Public Disclosure Authorized. Public Disclosure Authorized

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Skills and Jobs Project funded under Loan Agreement No KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development Financial Statements for the year ended December 31, 2017 and Independent Auditors Report Public Disclosure Authorized

2 CONTENTS Independent Auditors Report Financial statements Statement of receipts and disbursements of funds...1 Statement of comparison of budget and actual amounts Statement of disbursements by component Notes to the financial statements

3 TeA.: TOO "BDO Kazakhstan" CaKC: yii. ra6ynahma, 6 info@bdakz.com AtimTbr, Ka3aXCTaH A1 5H4E3 Tel: BDO Kazakhstan LLP Fax: Gabdullin Street info@bdokz.com Almaty, Kazakhstan Al 5H4E3 INDEPENDENT AUDITORS REPORT To the Management of the Skills and Jobs Project, financed under Agreement No KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development Opinion We have audited the financial statements of the Skills and Jobs Project (hereinafter "the Project") funded under Agreement No KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development which comprise the statement of receipts and disbursements of funds for the year ended December 31, 2017, statement of comparison of budget and actual amounts for the year ended December 31, 2017, statement of disbursements by component for the year ended December 31, 2017, and a summary of significant accounting policies and other explanatory notes. In our opinion, the accompanying financial statements fairly present, in all material respects, the Projects receipts and disbursements for the year ended December 31, 2017 and the cash position as at December 31, 2017 in accordance with the International Public Sector Accounting Standard (IPSAS) Financial Reporting under the Cash Basis of Accounting published by the International Federation of Accountants (IFAC), as well as in accordance with the requirements of the International Bank for Reconstruction and Development. Basis for Opinion We have performed our audit in accordance with the International Standards on Auditing. Our responsibilities under those standards are described in the section Auditors Responsibility for the Audit of the Financial Statements herein. We are independent of the Project in accordance with the Code of Ethics for Professional Accountants of the International Ethics Standards Board for Accountants (IESBA Code) and with the ethical requirements that are relevant to our audit of the financial statements in Kazakhstan, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibility of the Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IPSAS Financial Reporting under the Cash Basis of Accounting published by the International Federation of Accountants (IFAC) and in accordance with the requirements of the International Bank for Reconstruction and Development, and for such internal control as management determines is necessary to enable preparation of the financial statements that are free from material misstatement, whether due to fraud or error. TOaapHutecrMo c orpaheh4"hoa OTBTCTBeHHDEob "BDO Kazakhstan", 3aperHctpHpoAHHOe B cootbeltbmh C 3amHo4AatenbcToM Pecny&ncm KazaxcTai. nimercf y4ac7hhom Me*AyHapoAiDor o6camrcha BOO International Limited, 6pwtaHcoro 06McTma C OTeTcrBeHNDmhio. OpaHMqeHHOA rapahthe; era Y4aCTHHNQ9, m PBIPeTCH 4aCTbo MeWrgyHapDAHOA CETH He3*0MCHMMX ROMnaHmA BDO. B0 Kazakhstan, a limited liability partnership, registered under the laws of the Republic of Kazakhstan, is a member of BDO international Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

4 INDEPENDENT AUDITORS REPORT (continued) In preparing the financial statements, management is responsible for assessing the Projects ability to continue as a going concern, disclosing as applicable, matters relating to going concern and using the going concern basis of accounting unless management either intends to liquidate the Project or to cease operations, or has no realistic alternatives but to do so. Those charged with governance are responsible for overseeing the Project financial reporting process. Auditors Responsibility for the Audit of the Financial Statements Our objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or errors and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the overall presentation of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: a Identify and assess the risks of material misstatement in the financial statements, whether due to fraud or errors; design and perform audit procedures responsive to those risks; and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than the detection risk of material misstatement due to errors, as fraud can involve collusion, forgery, intentional omissions, misrepresentations of information, or override of internal controls; * Obtain understanding of the internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Projects internal control; * Evaluate the appropriateness of accounting policies used, and the reasonableness of accounting estimates, and appropriateness of disclosures prepared by management; a Evaluate the overall presentation of the financial statements, its structure and content, including disclosures, we also evaluate whether the financial statements present the underlying transactions and events so as to ensure their fair presentation.

5 INDEPENDENT AUDITORS REPORT (continued) We communicate with those charged with managing the Project regarding, among other matters, the planned scope and timing of the audit and significant audit finding, including any significant deficiencies in internal control that we identify during our audit. BDO Kazakhstan LLP State License for Auditing Activities No issued by the Committee for Financial Control under the Ministry o Finance of the Republic of Kazakhstan on February 19, 2015 May 31, Gabdultin St. Almaty, Kazakhstan Audkiquajfication Certificate No. MO O, Assd by the Qualification Commission for Certification of Auditors of the Republic of Kazakhstan on October 10, 2017

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11 Skills and Jobs Project financed under Loan Agreement No KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development NOTES TO THE FINANCIAL STATEMENTS For the Year Ended December 31, GENERAL PROVISIONS Kazakhstan Business Environment Project activities are carried out in Kazakhstan. Accordingly, the Project is exposed to risks specific to economic and financial markets of Kazakhstan, whose economy shows specific features of an emerging economy. The legal, tax and regulatory frameworks continue to develop, but are subject to varying interpretations and frequent changes which together with other legal and financial impediments contribute to the challenges faced by entities operating in Kazakhstan. Nature of Operations Loan Agreement No KZ (hereinafter the "Agreement") between the Government of the Republic of Kazakhstan (hereinafter the "Government") and the International Bank for Reconstruction and Development ("IBRD") was signed on July 20, 2015 and ratified on 05 February 2016 (the "Project start date"). Under the Agreement, 1BRD issues a loan of 100,000,000 US dollars ("Loan") for the purposes of implementing the Skills and Jobs Project ("Project"). The Government shalt repay the principal amount and the percentage of the total principal amount of the loan in semi-annual instalments payable on each March 15 and September 15 starting from September 15, The closing date of financing is June 30, As per the approved budget for 2017, the Project receipts and disbursements financed out of the proceeds of the Loan and from co-financing of the external loan by the Government were estimated to amount to 3,653,138 US dollars and 1,351,150 US dollars, respectively (2016: 1,130,769 US dollars and 114,611 US dollars, respectively). The objectives of the Project are to improve employment outcomes and skills of target beneficiaries and to improve the relevance of technical and vocational education and training and higher education programs. The Project consists of the following parts: Part 1: Building the Foundation of a National Qualifications System Enhance the institutional capacity of the Borrower for improving the relevance of technical and vocational education and training, higher education, and in-service training, through the following: (a) (b) (c) Enhancement of occupational standards, including improvement of approval and updating processes thereof; Development and implementation of a framework to review and update the educationat and training standards and curricula for technical and vocational education and training and higher education; and Development of a roadmap for establishing an independent qualifications assessment and award system through the provision of technicat assistance for pitoting sector-specific skills testing and professional certification centers.

12 Skills and Jobs Project financed under Loan Agreement No KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development NOTES TO THE FINANCIAL STATEMENTS (continued) Part 2: Enhancing Skills for Improved Employment Outcomes and Productivity Provide relevant workforce training to unemployed persons, unproductively self-employed persons, and employed persons in need of training, all identified and selected in accordance with the criteria set forth in the Project Operational Manual (hereinafter "POM"), through: (a) Improvement of public employment services for unemployed and unproductively self-employed people, through: i. the design and implementation of an action plan to improve and expand public employment services through the Employment Centers or Employment Units, based on an assessment of current capacity carried out in accordance with the POM; and ii. the improvement of the capacity of the Employment Centers and Employment Units to provide better advice to users through: (A) the introduction of a profiling tool; (B) the strengthening of the existing labor market information system of the Borrower to enhance the information available to staff of the Employment Centers and Employment Units; and (C) training of staff to adopt a more proactive approach to public employment service provision. (b) Improvement of the relevance of workforce training, through: i. the review of the regulatory framework concerning provision of workforce training provision; ii. the development of an inventory of workforce training providers; and iii. the assessment of the relevance of workforce training and, on the basis of such assessment, development of a list of pre-qualified workforce training providers eligible to provide Training under Part 2(c) below; and iv. the provision of the necessary support to selected workforce training providers to improve the relevance of training delivery, including Training under Part 2(c) below. (c) Establishment and implementation of a skills enhancement training program, consisting of the provision of Training to: (i) unemployed and unproductively self-employed persons; and (ii) currently employed in need of training, all pursuant to criteria set forth in the POM. Part 3: Project Management and Monitoring and Evaluation (a) (b) Support Project management, monitoring and evaluation activities and financing of Operating Costs; and Development and implementation of Project information and communication campaign, a feedback and resolution mechanism, and awards of excellence program, all pursuant to criteria set forth in the POM. 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS These financial statements have been prepared in accordance with International Public Sector Accounting Standard (IPSAS) Financial Reporting under the Cash Basis of Accounting as published by the International Federation of Accountants, and in compliance with the requirements of the International Bank for Reconstruction and Development. 7

13 Skills and Jobs Project financed under Loan Agreement No KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development NOTES TO THE FINANCIAL STATEMENTS (continued) 3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies described below have been consistently applied in the reporting periods presented in these financial statements. Cash Method of Accounting Cash method of accounting recognizes transactions and events only when cash is received or paid under the Project. Presentation Currency These financial statements are presented in US dollars (hereinafter "US dollars"). Transactions in Foreign Currencies Payments from Projects special accounts are translated into the presentation currency at the exchange rates established by the National Bank of the Republic of Kazakhstan as at the date of reconversion. Direct payments from the IBRD are translated into US dollars at the exchange rates established by the National Bank of the Republic of Kazakhstan as at the payment dates. Co-financing proceeds from the Government of the Republic of Kazakhstan are translated into US dollars at the exchange rates established by the National Bank of the Republic of Kazakhstan as at the dates of payment. Exchange differences arising from translation of transactions denominated in other currencies into US dollars are reported as a net value from changes in exchange rates. Expenditure Categories The Agreement specifies the main categories of expenditures financed by the Loan, the amount for each category, as well as the percentage of expenditures to be financed in each category. According to the Agreement, there are the following categories of expenditures: * Goods, non-consulting services; * Consultants services; * Operating costs; and * Training under the Project. Cash Received According to the terms and conditions of the Agreement, the Government of the Republic of Kazakhstan shall pay interest and the principal amount of the loan. Those payments are recorded on the accounts of the Government and not reported in these financial statements. The date of payment of the last instalment on the Loan by the Government is 15 March Allocation of Expenditures Expenditures are allocated between the components in the statement of disbursements broken down by components based on the comparison of work description in the Agreement and work description in source documents. 4. CASH To carry out transactions under the Loan No KZ and to make payments to suppliers, the following accounts have been opened at the Committee of Treasury of the Ministry of Finance of the Republic of Kazakhstan, the city of Astana: * No. KZ10125USD in US dollars; ( ZO ) * No. KZ in KZT

14 Skills and Jobs Project financed under Loan Agreement No KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development NOTES TO THE FINANCIAL STATEMENTS (continued) Cash balances as at December 31 and cash flows for the year ended December 31, 2017 are detailed below: In US dollars Balance as at January 1 6,482 - RECEIPTS Replenishment of account 1,723, ,200 EXPENDITURES 1,723, ,200 Expenditures under the Project 1,727, ,709 Net foreign exchange loss - 9 1,727, ,718 Balance at December 31 2,008 6,482 Including those denominated: In US dollars - 5,284 In Kazakhstani tenge 2,008 1, DIRECT PAYMENTS AND REPLENISHMENT OF THE ACCOUNT Direct payments under the Project are made by the IBRD directly to suppliers chosen pursuant to the terms of the Agreement. Direct payments to Suppliers and funds added by IBRD to the account under the Project for the year ended December 31, 2017 were made based on the following withdrawal applications: In US dollars No. of Withdrawal Direct Replenishment Total Application payments of the account ,000 55, ,000 33, ,000 53, ,000 51, ,000 40, ,000 79, ,000 75, ,000 70, ,267,000 1,267, , , , ,947 Total 536,050 1,723,000 2,259,050 9

15 Skills and Jobs Project financed under Loan Agreement No KZ between the Government of the Republic of Kazakhstan and the International Bank for Reconstruction and Development NOTES TO THE FINANCIAL STATEMENTS (continued) Statement of Expenditures: US dollars Total Actual expenditures by categories No. of Value amount of (1) Goods, non-consulting Applic. date the services, consultants services, Total application Operating Costs and Training under the Project , , , , , , , , , , ,267, , , , , , ,947 Total 2,259, , , UNUSED PORTION OF THE LOAN As at December 31, 2017, the undrawn portion of the Loan from the IBRD totals 97,502,750 US dollars (2016: 99,761,800 US dollars). 7. DATE OF ISSUE These financial statements were approved for issue by the Vice-Minister of Labor and Social Protection of Population of the Republic of Kazakhstan and Director of the Department of Labor and Social Partnership of the Ministry of Labor and Social Protection of Population of the Republic of Kazakhstan and Acting Director of the Department of Employment and Labor Market Development of the Ministry of Labor and Social Protection of Population of the Republic of Kazakhstan on May 31,

16 Skills and Jobs Project financed under Loan Agreement No KZ between the Government of the RepubLic of Kazakhstan and the International Bank for Reconstruction and Development Appendix No. 1 Reconciliation between the data provided by Project Management Unit and World Bank payments data US dollars Application for withdrawal Date of withdrawal As per PMU As per WB Variance ,000 55, ,000 33, ,000 53, ,000 51, ,000 40, ,000 79, ,000 75, ,000 70, ,267,000 1,267, , , , ,947 Total 2,259,050 2,259,050 11