The Justice Sector Institutional StrengtheningProject financed under Loan Agreement No. 8361-KZ between the Government of the Republic ofKazakhstan and the International Bank forReconstruction and Development

Financial Statements for the year endedDecember 31, 2017and Independent Auditors' Report

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CONTENTS

Independent auditors' report

Financial statements

Statement of receipts and disbursements of funds.................................................. 1

Statement of comparison of budget and actual amounts .......................................... 2

Statement of disbursements by component ........................................................ 3-4

Notes to the financial statements .................................................................. 5-10

Ten.: -7 727 331 31 34 TOO "BDO Kazakhstan"DaBC: +7 727 331 31 35 yn. Fa6AyllMHHa, 6JB D O info@bdokz.com AnmaTbl, Ka38XCTaHwww.bdokz.com Al15H4E3

Tel: +7 727 331 31 34 BDO Kazakhstan LLPFax: +7 727 331 31 35 6 Gabdultin Streetinfo@bdokz.com Almaty, Kazakhstanwww.bdokz.com A15H4E3

INDEPENDENT AUDITORS' REPORT

To the Management of the Justice Sector Institutional Strengthening Project financedunder Loan Agreement No. 8361-KZ between the Government of the Republic ofKazakhstan and the International Bank for Reconstruction and Development

Opinion

We have audited the financial statements of the Justice Sector Institutional StrengtheningProject (hereinafter "the Project"), funded under Loan Agreement No. 8361 -KZ between theGovernment of the Republic of Kazakhstan and the International Bank for Reconstruction andDevelopment which comprise the statement of receipts and disbursements of funds for theyear ended December 31, 2017, statement of comparison of budget and actual amounts forthe year ended December 31, 2017, statement of disbursements by component for the yearended December 31, 2017, and a summary of significant accounting policies and otherexplanatory notes.

In our opinion, the accompanying financial statements fairly present, in all material respects.,the Project's receipts and disbursements for the year ended December 31, 2017 and the cashposition as at December 31, 2017 in accordance with the International Public SectorAccounting Standard (IPSAS) Financial Reporting under the Cash Basis of Accounting publishedby the International Federation of Accountants (IFAC), as well as in accordance with therequirements of the International Bank for Reconstruction and Development.

Basis for Opinion

We have performed our audit in accordance with the International Standards on Auditing. Ourresponsibilities under those standards are described in the section Auditor's Responsibility forthe Audit of the Financial Statements herein. We are independent of the Project inaccordance with the Code of Ethics for Professional Accountants of the International EthicsStandards Board for Accountants (IESBA Code) and with the ethical requirements that arerelevant to our audit of the financial statements in Kazakhstan, and we have fulfilled ourother ethical responsibilities in accordance with these requirements and the IESBA Code. Webelieve that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our opinion.

Responsibility of the Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financialstatements in accordance with IPSAS Financial Reporting under the Cash Basis of Accountingpublished by the International Federation of Accountants (IFAC) and in accordance with therequirements of the International Bank for Reconstruction and Development, and for suchinternal control as management determines is necessary to enable preparation of the financialstatements that are free from material misstatement, whether due to fraud or error.

ToBapauAecTso c orpaHL4eHHOH OTBeTTBeHHOCTbIo "BDO Kazakhstan", 3aperwcTpiposaHHOe B COOTBeTCTBOLi C 3at8oHO aTelbCTBOM Pecny6imia Ka3aXcTaH,BaieTCr yLIacTH"RoM Me m)AyHapoAHoro o6beA1,1eH"1 BDO International L,mited, 6pHraHcKoro o6iecTaa c o-seTCTBeHHOCTho, orpaiiaHH oft 'apah-ei; eroyaCTHHKOB " jBABeTC1 8CTab 0 Me)AyHapoAHoA ceTH He3aBCciMbiX vMomnHMA BDO.

BDO Kazakhstan, a limited liabit ty partnership, registered under the laws of the Republic of Kazakhstan, is a member of BDO International Limited, a UKtompany Imited by guarantee, and forms part of the international BDO network of independent member firms.

INDEPENDENT AUDITORS' REPORT (continued)

In preparing the financial statements, management is responsible for assessing the Project'sability to continue as a going concern, disclosing as applicable, matters relating to goingconcern and using the going concern basis of accounting unless management either intends toliquidate 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 reportingprocess.

Auditor's Responsibility for the Audit of the Financial Statements

Our objective is to obtain reasonable assurance about whether the financial statements as awhole are free from material misstatement, whether due to fraud or error, and to issue anauditor's 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 onAuditing will always detect a material misstatement when it exists. Misstatements can arisefrom fraud or errors and are considered material if, individually or in the aggregate, theycould 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 maintainprofessional skepticism throughout the audit. We also:

* 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 Project's internal control;

* Evaluate the appropriateness of accounting policies used, and the reasonableness of

accounting estimates, and appropriateness of disclosures prepared by management;

* 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.

INDEPENDENT AUDITORS' REPORT (continued)

We communicate with those charged with managing the Project regarding, among othermatters, the planned scope and timing of the audit and significant audit finding, includingany significant deficiencies in internal control that we identify during our audit.

BDO Kazakhstan LLP

State License for Auditing ActivitiesNo.15003448 issued by the Committee forFinancial Control under the Ministry ofFinance of the Republic of Kazakhstan onL-February 19, 2015 Director TaLgat Omarov

May 28, 2018

Audir n Kuandykov

AdditorQualification Certificate No. MO-0000490, issued by the QualificationCommission for Certification of Auditors ofthe Republic of Kazakhstan on October 10,2017

6 Gabdultin St.

Almaty, Kazakhstan

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Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361-KZ betweenthe Government of the Republic of Kazakhstan and the International Bank for Reconstruction andDevelopment

NOTES TO THE FINANCIAL STATEMENTS

For the Year Ended December 31, 2017

1. 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

The Loan agreement No. 8361-KZ (the "Agreement") between the Government of the

Republic of Kazakhstan (the "Government") and International Bank for Reconstruction and

Development ("IBRD") was signed on April 29, 2014 and ratified on July 1, 2014 ("the Project

start date"). Under the Agreement, IBRD issues a loan of 36,000,000 US dollars ("Loan")

for the purpose of implementation the Justice Sector Institutional Strengthening Project

("Project"). The Government shalt repay each disbursed amount in semi-annual instatments

payable on each 15 March and 15 September, the first instalment to be payable on the

eleventh (11 th) payment date following the maturity fixing date for the disbursed amount,

and the last instalment to be payable on the thirtieth (30th) payment date following the

maturity fixing date for the disbursed amount. Each instalment except for the last one shall

be equal to one twentieth (1 /20) of the disbursed amount. The last installment will be equal

to the remaining outstanding amount of the disbursed amount.

According to the approved budget for 2017, the receipts and disbursements for the Project

from the proceeds from the IBRD loan and co-financing of external loan by the Government

of the Republic of Kazakhstan are estimated to amount to 2,614,122 US dollars and

1,742,749 US dollars, respectively (2016: 2,141,654 US dollars and 1,427,768 US dollars,

respectively).

The objectives of the Project are as follows:

(a) to strengthen the institutional capacities of Selected Agencies for effective

implementation of selected taws; and

(b) to improve the efficiency, transparency of, and access to selected public services in the

justice sector.

The project is implemented by the Ministry of Justice of the Republic of Kazakhstan, which

acts as an Implementing Agency on behalf of the Government of the Republic of Kazakhstan.

The Project consists of the following parts:

Part A. Strengthening the Implementation of Key Elements of the Legal and

Institutional Framework

1. Provision of consulting services and training to strengthen the institutional capacity

of the Ministry of Justice and other Selected Agencies, whose competencies include

carrying out government functions under the draft Commercial Code, the Administrative

Offenses Code and the Pena[ Code, including, through but not limited to:

Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361-KZ betweenthe Government of the Republic of Kazakhstan and the International Bank for Reconstruction andDevelopment

NOTES TO THE FINANCIAL STATEMENTS (continued)

(a) carrying out regulatory and impact assessments; (b) workshops, training, organizingfocus groups, and carrying out user surveys and other communications and outreachactivities for broad consultations on the Codes; and (c) development of monitoring andevaluation systems for measuring the effectiveness of the Codes.

2. Provision of consulting services, trainings and goods to support Selected Agencieswith the drafting of a new proposed Law on Self-regulated Professional Organizations, andassociated regulations, including but not limited to: (a) organizing workshops and trainingfor drafting regulatory documents; (b) carrying out regulatory and impact assessments;(c) organizing focus groups and carrying out user surveys and other communications andoutreach activities for broad consultations on the drafting of the proposed law andregulations; and (d) development of monitoring and evaluation systems for measuring theeffectiveness of the proposed law and regulations, once adopted.

3. Provision of consulting services, training and goods to the Ministry of Justice andother Selected Agencies for improvement of the Borrower's legislative drafting policies,processes and capacity, including: (a) coordination and consultation processes across theBorrower's relevant government agencies; (b) feedback mechanisms to assess the qualityof legislative drafting; and (c) measures to improve the transparency and knowledge basefor legislative drafting, including establishing and maintaining a legislative drafting web-based portal for the Ministry of Justice and other Selected Agencies of the Borrower.

Part B. Improving the Service Quality and Responsiveness of the Ministry of Justice

1. Provision of consulting services, training and goods to the Ministry of Justice tostrengthen its capacity, including but not limited to: (a) carrying out periodic institutionalself-assessments; (b) carrying out annual public surveys to assess public trust in theMinistry of Justice and other justice institutions of the Borrower selected pursuant tocriteria set forth in the Project Operations Manual; (c) development and implementationof a comprehensive performance monitoring framework and indicators and resultscollection and reporting; (d) development of a comprehensive communications strategyand capacity; (e) development and implementation of an operational roadmap for theMinistry of Justice; and (f) development of monitoring and evaluation systems.

2. Provision of consulting services, training and goods to the Ministry of Justice forimproving: (a) the enforcement of judicial decisions of the Borrower's courts; (b) carryingout surveys and assessments of efficiency and transparency in the enforcement of judicialdecisions; (c) development of monitoring and evaluation systems for benchmarkinginternational good practices as compared to the Borrower's enforcement practices; (d)development and piloting of a medium term strategy of information systems investmentand modernization; and (e) forensic capability.

3. Provision of consulting services, training and goods to the Borrower through,

including but not limited to: (a) carrying out institutional assessments and diagnostics,and supporting implementation of the outcomes of said assessments and diagnostics; (b)supporting the adoption of performance indicators;

6

Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361-KZ betweenthe Government of the Republic of Kazakhstan and the International Bank for Reconstruction andDevelopment

NOTES TO THE FINANCIAL STATEMENTS (continued)

(c) carrying out activities to improve data and information quality in real estateregistration databases; and (d) supporting the accelerated conversion of paper-basedregistration records to electronic format.

4. Provision of consulting services and goods to the Ministry of Justice to improveaccess to legal aid through, inter aLia: (a) workshops and training on application of theLaw on Free Legal Aid; (b) piloting innovative, participatory and more efficient ways toprovide legal aid and development of required amendments and enabling regulations tothe said Law; (c) development and operation of a web-based legal aid portal; (d)generation and publication of feedback from users, providers and other stakeholders; (e)analysis of service provision by lawyers and notaries; (f) a policy review and a fiscal impactassessment; and (g) analysis of gender issues in provision of and access to free legal aidand the preparation of a costed and sequenced strategy to address key legal aid-relatedgender issues, and support for implementing the strategy.

5. Provision of consulting services for Selected Agencies to develop: (a) a strategy tofacilitate socio-economic re-integration of former offenders, including throughemployment opportunities; and (b) technical specifications for penitentiaries' informationsystem to improve connectivity with the courts and Selected Agencies for more effectivecase processing.

Part C. Strengthening Judicial Efficiency and Professionalism

1. Provision of consulting services, training and goods to the Supreme Court andSelected Courts in the following areas:

(a) Support the Selected Courts, through the provision of consulting services, trainingand goods, to: (i) carry out analyses and diagnostics aimed to identify impediments thatincrease the non-adjudicative burden on judges; (ii) develop recommendations to removesuch impediments and increase judges' efficiency; and (iii) carry out suchrecommendations in pilot courts.

(b) Strengthen the Supreme Court's capacity to support and manage the judiciarythrough the provision of consulting services, training and goods for: (i) monitoring andevaluation of Lower courts performance; (ii) simplifying and streamlining courtprocedures; (iii) developing an action plan to expand access to information on courtfunctioning for the public and litigants; (iv) facilitating specialization of courts and judges;(v) strengthening institutional capacity of the Supreme Court to carry out itsadministrative and management functions of the lower courts; (vi) strengthen the capacityof the Supreme Judicial Council to assess and strengthen judicial disciplinary processes;and (vii) fostering peer-based knowledge sharing amongst judges and other justice sectorofficials.

2.a) Support the improvement of the capacity of the Institute of Justice and SelectedAgencies, through the provision of consulting services, training and goods for: (i) trainingjudges and judicial staff; (ii) prepare and carry out institutional assessments, surveys,policy research, develop strategies and action plans; (iii) the design and delivery ofsensitization training and workshops for judges and other justice stakeholders on socialinclusion and gender issues and on other challenges affecting vulnerable groups.

7

Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361-KZ betweenthe Government of the Republic of Kazakhstan and the International Bank for Reconstruction andDevelopment

NOTES TO THE FINANCIAL STATEMENTS (continued)

(b) Provision of technical support to:

(i) The Institute of Justice for the preparation of a Medium Term DevelopmentStrategy and Action Plan, including a Training and Infrastructure Needs Assessment;

(ii) The Institute of Justice and Selected Agencies for carrying out of pilot e-learningcourses for judges and judicial staff; establishment of monitoring system to measuretraining impact; launch of appropriate staff development arrangements to benefit fromglobal knowledge and international good practices; and strengthen the Institute's appliedpolicy research capacity and focus (including in the areas of social inclusion, gender, socio-economic re-integration of former offenders, etc.).

Part D. Project Implementation, Project and Scientific Activities Coordination

1. Provision of consulting services, training, goods and coverage of incrementaloperating costs to the Ministry of Justice in order to: implement, manage, coordinate,monitor and evaluate the Project, including hiring of the ISG.

2. Provision of Fellowship Grants for competitively selected Eligible Candidates fromjustice sector agencies to expose them to global knowledge and international goodpractices in reform design and implementation.

2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

These financial statements have been prepared in accordance with International PublicSector Accounting Standard (IPSAS) Financial Reporting under the Cash Basis of Accountingas published by the International Federation of Accountants, and in compliance with therequirements of the International Bank for Reconstruction and Development.

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies described below have been consistently applied in the reportingperiods presented in these financial statements.

Cash Method of Accounting

Cash method of accounting recognizes transactions and events only when cash is receivedor paid under the Project.

Presentation Currency

These financial statements are presented in US dollars (hereinafter "US dollars").

Transactions in Foreign Currencies

Transactions in foreign currencies are translated to the presentation currency at theexchange rates prevailing at the transaction dates. Direct payments from the IBRD aretranslated into US dollars at the exchange rates established by the National Bank of theRepublic of Kazakhstan as at the date of reconversion. Proceeds from the Government ofthe Republic of Kazakhstan are translated into US dollars at the exchange rates establishedby the National Bank of the Republic of Kazakhstan as at the date of payment. Exchangedifferences arising from translation of transactions denominated in other currencies intoUS dollars are reported as a net value from changes in exchange rates.

Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361-KZ betweenthe Government of the Republic of Kazakhstan and the International Bank for Reconstruction andDevelopment

NOTES TO THE FINANCIAL STATEMENTS (continued)

Expenditure Categories

The Agreement specifies the main categories of expenditures financed by the Loan, theamount for each category, as well as the percentage of expenditures to be financed ineach category.According to the Agreement, there are the following categories of expenditures:

(1) Provision of consulting services, training, coverage of incremental operating costsfor the Project (excluding Fellowship Grants under Part D.2. of the Project);

(2) Fellowship Grants under Part D.2. of the Project.

Cash Received

According to the terms and conditions of the Agreement, the Government of the Republicof Kazakhstan shalL pay interest and the principal amount of the loan. Those payments arerecorded on the accounts of the Government and not recognized in these financialstatements. The date of payment of the last installment on the Loan by the Governmentis 15 March 2034.

Allocation of Expenditures

In the Statement of disbursements by component the expenditures are broken down basedon matching the descriptions of works, as set forth in the Agreement, against thoseindicated in the primary documents.

4. CASH

To carry out transactions under the Loan No. 8361 -KZ and to make payments to suppliers,the following accounts were opened at the Committee of Treasury of the Ministry ofFinance of the Republic of Kazakhstan, the city of Astana:

* No. 01.6201.000000000.ZO8361.001.2210001.2, in US dollars* No. KZ510702012210001001, in KZT

Cash balances as at December 31, as well as the transactions of the account for the yearended December 31, 2017 are detailed below:

US dollars 2017 2016

Balance at 1 January 01 16,414

RECEIPTS

Replenishment of account 1,732,000 812,000

1,732,000 812,000

EXPENDITURES

Expenses under the Project 1,731,958 796,523

Net foreign exchange loss (gains) - (937)

1,731,958 795,586

Balance at December 31 16,456 16,414

Including those denominated:

In US dollars 13,880 16,414

In tenge 2,576 -

9

Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361-KZ betweenthe Government of the Republic of Kazakhstan and the International Bank for Reconstruction andDevelopment

NOTES TO THE FINANCIAL STATEMENTS (continued)

5. DIRECT PAYMENTS AND REPLENISHMENT OF THE ACCOUNTDirect payments under the Project are made by IBRD and the Government of the Republicof Kazakhstan to suppliers chosen in accordance with the terms of the Agreement.

Direct payments to Suppliers and funds added by IBRD to the account under the Project forthe year ended December 31, 2017 were made based on the following withdrawalapplications:

US dollars

No. of withdrawal Date of Replenishment Directapplication withdrawal of account payments Total

8 26.05.2017 - 300,000 300,0009 15.06.2017 678,000 - 678,00010 27.10.2017 155,000 - 155,00011 06.12.2017 899,000 - 899,000

Total 1,732,000 300,000 2,032,000

Statement of Expenditures

US dollars

Actual expenditures by categories

Total (1) Consultants' services,No. of Value amount Training, goods and (2) FellowshipApplic. date of the Incremental Operating Costs Grants under Total

Applic. for the Project (excluding Part D.2. ofFellowship Grants under Part the Project

D.2. of the Project)8 26.05.17 300,000 -

9 15.06.17 678,000 533,631 - 533,63110 27.10.17 155,000 403,098 - 403,09811 06.12.17 899,000 - .

Total 2,032,000 936,729 - 936,729

6. UNUSED PORTION OF THE LOANAs at December 31, 2017, the undrawn portion of the Loan from IBRD amounts to32,821,857 US dollars (2016: 34,853,857 US dollars).7. DATE OF ISSUE

These financial statements have been approved for issue by Executive Secretary of theMinistry of Justice of the Republic of Kazakhstan and Deputy Director - Chief Accountant ofthe Ministry of Justice of the Republic of Kazakhstan May 28, 2018.

10

Justice Sector Institutional Strengthening Project financed under Loan Agreement No. 8361-KZ betweenthe Government of the Republic of Kazakhstan and the International Bank for Reconstruction andDevelopment

Appendix No. 1

Reconciliation between the data provided by Project Management Unit and WorldBank payments data

US dollars

Date of Application for As per PMU As per WB Variancewithdrawal withdrawal

26.05.17 8 300,000 300,00015.06.17 9 678,000 678,00027.10.17 10 155,000 155,00006.12.17 11 899,000 899,000

Total 2,032,000 2,032,000