I MINISTRY OF PLANNING AND FINANCE

FINANCIAL STATEMENTS

I AND

AUDITOR'S REPORT

PROJECT NAME: MODERNIZATION OF PUBLIC FINANCIALMANAGEMENT PROJECT

FINANCING AGREEMENT NUMBER: 5402-MM

GRANT AGREEMENT NUMBER: 'TF017910

PERIOD COVERED: 1 APRIL 2016 TO 31 MARCH 2017

FUNDED BY: INTERNATIONAL DEVELOPMENT ASSOCIATION

WIN THIN & ASSOCIATESCERTIFIED PUBLIC ACCOUNTANTS

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

MINISTRY OF PLANNING AND FINANCEMODERNIZATION OF PUBLIC FINANCIAL MANAGEMENT PROJECT

CONTENTS Page

Statement of Management's Responsibility 1

Independent Auditor's Report

Statement of Sources and Uses of Funds 4-5

Statement of Uses of Funds 6-7

Notes to the Financial Statements 8-11

Annex 1: Designated account reconciliation 12

STATEMENT OF MANAGEMENT'S RESPONSIBILITY

MINISTRY OF PLANNING AND FINANCE (MOPF)

It is the responsibility of the management to prepare the special purpose financial statements and related

notes to the project entitled "Modernization of Public Finance Management Project" (the Project)implemented by Ministry of Planning and Finance (MOPF) and financed under the Financing Agreement

(Credit Number 5402-MM) and Myanmar Partnership Multi-Donor Trust Fund Grant Agreement (Grant

Number TF017910) between Republic of the Union of Myanmar and International DevelopmentAssociation dated September 4, 2014. The special purpose financial statements have been prepared in

accordance with the basis of accounting described in Note 2 of the accompanying special purpose

financial statements.

MOPF maintains internal accounting control systems and related policies and procedures designed to

provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance 'with

management's authorization and properly recorded, and that accounting records may be relied upon for

the preparation of financial statements and other financial information. The system contains self-

monitoring mechanisms that allow management to be reasonably confident that controls, as well as

MOPF's administrative procedures and internal reporting requirements operate effectively. There are

inherent limitations in the effectiveness of any system of internal control, including the possibility ofhuman error or the circumvention or overriding of controls. Accordingly, even an effective internal

control system can provide only reasonable assurance with respect to financial statements preparation.

On behalf of Management

U Maung Maung Win Daw Nwe Nwe WinProject Director Chair of FMCMinistry of Planning and Finance Department Budget Department

September Vs, 2017

Ig

Sp WIN THIN & ASSOCIATESCERTIFIED PUBLIC ACCOUNTANTS

HEAD OffICE:- Room (2B/2C) 1s" Floor, Rose Condominium, No.182/194, Botahtaung Pagoda Road, Pazundaung Township,Yangon Region, Myanmar. Tel: 95-1-201798, 296164, Fax: 95-1-245671 Email : winthin9amyanmar-com.mmMANDALAYBRANCH:- Room (9/10), East Wing of Bahtoo Stadium, 70t Street (Between 29' & 30' Street),SOC)TICE Mandalay Region, Myanmar. Tel : 95-2-34451, Fax: 95-2-34498

Ref: 504/M-280/Mar 2017

INDEPENDENT AUDITOR'S REPORT

To the donor and management of The Ministry of Planning and Finance

We have audited the accompanying special purpose financial statements of the project entitled"Modernization of Public Finance Management Project" (the Project) implemented by the Ministry ofPlanning and Finance (MOPF) and financed under the Financing Agreement (Credit Number 5402-MM)and Myanmar Partnership Multi-Donor Trust Fund Grant Agreement (Grant Number TF017910) betweenRepublic of the Union of Myanmar and International Development Association dated September 4, 2014,which comprise the statement of sources and uses of funds, statement of uses of funds for the year from 1April 2016 to 31 March 2017 and a summary of significant accounting policies and other explanatorynotes (collectively referred to as the "special purpose financial statements"). We have also audited theProject's compliance with the requirements and conditions of the World Bank's Guidelines, FinancingAgreement and Myanmar Partnership Multi-Donor Trust Fund Gant Agreement, Draft Project OperationManual and laws and regulation of the Republic of the Union of Myanmar.

Management's Responsibility for the Financial StatementManagement is responsible for the preparation and fair presentation of these financial statements inaccordance with the basis of accounting described in Note 2 of the accompanying special purposefinancial statements. This responsibility includes: designing, implementing and maintaining internalcontrol relevant to the preparation and fair presentation of financial statements that are free from materialmisstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; andmaking accounting estimates that are reasonable in the circumstances. Management is also responsible forcompliance with the relevant Financing Agreement and Grant Agreement, World Bank's guidelines, lawsand regulations.

Auditor's ResponsibilityiOur responsibility is to express an opinion on these special purpose financial statements and oncompliance based on our Audit. We conducted our audit in accordance with International Standards onAuditing (ISA) applicable to the audit of financial statements and to compliance auditing, with specialreference to ISA 800 "The Independent Auditor's report on Special Purpose Audit Engagement" and torelevant World Bank guidelines. Those standards require that we comply with ethical requirements andplan and perform the audit to obtain reasonable assurance whether the financial statements are free frommaterial misstatement and about whether the Project has complied with the conditions of the relevantagreements, guidelines, laws and regulations.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe financial statements. The procedures selected depend on the auditor's judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud or error.In making those risk assessments, the auditor considers internal control relevant to the entity's preparationand fair presentation of the financial statements fi order to design audit procedures that are appropriate inthe circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity'sinternal control. An audit also includes evaluating the appropriateness of accounting policies used and the

2

reasonableness of accounting estimates made by management, as well as evaluating the overallpresentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

OpinionIn our opinion:

a) the accompanying special purpose financial statements present fairly, in all material respects, thestatement of sources and uses of fund for the year 1 April 2016 to 31 March 2017 in accordancewith the basis of accounting described in Note 2 to the accompanying special purpose financialstatements; and

b) the Project was, in all material respects, in compliance with the requirements and conditions ofthe World Bank Guidelines, Financing Agreement and Grant Agreement, Draft Project OperationManual and applicable laws and regulations of the Republic of the Union of Myanmar.

at' &As

AUDITORSSaw Nelson (PA-400)Engagement PartnerWIN THIN & ASSOCIATESCERTIFIED PUBLIC ACCOUNTANTSNo. 182/194, Batahtaung Pagoda Road,Pazundaung Township,Yangon Region, Myanmar

September 21, 2017

3

MINISTRY OF PLANNING AND FINANCEMODERNIZATION OF PUBLIC FINANCIAL MANAGEMENT PROJECTSTATEMENT OF SOURCES AND USES OF FUNDSFOR THE YEAR1APRIL 2016 TO 31 MARCH 2017Currency - Myanmar kyat and United States dollar

April 1, 2016 to Total cumulative to dateMarch 31, 2017

KS U1$ Hs SReceipts

Transfe:r to DATrecpayto A 1,900,000,000.00 5,600,000.00 2,700,000,000.00 6,350,000.00Direct payment

Total receipts 1,900,000,000.00 5,600,000.00 2,700,000,000.00 6,350,000.00

Component A: Improving revenuemobilization through bringing more revenuesfrom natural resources on budget and 86,878,076.76 561,041.47 108,254,456.76 591,158.47strengthening tax administrationComponent B: Supporting Responsive 212,299,532.44 1,086,784.88 516,530,449.64 1,108,951.28Planning and Budget Preparation

Bl. Supporting Budget Policy and Budget 92,942,57920 764,772.40 302,633,593,40 786,938.80PreparationB2. Responsive planning and Investmentmanagementt .119,356,95324 322,012.48 213,896,847.24 322,01248

Execution and Financial Reporting 431,001,194.72 1,519,937.59 709,876,774.72 1,519,937.59Cl. Suppotting Treasury Operations 115,373,481.60 235,925.20 204,520,981.60 235,925.20C2. Improving Management of State Funds 315,627,713.12 1,284,012.39 505,355,793.12 1,284,012.39Account

Component D: Fostering External Oversightand Accountability 243,508,862.00 323,133,224.00

Dl. Supporting the Parliamentary PublicAccounts Committee 243,508,862.00 323,133,224.oo

Component E: Establishing a strong capacityand Insdutional Platform fo; PFM 149,621,531.00 889,622.30 197,837,515.80 1,401,652.27

ELOperationalizing the PFM Academy 79,072,848.60 566,747.72 98,918,953.40 1,015,117.3232. Effective Project Management 70,548,682.40 322,874.58 98,918,562.40 386,534.95T otal payments 1,123,309,196.92 4,057,386.24 1,855,632,411.92 4.621.69.,61Excess/(defiit) receipts over payments 776,690,803.08 1,542,613.76 844,367,58808 1,728,300.39

Opening funds balance

Cash at Bank66,955,545.00 185686.63

Advance payments

Petty Cash721,240.00

Tax withholding for the Internal RevenueDepartment

4

7Total opening funds balance 67,676,785.00 185,68663

Closing funds balince 844,367,588.08 1,728,300.39 844,367,588.08 1,728,300.39

Represented by:

Cash at Bank 843,367,588.08 1,728,300.39 843,367,588.08 1,728,300.39Advance payments

Petty Cash1,000,000.00 1,000,000.00

Tax withholding for the Internal RevenueDepatimentTOTAL844,367,588.08 1,728,300.39 844,367,588.08 1,728,300.39See Accompanying Notes to tlie Financial Statements

j Authenticated by:

(NWE NWE WIN)DIRECTOR GENERAL

BUDGET DEPARTMENTMINISTRY OF PLANNING AND FINANCE

5

I

MINISTRY OF PLANNING AND FINANCEMODERNIZATION OF PUBLIC FINANCIAL MANAGEMENT PROJECTSTATEMENT OF USES OF FUNDSFOR THE YEAR 1 APRIL 2016 TO 31 MARCH 2017Currency - Myanmar kyat

Expenditure categories for each component/ Budget in Actual Surplus/(Deracit)subcomponent Annual Work expenditure Amount

PlanComponent A: Improving revenue 204,829,000.00 86,878,076.76 117,950,923.24 58mobilization through bringing more revenuesfrom natural resources on budget andstrengthening tax administrationComponent B: Supporting Responsive 1,071,890,800.00 212,299532.44 859,591,267.56 80Planning and Budget Preparation

Bl. Supporting Budget Policy and Budget 446,697,000.00 92,942,579.20 353,754,420.80 79PreparationB2. Responsive planning and Investment 625,193,800,00 119,356,953.24 505,836,846.76 81management

Component C: Supporting Effective Budget 547,689,874.00 431,001,194.72 116,688,679.28 21Execution and Financial Reporting

CI. Supporting Treasury Operations 151,300,374.00 115,373,481.60 35,926,892.40 24

C2. Improving Management of State Funds 396,389,500.00 315,627,713.12 80,761,786.89 20Account

Component D: Fostering External Oversight 782,325,590.00 243,508,862.00 538,816,728.00 69and Accountability

DI. Supporting the Parliamentary Public 782,325,590.00 243,508,862.00 538,816,728.00 69Accounts Committee

Component E: Establishing a strong capacity 247,539,500.00 149,621,531.00 97,917,969.00 40and Institutional Platform for PFM

El.Operationalizing the PFM Academy 212,325,000.00 79,072,848.60 133,252,151,40 63E2. Effective Project Management 35,214,500.00 70,548,682.40 (35,334,182.40) (100)

Grand Total 2,854,274,764.00 1,123,309,196.92 1,730,965,567.08

3 See Accompanying Notes to the Financial Statem~ents

I Authenticated by;

N W M WII'DIRECTOR GEN ERAL

BUDGET DEPARTMENTNIINISTRY OF ,l0ANNING AN2D 2 3NANC

6

44,9,0.0I29259262,9,0.0 1936932

MINISTRY OF PLANNING AND FINANCEMODERNIZATION OF PUBLIC FINANCIAL MANAGEMENT PROJECTSTATEMENT OF USES OF FUNDSFOR THE YEAR I APRIL 2016 TO 31 MARCH 2017Currency - United States Dollar

April 1, 2016 to March 31, 2017Expenditure categories for each component/ Budget in Actual Surplus/(Deicit)

subcomponent Annual Work expenditure AmountPlan

Component A: Improving revenue 2,403,862.00 561,041.47 1,842,820.53 77mobilization through bringing more revenuesfron natural resources on budget andstrengthening tax administrationComponent B: Supporting Responsive 3,705,078.00 1,086,784.88 2,618,293.12 71Planning and Budget Preparation

BI. Supporting Budget Policy and Budget 2,190,610.00 764,772.40 1,425,837.60 65Preparation

132. Responsive planning and Investment 1,514,468.00 322,012.48 1,192,455,52 79management

Component C: Supporting Effective Budget 5,236,458.00 1,519,937.59 3,716,520.41 71Execution and Financial Reporting

Cl. Supporting Treasury Operations 567,257.00 235,925.20 331,331.80 58

C2. Improving Management of State Funds 4,669,201.00 1,284,012.39 3,385,188.61 73Account

Component D: Fostering External Oversight 331,186.00 331,186.00A and AccouWntability 100

D2. Supporting the Parliamentary Public 331,186.00 331,186.00 100Accounts Committee

Component E: Establishing a strong capacity 1,388,109.00 889,622.30 498,486.70 36nd Institutional Platform for PFMEl.Operadonalizing the PFM Academy 859,437.00 566,747.72 292,689.28 34E2. Effective Project Management 528,672.00 322,874.58 205,797.42 39

Grand Total 13,064,693.00 4,057,386.24 9,007,306.76

See Accompanying Notes to the Financial Statements

Authenticated by:

(IN NWE N WE WINPi)DIRECTOR GENEIZAL

7

MINISTRY OF PLANNING AND FINANCEMODERNIZATION OF PUBLIC FINANCIAL MANAGEMENT PROJECTNOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR 1 APRIL 2016 TO 31 MARCH 2017

1. Background

The Republic of the Union of Myanmar has entered into the Financing Agreement CREDITNUMBER 5402-MM amounting to SDR 19,600,000 and the Multi-Donor Trust Fund GrantAgreement MDTF GRANT NUMBER TF 017910 amounting to US$ 20,000,000 with InternationalDevelopment Association (IDA) on September 4, 2014. The agreement period is five years startingfrom September 4, 2014 to September 30, 2019.

The objective of the Project is to support efficient, accountable and responsive delivery of publicservices through the modernization of Myanmar's PFM systems and strengthening institutionalcapacity. The Project consists of the following parts:

Part DescriptionA Improving Revenue Mobilization through Bringing More Revenues from Natural

Resources on Budget and Strengthening Tax AdministrationBSupporting Responsive Planning and Budget Preparations

B-i Supporting Policy Based Budgeting and Budget PreparationsB-2 Responsive Planning and Investment Management

C Supporting Effective Budget Execution and Financial ReportingIC-i Supporting Treasury OperationsC-2 Improving Management of the State Funds AccountD Fostering External Oversight and AccountabilityI D- 1 Supporting the Parliamentary Public Accounts Committee

D-2 Enhancing the Operational Effectiveness of the Office of the Auditor GeneralE Establishing a Sustainable Institutional Platform and Skills-base for PFM

E-1 Operationalizing a PFM Academy

IA

E-2 Supporting Project Management

The following table show Implementing Agencies and part to be implemented.IPart Implementing AgenciesA Internal Revenue Department

B-1 Budget DepartmentB-2 Planning DepartmentC-1 Treasury DepartmentC-2 Myanma Economic BankD-1 Myanmar ParliamentE-1 Budget DepartmentE-2 Budget Department

SuprigPlcIae ugtn n ugtPeaainIepniePann n netetMngmn

SupotngEfetie uge Eeutonad innia RprtnSuprigTesuyOeain frmNaua

ImrvnIaaeeto h tt ud con

Details of the parts are as follow:

Part A: Improving Revenue Mobilization through Bringing More Revenues from NaturalResources on Budget and Strengthening Tax Administration

Development of an improved legal and policy framework, systems and procedures for classifying,recording and reporting of revenues from natural resource sectors on budget, and for enhancing thetransparency and efficiency of the Recipient's tax administration system, including the establishmentof a large taxpayer's office.

Part B: Supporting Responsive Planning and Budget Preparations

1. Supporting Policy Based Budgeting and Budget Preparations

Development of the capacity of the budget and planning departments of the MOF to link plansand policies with budget appropriations within a medium term fiscal framework that considers allrevenue sources, including, inter alia, review of, and changes to, planning and budget preparationprocesses, regulations, guidelines and forms in priority sectors at the national and sub-national level.

2. Responsive Planning and Investment Management

Computerization of the manual compilation processes for current and investment budgets, anddesign of mechanisms to present planning and budgetary information in a manner accessible to thepublic.

Part C: Supporting Effective Budget Execution and Financial Reporting

1. Supporting Treasury Operations

Operationalization of the treasury department of the MOF to manage, analyse and report on debt,provision of training to MEB staff on amended budget execution business processes, development ofthe capacity of line ministries to implement revised procurement and budget execution rules andprocedures, and review of, and changes to, expenditure control rules.

2. Improving Man4gernent of the State Funds Account

Development and implementation of information and communication technology systems forimproved management by MEB of the state funds account.

Part D: Fostering External Oversight and Accountability

1. Supporting the Parliamentary Public Accounts Committee

Development of the capacity of parliamentarians and in particular the members of the publicaccounts committee of Parliament to review and provide input on budgets, audit reports andlegislation pertaining to the management of public finance.

9

Part E: Establishing a Sustainable Institutional Platform and Skills-base for PFM

1. Operationalizing a PFM Academy

Establishment of a PFM training academy to provide just in time, on the job, operational trainingskills required to operate a modem public financial management system on a sustainable basis,including developing, managing and coordinating a PFM skills acquisition training program andcurricula in line with a competency driven framework for officials involved in the management ofpublic finances across the government at national and sub-national level, developing a diplomaprogram in PFM, and carrying out of minor interior renovations of existing building premises for thePFM training academy.

2. Supporting Project Management

Provision of technical and operational assistance to articulate, manage, and monitor the overallPFM reform program, including the day-to-day coordination, administration, procurement, financialmanagement, monitoring, evaluation and audit of Project activities.

The address of MOPF is Building No. 26, Nay Pyi Taw, Republic of the Union of Myanmar.

2. Summary of Significant Accounting Policies

2.1 Basis of Accounting

The accompanying special purpose financial statements are prepared in accordance with the cashbasis of accounting. Under the cash basis of accounting all sources of funds are recognized whenactually received in project bank account. Expenditures are recognized when payment is maderather than when it is incurred.

The special purpose financial statements presented in Myanmar kyat (MMK) and United Statesdollar (USD) separately.

2.2 Income

Funds from IDA and TF are recognized as receipts when cash is debited to the Project'sDesignated Account.

2.3 ExpendituresExpenditures are recognized when payment is made or cash is transferred from the project'sbank accounts to suppliers or service providers.

2.4 AdvancesAmounts advance for Project's activities are recorded as advances and transfer to expenses andrecognized in the statement of receipts and disbursements when the advances are liquidated.

2.5 Property and equipmentProperty and equipment purchased under the project are directly charged to the project expenses.

10

2.6 Method of WithdrawalIDA advanced loan and grant proceeds into a designated account of the MOPF to financeeligible expenditures.

3. Income

The above consist of:

:MMK US$Date Transfer to DA Direct Transfer to DA Direct

(OA 011618) Payment (EDB600001) Payment16-05-2016 - - 3,000,000.00 -

19-05-2016 750,000,000.00 - - -

07-09-2016 - - 500,000.00 -

28-11-2016 - - 1,500,000.00 -

01-12-2016 650,000,000.00 - - -

22-02-2017 - - 600,000.00 -

27-02-2017 500,000,000.00 - - -

1,900,000,000.00 - 5,600,000.00

4. DESIGNATED ACCOUNT RECONCILIATION

Details of the above are shown in Annex 1.

11

Annex 1

DESIGNATED ACCOUNT RECONCILIATION

CREDIT NUMBER 5402-MM AND MDTF GRANT NUMBER TF017910ACCOUNT NUMBER OA 011618 (MMK) AND EDB600001 (US$) WITH MYANMAECONOMIC BANKFOR THE YEAR 1 APRIL 2016 TO 31 MARCH 2017

Amount Amount(MMK) (USS)

1. Opening balance of fund 67,676,785.00 185,686.632. Total advanced by World Bank 1,900,000,000.00 5,600,000.003. LESS: Total amount recovered by World Bank 1,123,309,196.92 4,057,386.244. Equals present outstanding amount advanced to the designated

account 844,367,588.08 1,728,300.395. Balance of designated account per bank statement as of 31 843,367,588.08 1,728,300.39

March 20176. ADD: Balance of petty cash as of 31 March 2017 1,000,000.00 .

Total amount of balance 844,367,588.08 1,728,300.39

7. LESS: Interest earned

8. Total advance accounted (For No.5 through No.7) 844,367,588.08 1,728 300.399. Explanation of any difference between the totals appearing on

No.4 and 8 " "See Accompanying Notes to the Financial Statements

Authenticated by:

(NWE NWE WIN)DIRECTOR GENERAL

BUDGET DEPARTMENTMINISTRY OF PLANNING AND FINANCE

12