bank of the Kyrgyz Republic Project Development Objective (PDO) Original PDO Project Development Objectives are to: (i) enhance financial sector stability, and (ii) increase access to financial services. Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-50670 08-Mar-2012 11-Jul-2013 25-Dec-2013 30-Jun-2020 4.03 .12 3.57 IDA-H7600 08-Mar-2012 11-Jul-2013 25-Dec-2013 30-Jun-2020 4.92 3.02 1.61 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No II. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES The World Bank KG Financial Sector Development Project (P125689) Progress towards achievement of the Project Development Objectives (PDO) Progress towards achievement of the PDO has recently improved (December 2018) from Moderately Unsatisfactory to Moderately Satisfactory because it is expected that the PDO-level indicator under Component 2 - 17 million financial services transactions going through Kyrgyz Post Office (KPO) - will be achievable following implementation of the KPO’s IT system that will connect the post offices in the rural areas with financial institutions. Implementation of the IT system has started with the launch of the procurement contracts signed on November 12, 2018. Also Component 3 – modernizing the secured transaction regime indicated by increase in amount of on-line registrations – is on track, because the first phase of the legal and regulatory changes are finished and the on-line registration system is established. In the coming period there is a need to create awareness of this system among the stakeholders, to do the second phase of legal and regulatory changes, and upgrade the on-line registration system. The PDO enhancing financial stability, measured by the PDO level indicator strengthening the legal, regulatory and supervisory frameworks for banks, micro finance institutions and credit unions, is expected to be achieved under the Bank-Executed Trust Fund (BETF) that finances USD 5.2 million (of which approximately 2.2 million is utilized) as the activities to strengthen the regulatory and supervisory framework are being implemented under the BETF. Overall Implementation Progress Overall implementation progress also has recently (December 2018) improved from Moderately Unsatisfactory to Moderately Satisfactory, mostly because under Component 2 the KPO signed two critical contracts of USD 3.5 million total, and because KPO made important progress on development of new instruments and practices related to financial services and financial management. The first contract of USD 3.3 million comprises the implementation of the IT system that will connect the post offices in the rural areas with financial institutions. The second contract of approximately USD 0.2 million consists of the financial audit of the 2016 and 2017 financial statements of the KPO, which is important for the modernization of the KPO. There are no implementation issues under Component 1 - strengthening the institutional capacity - and 3 – modernization of the collateral registry and debt resolution. Implementation of US$3.5 million contracts will increase the project’s disbursement percentage from 35% (current) to 77%. Change and its Rationale The change that warrants this level 2 restructuring comprises the reallocation of the following proceeds: 1) Transfer SDR 123,000 from Category 2 (Goods, non-consulting services, consultants’ services and Training under Part 2 of the Project) to Category 4 (Goods, non-consulting services, consultants’ services and Training under Part 4 of the Project) under the Grant proceeds; 2) Transfer SDR 7,000 from Category 5 (Incremental Operating Costs under Part 4 of the Project) to Category 4 (Goods, non-consulting services, consultants’ services and Training under Part 4 of the Project) under the Grant proceeds. The rationale for this change is to give the Project Coordination Unit (PCU) the necessary means, SDR 130,000, till the end of the project on June 30, 2020. This money will be used to finance the staffing of the PCU, which is critical to give the Financial Sector Development Project the needed support. SDR 123,000 will come from Category 2, the KPO. As a result of this reallocation, the KPO will have less (extra) money for modernizing its business processes and building capacity, but still sufficient funds to achieve the PDO-level indicators. SDR 7,000 will come from savings under Category 5 (operational expenditure). The reallocation is requested by the Ministry of Finance (letter dd. January 31, 2019). The World Bank KG Financial Sector Development Project (P125689) III. DETAILED CHANGES REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Current Current Actuals + Proposed Disbursement % Ln/Cr/TF Expenditure Allocation Committed Allocation (Type Total) Category Current Proposed IDA-H7600- GO, Non CS, CS, 230,000.00 71,069.62 230,000.00 100.00 100.00 001 TR under part 1 Currency: GO, Non CS, CS, XDR 1,780,000.00 889,807.85 1,657,000.00 100.00 100.00 TR under part 2 GO, Non CS, CS, 750,000.00 517,443.31 750,000.00 100.00 100.00 TR under part 3 GO, Non CS, CS, 390,000.00 318,548.74 520,000.00 100.00 100.00 TR under part 4 IOC under part 4 130,000.00 71,716.90 123,000.00 100.00 100.00 Total 3,280,000.00 1,868,586.42 3,280,000.00