Report No. 38179-CM Cameroon Public Expenditure Management and Financial Accountability Review (PEMFAR) December 30, 2006 PREM3 (AFTP3), AFTFM, AFTPC Poverty Reduction and Economic Management (PREM)/ Operational Quality and Knowledge Services (AFTQK) Africa Region Document of the World Bank Abbreviations ENGLISH FRENCH ACCT Central Accounting Agency o f the Agence comptable centrale du TrCsor Treasury AfDB African Development Bank Banque africaine de dkveloppement (BAD) ANTILOPE System for the Management o f the Payroll Application de gestion de la solde des fonctionnaires ARMP Public Procurement Regulation Agency Agence de regulation des march& publics BEAC Central Bank o f Central African States Banque des Etats de 1'Afrique centrale C A A Caisse Autonome d'Amortissement Caisse autonome d'amortissement C A M A I R Cameroon Airlines C A M T E L Cameroon Telecommunications CAS Country Assistance Strategy StratCgie d'aide au pays (SAP) CDBF Council for Budget and Financial Conseil de discipline budgCtaire et financibre Discipline CEMAC Central African Economic and Monetary Communautk Cconomique et monktaire de Community 1'Afrique centrale CF Financial Controller ContrBleur financier CFAA Country Financial Accountability Evaluation de la gestion des finances Assessment publiques CPAR Country Procurement Analysis and Review Revue analytique du systbme de passation des marchks publics CSE Supreme State Control ContrBle supCrieur de 1'Etat DEN0 Expenditure committed but not authorized DCpenses engagCes et nonordonnanckes DEPMI Information system for the management o f Dkpenses publiques sur mercuriale the expenditures o f the ministries informatiske (gestion des dCpenses des ministkres) DGB Director General o f the Budget Direction gCnCrale du Budget DGB Director General of Customs Direction gCnCrale des Douanes DGI Director General o f Taxation Direction gCnCrale des ImpBts DGT Director General o f the Treasury Direction gCnCrale du TrCsor DPI Director of Investment Programming Direction de la programmation des Investissements DRMS Debt Reporting and Management System Logiciels spkcialisks dans le suivi de la dette D S A Debt Sustainability Analysis Analyse de viabilitC de la dette EITI Extractive Industries Transparency Initiative de transparence relative aux Initiative industries extractives EU European Union Union europCenne FCFA Franc of the African Financial Community Franc de la communautk financikre d'Afrique GDP Gross Domestic Product Produit intCrieur brut GoC Government o f Cameroon Gouvernement du Cameroun HIPC Heavily Indebted Poor Countries Pays pauvres trbs endettCs (PPTE) IBIS Information system for the budget and the Informatisation du budget de l'intendance des services o f the state services de 1'Etat IGAFB Inspectorate General o f Financial and Inspection gCnCrale des affaires financibres et Budget Affairs budgktaires IGF Inspectorate General o f Finance Inspection gCnCrale des Finances IGSEA Inspectorate General o f Economic and Inspection gCnCrale des services Cconomiques Administrative Services et administratifs page iii ENGLISH FRENCH IMF International Monetary Fund Fonds monCtaire international (FMI) INTOSAI International Organization for Supreme Organisation internationale des institutions Audit Institutions supkrieures de contrde LDR Budget Settlement Law L o i de rbglement LFR Revised/Supplementary Budget L o i de finances rectificative MDGs Millennium Development Goals Objectifs dC developpement pour le Millhaire MINEFI Ministry o f Economy and Finance Ministirre de I'Economie et des Finances MINPLADAT Ministry o f Planning, Development and Ministbre du plan, du dCveloppement et de Regional Administration 1'amCnagement du territoire MTEF Medium Term Expenditure Framework Cadre de dCpenses h moyen terme (CDMT) NPV Net Present Value Valeur actualiske nette (VAN) PAGODE Information system for Customs Application informatique des opCrations Operations douanibres PATRIOT Information system for the accounting Application informatique des opCrations operations of the treasury comptables du TrCsor PEMFAR Public Expenditure Management and Examen de la gestion des dCpenses publiques Financial Accountability Review et de la responsabilitk financibre PER Public Expenditure Review Revue des dCpenses publiques (RDP) PFM Public Financial Management Gestion des finances publiques PGI Paymaster General o f the Treasury Paierie g6nCrale du TrCsor PNG National Governance Program Programme national de gouvernance PIP Public Investment Program Programme d'investissements publics PREBIC Information system for budget preparation Application informatique de prkparation du budget PRS Poverty Reduction Strategy StratCgie de rCduction de la pauvret6 PRSC Poverty Reduction Support Credit CrCdit d'appui de la rCduction de la pauvretC PRSP Poverty Reduction Strategy Paper Document de stratCgie de rCduction de l a pauvretC (DSRP) RAPT Overdue Payments o f the Treasury Reste h payer du TrCsor SAC Structural Adjustment Credit Credit d'ajustement structure1 (CAS) SDCF Deputy Director o f Financial Control Sous-direction du contrBle financier SEBIC Information system for monitoring the Application informatique pour le suivi et execution of the budget 1'exCcution du budget SIGEFI Integrated Financial Information System Systirme intCgrC de gestion des finances SIGEPAT Information system for monitoring the Application informatique des dCpenses du expenditures on the investment budget budget d'investissement SIGIPES IntegratedSystem for the Management o f Systirme de gestion intCgrCedes personnels de the Personnel and Payroll o f the state l'Etat et de la Solde SMP Staff Monitored Program Programme de rCfCrence S N H National Oil Company SociCtC Nationale des Hydrocarbures SYDONIA Information System for the operations o f Application informatique des opCrations Customs (ASYCUDA) douanibres TCC Certificate of Confirmation of Credit Titre de confirmation et de crCance TOFE Table o f the financial operations o f the Tableau des opCrations financibres de 1'Etat state TRINITE Information system for the operations o f Application informatique des opCrations de la the Department of Taxation. DGI VAT Value Added Tax Taxe sur la valeur ajoutCe (TVA) page iv CAMEROON Public Expenditure Management and Financial Accountability Review (PEMFAR) Acknowledgements Improvements in public financial management (PFM) are critical for Cameroon to deliver on the growth and poverty reduction objectives o f its PRSP. Better PFM will help to change the perception of poor governance and create a better climate for domestic and foreign private investment flows and official development assistance. Improvements in public service delivery will enhance social welfare and productivity growth. The improvement of PFM remains a key objective of the World Bank's assistance to Cameroon and the Bank has joined other donors in the Donor Platform to support the Government in this area. The PEMFAR will contribute to the ongoing Government/Donor dialogue on a medium-term PFM plan of action to be supported by the donors. The objective o f the PEMFAR was to undertake a broad review of public financial management policies, institutions and performance and provide guidance for strengthening them to foster the development of Cameroon. The PEMFAR encompasses the public expenditure review (PER), the Country Financial Accountability Assessment (CFAA) and the Country Procurement Assessment Report (CPAR) --three components of public sector analytical work previously carried out separately. The analytical work o f the PEMFAR was carried out through a number o f missions in 2005 and 2006. During these missions, the teams met and discussed the PFM challenges with a broad range o f officials in the Government, the donor community and the NGO sector. The team would like to thank all the officials who shared their thoughts and knowledge with the missions. The Bank team for the PEMFAR consisted o f Chukwuma Obidegwu, Emile Finateu, Ali Zafar (consultant), Armand Atomate, David Tchinou, Faustin Koyasse, Bernadette Djapa Nyanjo, and Josiane Luchmun. The PEMFAR benefited from a recent CPAR completed by a team from the Bank and the Government led by Pierre Morin (World Bank). Karen Helveg Petersen (Consultant) and Henriette Bonnevie (Consultant), both funded by the Danish Trust Fund, participated in a PEMFAR mission in May-June 2005 and reviewed the institutions and performance in the preparation and execution o f the recurrent and investment budgets. Jean- Yves Raude, Alain Lebaron and Jean-Noel Gout from the French Cooperation, Jean-Paul Barrier, a consultant funded by the EU and Fily Sissoko from the African Development Bank (AfDB) participated in the mission in October 2006 and provided support in various areas including the institutional arrangements, budget preparation and execution, internal and external controls, the accounting system and treasury management. The principal authors of the report are Chukwuma Obidegwu, Emile Finateu and,Ali Zafar. The team would like to thank the peer reviewers Brendan Horton (Lead Economist, AFTP3), David Shand, Robert Cauneau (Consultants) for their contributions. We also like to thank Michel Buea of the French Cooperation in Yaounde for all the insights he shared with the team. This task has been carried out under the general direction of Ali Khadr (country director) and the sector managers Cadman Atta Mills, HinhDinh (acting) and Yvonne Tsikata. The team thanks them for their support. CAMEROON Public Expenditure Management and Financial Accountability Review (PEMFAR) Table of Contents EXECUTIVES U M M A R Y and RECOMMENDATIONS / RESUME ANALYTIQUE ET R E C O M M A N D A T I O N S Introduction......................................................................................................................................... xi Public Financial Management, Governance and Poverty Reduction..................................... .xii Findings and Recommendations ........................................................... Managing the Budget Process .......................................................................................................... xv Budget Planning and Programming ................................................................................... Budget Prioritization.................................................................. ................................. X X l l l ... The Management of Investment Spending ................................................................ The Execution and Control of the Budget........................................................................... Reinforcing the Transparency and Effectiveness of the Budget ............................................. xxxii Transparency of the Budget Process ................................................................................... xxxiii ... Public Accounting and Financial Rep ng ................................ ............................ xxxv Budget Monitoring and Evaluation .... ............................................................................ xxxvi Managing Human Resources ............. ............................................................................ Pub1ic Enterprises ............................................. ...... ............................................... xxxix xli Partnership with External Development Partners ...................................................................... xlii M A I N REPORT CHAPTER 1 ......................................................................................................................................... 1 THECONTEXTFORTHEPEMFAR......................................................................................................... 1 1.1 Objectives and Rationale .......................................................................................................... 1 Introduction ............................................. ............................................................................... Previous Reviews of Public Financial M Rationale for the PEMFAR .. gement .................................................................. I .................................................................................................. 2 The Approach....................................................................................................................... Structure of the Report ................................................................................................................ 3 1.2 Poverty and Social Indicators .................................................................................................. 4 The Poverty Reduction Strategy Paper (PRSP).......................................................................... 5 1.3 Political Economy and Governance ......................................................................................... 6 page vi Political Developments................................................................................................................ 6 Governance and Corruption ....................................................................................................... 8 1.4 Macroeconomic Trends and Targets ..................................................................................... 11 Recent Macroeconomic Developments ..................................................................................... 11 Revenue Mobilization ................................................................................................................ 13 1.5 Public Internal and External Debt ........................................................................................ 15 15 Internal Debt and Arrears ......................................................................................................... Public Debt Management Structures ........................................................................................ 16 External debt.............................................................................................................................. 17 1.6 Long Term Economic Performance Targets ........................................................................ 20 CHAPTER 2 ....................................................................................................................................... 22 THEEVOLUTIONOFPUBLIC FINANCE/EXPENDITURE MANAGEMENT ................................................. 22 Introduction ............................................................................................................................... 22 The Legal and Institutional Frameworkfor the Management of Public Finances ................. 22 2.2 Recent Reforms of Public Financial Management .............................................................. 23 Medium-Term Expenditure Framework (MTEF) ..................................................................... 24 Budget nomenclature................................................................................................................. 24 25 Budget Information Systems...................................................................................................... Procurement............................................................................................................................... 25 2.3 Expenditures and Budget Allocations ................................................................................... 26 26 Composition of Recurrent and Investment budgets .................................................................. Trends in Public Expenditures .................................................................................................. 27 2.4 Budget Execution ..................................................................................................................... 27 27 Main Factors Underlying Poor Budget Execution................................................................... Performance in Budget Execution ............................................................................................ 29 CHAPTER 3 ....................................................................................................................................... 30 THEINSTITUTIONAL FRAMEWORK BUDGET FOR PREPARATION ......................................................... 30 Introduction ............................................................................................................................... 30 3.2 Key Budget Planning and Programming Processes ............................................................ 30 Guidancefrom the Council of Ministers (the Cabinet)............................................................ The Budget Calendar................................................................................................................. 30 32 34 Budget Planning and Coordination .......................................................................................... Consultations with the Donors and the Civil Society ............................................................... 34 Budget Prioritization ................................................................................................................. 36 3.3 Framework for Strengthening Budget Planning and Programming ................................ 38 38 Implementing the MTEF............................................................................................................ The Medium-Term Expenditure Framework (MTEF).............................................................. 41 Summary of the Issues on Budget Preparation......................................................................... 44 CHAPTER 4 ....................................................................................................................................... 46 PUBLIC INVESTMENT SPENDING ........................................................................................................... 46 Trends and Key Issues ............................................................................................................... 46 4.2 Planning and Budgeting for Public Investments ................................................................. 48 The Preparation ofthe PIP ....................................................................................................... 49 page vii The Preparation of the Public Investment Budget.................................................................... 50 4.3 Execution of Public Investments 52 Execution of Internally Funded Projects .................................................................................. ............................................................................................ 52 Execution and Monitoring of Externally Financed Projects.................................................... 52 HIPC-funded investments: Possible lessonsfor the overall investment budget...................... 53 4.4 Improving the Management of Public Investments ............................................................ 55 Institutional Arrangements for Managing Public Investments ................................................ Effectiveness of Public Capital Expenditures: ......................................................................... 55 56 Capacity and systems development........................................................................................... 57 4.5 Increasing expenditures on public investments ................................................................... 58 Enhanced revenues and expenditure restructuring .................................................................. 58 Donor Support ........................................................................................................................... Enhanced HIPC debt relief ....................................................................................................... 58 59 CHAPTER 5 ....................................................................................................................................... 60 BUDGETEXECUTIONAND CONTROL.................................................................................................... 60 5.1 Budget Execution and Regulation ......................................................................................... 60 Framework for Budget Execution ............................................................................................. 60 The Expenditure Chain.............................................................................................................. 61 5.2 Efficiency and Fiduciary Risk Issues in Budget Execution ................................................ 62 Extra - Budgetary Expenditures................................................................................................ 64 Cash Budgeting.......................................................................................................................... The Use of Special Procedures ................................................................................................. 63 64 Budget Revisions........................................................................................................................ 65 Delays in the Start of Budget Execution ................................................................................... Inadequate budget preparation ................................................................................................. 66 65 5.3 Challenges to Treasury Operations ....................................................................................... 66 Management of the Treasury..................................................................................................... 67 Meeting Financing Requirements ............................................................................................. 67 Risks in Treasury Operations.................................................................................................... 68 5.4 The Control of Public Expenditures ..................................................................................... 68 Administrative Controls ............................................................................................................ 68 Judicial Controls ....................................................................................................................... 71 Controls by the Legislature ....................................................................................................... 72 5.5 Public Procurement ................................................................................................................. 73 73 Recent Key Actions Taken by the Government ......................................................................... Public Procurement Assessment ............................................................................................... 74 Main Challenges and the Plan of Action .................................................................................. 75 CHAPTER 6 ....................................................................................................................................... 77 IMPROVINGBUDGET TRANSPARENCY EFFECTIVENESS AND ............................................................... 77 Introduction ............................................................................................................................... 77 Financial Management Information Systems ........................................................................... 77 6.2 Transparency Issues ................................................................................................................ 78 Participation .............................................................................................................................. 78 The Role of the Legislature ....................................................................................................... 79 Transparency of the Budget Process ........................................................................................ 78 page viii 6.3 Public Accounting and Financial Reporting ........................................................................ 81 The Institutional and Organizing Framework .......................................................................... 81 The System of Accounting and Reporting ................................................................................. 82 6.4 Budget Monitoring and Evaluation ....................................................................................... 83 Budget Monitoring and Review Process ................................................................................... 83 Beneficiary Assessments ............................................................................................................ 85 PRSP Monitoring Process ......................................................................................................... 86 Development of Systematic Monitoring and Evaluation Capacity .......................................... 87 6.5 Managing Human Resources ................................................................................................. 89 Institutional obstacles................................................................................................................ 89 Needfor Reforms ....................................................................................................................... 91 Managing the Payroll ................................................................................................................ 91 6.6 Spending and Performance of Parastatal Agencies ............................................................. 93 Reform of Public Enterprises .................................................................................................... 95 The Burden of Poor Performing Public Enterprises ................................................................ 94 6.7 Assessment of the Fiduciary Risks in Key Areas ................................................................. 96 TABLES Table 1: Cameroon: Selected Social Indicators ............................................................................... 4 Table 2: Governance Indicators for Cameroon ............................................................................... 8 Table 3: Cameroon: Selected Indicators of Economic Performance .......................................... 11 Table 4: Change in external debt includingarrears 2000-03 (FCFA million) ........................... 18 Table 5: Cameroon: Key External Debt Sustainability Indicators 19 Table 6: Long-Term Economic Performance Targets .................................................................. ............................................. 21 Table 8: Cameroon: Public Investment and External Assistance ............................................... 46 Table 9: Public Investment Expenditure. 2000-2004 47 Table 10: Fiduciary Risks in Key Areas ......................................................................................... .................................................................... 97 BOXES Box 1: Pillars of the PRS (2003) ......................................................................................................... 5 Box 2: Cameroon: Medium-Term Fiscal Strategy ........................................................................ 12 Box 3: Calendar for the Preparation of the 2006 Budget 31 Box 4: Budget Preparation in Chile ................................................................................................... ............................................................. 33 Box 5: The Budget Planning Process ............................................................................................... 35 Box 6: Key Characteristics of the MTEF 39 Box 7: The Expenditure Chain ........................................................................................................... ....................................................................................... 61 Box 8: Budget Tracking Survey in the Health Sector 87 Box 9 :Lessons from Building M&E Systems ................................................................................ ................................................................... 88 CHARTS page ix Chart 1: Revenues and Expenditures. 1980-2003 (% of GDP .......................................................... 13 C h a r t 2: Composition of Government Revenues. 1999-2005 ....................................................... 14 Chart 3: International Revenue Comparisons 15 Revenue (excluding grants)/GDP (%): 2003 .................................................................................. ............................................................................... 15 C h a r t 4: Current and Capital Expenditures. 1980-2003 26 (% of GDP) ......................................................................................................................................... .............................................................. 26 Chart 5: Economic Classification o f the Recurrent Budget 27 2000-2004 (% o f Total Expenditure) .................................................................................................. ............................................................. 27 Chart 6: Recurrent and Investment Expenditure. planned vs actuals 28 2000-2004 (CFA Billions) .................................................................................................................. ....................................... 28 Chart 7: Budget Execution Rates by Sector 2003-2004 (%) ............................................................. 28 Table 7: Government Expenditures (% of total spending) 36 Chart 8: Public Investments: 2000-2004 (Billions FCFA) ............................................................ .......................................................... 48 C h a r t 9: Status of Implementation and Execution of HIPC Projects ......................................... 54 C h a r t 10: Execution Rates for the first Trimester 2005 64 (% of annual allocations per category) ........................................................................................... ............................................................... 64 Chart 11: FiscalDebts of K e y Public Enterprises 94 (CFA billions) ................................................................................................................................... ......................................................................... 94 ANNEXES Annex 1: Cameroon: Public Expenditure by Sector 2004 99 Annex 2: Calendar of Execution of the State Budget .................................................................. ............................................................ 100 Annex 3: The 2 Phases. 18 Stages and 21 Actions of the Circuit of Expenditures on Goods and Investment Operations Financed by Internal Resources 101 Annex 4: The Procurement Action Plan ....................................................................................... .................................................... 103 CAMEROON Public Expenditure Management and Financial Accountability Review (PEMFAR) (Examen de la gestion des depenses publiques et de la responsabilite financiere) (PEMFAR) EXECUTIVE SUMMARY and &SUME ANALYTIQUE ET RECOMMENDATIONS RECOMMANDATIONS Introduction Introduction 1. This public expenditure management 1. L e present examen de la gestion des and financial accountability review depenses et de la responsabilite financiere (PEMFAR), which covered the period up to (Public expenditure management and jhancial the end o f 2005, aimed for a broad review o f accountability review- PEMFAR), qui s'est public finance management institutions, termine a la fin de 2005, visait a examiner de policy and performance, to provide guidance maniere generale les institutions, les politiques et for strengthening them. The Report reflects la performance en matiere de gestion des the reviews o f missions from the World Bank finances publiques, et a formuler des and other development partners that visited recommandations pour les renforcer. Le rapport Cameroon in 2005 and 2006. The specific rend compte des missions de la Banque mondiale objective o f the PEMFAR was to provide an et des autres partenaires au developpement qui assessment o f public financial management ont sejourne au Cameroun en 2005 et 2006. (PFM) and recommendations for action to (i) L'objectif specifique de l'examen etait de promote dialogue among stakeholders in proceder a une evaluation de la gestion des Cameroon on the importance o f effective finances publiques et de formuler des public financial management systems and recommandations axees sur les actions suivantes: good governance; (ii)contribute to the (i)promouvoir le dialogue parmi les parties formulation o f an action plan for improving prenantes au Cameroun sur l'importance de PFM in Cameroon; (iii)contribute to the systemes efficaces de gestion des finances dialogue between the Government and the publiques et de bonne gouvernance ; (ii) external partners (Donor Platform) on the contribuer a la formulation d'un plan d'action reforms o f the public financial management pour amdliorer la gestion des finances publiques system in Cameroon and to the design o f the au Cameroun ; et (iii)contribuer au debat en World BanWother external partners' cours entre le gouvernement et ses partenaires interventions towards lasting improvements in exterieurs (plate-forme des donateurs) sur les PFM. The Report notes that since the end o f reformes du systeme de gestion des finances 2005, the Government has continued on its publiques au Cameroun et contribuer a formuler path o f accelerated reforms and initiated l'intervention de la Banque mondiale et des autres several reform actions in the area o f PFM. We partenaires exterieurs en vue d'apporter des hope that the analyses and recommendation o f ameliorations durables a la gestion des finances this Report will help to strengthen the publiques. L e rapport constate que depuis fin implementation o f these actions. 2005, le Gouvernement a accelere la mise en Oeuvre des reformes et initie plusieurs actions de reforme dans le domaine de la gestion des finances publiques. Nous esperons que les analyses et les recommandations de ce rapport aideront a renforcer la mise en Oeuvre de ces actions. Executive Summary page xi Public Financial Management, Gestion des finances publiques, Governance and Poverty Reduction gouvernance et reduction de la pauvretC 2. In spite of many reforms, 2. MalgrC de nombreuses reformes, le Cameroon's public financial management systkme de gestion des finances publiques (PFM) system is still characterized by an (PFM) au Cameroun est encore caractCrisC overly centralized and fragmented budget par un processus de preparation du budget preparation process, weak execution and excessivement centralis6 et fragmenti, une substantial fiduciary risks. The reforms execution dkficiente et des risques fiduciaires undertaken have not been wholly successful in substantiels. Les reformes entreprises n'ont pas strengthening budget institutions and reussi entierement a renforcer les institutions delivering public services to the population. budgetaires, ni a assurer la prestation de services While a number o f innovations have been publics a la population. Diverses innovations ont introduced (medium term expenditure ete introduites a travers les reformes (cadre de framework, a revised procurement code, depenses a moyen terme, revision du code de integrated management information systems), passation des marches, systemes integres implementation has been weak and the impact d'informatique de gestion) ; mais, la mise en o f these actions institutional capacity and axvre laissant a desirer, ces mesures n'ont pas eu budget outcomes have not been significant. d'effet notable sur la performance. L a Budget planning and programming remains a planification du budget est un aspect encore tres weak link in the budget process despite the deficient du processus budgetaire en depit des substantial investment in reforms and capacity reformes et des investissements substantiels dans building. The expenditure chain is complex les reformes et le renforcement des capacites. L a and regulations on budget execution have not chaine de depenses est complexe, les regles always been respected and enforced. The concernant l'execution du budget ne sont pas resort to exceptional procedures can lead to toujours respectees et appliquees. Le recours aux accumulation o f various arrears, spending at procedures exceptionnelles peut entrainer variance with budget appropriations, and l'accumulation de divers arrieres, des depenses delays in the execution o f the budget. The non conformes aux affectations budgetaires et roles o f the different agencies in the areas o f des retards dans l'execution du budget. L e s r6les budget execution and control are not clear, des differents organismes charges de l'execution and some existing budget control agencies do et du contr6le budgetaires ne sont pas clairs ; de not appear to be functioning. Fiduciary risks plus, certains organismes de contr6le budgetaire are high in several areas o f the PFM system. existants ne semblent pas fonctionnels. Les The level o f advance o f PFM in Cameroon, in risques fiduciaires sont eleves dans plusieurs terms of institution building and performance, domaines du systeme de gestion des finances is below what one would expect for its income publiques. Le niveau d'avancement de la gestion level, endowments in human capacity and the des finances publiques au Cameroun, en termes investments made in reforming the PFM de performance et de consolidation system. institutionnelles, est inferieur a ce que l'on pourrait esperer compte tenu de son niveau de 3. Strengthening public financial revenu, des capacites humaines disponibles et des management is crucial for improving efforts qui ont ete consacres aux reformes. governance and meeting the growth and poverty reduction targets of the PRSP. The 3. L e renforcement de la gestion des growth prospects o f the Cameroonian finances publiques est crucial pour atteindre economy and its ability to deliver on the les objectifs de croissance et de reduction de la poverty reduction objectives o f the PRSP will pauvrete CnoncCs dans le DSRP. Les improve if Cameroon makes progress on the perspectives de croissance de l'economie PRS priorities o f improving governance, camerounaise et sa capacitd de realiser les strengthening human capital, rebuilding objectifs de reduction de la pauvretd du CSRF' infrastructure, improving the climate for seront nettement ameliorees si le Cameroun Executive Summary page xii private sector investment, and promoting progresse dans les domaines prioritaires de la regional integration. The public sector has SRP que sont l'amelioration de la gouvernance, la major roles to play in these areas and the mise en valeur du capital humain, la budget is a key instrument for public actions reconstruction des infrastructures, la creation in fostering progress. Budget alignment to d'un climat plus propice aux investissements priorities for growth and poverty reduction prives et la promotion de l'integration regionale. enunciated in the PRSP, and progressive L e secteur public doit jouer un r61e majeur dans improvements in public service delivery will ce domaine, et le budget constitue un instrument improve private sector productivity growth, essentiel permettant aux pouvoirs publics de increase incomes, enhance social welfare and promouvoir le progres. L'alignement du budget reduce poverty. Furthermore, the integration sur les priorites du DSRP en matiere de o f the PRSP objective o f poverty reduction croissance et de reduction de la pauvrete et and the principles o f transparency, l'amelioration progressive de la prestation des accountability and results orientation into services publics rehausseront la productivite du public financial management will foster secteur prive, les revenus, le bien-Ctre social et improvements in governance in Cameroon feront reculer la pauvrete. Qui plus est, and encourage global private investment l'integration des principes du DSRP axes sur la flows and official development assistance. reduction de la pauvrete, la transparence, la responsabilisation et l'obligation de rdsultats dans 4. The implementation of the reforms la gestion des finances publiques contribuera a should be expedited and sustained to align ameliorer la gouvernance au Cameroun et a the PFMsystem to the PRSP process and to accroitre les flux d'investissements prives et improve the efficiency and effectiveness of d'aide publique au developpement. the budget. The poverty reduction strategy (PRS), produced in 2003 through a wide 4. La mise en oeuvre des rCformes consultative process, identified a number o f devrait &re accClCrCe pour aligner le systeme development priorities including good de gestion des finances publiques sur le governance and diversification and growth o f processus de D S R P et pour amkliorer the economy. The PRS set ambitious targets progressivement l'efficacite du budget. L a o f real growth o f GDP o f 5.2 percent in 2003- strategic de reduction de la pauvrete (SRP), 2006, increasing to 6.8 percent from 2007- elabore en 2003 dans le cadre d'un vaste 2015, with these growth targets and related processus de consultations, a identifie un certain social policies deemed necessary for nombre de priorites de developpement, y compris Cameroon to achieve the Millennium la bonne gouvernance ainsi que la diversification Development Goals (MDGs). The PRS was a et la croissance de l'economie. L a SRP a fixe des bellwether document, as the first broad policy objectifs ambitieux de croissance reelle du PIB document in Cameroon that could credibly de 5,2%% en 2003-2006, puis de 6,8% sur la claim to be founded on the aspirations o f periode 2007-2015, ces taux de croissance et les people. It therefore provided a credible policy politiques sociales connexes etant juges framework and anchor for the national budget ndcessaires pour permettre au Cameroun and put the national budget and at the center d'atteindre les Objectifs du Millenaire pour le o f the country's development. The PRS developpement (OMD). L a SRP a ete un proposed the use o f the medium-term document innovateur, le premier enonce de expenditure framework (MTEF) approach to politique generale que le Cameroun pouvait ensure that the budget reflected the PRS considerer de maniere credible comme etant policies and priorities. While there have been fonde sur les aspirations de la population. Ce increases in the budget allocations to some o f document constituait donc un cadre credible de the PRS priorities (education, health and politique economique et un ancrage du budget infrastructure), progress in the adoption o f the national qu'il situait ainsi au centre du MTEF has been limited and budget developpement du pays. L'intention de la SRP allocations to the core public investment etait de s'appuyer sur l'approche budgetaire du budget has continued to stagnate, hindering cadre de depenses a moyen terme (CDMT) pour the realization o f the growth targets o f the s'assurer que le budget refletait les mesures et les Executive Summary page xiii PRS. priorites enoncdes dans la SRP. MalgrC la hausse des credits budgetaires alloues a certaines 5. Cameroon has to work very hard to prioritds de la SRP (education, sante et change for the better its reputation for poor infrastructure), la procedure d'adoption du governance and high corruption. Good CDMT n'a pas beaucoup avance et les governance i s an over-arching requirement for enveloppes budgetaires consacrees aux sustained economic growth and poverty principaux investissements publics continuent a reduction. Sound public financial stagner, empechant la realisation des objectifs de management i s an important, perhaps central croissance prevus dans la SRP. element o f good governance and sound practices in the areas o f procurement, budget 5. L e Cameroun doit faire des efforts monitoring, accounting and reporting, are considkrables pour amkliorer sa reputation de basic building blocks for combating mauvaise gouvernance et de corruption corruption. Strong public sector gCneralisCe. L a bonne gouvernance est un administrative and democratic governance imperatif categorique pour assurer une croissance institutions help to promote and reinforce economique soutenue et faire reculer la pauvrete. sound public financial management practices. Une gestion rationnelle des finances publiques est un element important et sans doute crucial de 6. In 2005, the Government la bonne gouvernance, et de bonnes pratiques accelerated the pace of governance and dans la passation des marches ainsi que dans le anti-corruption reforms, with a substantial suivi, la comptabilite et l'information budgetaires, number of governance related initiatives, constituent des fondements essentiels de la lutte including: (i)the adoption o f an updated new contre la corruption. Des institutions solides de national governance program (PNG 11) gouvernance democratique et administrative dans covering the period 2005-2010; (ii)the le secteur public contribuent a promouvoir et adherence to the principles o f the Extractive renforcer les pratiques de gestion des finances Industries Transparency Initiative (EITI) and publiques. the adoption o f a related action plan to improve transparency in the operations o f the 6. En 2005, le Gouvernement a accelerC petroleum sector in line with EITI; (iii) le rythme des rCformes visant a promouvoir la adoption o f measures to improve budget gouvernance et la lutte contre la corruption, transparency; and (iv) intensified sensitization avec un nombre substantiel d'initiatives axees o f the population on the problem o f sur la gouvernance, y compris (i)l'adoption corruption. These actions have pointed to a d'une mise a jour du programme national de stronger commitment by the government to gouvernance (PNG 11) pour la periode 2005-2010 implementing PNG I1 more expeditiously than ;(ii)l'adhesion aux principes de l'initiativepour la the previous PNG I.Sustained improvements transparence des industries extractives (EITI) et in governance and fighting corruption l'adoption d'un plan d'action a cet effet, avec des involves vigorous actions and perceptible actions concretes dans le secteur petrolier results on a number o f fronts including: conformement a 1'EITI ; (iii)des efforts visant a ameliorer la transparence du budget ; et (iv) la The expeditious implementation o f the sensibilisation intense de la population sur le PNG, with emphasis on obtaining concrete probleme de la corruption. Ces actions results on the ground, will be needed to temoignent d'un engagement a appliquer plus demonstrate to the skeptics o f recent rapidement le PNG I1 que sa version anterieure actions that the Government means (PNG I). L'amelioration de la gouvernance et la business about tackling corruption and lutte contre la corruption necessitent des efforts improving governance; soutenus, coordonnes et vigoureux sur plusieurs fronts; ils'agit notamment de : Strengthening law enforcement and the judicial process; 0 mettre en oeuvre rapidement le PNG, en veillant particulierement a obtenir des resultats concrets sur le terrain ;cela permettra Executive Summary page xiv Reforming and strengthening the de demontrer a ceux qui doutent des actions machinery o f public sector management; recentes que le gouvernement a veritablement I'intention de combattre la corruption et Progressive improvements in public d'ameliorer la gouvernance ; financial management, emphasizing transparency, accountability, 0 renforcer l'application des lois et le processus decentralization and results/impact on the judiciaire ; population; and 0 reformer et renforcer les mecanismes de The acceleration o f structural reforms to gestion du secteur public ; promote economic efficiency, while dismantling corruption,- the structures that breed 0 ameliorer progressivement la gestion des in particular, the finances publiques, en privilegiant la restructuring/privatization o f public transparence, la responsabilisation, la enterprises. decentralisation et les resultats/l'impact sur la population ; 0 accelerer les reformes structurelles pour promouvoir I'efficacite economique tout en demantelant les structures qui engendrent la corruption, en particulier, la restructuration/privatisation des entreprises publiques. Findings and Recommendations Conclusions et Recommandations 7. The findings and recommendations 7. Les conclusions et recommandations of the exercise are summarized below. de l'exercice sont rCsumCes ci-dessous. Elles These cover three related issues: (i) the portent sur trois questions connexes : (i)la management o f the budget process including gestion du processus budgetaire, y compris la the preparation and execution o f the budget preparation et l'execution du budget ainsi que la and the management o f the public gestion des investissements publics ; (ii) investments; (ii)improving the effectiveness l'amelioration de l'efficacite du budget, en o f the budget through emphasis on mettant l'accent sur la transparence, la transparency, accountability and results; and responsabilisation et les resultats; et (iii) le (iii)partnership with external development partenariat avec les organismes exterieurs de agencies. developpement. Managing the Budget Process Gestion du processus budgktaire 8. The budget process still faces many 8. L e processus budgetaire est encore challenges although there have been related confront6 a de nombreux dCfis, mCme s'il a reforms and improvements over the years, fait I'objet de rkformes et d'am6liorations au albeit at a slow pace. Successive assessments fil des ans, Mt-ce a un rythme lent. Des inrecent years in the context of the Enhanced evaluations successives realisees ces dernieres HIPC Debt Relief have indicated some annees dans le cadre de l'allegement de la dette advances in a number o f areas o f budget au titre de 1'Initiative PPTE renforcee ont fait etat Executive Summary page xv preparation and execution'. Reforms have de progres dans divers domaines de la resulted in several institutional improvements, preparation et de l'execution du budget. ' Les notably in procurement, the development o f reformes ont egalement entraine plusieurs sector strategies and medium-term ameliorations institutionnelles, notamment dans expenditure plans, the introduction o f an la passation des marches, l'elaboration de improved budget nomenclature, the extensive strategies sectorielles et de programmes de computerization o f the budget process with an depenses a moyen terme, l'adoption d'une integrated budget information system nomenclature budgetaire amelioree, (SIGEFI) that enhanced the prospects for l'informatisation generalisee du processus budget monitoring and reporting, and budgetaire, y compris la mise en place d'un improvements in treasury management and systeme integre de gestion des finances public accounting capacity. In addition, there (SIGEFI), qui a ameliore les perspectives de suivi has been a strong effort to audit the stock o f et d'information budgetaires, ainsi que le internal debt and arrears and to prepare and renforcement des capacites de gestion du Tresor implement plans for the reduction f the stock et de la comptabilite publique. En outre, de o f debt, particularly through the use o f oil vigoureux efforts ont Cte faits pour verifier le windfalls. These institutional changes provide stock de la dette et des arridres interieurs ainsi a foundation for accelerating improvements in que pour preparer et mettre en oeuvre des plans public financial management and the de reduction du stock de la dette, en recourant effectiveness o f service delivery. principalement aux recettes petrolikres exceptionnelles. Ces changements institutionnels 9. The Government should focus constituent un fondement solide pour accelerer attention on shoring up the major l'amelioration de la gestion des finances weaknesses of the public financial publiques afin de maximiser l'efficacite des management system to derive significant depenses publiques et d'ameliorer benefits from the past investments in progressivement la prestation des services institutional reforms. It is said that the budget process is like a chain and thus it is as 9. L e Gouvernement devrait concentrer its weakest link. In Cameroon, many aspects son attention sur I'klimination des principales o f the budget are weak, from budget lacunes du systeme de gestion des finances preparation and execution to reporting and publiques pour benkficier largement des legislative oversight. This weakness i s rooted rkformes institutionnelles antkrieures. On in inadequate budget preparation, compare souvent le budget a une chaine, qui est encompassing poor analysis and planning, aussi solide que son maillon le plus faible. Au weak interagency coordination, and the Cameroun, plusieurs aspects du budget sont centralization o f decision and management o f deficients, qu'il s'agisse de la preparation, de the budget process. As a result o f weak budget l'execution, de l'information ou du contr6le planning and programming, many budget legislatif. Cette deficiente est attribuable a la programs are often not fully designed, with no mauvaise preparation du budget : mauvaise credible implementation plan, for instance, analyse et planification, manque de coordination procurement and staffing plans and are entre les organismes, centralisation de la prise de therefore not ready for implementation. These decision et de la gestion du processus budgdtaire. factors hinder the efficient execution o f the A cause des carences de la planification et de la budget and leads to poor budget outcomes. A programmation du budget, la conception de short budget calendar, weak interagency nombreux programmes budgetaires reste 1 The EnhancedHIPC Debt Relief process that Cameroon entered into in 2000, with the attainment of the HIPC Decision Point required World Bank and IMF staffs to monitor regularly the developments inPFM. 2 L'initiative PPTE renforcee, a laquelle le Cameroun a accede en 2000, requiert que tout pays atteignant le point de decision fasse l'objet d'un suivi replier de sa gestion des finances publiques par les services de la Banque mondiale et du FMI. Executive Summary page xvi coordination and poor central oversight by the inachevee et leur realisation ne fait l'objet Council o f ministers, impair the consistency d'aucun plan credible, par exemple en ce qui o f budgets with the Government's concerne les projets de passation des marches et development objectives and policies. de dotation en personnel, de sorte qu'ils ne sont pas prCts pour la mise en oeuvre. Ces facteurs entravent l'execution efficace du budget et entrainent des resultats budgetaires mediocres. En raison d'un calendrier budgetaire court, d'une mauvaise coordination interinstitutionnelle et d'un contrale insuffisant de la part du Conseil des ministres, le budget n'est pas bien align6 sur les objectifs et les politiques du gouvernement en matiere de developpement. Budget Planningand Programming Planification et prkparation du budget 10. A crucial aspect of preparing a 10. La planification des activitks est un national budget is activity planning but in aspect crucial de la prkparation d'un budget Cameroon, this element is missing. Budget national, un aspect qui fait dkfaut au preparation is a process o f planning and Cameroun. L a preparation du budget est un programming, involving the selection, costing processus de planification et de programmation and o f activities in line with political/policy impliquant non seulement la selection et le calcul agenda and matching these activities with the du coiit des activites correspondant aux objectifs available resources. The selection process, politiques et economiques du gouvernement, involves work on sector strategies, activity mais aussi l'adequation entre ces activites et les evaluation, stakeholder consultations, and ressources disponibles. L e processus de selection, coordination with other parts o f the qui est a la base de la programmation, requiert government. The planning process provides des travaux sur les strategies sectorielles, des the analytical underpinnings for the strategic etudes techniques, des consultations avec les decisions about the allocation and use o f parties prenantes et la coordination avec les public resources and the ultimate orientation autres institutions de 1'Etat. L e processus de o f the budget. It facilitates budget planification assure les fondements analytiques programming, -- the prioritization and des decisions importantes concernant l'affectation selection o f activities for the budget in line et l'utilisation des ressources publiques et with the budget ceiling o f the sectodline l'orientation ultime du budget. I1 facilite la ministry. programmation budgetaire, c'est-a-dire l'dtablissement d'un ordre de priorite et la 11. A rigorous approach to budget selection des activites budgetaires conformement planning and programming would require aux plafonds fixes pour chaque secteurlministere a much longer budget calendar, the depensier. decentralization of the budget process, improvements in coordination between the 11. Une approche rigoureuse de la line ministries and the ministries of finance planification et de la programmation du and plan. Furthermore, line ministries should budget nkcessiterait un calendrier budgktaire have the responsibility for the preparation o f beaucoup plus long, la dkcentralisation du their own budgets. Consequently, these processus budgktaire, le renforcement de la ministries would need to be organized to do coordination entre les ministkres dkpensiers et this effectively, with emphasis on les ministkres des finances et du plan. En outre, strengthening their technical and institutional les ministkres depensiers devraient Ctre investis capacities for budget planning and de la responsabilite de preparer leurs propres programming. The principal roles o f MINEFI budgets. En consequence, ils devraient &re and MINPLADAT should be to coordinate the organises pour le faire efficacement, en accordant Executive Summary page xvii budget planning and programming activities, la priorite au renforcement des capacites en provide oversight on these activities to ensure matiere de planification et de programmation that the parameters and approach underlying budgetaires. L e MINEFI et le MINPLADAT the budget proposals o f the line ministries are doivent principalement coordonner la consistent with government policies, and planification et la programmation, assurer le provide technical support and capacity contr6le de ces activites pour veiller a ce que le development assistance to line ministries. travail des ministeres depensiers soit conforme aux politiques et reglements de l'Etat, et fournir 12. The Council of Ministers should aux ministeres depensiers une assistance define the major parameters of the budget technique et un renforcement des capacites. and its overall orientation, providing operational guidance at key stages of the 12. L e Conseil des ministres doit definir budget process. In this regard, a discussion I'orientation generale et les principaux and the endorsement by the Council o f paramktres du budget, en donnant des conseils Ministers o f a budget framework paper (BFP) opirationnels pendant les phases essentielles at the beginning o f the process o f budget du processus budgetaire. A cet egard, l'examen preparation would be useful to put the process et l'approbation d'un document cadre de politique in the right direction. The BFP would lay out budgetaire en debut de processus par le Conseil the background issues and discuss the des ministres seraient utiles pour placer le challenges to the budget in the short and processus sur la bonne voie. L e document cadre medium-term and the options for addressing de politique budgetaire presenterait les questions them. The BFP, endorsed by the Cabinet, de fond, les enjeux budgetaires a court et a would spell out the overall spending ceilings moyen terme et les solutions envisagees. and the policies and priorities that would Approuve par le Cabinet, ce document guide the program level allocations and the indiquerait l'enveloppe globale de ressources et preparation o f the budget circular. The BFP enoncerait les politiques et les priorites devant could also be the major instrument for determiner le niveau des allocations aux consultations on the budget with principal programmes ainsi que la preparation de la stakeholders. circulaire budgetaire. En outre, il pourrait Ctre l'instrument primordial pour les consultations budgetaires avec les principaux intervenants. Adoption of the Medium-Term Adoption Ze cadre de ddpenses a moyen Expenditure Framework (MTEF) terme (CDMT) 13. The Government should fully adopt 13. L e Gouvernement devrait adopter the MTEF as the systematic approach to intkgralement le cadre de depenses a moyen making the needed improvements in terme (CDMT) en tant que methode planning and budgeting. The MTEF systkmatique permettant d'apporter les approach i s anchored on strategic planning ameliorations necessaires a la planification et and decentralized budget preparation in a a la budgetisation. L a methode CDMT est medium-term (3-5 years time-frame). It i s a fondee sur la planification strategique et la bottom-up approach, with line ministries decentralisation du processus de preparation du responsible for the preparation o f their budget dans une perspective a moyen terme (3-5 ministerial budgets, in collaboration with the ans). I 1 s'agit d'une demarche ascendante dans ministries o f finance and plan. It i s a results- laquelle les ministeres depensiers sont oriented approach, thus requires systematic responsables de la preparation de leurs propres efforts on monitoring and evaluation o f budgets, en collaboration avec les ministeres des budget inputs, outputs and outcomes, as well finances et du plan. C'est une demarche axee sur as transparency and accountability. The les resultats et caracterisee par des efforts MTEF approach facilitates the alignment o f systematiques de suivi et d'evaluation des the national policy agenda, such as articulated intrants, des produits et des resultats budgetaires, Executive Summary page xviii in the PRS, with the budget inputs and dans la transparence et la responsabilite. L a outcomes. Since the adoption o f the PRS, methode C D M T facilite l'adequation entre le some ministries in Cameroon, for instance programme economique national enonce dans la education and health have prepared medium- SRP d'une part et les intrants et resultats term sector expenditure programs (MTEF) in budgetaires d'autre part. Depuis l'adoption de la line with agreed sector strategies. Recently, SRP au Cameroun, certains ministbres (education sector strategies have recently been prepared et sante notamment) preparent des C D M T a in other sectors, paving way for the partir des strategies sectorielles convenues. Ces elaboration o f credible sector expenditure strategies ont permis recemment de realiser des programs. However, there has not been a programmes credibles de depenses sectorielles. formal process for linking these MTEF type Toutefois, il n'existe pas encore de processus expenditure programs and the annual budget, forme1 permettant de concilier ce type de particularly since a global MTEF did not programme de depenses a moyen terme avec le exist. The implementation o f the MTEF budget annuel. La mise en aeuvre du CDMT requires: requiert : Strong political commitment to an agreed 0 Un engagement politique fort envers un cadre national policy framework i s critical for an national de politique economique est crucial effective MTEF approach to budgeting. pour assurer l'efficacite du CDMT en matiere The poverty reduction strategy (PRS) is an de budgetisation. L a SRP est un instrument existing instrument that fits this role. existant qui correspond a ce r61e. Political commitment to the PRS as well as L'engagement politique en faveur de la SRP regular updates o f the strategy are essential ainsi que des mises a jour regulieres de la for its use as the bases for the MTEF; strategie sont essentiels pour que celle-ci ' serve de fondement au CDMT. The establishment o f decentralized planning and programming processes and 0 L'etablissement de processus et capacites de capacity that would (i) identify and planification et de programmation validate activities consistent with the decentralises, qui permettraient (i) priorities o f the PRS and in line with sector l'identification et la validation des activites strategies; and (ii)the costing o f viable suivant les priorites de la SRP et les strategies activities and the elaboration o f sector sectorielles ; et (ii)la determination du coat medium term expenditure programs that des activites viables, et l'elaboration de include the recurrent and public investment programmes de dkpenses a moyen terme spending. The overall program should integrant les depenses courantes et respect the resource constraints. d'investissement public. L e programme global devrait respecter les contraintes de ressources. Realistic estimates public resources in the medium-term budget framework and the 0 Une estimation realiste des ressources respect o f the budget allocations and the publiques dans le cadre budgetaire a moyen medium-term MTEF allocations to terme, ainsi que le respect des credits programs. Furthermore, realistic forecasts budgetaires et des allocations du CDMT aux o f external assistance will be essential, programmes. En outre, des previsions realistes with efforts to ensure that committed and de l'aide exterieure seront essentielles, budgeted donor funds are available when assorties d'efforts visant a garantir que les needed. fonds promis par les donateurs et budgetises seront disponibles au moment voulu ; The integration o f the recurrent and investment budgets with the planning o f 0 L'integration du budget courant et du budget recurrent and public investment d'investissement dans la planification des expenditures considered together, and the depenses courantes et d'investissement public uses o f donor resources be planned envisagees ensemble, ainsi que les utilisations Executive Summary page xix together with the government's own funds. des ressources d'assistance doivent faire The elaboration o f sector strategies, the use l'objet d'une planification conjointe avec les o f functional budget classification, and the ressources propres de l'Etat. L'integration harmonization o f donor assistance budgetaire est facilitee par l'elaboration de procedures facilitate budget integration. strategies sectorielles, le recours a la classification fonctionnelle du budget, et The adoption o f a functional classification l'harmonisation des procedures d'assistance o f the budget that facilitates the alignment des donateurs o f the budgetand key policy objectives, the classification o f activities into programs L'adoption d'une classification fonctionnelle and subprograms and the integration o f du budget, qui facilite l'alignement du budget recurrent and investment activities. The avec les principaux objectifs economiques, la new budget nomenclature based on a classification des activites en programmes et functional classification recently sous-programmes, et l'integration des activites introduced in Cameroon is complex and courantes et d'investissement. Recemment would need to revised to facilitate the introduite au Cameroun, la nouvelle linkages between PRS objectives and nomenclature budgetaire basee sur une budget programs and subprograms and the classification fonctionnelle est complexe et integration o f recurrent and investment devrait Ctre revisee pour faciliter les liens expenditures. entre les objectifs de la SRP et les programmes et sous-programmes du budget, Harmonizing donor and government ainsi que l'integration des depenses courantes procedures and including realistic et d'investissement. estimates o f external assistance in the medium term budget framework (MTBF) L'harmonisation des procedures de donateurs and the budget will enhance the integration et du gouvernement et l'inclusion o f the budget and the implementation o f d'estimations realistes des concours exterieurs the MTEF; dans le cadre budgetaire a moyen terme et dans le budget faciliteront l'integration du Monitoring and evaluation i s an important budget et la mise en Oeuvre du C D M T ; aspect o f the PRSP process and i s essential to make operational the results and Le suivi et l'evaluation sont des aspects strategic planning orientation o f the importants du processus du DSRP et sont MTEF. Thus, the capacity and process for essentiels pour concretiser les resultats et monitoring budget inputs and performance l'orientation strategique du CDMT. Par (output and outcomes) would need to be in consequent, il faudrait mettre en place les place. capacites et les mecanismes de suivi de l'execution et des resultats budgetaires Sensitization and training on the MTEF are (produits et resultats) ; critical for the successful introduction and adoption o f the MTEF. The sensitization L a sensibilisation et la formation relatives au would target a large audience, including CDMT sont cruciales pour l'introduction et ministers, high and middle managers and l'adoption effectives du CDMT. L a technical staff in public administration, sensibilisation doit viser un vaste auditoire members o f the legislature, local comprenant les ministres, les cadres government officials and members o f local superieurs et moyens et le personnel technique councils, the civil society and the donor des administrations publiques, les deputes, les community. Training will target high and responsables des administrations locales et les middle level managers in government and membres des collectivites locales, la societe budget related units in the central and line civile et la communaute des bailleurs de ministries as well as local authorities. The fonds. L a formation doit Ctre axee sur les training will have to involve specific cadres superieurs et moyens des services Executive Summary page xx programs for specific audiences. For centraux et des ministeres depensiers ainsi que budget staff, a there should be a plan for a sur les administrations locales. L a formation sequence o f training activities, with the devra comporter des programmes specifiques subjects o f the training determined by the pour des auditoires specifiques. Pour le MTEF implementation plan and the personnel responsable du budget, il faudrait progress made in implementingthis plan. prevoir une suite d'activites de formation, les domaines de formation etant determines par le 0 The alignment o f the organizational plan de mise en euvre du CDMT et par les structure within ministries to the principles progres realises dans l'execution de ce plan. o f the MTEF and program structure o f the budget will be needed to facilitate planning 0 I1 importera d'aligner l'organigramme des and programming as well as program ministeres sur les principes du CDMT et sur la management and ultimately, the linkage o f structure des programmes budgetaires pour budgetslrewards and program performance. faciliter la planification et la programmation An MTEF planning system would require ainsi que la gestion des programmes et, en fin the rationalization o f the units involved in de compte, le lien entre les the planning and programming process budgetslrecompenses et les resultats des within line ministries. programmes. Un systeme de planification du C D M T necessitera la rationalisation des unites 14. The adoption of the MTEF requires, participant au processus de planification et de at the early stages, major efforts to sensitize programmation au sein des ministeres stakeholders and build capacity, an agreed depensiers. implementation plan, and an assurance of strong political commitment to significant 14. L'adoption du CDMT requiert institutional change. The Government should d'importants changements institutionnels, un build on the already substantial efforts in the solide engagement politique, de vastes efforts development sector strategies and expenditure de sensibilisation des parties prenantes et de programs to introduce the MTEF as the core renforcement des capacites, un plan de mise approach to budget management. However, en oeuvre adopt6 d'un commun accord, et un the implementation o f an MTEF approach is a ferme engagement politique a effectuer long-term process; it should be planned and d'importants changements institutionnels. L e phased, and requires sustained political gouvernement devrait consolider les efforts commitment for effective implementation substantiels deja deployes dans l'elaboration des over time. For instance, a political strategies sectorielles et les programmes de commitment to follow a defined expenditure depenses pour introduire le C D M T comme outil strategy over the medium term i s crucial; principal de gestion du budget. Toutefois, la mise otherwise, the efforts on multi-year en oeuvre d'une demarche C D M T est un expenditure plans would largely be wasted. processus de longue haleine. Elle doit Ctre For this reason, the sensitization o f all the planifiee et echelonnee, et elle necessite un stakeholders, especially at the early stages and engagement politique soutenable pour mener a at key steps as the implementation proceeds bien la mise en euvre. Par exemple, une ferme over the years, is essential to build and sustain determination politique a appliquer une strategie commitment to the process. Furthermore, the de depenses precise a moyen terme est cruciale ; MTEF will require continuous and sinon, les efforts consacres aux plans de depenses coordinated efforts on capacity development, pluriannuelles seront largement vains. Par particularly for staff directly involved in consequent, la sensibilisation de toutes les parties managing the budget in the line and core prenantes, surtout au stade initial et durant les ministries. phases cles du processus au fil des ans, sera essentielle pour etablir et soutenir l'engagement 15. The MTEF will change how budgets en faveur du processus. Qui plus est, le C D M T are prepared, executed and monitored. This necessitera des efforts continus et coordonnes de would involve changes o f the roles o f the line renforcement des capacites, surtout pour le and core ministries (finance and plan), in the personnel participant directement a la gestion du Executive Summary page xxi organization o f public administration budget dans les ministeres depensiers et particularly as it relates to the implementation primordiaux. o f the budget, and the relationship with the donors. Ultimately, the public finance 15. L e CDMT changera la maniere de regulations will need adjusted to reflect preparer, d'executer et de suivre le budget. I 1 emerging MTEF practices. In the meantime, modifiera les r6les des ministeres depensiers et efforts should be made to include the funding primordiaux (Finances et Plan), l'organisation des . o f donors in the annual budget and to administrations publiques, surtout en ce qui harmonize donor procedures with those o f the concerne l'execution du budget, ainsi que les government. relations avec les bailleurs de fonds. En definitive, il faudra reviser la reglementation des 16. To move forward, a medium-term finances publiques pour la mettre en conformite plan of action for the full introduction of avec les pratiques emergentes du CDMT. En the MTEF should be elaborated, in mCme temps, des efforts doivent Ctre consentis consultation with the line ministries and pour intdgrer les financements des bailleurs au other stakeholders. This plan would guide budget annuel et pour harmoniser les procedures the implementation o f a global MTEF des donateurs avec celles du gouvernement. approach over the medium-term. As is the practice in other countries, a technical task 16. Afin de progresser, un plan d'action force, with representatives drawn from the a moyen terme pour l'application intkgrale du core and line ministries, should be tasked with CDMT Ctre elabort5 en consultation avec les elaborating this plan and to guide and monitor ministkres depensiers et les autres parties implementation in the first two to three years. prenantes. Ce plan guidera la mise en euvre Once this plan has been drafted, it should be d'une approche globale du CDMT sur le moyen discussed and approved by the Council o f terme. Conformement a la pratique en vigueur Ministers, to signal the commitment o f the dans d'autres pays, un groupe de travail technique Government to the plan. This plan would then compose de representants des ministeres be an important instrument in the sensitization primordiaux et depensiers devrait preparer le plan and training processes. et assurer le pilotage et le suivi de la mise en oeuvre pendant les deux ou trois premieres Recommendations annees. Une fois elabore, ce plan devrait Ctre examine et approuve par le Conseil des Ministres Increase the time-frame for budget afin de signaler l'engagement du gouvernement a preparation (budget calendar), with budget l'appliquer. Ce plan serait un important preparation starting not later than April o f instrument dans la sensibilisation et les processus the year; de formation. Decentralize budget preparation, with a Recommandations stronger role for the line ministries; 0 Accroitre le delai de preparation du budget Introduce a pre-budget policy paper (calendrier budgetaire), afin que le processus (budget framework paper in many demarre au plus tard en avril. countries) that lays out the orientation and priorities o f the budget. This should be 0 Decentraliser la preparation du budget en prepared at a very early stage o f the budget renforgant le r61e des ministeres depensiers. preparation process. The endorsement o f this paper by the Council o f Ministers Introduire un document de politique pre- would mark the formal start o f the budget budgetaire (document cadre du budget dans process; bien des pays) qui presente l'orientation et les priorites du budget. Ce document doit Ctre Formally adopt the MTEF as the approach elabore au stade preliminaire du processus de to budget preparation. The Government preparation du budget. L'adoption de ce Executive Summary page xxii should appoint and inter-ministerial document par le Conseil des Ministres technical team to prepare a multi-year plan marquerait le demarrage officiel du processus for the introduction o f the global MTEF, budgetaire. coordinate the related sensitization and capacity development, and guide the initial Adopter officiellement le CDMT comme implementation efforts; methode de preparation du budget. L e gouvernement devrait nommer une equipe Build capacity o f core and line ministries technique interministerielle pour preparer un for strategic planning and programming. plan pluriannuel d'introduction du C D M T This is necessary for linking policies, global, coordonner les activites connexes de budgets and outcomes, and the elaboration sensibilisation et de renforcement des and implementation o f MTEF based capacites, et guider les premiers efforts de budgets; mise en aeuvre. Revise the budget nomenclature to Renforcer les capacites des ministeres simplify it to make the budget more principaux et depensiers en matiere de comprehensible and transparent, reduce planification strategique et de programmation. demands for information and to Cette demarche est necessaire pour etablir des incorporate program and output/results liens entre les politiques, les budgets et les codes. resultats, ainsi que pour l'elaboration et l'execution des budgetsbases sur le CDMT. Reviser et simplifier la nomenclature budgetaire pour rendre le budget plus comprehensible et transparent, rdduire le besoin d'informations, et incorporer les codes de programmeslresultats. Budget Prioritization Dkfinition des prioritks du budget 17. Since 2000, the Government has 17. Depuis 2000, le Gouvernement been giving priority to education, health accorde la prioritk a I'kducation, a la santk et and infrastructure, with significant aux infrastructures, en augmentant increases in budget allocations. One o f the sensiblement les crkdits budgktaires dans ces main operational thrusts o f the PRS has been domaines. L'un des fondements operationnels de the alignment o f PRS priorities with the la SRP est l'alignement des priorites sur le budget national budget. Consequently, in recent national. Ainsi, ces dernihres annees, ily a eu une years, there have been significant increases in forte hausse des credits budgetaires a l'education, the budgetary allocations to education and a la sante et aux infrastructures de production, health and productive infrastructure; the priorites sectorielles definies dans la SRP. priority sectors identified in the PRS. Toutefois, ce traitement ne semble pas However, it does not appear that priority s'appliquer aux autres secteurs prioritaires faisant treatment has been extended to the other partie des sept piliers de la SRP tels que priority areas from the seven pillars o f the l'amdlioration de la gouvernance, la croissance et PRS such as improvement o f governance, the la diversification de l'economie, le growth and diversification o f the economy, developpement du secteur prive et notamment the development o f the private sector des PME, et au chamage des jeunes. Cela tient including small and medium-scale enterprises, sans doute a l'absence de processus formels de and youth unemployment. This may reflect definition des priorites budgetaires et d'execution the lack o f formal processes for the du DSRP. Les taux d'execution dans les secteurs Executive Summary page xxiii prioritization o f the budget and the prioritaires ont ete gkneralement plus faibles que implementation o f the PRSP. The execution dans les autres secteurs tels que la souverainete, rates for priority sectors have been generally la defense et l'administration generale. Par lower than some other sectors, for instance, consequent, les affectations budgetaires elevees sovereignty, defense and general ne se traduisent pas necessairement par des administration. Thus, high budget allocations depenses elevees. Les ressources allouees aux do not necessarily translate to high spending. secteurs prioritaires ne sont pas protegees des The budget allocations to the priorities are not compressions budgetaires comme celles qui ont protected from budget cuts such as those that eu lieu en 2005. occurred in 2005. Recommandations Recommendations 18. Afin de renforcer la definition des 18. To strengthen the prioritization o f the priorites du budget, le Gouvernement doit budget the Government should consider envisager les dispositions suivantes dans son incorporating the flowing into its budget processus budgetaire : process: Etablir un processus forme1 de selection des The Government should formalize the priorites budgetaires. Cela creerait des process o f prioritization and establish a possibilites de consultations et de discussions process for selecting budget priorities This sur les priorites et permettrait de garantir que would create opportunities for celles-ci correspondent a la vision globale du consultations and discussions on priorities DSRP. Ce processus preciserait les modalites and ensure that they are in line with the de preparation, d'execution et de broad vision o f the PRSP. It would also suivi/d'information budgetaire pour les specify the budget preparation, execution activites prioritaires. L e document cadre de and monitoring/reporting modalities for politique budgetaire susmentionne pourrait priority activities. The Budget Framework Ctre l'instrument necessaire pour preciser les Paper suggested above could be the priorites a moyen terme et pour chaque cycle instrumentto fine-tune the priorities for the budgetaire. medium-term as well as in each budget cycle; Les priorites budgetaires sont choisies au niveau des programmes et sous-programmes Budget priorities chosen by programs and et non des ministeres/secteurs. Cela est sub-programs not by ministries/sectors: possible dans les cas ou des programmes This is possible in cases where specific specifiques peuvent Ctre identifies par la programs can be identified by the budget nomenclature budgetaire, et cela facilite nomenclature, and facilitates the fine- l'affinage des priorites. Avec cette methode, le tuning of priorities. With this approach the Gouvernement pourrait designer comme Government could designate as priorities priorites certains programmes issus de programs from several ministries that are plusieurs ministeres cibles pour la targeted for diversification o f the economy, diversification de l'economie, l'emploi des youth employment, and capacity building, jeunes et le renforcement des capacites, sans without having to treat the entire qu'il soit necessaire de considerer l'ensemble responsible ministries as priorities; des ministeres responsables comme etant prioritaires. Priority programs are protected from budget cuts or given priority in the Les programmes prioritaires sont proteges des disbursement o f funds: This i s a key compressions budgetaires ou privilegies dans characteristic that would separate priority le decaissement des fonds. C'est une programs form others. When budget cuts caracteristique cle qui distinguerait les are undertaken, such as those in Cameroon programmes prioritaires des autres. En cas de Executive Summary page xxiv in 2005, these cuts would be borne by the compressions budgetaires, comme celles other sectors/programs while the priority survenues au Cameroun en 2005, seuls les sectors would continue to draw on their autres secteurs/programmes seront affectes, full budget allocations; les secteurs prioritaires continuant a beneficier integralement de leurs credits budgetaires. Protecting operations and maintenance spending: In this approach, only the Protection des depenses de fonctionnement et operations and maintenance component o f d'entretien. Dans cette approche, seul le volet a program's budget allocation i s protected. fonctionnement et entretien de l'affectation Most often, this i s the part o f the budget budgetaire d'un programme est protege. L e that is at risk from cuts and therefore the plus souvent, c'est la partie du budget qui only part that needs protection; risque d'etre coupee et, par consequent, la seule partie qui a besoin d'etre protegee. Enhanced implementation and monitoring: In addition to providing enhanced budget Renforcement de la mise en oeuvre et du allocations, the government should aim to suivi. En plus d'ameliorer les affectations provide the implementation units o f the budgetaires, le gouvernement doit s'efforcer priority programs with the capacity to de doter les unites d'execution des effectively implement and monitor the programmes prioritaires des capacites results o f the priority programs. necessaires pour realiser et suivre effectivement les resultats de ces programmes. The Management of Investment Gestion des dkpenses d'investissement Spending 19. Public investments have declined in 19. Au Cameroun, les investissements Cameroon to about 2 percent of GDP in publics ont chute a 2 'A environ du PIB ces recent years, one of the lowest rates of dernieres annees, I'un des plus faibles taux public investments among comparable d'investissement public parmi les pays countries. The financing by internal and comparables. L e financement par l'assistance external assistance have both been declining. interieure et exterieure est en baisse. L e peu de The minimal resources available for public ressources disponibles pour l'investissement investments are inefficiently, for instance public est utilise de maniere inefficace dans la public investment execution rates are very prestation des services, comme en temoignent par low. There is a large body o f evidence in the exemple les tres faibles taux d'execution des economics literature linking economic growth investissements publics. Les etudes economiques to public capital formation, and specifically to regorgent de donnees confirmant le lien entre la investments in infrastructure. There is thus a croissance economique et la formation du capital major risk o f underperformance in the growth public, et plus particulierement les o f the economy from inadequate public investissements axes sur l'infrastructure. I 1 existe infrastructure and related services. donc un risque majeur de contre-performances en matiere de croissance Cconomique attribuable a 20. Cameroon faces two related l'insuffisance des infrastructures publiques et des challenges on public capital investments: (i) services connexes. to increase the effectiveness o f the implementation o f public capital expenditures; 20. L e Cameroun est confront6 a deux and (ii)to raise the level o f public capital dCfis connexes en matiere d'investissement expenditures. The first challenge involves public : (i)accroitre l'efficacite de l'execution institutional reform and capacity development des depenses publiques en capital, et (ii)relever to strengthen project evaluation, selection and le niveau des depenses publiques en capital. L e implementation, and to improve related premier defi requiert des reformes Executive Summary page xxv budget execution procedures. Currently, institutionnelles et le renforcement des capacites investment project preparation is very weak pour consolider l'evaluation, la selection et la resulting in poor choices o f projects, poor mise en Oeuvre et pour ameliorer les procedures value for money, difficult execution, connexes d'execution du budget. Actuellement, inefficient implementation and low quality la preparation des projets d'investissement est services. The line ministries do not have the tres deficiente, ce qui entraine une mauvaise capacity and incentives to carry out rigorous selection des projets, une faible rentabilite, une planning and the core ministries lack the execution difficile, et des services inefficaces et capacity to monitor, coordinate and assist de qualite mediocre. Les ministeres depensiers ne them. The short budget calendar essentially disposent ni des capacites, ni des incitations rules out rigorous analytical work and necessaires pour une planification rigoureuse, et planning in the preparation, selection and les ministeres de base n'ont pas la capacite de monitoring o f investment projects even if the suivre, de coordonner et d'appuyer le travail des capacity were there. It also limits coordination ministeres depensiers. En raison de la brievete du activities. The budget should provide multi- calendrier budgetaire, il est impossible year capital appropriations for investment d'effectuer une planification et un travail projects. The current system has a gap d'analyse rigoureux pour la preparation, la between annual budgetary allocations for selection et le suivi des projets d'investissement, multi-year capital investment projects, leading mCme si les capacites existent. Cette situation to a "stop and go" rhythm of public limite aussi les activites de coordination. Le investment projects. budget devrait prevoir des credits pluriannuels pour les projets d'investissement. L e systeme 21. The second challenge requires actuel presente un decalage entre les allocations resource reallocations and mobilization of annuelles aux projets d'investissement additional resources. The Government's pluriannuels, entrainant des interruptions recent medium-term fiscal strategy envisages frequentes des projets d'investissement public. a boost to investment spending. The possible sources o f resources for increases in 21. L e deuxihme defi requiert la investment spending include the restructuring reaffectation des ressources et la mobilisation o f expenditures, for instance, lowering de ressources additionnelles. L a recente recurrent expenditures in favor o f public strategie budgetaire a moyen t e r n e du investments; the HIPC debt relief; increased Gouvernement prevoit d'accroitre sensiblement donor assistance; and increases in revenue. les depenses d'investissement. Les sources With the exception o f the HIPC debt relief, possibles de ressources pour cet accroissement which has now materialized, the Government sont notamment la restructuration des depenses, would need to seek additional assistance from par exemple la reduction des depenses courantes the donor community and undertake relatives aux investissements publics ; significant institutional reform actions to l'allegement de la dette au titre de l'initiative restructure expenditures. The PPTE ; I'augmentation de I'assistance des privatization/liquidation o f public enterprises donateurs ; et la hausse des recettes. A underway, albeit at a slow pace, would l'exception de I'allCgement de la dette PPTE, qui ultimately release some resources but est desormais une realite, le Gouvernement meanwhile, the privatization process itself devrait solliciter une assistance supplementaire requires substantial public resources; this i s des donateurs et entreprendre d'importantes crowding out expenditures on public reformes institutionnelles pour restructurer les investments. depenses. L a privatisation/liquidation en cours des entreprises publiques, mCme si elle avance 22. Donors would be more inclined to lentement, permettra en definitive de degager des increase and sustain financial assistance if recettes, mais dans le mbme temps, le processus they have the confidence that the PFM lui-mbme requiert des ressources publiques system functions effectively, with concrete substantielles, qui evincent les depenses results for the population. The current d'investissement public. efforts o f the Government to strengthen Executive Summary page xxvi partnership with the donors will help to 22. Les donateurs seraient plus enclins a generate interest for donor assistance. accroitre et maintenir leur assistance However, resource mobilization from the financikre s'ils etaient convaincus du donor community will be facilitated by fonctionnement efficace du systkme de gestion credible efforts to strengthen the management des finances publiques et des resultats concrets and impact o f the investment budget and the pour la population. Les efforts consentis par le budget as a whole. In addition, the gouvernement pour renforcer le partenariat avec Government needs to replace the current ad- les donateurs permettront de susciter 1'interCt de hoc approach to seeking and using donor ces derniers en matiere d'assistance. Cependant, resources with a more systematic and la mobilisation des ressources aupres des coordinated approach and to integrate donor donateurs sera facilitee par des efforts credibles assistance fully into the budget. visant a ameliorer la gestion et l'impact du budget d'investissement et de l'ensemble du 23. The process for the technical and budget. En outre, le gouvernement devrait strategic evaluation and the selection of remplacer la methode ponctuelle en vigueur, qui projects for the invest budget needs to be consiste a solliciter et utiliser les ressources revamped. This should be a key element o f d'aide, par une methode plus systematique et the effort to strengthen the process o f budget coordonnee, et il doit integrer l'assistance des planning and programming. Line ministries bailleurs au budget. need the technical and institutional capacity for the evaluation o f investment projects while 23. L e processus d'evaluation technique the core ministries need to be equipped to et strategique et de selection des projets pour support and coordinate the work o f line le budget d'investissement doit &re ameliork. ministries. The process o f project selection Cela devrait constituer un element des efforts de would ensure the alignment o f renforcement du processus de planification et de projects/programs with national objectives programmation du budget. Les ministeres and priorities; permit comparisons and depensiers ont besoin des capacites choices o f projects across sectors; ensure institutionnelles et techniques pour l'evaluation consistent quality o f projects selected from des projets d'investissement, tandis que les different sectors/ministries; and respect ministeres de base ont besoin d'Ctre equipes pour resource constraints over the medium-term. In appuyer et coordonner le travail des ministeres the MTEF approach, the aim would be for an depensiers. L e processus de selection des projets integrated program-based budget, with each assurera 1'alignement des projets/programmes program comprising o f the operational and avec les objectifs et les prioritds nationaux; investment activities needed to realize permettra des comparaison et des choix de program objectives. There will thus be one projets dans divers secteurs; assurera la qualite de budget, integrated at program level, and tous les projets choisis dans divers consequently putting an end the separation o f secteurs/ministeres; et tiendra compte des the recurrent and investment budgets and the contraintes de ressources a moyen terme. Dans la public investment program (PIP). However, demarche CDMT, il s'agit d'adopter un budget the need for strategic evaluation and selection intdgrd axe sur des programmes, chaque o f investment projects for programs in the programme comprenant les activites budget will remain. operationnelles et d'investissement necessaires pour atteindre les objectifs vises. I1 y aura donc Recommendations un seul budget, qui sera integre au niveau des programmes et, par consequent, qui mettra fin a Put in place a rigorous process and la separation entre les budgets courant et strengthen the capacity in the line and core d'investissement et l e programme ministries for the evaluation, selection and d'investissements publics (PIP). Toutefois, la execution o f capital projects, in a manner necessite d'une evaluation strategique et d'une consistent with the MTEF approach. This selection des projets d'investissement pour les should be part o f the effort to develop programmes budgetaires demeurera. capacity for budget planning and Executive Summary page xxvii programming. Recommandations Establish clear strategic, economic and Etablir un processus rigoureux et renforcer les financial criteria for capital projects to be capacites des ministeres depensiers et de base included in the budget/MTEF and a pour l'evaluation, la selection et I'execution rigorous project selection process to des projets d'investissement, conformement a enforce the criteria. demarche du CDMT. Cela devrait faire partie des efforts de renforcement des capacites de Progressively increase budget allocations planification et de programmation for public investments by applying the budgetaires. bulk o f incremental resources (for instance, HIPC debt relief) to capital expenditures, Etablir des criteres strategiques, economiques intensifying resource mobilization efforts et financiers clairs pour les projets with the donor community, and rapidly d'investissement qui seront integres au privatize/liquidate troubled public budget/CDMT ainsi qu'un processus de enterprises to release the resources now selection rigoureux pour appliquer ces spent on restructuring/maintaining these criteres. enterprises for public investments. Accroitre progressivement les affectations Put in place a system for monitoring the budgetaires destinees aux investissements progress in the implementation o f ongoing publics en appliquant l'essentiel des investment projects, using the results to ressources additionnelles (par exemple, make mid-course adjustments in designs l'allegement de la dette PPTE) aux depenses and implementation plans, including en capital, en intensifiant les efforts de cancellations o f projects. mobilisation des ressources aupres des bailleurs de fonds, et en PrivatisantAiquidant rapidement les entreprises publiques en difficulte afin de degager les ressources actuellement consacrees a la restructuration et au maintien de ces entreprises pour les consacrer aux investissements publics. Mettre en place un systeme de suivi des progres realises dans l'execution des projets d'investissement en cours, en s'appuyant sur les resultats pour faire des ajustements a mi- parcours dans les plans conception et de mise en aeuvre, y compris I'annulation de projets. The Execution and Control of the Execution et contrdle du budget Budget 24. Budget execution in Cameroon is 24. Au Cameroun, I'exCcution du budget cumbersome, characterized by multiple est lourde et caractCrisCe par de multiples controls that slow down budget execution. contr8les qui retardent le processus. L e The numbero f approvals from commitment to nombre d'approbations, de l'engagement au payment for an expenditure item estimated to paiement d'une depense, est estime a 22 be close to 22. While the multiplicity o f environ. Tandis que la multiplicite des controls impedes the execution o f the budget, contr8les empeche l'execution du budget, rien there is no evidence that the system prevents ne prouve que le systeme empeche la corruption and other resource leakages. The corruption et les deperditions de ressources. Executive Summary page xxviii computerization o f budget control activities L'informatisation des activites de contr8le should improve the functioning o f the system budgetaire devrait ameliorer le fonctionnement but as the paper work has remained the legal du systeme, mais &ant donne que la basis, manually-based paper work has to be paperasserie demeure le fondement legal, les completed to trigger the next stage in the dossiers traites manuellement doivent aboutir process. The length and the complexity o f the pour declencher l'etape suivante du processus. expenditure chain increase the transactions L a longueur et la complexite de la chaine de costs. Moreover, the multiplicity o f operations depenses accroissent les coClts de transaction. increases the risks o f corruption. D e plus, la multiplicite des operations accroit les risques de corruption. 25. The complex budget execution process weakens the implementation of 25. La lenteur dans I'exkcution du budget programs and reduces the budget entrave la mise en oeuvre effective effectiveness of the budget. The execution des programmes budgktaires et rkduit rate for the recurrent budget i s close to 100 l'efficacitk du budget. L e taux d'execution du percent, due to its high wage and budget courant avoisine 100% en raison de son administrative cost content but the execution contenu salarial et administratif eleve, mais le rate for the investment budget is significantly taux d'execution du budget d'investissement lower. While the spending on wages and est nettement plus faible. Alors que les transfers are relatively stable per quarter, there depenses de salaires et de transferts sont are considerable fluctuations in the release o f relativement stables par trimestre, le funds for operations and maintenance, decaissement des ressources allouees aux hampering the efficiency and pace o f service operations et a la maintenance fluctuent delivery. Several other factors slow down considerablement, compromettant l'efficacite budget execution including the delays in the et la rapiditd de la prestation des services. initial launch o f budget execution to the 3'd or Plusieurs autres facteurs ralentissent later month o f the fiscal year; the intervention l'execution du budget, notamment les retards o f the comptables matieres to certify the dans le lancement initial de l'execution du delivery o f the service and the absence o f budget, qui ddmarre a partir du troisieme mois linked information system for the ministries to de l'exercice si ce n'est plus tard ;l'intervention closely monitor budget execution in their des comptables matieres pour certifier les ministries. The preparation o f procurement services rendus ; et l'absence d'un systeme plans i s often cited as a source o f delay in the d'information integre permettant aux ministeres implementation o f investment projects but this de suivre Ctroitement l'execution du budget reflects in part the poor preparation o f the dans leurs structures. L a preparation des plans projects. de passation des marches est souvent citee comme une source de retards dans la mise en 26. The multiplicity of agencies euvre des projets d'investissement, mais elle involved in the administrative controls of reflete en partie la mauvaise preparation des the budget, with poor systems, capacity, projets. and unclear and overlapping mandates, results in systemic inefficiencies. The apriori 26. En raison de la multiplicitk des financial controls, carried out by the Sous- organismes participant au contr6le Direction du ContrGle Financier (SDCF), administratif du budget et ayant des appear weak due to poor retention o f staff, systkmes et des capacitks insuffisants, et des lack o f a manual o f procedures and inadequate mandats flous qui se chevauchent, integration to existing information systems. l'inefficacite est systkmique. Les contrales The organization o f aposteriori financial financiers a priori, effectues par la Sous- controls is complex, with agencies with direction du contr6le financier (SDCF), overlapping mandates, the lack o f semblent deficients en raison du faible taux de coordination among the various control retention des effectifs, du manque d'un manuel agencies, and inadequate capacity. The de procedures et d'une integration insuffisante expected and actual outputs from these aux systemes d'informations existant. Executive Summary page xxix agencies and the useshalues o f these outputs L'organisation des contrdles financiers a are often not clear. The Budget Discipline posteriori est complexe, avec des organismes Council is one example o f this lack o f a well- dont les mandats se chevauchent, une absence definedand useful mandate. de coordination entre les divers organismes de contrdle, et des capacites insuffisantes. Les 27. The Government should give high resultats escomptes et effectifs de ces priority to strengthening judicial and organismes et l'utilite ou la valeur de ces legislative controls. The Chambres des resultats ne sont pas souvent evidentes. L e Comptes, the main institution for judicial Conseil de discipline budgetaire est un exemple control, became operational in late 2005 and de cette absence de mandat utile et bien defini. faces start-up challenges including in building up its capacity. Moreover, the mandate o f the 27. L e Gouvernement devrait accorder Chambres i s limited to the domain o f judicial une grande priorite au renforcement des controls o f accounts, excluding the broader contr6les judiciaires et Egislatifs. L a review o f the management o f public funds. Chambre des comptes, principale instance de The constitution confers the National contrdle judiciaire, est devenue operationnelle Assembly the mission o f the control and a la fin de 2005, et elle connait des problemes oversight o f government expenditures. de demarrage, notamment en matiere de However, Parliament has neither the capacity renforcement des capacites. Qui plus est, le and other resources, nor the full and timely mandat de la Chambre se limite a la information to fulfill these mandates. The verification judiciaire des comptes, excluant very limited time provided to the Parliament l'examen plus global de la gestion des fonds to discuss and adopt the budget bill (Zoi de publics. L a constitution investit 1'Assemblee finance), the enormous volume o f budget nationale du pouvoir de contrdle et de documents, and the absence o f a complete supervision des depenses publiques. Mais le settlement law (Zoi de reglement) and reports Parlement ne dispose ni de la capacite, ni des on budget execution from MINEFI and the autres ressources, ni des informations organs o f control, limit the contributions o f necessaires pour accomplir cette mission. L e the legislators to the control and oversight o f peu de temps donne au parlement pour public finances. examiner et adopter la loi de finances, le volume enorme des documents du budget, et 28. The legal and regulatory framework l'absence d'une loi de reglement complete et de of the new procurement code adopted in rapports sur l'execution du budget produits par 2004 conforms to international standards le MINEFI et les organismes de contrdle, and the systems in place in Cameroon for empechent les legislateurs d'apporter une managing procurement are adequate. This contribution significative au contrdle et a la was confirmed by the Country Procurement supervision des finances publiques. Assessment Report (CPAR) undertaken by the Government and the World Bank in 2005. 28. L e cadre juridique et rkglementaire Implementation however faces some critical du nouveau code de passation des marches challenges including: (i)the capacity and adopt6 en 2004 est conforme aux normes professionalism for procurement in both the internationales, et les systhmes mis en place public and private sectors; (ii)the political au Cameroun pour gkrer la passation des commitment to enforcing the rules and marches sont adequats. Cela a ete confirm6 regulations including the use o f sanctions and par le rapport national d'evaluation de la the elimination o f political interference in the passation des marches -Country Procurement process. (iii)inadequate funding by the budget Assessment Report (CPAR) - prepare par le for managing the procurement processes; and Gouvernement et la Banque mondiale en 2005. (iv) the integration o f procurement processes Cependant, la mise en ceuvre fait face a des in the systems for public financial ddfis critiques, y compris (i)la capacite et le management. professionnalisme en matiere de passation des marches dans les secteurs public et prive ; (ii) l'engagement politique a appliquer les regles et Executive Summary page xxx Recommendations les reglements, y compris le recours aux sanctions et l'elimination de l'ingerence Commence budget execution in early politique dans le processus; (iii)l'insuffisance January; this would require that all the du financement budgetaire consacre a la elements necessary to make the budget gestion de la passation de marches ; et (iv) operational are implemented in December. l'integration des processus de passation des marches dans les systemes de gestion des Simplify le expenditure chain (circuit de la finances publiques. depense) including by eliminating redundant steps such as (i) the certification Recommandations o f the service provided by the comptable matikre; and (ii) the multiple reviews and Commencer l'execution du budget au debut signatures o f the certificate o f confirmation janvier. Cela necessiterait que tous les o f credits (TCC) by the chief o f financial elements necessaires pour rendre le budget controls, the director-general o f the budget operationnel soient mis en place en decembre. and the administrators o f the credit. Rather than these multiple controls, a secure Simplifier le circuit de la depense, notamment process for the transmission o f approvals par l'elimination de mesures redondantes and the extension o f the IBIS computer telles que (i)la certification du service assure information system should be put in place; par le comptable-matibres, et (ii)les multiples examens et signatures du certificat de Put in place a mechanism for the confirmation de credit (TCC) par le contr6leur verification o f the time it takes the various financier en chef, le directeur general du actors in the expenditure chain to act on a budget et les gestionnaires de credit. Au lieu file: de ces contr6les multiples, il faudrait mettre en place un processus securise de transmission Prepare a manual o f procedures, strengthen des approbations et etendre l'utilisation du systems and capacity with training on the systeme informatique IBIS. use o f the manuals for the staff in the expenditure chain, provide an information Mettre en place un mecanisme pour la system to the administrators and verification du temps necessaire aux divers authorizers o f to allow them to monitor the acteurs de circuit de la depense pour traiter un execution o f their budgets, and strengthen dossier. the information systems o f the financial controllers and the training o f the staff; Prdparer un manuel de procedures, renforcer les systbmes et les capacitds par la formation Apply the regulations limiting cash du personnel du circuit de la depense a advances (rkgies d'avances) to only small l'utilisation du manuel; fournir aux expenditures. Eliminate all the exceptional administrateurs et aux autorites chargees procedures (prockdures exceptionnelles) d'approuver les credits un systemes that have become unnecessary with d'information qui leur permet de suivre information systems that allow accelerated l'execution de leur budget, et renforcer les payments o f urgent expenditures. systemes d'information des contr6leurs financiers ainsi que la formation du personnel. Reorganize, after a diagnostic review, the distribution o f the responsibilities o f the Appliquer les reglements limitant les regies different organs o f administrative control, d'avances aux petites depenses. Eliminer and subsequently staff them appropriately toutes les procedures exceptionnelles, and progressively strengthen their devenues inutiles avec les systemes capacities. Put in place under the authority d'information qui permettent d'accelerer le o f the MINEFI, an inspection service paiement des depenses urgentes. specialized in finances, with national or Executive Summary page xxxi interministerialjurisdiction; Reorganiser, apres un examen diagnostique, la distribution des responsabilites des differents Expand the role o f the Chambres des organes de contr8le administratif ; ensuite, y Comptes to include a broader review o f the affecter un personnel suffisant et renforcer management o f public funds and direct progressivement leurs capacites. Mettre en reporting o f their findings to the National place, sous 1'autoritC du MINEFI, un service Assembly. d'inspection specialisee dans les finances, avec competences nationales ou Strengthen the capacity o f the Economic interministerielles. and Finance Committee o f the National Assembly and provide them with access to Accroitre les pouvoirs de la chambre des information on budget estimates, execution comptes pour lui confier un examen plus and management to enable them to elargi de la gestion des fonds publics et la informed judgments o f the budget and communication directe des resultats de cet effectively carry out their constitutionally examen a 1'Assemblee nationale. mandated role o f expenditure control. Renforcer les capacites de la Commission de Provide the legislature with a complete l'economie et des finances de 1'Assemblee budget settlement law (Loi de Reglement) nationale et lui donner acces aux informations and the financial accounts from the sur les estimations, l'execution et la gestion Chambres des Comptes, in a timely budgetaires, pour lui permettre d'avoir un avis fashion. eclaire sur le budget et de jouer effectivement son r81e constitutionnel en matiere de contr6le Build capacity and adequately fund des depenses. procurement operations, eliminate the delays in processing procurement Fournir en temps utile a 1'Assemblee nationale operations, often cited as cause o f delays in une Loi de reglement complete ainsi que les budget execution. rapports financiers de la Chambre des comptes. Continue to implement the procurement action plan, including o f the actions to Renforcer les capacites et financer improve the transparency o f procurement adequatement les Operations de passation des operations and the application o f sanctions marches; eliminer les retards dans le for non-compliance to the laws and traitement des operations de passation de regulations. marches, souvent cites comme cause de retards dans l'execution du budget. Poursuivre la mise en ceuvre du plan d'action sur la passation des marches, y compris les mesures visant a ameliorer la transparence des operations de passation des marches, ainsi que l'application de sanctions pour non respect des lois et reglements. Reinforcing the Transparency and Renforcer la transparence et l'efficacite du Effectiveness of the Budget budget 29. Transparency in the management of 29. La transparence dans la gestion des public finances is recognized as a key finances publiques est reconnue comme un element in improving the effectiveness of Clement clC pour ameliorer l'efficacite du the budget. Budget monitoring and budget. Le suivi et l'evaluation du budget Executive Summary page xxxii evaluation contribute to the transparency o f contribuent a la transparence du processus the budget process and are important elements budgetaire et constituent des aspects importants o f budget planning, results orientation and de la planification budgetaire, de l'orientation sur accountability and therefore the improvement les resultats, de l'obligation de rendre compte, et, o f budget outcomes. The regular preparation, partant, de l'amelioration des resultats auditing and reporting o f public financial budgetaires. L a preparation, la verification et la accounts and the wide dissemination o f these communication regulieres des comptes financiers accounts enhances transparency and promotes de l'Etat, ainsi que la large diffusion de ces broader understanding and constructive comptes, augmentent la transparence et la discussions o f the public financial issues comprehension et favorisent une discussion among interested stakeholders. This will constructive des questions relatives aux finances strengthen accountability and progressively publiques chez les parties prenantes interessees. enhance budget effectiveness. A major factor Ceci renforce la l'obligation de rendre compte et for producing results from the budget i s the rehausse progressivement l'efficacite du budget. human resources input that influences budget Les ressources humaines, qui influent sur la preparation and implementation o f budget preparation et l'execution des activites activities. Broad and progressively improving budgetaires, contribuent largement a produire de public sector capacity and competence is bons resultats budgetaires. L e renforcement et essential for improving budget effectiveness. l'amelioration graduelle des capacites et des Poor performing public enterprises in competences du secteur public sont essentiels particular pose a burden on public human and pour accroitre l'efficacite du budget. En financial resources and, as in Cameroon, particulier, des entreprises publiques deficientes drains budget resources in an unpredictable constituent un fardeau pour les ressources manner, thus constituting a substantial risk to humaines et financieres et, comme en temoigne budget effectiveness. le cas du Cameroun, ponctionnent les ressources budgetaires de fagon imprevisible, constituant ainsi un risque substantiel a l'efficacite du budget. Transparency of the Budget Process Transparence du processus budgktaire 30. Budget Transparency - openness 30. L a transparence du budget -clartC about policy intentions, formulation and des intentions, de la formulation et de implementation - is a key element of good l'execution de la politique Cconomique - est governance and better social and economic un aspect crucial de la bonne gouvernance et outcomes from the budget. The Government de I'amClioration des rCsultats sociaux et has made a commitment to the transparency Cconomiques du budget. L e gouvernement s'est o f the budget process and started to act on it in engage a promouvoir la transparence du 2005. The institutional arrangements for PFM processus budgetaire, et il a commence a influence its potential for transparency. In concretiser cet engagement en 2005. Les particular, budget transparency requires a dispositions institutionnelles pour la gestion des strong role for the legislature in the budget finances publiques influent sur son potentiel de process. Other elements include an open transparence. En particulier, la transparence policy-making process, the decentralization o f budgdtaire requiert que le parlement joue un r81e the budget preparation and execution process, important dans le processus budgetaire. I 1 s'agit a policy o f open access to the public to en outre d'assurer la transparence du processus information on the budget, regular decisionnel, la decentralisation du processus de assessments o f financial management by preparation et d'execution du budget, une supreme audit institutions that permits the politique garantissant l'acces du public a legislature to carry out its oversight functions. l'information sur le budget, l'evaluation reguliere de la gestion financiere par des instances Executive Summary page xxxiii 31. A strong role for the legislature in suprCmes d'audit, ce qui permet au parlement de the PFM process is critical for enhancing jouer son r61e de supervision. the transparency of the budget process, strengthening accountability and 31. L e renforcement du r61e du improving budget effectiveness. In Parlement dans la gestion des finances Cameroon, this would be a good place to start publiques est crucial pour accroitre la in making the budget more transparent. The transparence du processus budgktaire, role o f the legislature i s weak because it renforcer l'obligation de rendre des comptes neither has easy access to the information nor et amkliorer l'efficacite du budget. Au the capacity to carry out its responsibilities on Cameroun, ce serait un bon point de depart pour the management o f public finances. Besides, rendre le budget plus transparent. Le r6le du the legislative calendar and the delivery o f the Parlement est mineur, celui-ci ne disposant ni budget documents do not allow sufficient time d'un acces facile a l'information, ni des capacites for the extensive discussions o f the annual necessaires pour exercer ses responsabilites en finance law. The National Assembly needs to matiere de gestion des finances publiques. D e be kept informed o f key developments in the plus, le calendrier legislatif et les delais de budget during the course o f the year, not only communication des documents budgetaires ne on the presentation o f the finance law. In laissent pas suffisamment de temps pour Cameroon, the only financial reports produced l'examen approfondi de la loi de finances for Parliament and made available on the annuelle. L'Assemblee nationale doit Ctre presentation o f the new finance law are: (i)an informe des principales evolutions budgetaires economic and financial report that often does durant l'annee et pas seulement lors de la not provide much background information on presentation de la loi de finances. Au Cameroun, the budget; and (ii) an incomplete LDR les seuls rapports financiers produits pour le presented without a background analysis and Parlement et mis a sa disposition pendant la explanatory notes. presentation de la nouvelle loi de finances sont : (1) un rapport economique et financier qui ne Recommendations fournit guere d'informations de base sur le budget ; et (ii)une Loi de reglement incomplete The MINEFI should simplify the budget presentee sans analyse de base ni notes documents and give the National Assembly explicatives. L a preparation d'informations more time to examine them. Explanatory appropriees sur les politiques et les resultats background papers that highlight the budgetaires a l'intention de 1'Assemblee budget strategies, policies and performance nationale est importante pour assurer la expectations should accompany the transparence, car ces informations sont destinees detailed budget documents. The Finance en definitive au grand public. Au cours de and Budget Committee should be regularly l'exercice budgetaire, il faudrait egalement briefed on budget execution during the fournir a la Commission du budget et des course o f the year and on the preparation o f finances des rapports sur l'execution du budget et the budget for the following year. debattre de ces rapports avec les instances gouvernementales competentes. It is crucial to enhance the capacity o f the members o f the legislature in general and Recommandations the Finance and Budget Committee in particular, to deal with budget issues. L e MINEFI doit simplifier les documents There i s currently a plan to provide the budgetaires et donner a 1'AssemblCe nationale Budget Committee with a tax expert and an plus de temps pour les examiner. Les economist. This is a good beginning for documents budgetaires detailles doivent Ctre sensitizing members o f the Committee as accompagnes par des documents explicatifs well as other members o f the Assembly on mettant en evidence des strategies, les fiscal and budget management but budget politiques et resultats escomptes. En outre, la resources should be made available each Commission des finances et du budget doit &re regulierement informee de l'execution du Executive Summary page xxxiv year for a program o f capacity budget tout au long de l'annee et sur la development o f the legislators in the area preparation du budget pour 1'annCe suivante. o f budget management. I 1 est crucial de renforcer les capacites des Inthe course of the fiscal year, the Budget parlementaires en general et de la and Finance Committee should be Commission des finances et du budget en provided with reports on budget execution particulier sur les questions budgetaires. I1 and afforded the opportunities to discuss existe actuellement un projet visant a mettre a these reports with the relevant authorities la disposition de la Commission un fiscaliste inGovernment. et un economiste. C'est un bon point de depart pour sensibiliser les membres de la Commission et les autres parlementaires sur la gestion des finances publiques et du budget, mais des ressources budgetaires doivent &re consacrees chaque annee a un programme de renforcement des capacites des parlementaires en matiere de gestion du budget. En cours d'exercice, il faudrait fournir a la Commission du budget et des finances des rapports sur I'execution du budget et leur donner l'occasion de discuter de ces rapports avec les autorites publiques competentes. Public Accounting and Financial ComDtabilite publique et communication Reporting de l'information financikre 32. The system of public accounting in 32. L e systeme de comptabilitk publique Cameroon provides for monthly, quarterly au Cameroun prkvoit la production mensuelle, and yearly production of status reports on trimestrielle et annuelle de rapports budget execution. The integrated information d'avancement de I'execution du budget. L e system, SIGEFI facilitates the production o f SIGEFI facilite la production de ces soldes et, these balances and since 1999, the installation depuis 1999, l'installation du logiciel de o f the software PATRIOT for general comptabilite generale PATRIOT a permis au accounting has enabled the Treasury to Tresor de produire et de publier des rapports produce and publish accounting reports. The comptables. L a production des balances des production o f the balances o f the treasury comptes du Tresor et de l'etat des depenses ne accounts as well as the one on the status o f pose pas de probleme majeur. Par ailleurs, la expenditures does not pose a major problem. synthese des comptes de la douane, de l'imp8t et On the other hand, the synthesis o f the status des autres recettes reste tres problematique. L e o f customs, taxes and other revenues remain calendrier de production des soldes annuels du very problematic. The time-table for the Tresor n'a jamais ete respecte par le passe. Avec production o f annual treasury balances has l'adoption des instructions Cnonqant les never been respected in the past. The adoption modalites de production des comptes de gestion, o f the instructions setting out the modalities o f les comptables de 1'Etat disposent desormais production o f management accounts, the d'un cadre juridique pour la production des accountants o f the state now have a legal comptes de gestion de 2004. framework for the production o f the management accounts for 2004. 33. L e cadre de diffusion de l'information sur I'exCcution du budget 33. The framework for "reporting" on semble deficient. Aucune evaluation externe de ~ Executive Summary page xxxv the budget execution appears weak. N o la gestion budgetaire n'est effectuee en dehors du external assessment o f budget management i s MINEFI, et aucune certification des comptes de done outside o f MINEFI and no certification 1'Etat par une instance independante n'est o f the accounts o f the state by an independent prevue, ni par la loi portant creation de la authority is provided for, neither by the law Chambre des comptes, ni par le Contrdle creating the Chambre des Comptes nor by the superieur de 1'Etat. De plus, le projet de loi sur Controller General o f the State (Control les finances publiques ne prevoit pas la Superior de I'etat). Besides, the draft law on certification des comptes publics par la nouvelle public finances does not provide for the Chambre des comptes. Des lois de reglement certification o f the public accounts by the new annuelles detaillees distinctes de la Loi de Chambre des Comptes. Detailed annual laws finances n'ont pas ete prepardes. o f settlement (Loi de Reglement (LDR)) distinct from the Finance Law have not been Recommandations prepared. L e Gouvernement devrait produire des Recommendations comptes de gestion etablis par les comptables publics pour les exercices 2004 et suivants, et The Government should produce ildoitcommenceraexiger lacertification des management accounts by public comptes de 1'Etat par une instance accountants for the 2004 budget and independante du ministere des finances. following years and begin to require the certification o f the accounts o f the state by Le Gouvernement devrait elaborer et an authority independent o f the Ministry o f soumettre a 1'Assemblee nationale une Loi de Finance. reglement complete pour le budget 2006. Cette loi devrait &re mise a la disposition du Elaborate and submit to the National parlement dans les six mois qui suivent la fin Assembly a complete budget settlement de l'exercice (avant la fin juin 2007) et non law (LDR) o f the budget o f 2006. The LDR pas avec le budget 2008 (novembre/decembre should be made available to the Assembly 2007). within six months o f the closure o f the budget (by June 2007) rather than with the 2008 budget (NovembedDecember 2007). Budget Monitoring and Evaluation Suivi et evaluation du budget 34. Budget monitoring is a process of 34. L e suivi du budget est un processus comparing actual inputs, outputs and qui consiste a comparer les entrkes, les sorties outcomes against corresponding plans. The et les resultats effectifs aux projets evaluation o f the results o f this process yields correspondants. L'evaluation des resultats de ce insights that can be used to enhance budget processus produit des connaissances qui peuvent planning, programming and execution. servir a ameliorer la planification, la Regular monitoring and evaluation o f budget programmation et l'execution du budget. performance facilitates timely actions to keep L'evaluation et le suivi reguliers des resultats the budget execution on track to achieve the budgetaires facilitent la prise de mesures planned results. Timely dissemination o f judicieuses pour maintenir le cap sur l'execution monitoring results to government agencies as du budget et atteindre les resultats envisages. La well as to the public enhances budget diffusion en temps utile des resultats du suivi a transparency and accountability. The process l'intention des organismes publics et de la o f budget monitoring and evaluation has population accroit la transparence et la various levels that differ in objectives and responsabilisation en matiere budgetaire. Le Executive Summary page xxxvi detail. processus de suivi et d'evaluation du budget comporte plusieurs niveaux dont les objectifs et 35. Monthly budget reviews can help to les modalites sont differents. ensure that budget execution i s in line with the available resources and the macroeconomic 35. Les revues budgktaires mensuelles framework. Quarterly reviews should peuvent contribuer a s'assurer de l'execution du include (i)a quarterly review o f actual budget conformement aux ressources disponibles expenditures against planned expenditure by et au cadre macroeconomique. Les revues major categories o f expenditures (ministries, trimestrielles devraient comprendre (i) un sectors, programs and sub-programs) that examen trimestriel des depenses effectives par could be summarized in a report and given rapport aux depenses envisagees par grandes wide distribution; and (ii)a review focusing categories de dkpenses (ministeres, secteurs, on performance and results from selected programmes et sous-programmes) qui pourraient budget operations, particularly useful for &re resumees dans un rapport et diffusees multi-year investment budget operations, and largement ; et (ii)un examen axe sur la would serve to assess results, identify performance et les resultats de certaines implementation problems and bottlenecks operations budgetaires, particulierement utile and finds ways to address them. pour les operations du budget pluriannuel d'investissement, et qui servirait a evaluer les 36. Annual budget reviews are essential resultats, a cerner les problemes d'execution et for policy, budget planning and programming les goulots d'etranglement et a trouver les process and improving budget transparency moyens d'y remedier. by informing the public o f the concrete results o f the budget o f the past year. The annual 36. Les revues budgktaires annuelles sont settlement law (Loi de Reglement (LDR)) i s essentielles pour l'elaboration des politiques, la one required annual report as noted earlier planification et la programmation budgetaires, et and, soon the new Charnbres des Comptes pour ameliorer la transparence du budget en will produce timely consolidated annual informant le public des resultats concrets de financial reports. These reports however l'exercice Ccoule. L a Loi de reglement annuelle would be largely financial reports that provide repond a l'exigence susmentionnee de produire indications o f resource inputs various un rapport chaque annee ; bientet, la nouvelle agenciedactivities, often at high levels o f Chambre des comptes produira en temps voulu aggregation. An important monitoring des rapports financiers consolides. Mais ces instrument that could focus on outputs and rapports donneront essentiellement des outcomes (concrete results) is an annual report indications sur les ressources allouees a divers o f each line ministry. This would discuss the organismes/activitCs, souvent a des niveaux activities o f the ministry for the year, with d'agregation eleves. Un important outil de suivi emphasis on how the budget resources were axe sur les resultats et les realisations sera un used and the results pr~duced.~Other rapport annuel pour chaque ministere depensier, monitoring and evaluation instruments include qui examinera les activites annuelles du ministere ad-hoc reviews o f problem projects, scheduled en mettant l'accent sur l'utilisation des ressources reviews o f project performance, and project budgktaires et les resultats produit~.~Les autres completion reports. Furthermore, public activites de suivi et d'evaluation seront expenditure tracking surveys (PETS) and notamment les revues ponctuelles des projets a Currently line ministries are required to produce quarterly report of the execution of their budget, with MINEFI doing a synthesis of these reports but these have not been produced. Besides these would be largely accounting, not performance reports. 4 Actuellement, les ministeres depensiers sont tenus de produire des rapports trimestriels d'execution de leur budget, le MINEFI devant faire une synthese de ces rapports ;mais ces rapports n'ont pas ete produits. En outre, il s'agirait essentiellement de rapports comptables et non de rapports de performance. Executive Summary page xxxvii beneficiary assessments are monitoring problemes, les revues programmees des resultats instruments that can provide important policy de projets, et les rapports d'achevement des insights for improvements in budget projets. Par ailleurs, les enquCtes de suivi des effectiveness. depenses publiques et les evaluations des beneficiaires sont des instruments de suivi qui Recommendations peuvent fournir des informations importantes pour la politique economique en vue d'ameliorer Introduce a systematic approach to budget l'efficacite du budget. monitoring and evaluation, with schedules for monthly, quarterly and annual reviews Recommandations o f budget operations, and provisions for ad-hoc reviews. Make specific budget Etablir une demarche systematique de suivi et allocations for monitoring and evaluation d'evaluation du budget, assortie d'un and for related capacity building; calendrier d'examen mensuel, trimestriel et annuel des operations budgetaires, ainsi que Specifically introduce a system o f annual des dispositions pour des examens ponctuels. reports by line ministries, starting the Prevoir des affectations budgetaires pour le process with selected ministries, with a suivi et l'evaluation et pour le renforcement plan for full coverage o f all ministries; des capacites connexes. Adopt a strategy for the dissemination o f Etablir specifiquement un systeme de monitoring and evaluation reports that production de rapport annuel par les emphasizes openness, transparency and ministeres depensiers, en commengant par timeliness o f dissemination o f information; certains ministeres, et avec l'intention de couvrir tous les ministeres. The monitoring and evaluation process should not be used as an instrument for the Adopter une strategie de diffusion des exercise o f controls but more an rapports de suivi et d'evaluation qui met en information gathering and problem solving evidence l'ouverture, la transparence et le exercise. Monitoring should be for respect des delais de diffusion de operational and policy purposes, and 1' information. carried out collaboratively by the implementing ministry, MINEFI and Le suivi et l'evaluation ne doivent pas &re MINPLADAT, with the primary objective utilises a des fins de contrdle, mais pour la o f identifying implementation constraints collecte d'informations et la resolution des to obtaining desired results from public problemes. Le suivi, axe sur des objectifs expenditures. Control issues should be operationnels et strategiques, doit s'inscrire handled by the agencies responsible for dans le cadre d'une collaboration entre le budget controls. ministhre executant, le MINEFI et le MINPLADAT, dans le but premier The maintenance and development o f d'identifier les contraintes d'execution qui SIGEFI, the integrated financial empCchent l'atteinte des resultats escomptes management information system, i s en matiere de depenses publiques. Les essential for budget monitoring and questions de contrdle doivent Ctre gerees par accounting. SIGEFI serves many users les organismes publics responsables du linked through different software systems contr6le budgetaire. but the system is incomplete, only partially integrated and not fully operational L e maintien et le developpement du SIGEFI because o f the incomplete links. It is (systeme integrC de gestion de l'information essential to organize the network o f users, financiere) sont essentiels pour le suivi et la beneficiaries and administrations o f comptabilite budgetaires. L e SIGEFI est au services to agree on the respective roles in service de nombreux usagers relies par divers Executive Summary page xxxviii its maintenance and further applications programmes informatiques, mais le systeme development and to provide continued est incomplet, peu intdgre, et partiellement funding for these activities. operationnel a cause des liens incomplets. I 1 est essentiel d'organiser l e reseau des utilisateurs, des beneficiaires et des administrateurs des services pour qu'ils s'entendent sur leurs r6les respectifs dans le maintien du systeme et le developpement d'autres applications et pour assurer le financement continu de ses activites. Managing Human Resources Gestion des ressources humaines 37. Sustained progress in public 37. Pour rkaliser des progr&s soutenus financial management will require dans la gestion des finances publiques, il progressive improvements in building faudra ameliorer progressivement le human and institutional capacities. Public renforcement des capacites humaines et financial management i s a labor and institutionnelles. L a gestion des finances knowledge intensive undertaking requiring publiques est une t5che a forte intensite de main- strong institutions. Budget management in d'axvre et de connaissances ndcessitant des particular i s a significantly bureaucratic and institutions fortes. L a gestion budgetaire en detail-intensive exercise that requires a particulier est un exercice eminemment process o f team building, learning on the job bureaucratique et minutieuse, qui requiert du over time, coordination within and across travail en equipe, un apprentissage sur le tas au agency boundaries, and staffing and fil du temps, la coordination de divers leadership stability to facilitate the organismes, et une stabilite des effectifs et des development, conservation and effective use dirigeants facilitant le developpement, la o f institutional memory. However, sustained conservation et l'utilisation efficace de la development o f human and institutional memoire institutionnelle. Toutefois, le capacity for PFM cannot take place in developpement soutenu des capacites humaines isolation from rest o f the public services and et institutionnelles en matiere de gestion des the overarching economic and political finances publiquesne saurait intervenir isolement institutions in the country. In Cameroon, the par rapport aux autres services publics et aux machinery o f government i s fragmented, with principales institutions economiques et politiques the bureaucracy characterized by a large du pays. Au Cameroun, la machine number o f line ministries competing with a gouvernementale est fragmentee, la fonction larger number o f cross-sectoral committees publique etant caracterisee par un nombre eleve and parastatals agencies. This institutional de ministeres ddpensiers evoluant en concurrence fragmentation can engender difficulties in avec un nombre encore plus eleve de comites establishing accountability, and puts a heavy intersectoriels et d'organismes parapublics. Cette burden on already weak coordination fragmentation institutionnelle peut engendrer des capacities. It i s not a stable institutional difficultes sur le plan de la responsabilisation, et environment that would facilitate and sustain elle met a rude epreuve des capacites de capacity development for PFM or any other coordination deja deficientes. Ce n'est pas un public sector activity. environnement institutionnel stable pouvant faciliter et soutenir le renforcement des capacites 38. Public sector governance reforms to de gestion des finances publiques ni de toute develop efficient and transparent public autre activite du secteur public. institutions will be essential for progressive improvements in human resource capacity 38. Les reformes axees sur la bonne in Cameroon. Strengthening administrative is gouvernance du secteur public et visant a among the pillars o f the PRS and one o f the developper des institutions efficientes et Executive Summary page xxxix three main components o f the national transparentes seront essentielles pour governance program (PNG). Public sector ameliorer progressivement les capacites des governance reforms is usually a long-term ressources humaines au Cameroun. Le process, underscored by a shared vision o f the renforcement des capacites administratives est role o f the public sector and a series o f l'un des piliers de la strategie de reduction de la medium-term action plans. The initiation o f pauvrete et I'une des trois composantes such reforms would require a diagnostic study principales du programme national de o f the public sector to identify the main public gouvernance (PNG). L a reforme de la sector issues and entry points for reforms. gouvernance dans le secteur public est souvent This study might include surveys o f the un processus a long terme sous-tendu par une population to assess their views on the role o f vision partagee du r61e du secteur public et une the state and their perceptions o f the serie de plans d'action a moyen terme. L e performance o f the public sector, as well as lancement de cette reforme necessite une etude surveys o f the main stakeholders to determine diagnostic du secteur public permettant the level o f commitment for public sector d'identifier les principaux problemes de ce institutional reforms. Wide consultations secteur les points de depart de la reforme. Cette would be essential to get a proper fix on the etude pourrait comprendre des sondages visant a long-term vision o f the public sector, sensitize evaluer l'opinion de la population sur la the population on the reforms and establish performance et le r6le du secteur public et celle the scope o f the plans for reforms. These des principales parties prenantes pour determiner plans should be synchronized with the plans le niveau d'engagement en faveur des reformes to reform public financial management institutionnelles du secteur public. De vastes including the adoption o f the MTEF, and the consultations seraient essentielles pour bien national program o f governance. definir la vision a long terme du secteur public, sensibiliser la population sur les reformes et 39. The Government needs to take etablir la portee des projets de reforme. Ces urgent action to strengthen the projets seraient synchronises avec les projets de management of the payroll and align it reforme de la gestion des finances publiques, y more closely to the budget. While the compris l'adoption du CDMT et du PNG. Government considers and plans for broader institutional reform, it needs to ensure that the 39. L e Gouvernement doit prendre de human resource management system toute urgence des mesures pour renforcer la functions well, tackles problems and seeks gestion de la solde et l'aligner plus etroitement efficiency improvements. One problematic avec le budget. Bien que le Gouvernement area in Cameroon i s the management o f the envisage et prevoit de vastes reformes payroll. The lack o f systematic controls in this institutionnelles, il doit veiller au bon area leads to uncertainty about how much fonctionnement du systeme de gestion des government spends on the wage bill and the ressources humaines, resoudre les problemes et size o f the personnel establishment, and to the apporter des ameliorations visant l'efficacite. Au accumulation o f arrears on salaries, often o f Cameroun, la gestion de la solde est l'un des unknown amounts. The management o f the domaines problematiques. L'absence de contr6le payroll thus poses substantial risks to the systematique Cree des incertitudes en ce qui effectiveness o f the budget. concerne les ressources consacrees a la masse salariale, les effectifs, et le montant des arrieres Recommendations accumules sur les salaires est souvent inconnu. L a gestion de la solde pose donc des risques Strengthen the management o f personnel substantiels pour l'efficacite du budget. and the payroll by (i)for the 2007 budget, make the allocations to wage bill according Recommandations to the budget nomenclature and based on the results o f the census o f civil servants; Renforcer la gestion du personnel et de la (ii)pursue actively the decentralization of solde par les mesures suivantes : (i)pour le the management o f the personnel while budget 2007, affecter des ressources a la Executive Summary page XI deploying the application o f SIGIPES after masse salariale selon la nomenclature its assessment in the pilot ministries; (iii) budgetaire et les resultats du recensement des progressively introduce the system o f the fonctionnaires ; (ii)poursuivre activement la "jobs by budgetary positions" and establish decentralisation de la gestion du personnel a direct link between the personnel o f tout en deployant l'application du SIGIPES every ministry and the corresponding apres son evaluation dans les ministeres budget allocations for wages and salaries pilotes ; (iii)introduire progressivement le for the ministry; (iv) reinforce the capacity systeme d'emplois par poste budgetaire ))et o f the payroll department, the Ministry o f etablir un lien direct entre le personnel de Public Service and related units in the chaque ministere et les credits budgetaires other ministries for managing the payroll correspondant aux traitements et salaires du and strengthen efforts for the development ministere ; (iv) renforcer les capacites de and management related information gestion de la solde de la Direction de la solde, systems,; (v) reinforce and to secure the du ministere de la fonction publique et des circuit o f the information on payroll data unites concernees des autres ministeres et between the payroll department and the intensifier les efforts de developpement et de employing ministries; and (vi) put in place gestion des systemes d'information connexes; an instrument of permanent monitoring and (v) renforcer et securiser le circuit control o f the use contract staff; and d'informations sur les donnees de la solde entre la Direction de la solde et les ministeres Initiate a diagnostic study and a process o f employeurs ; et (vi) mettre en place un consultations and dialogue with the civil instrument de suivi et de contr6le permanent society and other stakeholders (the donors) de l'utilisation des employes contractuels. on broad public sector governance/public administration to identify strengths and Lancer une Ctude diagnostique et un weaknesses in governance, assess the processus de consultation et de dialogue scope for reforms and raise awareness for avec la societe civile et les autres parties change. prenantes (bailleurs de fonds) sur la gouvernance/l'administration generale du secteur public en vue de cerner les forces et les faiblesses de la gouvernance, d'evaluer l'ampleur des reformes et de sensibiliser le public au changement. Public Enterprises Entreprises publiques 40. Despite efforts at restructuring and 40. Malgrc! les efforts de restructuration privatization, these enterprises, pose a et de privatisation, les entreprises publiques serious drain on the budget as well as being pesent lourdement sur le budget et sont regarded as channels for abuse of public consid6rCes comme des vecteurs de corruption funds. For Cameroon, public enterprises, et d'abus de fonds publics. Au Cameroun, ces established as instruments for development, entreprises qui ont ete creees comme des outils have now become a drain on budgetary and de developpement sont devenues une source de human resources and a drag on development. deperdition des ressources budgetaires et The financial problems o f CAMPOST, the humaines et des entraves au developpement. Les postal bank, and Cameroon Airlines problemes financiers de la CAMPOST, de la (CAMAIR) were at the roots o f recent fiscal Caisse d'epargne postale et de Cameroon management difficulties in 2004. A Airlines (CAMAIR) ont ete a I'origine des substantial portion o f the capital budget has recentes difficultes de gestion financiere en 2004. been dedicated to the restructuring o f public Une forte proportion du budget d' investissement enterprises eroding further the already limited est consacree a la restructuration des entreprises public capital investments. The slow pace o f publiques, erodant davantage les investissements Executive Summary page xli restructuring/privatization implies that this publics en capital deja limit&. Eu egard a la exercise will take years but in the meantime, lenteur des restructurations/privatisations, the financial conditions o f failing enterprise l'exercice durera de nombreuses annees, tandis would only deteriorate further, reducing their que la situation financiere des entreprises market values and raising the ultimate defaillantes continuera a se deteriorer, reduisant restructuring costs. Finally the indefinite and leur valeur marchande et, en definitive, unpredictable payment o f subsidies to public augmentant les coQts de restructuration. Enfin, enterprises i s clearly not a good use o f the l'octroi indefini et imprevisible de subventions resources o f the national budget and poses a aux entreprises publiques ne constitue substantial risk to the management and assurement pas une utilisation rationnelle des effectiveness o f the PFM system. resources budgetaires nationales et presente un risque considerable pour la gestion et l'efficacite Recommendations des finances publiques. 0 Accelerate the pace o f Recommandations restructuring/privatization o f public enterprises. Accelerer le rythme de la restructuration/privatisation des entreprises publiques. Partnership with External Development Cooperation avec les partenaires extkrieurs Partners pour le developpement 41. Cameroon's historical relationship 41. Les relations historiques du with external development agencies has not Cameroun avec les organismes extCrieurs de been particularly strong. The number o f dCveloppement n'ont pas CW particuliLtrement donors and their activities in Cameroon has fortes. L e nombre de donateurs et leurs activites been quite limited compared to other countries au Cameroun ont ete assez limites par rapport a in SSA. The widespread perception o f d'autres pays d'Afrique subsaharienne. L a Cameroon's poor performance on governance, perception generalisee de la mauvaise particularly the high incidence o f corruption, performance du Cameroun en matiere de has not helped, particularly in a context where gouvernance, et surtout la forte incidence de la many donors factor in performance on corruption, n'ont pas aide, surtout dans un governance and development effectiveness in contexte ou de nombreux donateurs tiennent determining the allocation o f assistance to compte des resultats en matiere de bonne countries. The limited donor funding for gouvernance et d'efficacite du developpement Cameroon has been principally for investment pour determiner le niveau des resources projects. However, donor funding for projects accordees aux pays. L'assistance limitee des declined from FCFAF184 billion in 2001 to donateurs au Cameroun a ete consacree FCFAF70 billion in 2004, with the execution principalement a des projets d'investissement. rate o f ongoing donor projects varying Mais, le financement des investissements publics considerably from 12 percent in 2000 to 78 a chute, de 184 milliards de francs CFA en 2001 percent in 2003. The selection o f donor a 70 milliards de francs CFA en 2004, le taux projects has not followed the procedures o f d'execution des projets d'assistance en cours the public investment budget (PIB), although variant considerablement, de 12% en 2000 a 78% public investments are not selected through en 2003. L e choix des projets des donateurs n'a transparent and systematic procedures. pas ete conforme aux procedures du budget Externally funded projects are not routinely d'investissement public (BIP), bien que les included inthe PIB. investissementspublics ne soient pas choisis dans le cadre de procedures transparentes et 42. A strong revival of external systematiques. Les projets finances de l'extkrieur assistance will enable Cameroon tackle the ne sont pas systematiquement comptabilises dans needs in several key areas, particularly to ____ Executive Summary page xlii 8 improve economic and social le PIB. infrastructure. While Cameroon's need for external assistance i s less compelling than in 42. Un vif redressement de l'aide some other poor countries, external assistance extkrieure permettra au Cameroun de can still help to fill current gaps in the rCpondre aux besoins dans plusieurs domaines financing o f public services urgently needed clCs, et surtout d'amiliorer les infrastructures to revive economic growth and accelerate Cconomiques et sociales. S'il est vrai que les poverty reduction. Additional resources are besoins d'assistance exterieure du Cameroun sont needed to scale up public investments, moins pressants que ceux de certains autres pays particularly in social and productive pauvres, il n'en demeure pas moins que les infrastructure, accelerate the concours exterieurs peuvent contribuer a combler restructuring/privatization o f public les lacunes actuelles dans le financement des enterprises and the repay domestic debt and services publics dont le pays a urgemment besoin arrears. pour relancer la croissance economique et accelerer la reduction de la pauvrete. Des 43. Cameroon needs to build trust with ressources additionnelles sont necessaires pour the donor community and work towards a accroitre les investissements publics, surtout en strong partnership for effective external ce qui concerne les infrastructures sociales et assistance. To build trust and partnership in productives, accelerer la the post-HIPC completion point period, restructuration/privatisation des entreprises Cameroon needs: (i)demonstrate its strong publiques, et rembourser la dette et les arrieres commitment to poverty reduction, good interieurs. governance and results-orientation; (ii) seriously engage the donor community in 43. L e Cameroun doit renforcer la ongoing dialogue for developing a framework confiance avec les bailleurs de fonds et ceuvrer for cooperation; and (iii)and when the pour un partenariat solide en vue d'une aide framework is in place, the Government should extirieure efficace. Pour renforcer la confiance, take the leadership for making it function le partenariat dans la periode consecutive au effectively. Some countries (Tanzania, point d'achevement de l'initiative PPTE, le Burkina Faso and Rwanda) have used the Cameroun doit : (i)demontrer son engagement PRSP process to rally the donors around their solide en faveur de la lutte contre la pauvrete, de development priorities and to strengthen la bonne gouvernance et de la recherche de development partnership. This has facilitated resultats tangibles ; (ii)engager serieusement les the alignment o f donor funding to the bailleurs de fonds dans un dialogue permanent government's development priorities and the visant a elaborer un cadre de cooperation ; (iii) process o f harmonization o f government and une fois ce cadre etabli, le Gouvernement doit donor procedures. With the support from the prendre les devants pour en assurer le donors, these countries have made significant fonctionnement effectif. Certains pays (Tanzanie, strides in improving public financial Burkina Faso et Rwanda) ont profit6 du management, which has spurred processus du DSRP pour rallier les donateurs harmonization o f procedures, alignment o f autour de leurs priorites de developpement et priorities and funding, and enhanced donor renforcer le partenariat pour le developpement. assistance. In the context o f the new approach Cela a facilite l'alignement de l'assistance o f performance-based external assistance by financiere sur les priorites nationales et donors, Cameroon needs to act urgently to l'harmonisation des procedures du gouvernement benefit from the ongoing scaling up o f et des bailleurs de fonds. Avec l'appui des assistance to SSA, particularly from the donateurs, ces pays ont realis6 des progres renewed interest by the donor community for considerables dans l'amelioration de la gestion funding infrastructure. des finances publiques, ce qui a facilite l'harmonisation des procedures, l'alignement des Recommendations priorites et du financement et l'augmentation de l'assistance des bailleurs de fonds. Dans le Government should demonstrate strong contexte d'une nouvelle demarche d'assistance Executive Summary page xliii commitment to the PRSP, reforms to exterieure axee sur les resultats, le Cameroun a strengthen public financial management, besoin d'agir de toute urgence pour tirer parti de accelerated and sustained implementation l'initiative en cours d'accroissement des flux o f the governance agenda, and vigorous d'aide a 1'Afrique subsaharienne, surtout en actions to combat corruption. raison du regain d'intCri2t des bailleurs de fonds pour le financement des infrastructures. 0 Establish a formal process o f leadership o f donor coordination and partnership within Recommandations the government, with a political leader and a supporting technical staff. Le gouvernement devrait faire preuve d'un solide engagement en faveur du DSRP, des 0 Establish a framework within the reformes visant a renforcer la gestion des government for coordination the use o f finances publiques, de l'execution rapide et external funding to support public actions soutenue du programme de gouvernance et and ensure that the activities funded are des actions vigoureuses pour combattre la consistent with government development corruption. objectives and strategies and are reflected in the budget. This framework should be Etablir un processus officiel de pilotage de la reflected in the ultimate government/donor coordination des donateurs et de partenariat au partnership framework. sein des administrations publiques, avec un chef de file politique et un personnel technique de soutien. 0 Etablir au sein de l'administration un mecanisme de coordination de l'utilisation des concours exterieurs pour appuyer des actions publiques, et veiller a ce que les activites financees correspondent aux objectifs et strategies de developpement du Gouvernement et figurent dans le budget. Ce mecanisme doit se refleter dans le cadre de partenariat eventuel entre le Gouvernement et les donateurs. Executive Summary page xliv CAMEROON Public Expenditure Management and Financial Accountability Review (PEMFAR) Chapter 1 The Context for the PEMFAR 1.1 Objectives and Rationale Introduction 1.1 Since the devaluation o f the CFA franc in 1994 and in the aftermath o f several adjustment operations, most notably SAC I1 and SAC 111, Cameroon has undertaken significant efforts to improve its overall economic performance. Until recently, its macroeconomic performance has been relatively strong, with real GDP growth o f more than 4.5 percent over the last five years, inflation well under 3 percent, and increasing international reserves. Diversification away from oil has continued, and the Cameroonian economy has shown itself more resilience to Dutch disease effects than those o f its Central African neighbors. The Government succeeded in restoring fiscal discipline and took measures to improve resource allocation and begin to and streamline financial management. Nevertheless, despite the efforts at reforms, Cameroon's public financial management system i s still characterized by an overly centralized and fragmented budget preparation process, weak execution and substantial fiduciary risks. 1.2 Reforms have been undertaken in recent years toward improved expenditure management and fiscal sustainability. The mobilization o f both oil and non-oil revenue has been considerably strengthened. Some progress has also been made on clearing o f domestic and external debt arrears, and normalizing relations with the external official creditors. The HIPC debt relief, starting with interim relief in 2000, has contributed resources for strengthening public investment in key priority areas to improve public services and stimulate the economy. The Poverty Reduction Strategy (PRS), adopted in 2003, identified strategic priorities, in line with the broad objective o f poverty reduction, to guide public resource allocation inthe medium-term. 1.3 The achievement o f the MillenniumDevelopment Goals embodied in the PRS requires considerable efforts to strengthen the institutional and human capacity for the management o f public finances and accelerate the improvements in public service delivery and the development o f the private sector. The objective o f the PEMFAR i s to provide analytical support for the formulation o f a plan o f action strengthening public financial management, and the design o f programs to support the implementation o f the plan. Previous Reviews of Public Financial Management 1.4 In recent years, a number o f reviews and other studies on the public financial management system in Cameroon, undertaken with the support o f the development partners, have been completed. These studies were undertaken to promote the reform o f the system to 1. The Contextfor the PEMFAR Page 1 make it responsive to the challenges faced by Cameroon. This PEMFAR has built on those studies. 1.5 World Bank:Inresponse to the economic crisis in Cameroon in 1987, the World Bank undertook a comprehensive Public Expenditure Review in 1988 and a Public Investment Review in 1990. The main purpose o f these two exercises was to provide a broad overview of the mechanics o f Cameroon's public finance system as a basis for a reform program. In subsequent years, a series of sectoral mini-PER'S were undertaken. In February 1996, the Bank initiated a comprehensive PER covering institutional and sectoral issues, with a detailed assessment of the state of the government's investment budget. PER missions in 1996-1997 carried out analytical w o r k on the investment budget to help to improve the elaboration and execution of the budget and the efficiency of public investment. Detailed work on education and health expenditures provided a systematic way to gauge the details of the expenditure system. These analyses provided the framework for S A C I1 and S A C I11 to link adjustment lending with public finance reform. 1.6 In 2000, the World Bank carried out a review of procurement in Cameroon (Country Procurement Analysis and Review (CPAR)), and in 2002, a Country Financial Accountability Assessment (Etude Sectorielle sur l a Gestion des Finances Publiques), prepared by a team o f World Bank experts and outside consultants, analyzed the institutional framework for the management of public finances and the associated fiduciary risks. An update of the 2000 C P A R has recently been undertaken (2005) in the context o f the PEMFAR exercise and the principal findings and recommendations of this review is integrated into the PEMFAR report. 1.7 Other Development Partners: The intervention o f the Bank in the reviews of public expenditure has been in parallel with the activity o f other donors, especially the IMF, the French Government and the European Union (EU). The IMF Fiscal Affairs Department has worked o n budgetary accounting in Cameroon, provided technical assistance on expenditure controls, and undertaken a technical assistance mission focussed on improving the control over public expenditure. In 1998, the IMF undertook a study o f the expenditure chain. Technical assistance provided by the French government, in particular the Treasury, helped the design and implementation of a new payment and accounting system (PATRIOT). During 1996-1998, the European Union supported a review o f the budgetary system, as well as of detailed sector issues. This reviewed the juridical framework governing public finances, the various controls in place, and the execution o f the investment budget, and examined the sector strategies, the evolution o f the budget structure, and the basic problems of budget implementation o f the health, education, and rural development sectors. Rationale for the PEMFAR 1.8 Cameroon has embarked on public financial management reform over a number of years. However, there is limited evidence of the outcomes of the reforms on improving institutional capacity and performance, the quality of public services, and the performance of the economy. The institutional weaknesses in PFM identified by several earlier analytical works remain. Cameroon completed a poverty reduction strategy (PRS) in 2003. The PRS envisaged ambitious goals for growth in the range of 6-7 percent over the next ten years, rapid poverty reduction and the achievement of the Millennium Development Goals (MDGs).' The PRS noted that improvements in governance, strengthening public sector management institutions, increased public investments, particularly in infrastructure, and better public Republic of Cameroon: Poverty Reduction Strategy Paper, April 2003 www.worldbank.org 1. The Contextfor the PEMFAR page 2 service delivery would be essential elements to meet the growth targets and the poverty reduction objectives. 1.9 Consequently, support to the Government o f Cameroon to improve public sector management was one o f the main objectives o f the World Bank's Country Assistance Strategy for Cameroon, endorsed by the Executive Board in September 2003. The PEMFAR and other recent economic and sector work undertaken by the Bank, specifically the Development Policy Review (2004) and the Cameroon Poverty Assessment (2005) have been designed to provide the analytical underpinnings for policy advice by the Bank. Further, they support the design o f the programs o f assistance for public sector management reform, and the Poverty Reduction Support Credit (PRSC), proposed in the CAS. The Bank i s working closely with other development partners including the African Development Bank, the European Union and the French Cooperation that also have plans to support Cameroon in improving public financial management. 1.10 Inthe context o f shared concern about the urgent need to strengthen PFM in Cameroon to solidify the poverty reduction efforts, the development partners have formed a specific public finance donors committee (the Donor Platform), to coordinate dialogue with and support to the Government on public financial management actions, in line with the Paris Declaration (March 2005). The PEMFAR, as well as other analytical works supported by the IMF and other development partners will provide the analytical foundation for the dialogue between the Government and the Donor Platform on the formulation and implementation o f a medium-term PFM action plan. T h e Approach 1.11 The PEMFAR integrates the elements o f the erstwhile traditional public expenditure review (PER), the Country Financial Accountability Assessment (CFAA) and the Country Procurement Assessment Report (CPAR) --three aspects o f public financial management analyses previously carried out separately - into a single and comprehensive analytical product. This approach recognizes intrinsic interrelationships between the various aspects to facilitate more comprehensive dialogue and action on public finance issues. For instance, there i s a clear relationship between the quality o f budget preparation and the ease o f i t s execution and monitoring. The PEMFAR has built on the analytical work already undertaken by other partners, particularly by the IMF, the European Union, African Development Bank, and France and the Bank team has collaborated actively with the these partners undertaking PEMFAR. Structure of the Report 1.12 The report i s in six chapters. The rest o f this first chapter discusses the country's socio- political and economic developments that impinge on the evolution o f the public financial management process - including the status o f poverty and social indicators, the political economy context, the macroeconomic and fiscal policies and performance, and the public internal and external debt and payment arrears. Chapter 2 discusses the evolution o f public financial management including the allocation and use o f resources and the reforms and other actions undertaken or ongoing to strengthen the process. 1.13 Chapter 3 discusses the institutional framework for budget preparation including issues related to participation and transparency o f the budget process and planning and coordination in budget preparation, Chapter 4 focuses specifically the challenges in managing public investment spending. Chapter 5 reviews budget execution and financial controls, looking in greater detail the related institutional issues and performance as the well as the challenges, I.The Contextfor the PEMFAR Page 3 including treasury management, various levels o f budget controls, and procurement. Chapter 6 assesses some of the critical aspects of managing the budget for effectiveness and results (value for money), including transparency and accountability of the public financial management process, budget monitoring and evaluation, the challenge of developing human resources for PFM, and the risks to viability and effectiveness of public finance by poorly performing public enterprises. Chapter 6 closes with a summary of the main fiduciary risks. 1.2 Poverty and Social Indicators 1.14 Poverty Profile: The poverty profile indicated that in 2001, 40 percent of the population lived below the poverty line, roughly equivalent to the international core poverty benchmark of one dollar per person per day. The PRS also Table 1: Cameroon: Sele :edSocial Indicators indicated that income poverty Cameroon SSA had declined in Cameroon by as much as 13 percentage Indicator 1980 1990 2000- 2000 MR -MR points over 1996-2001, with much o f the decline attributed GDP per capita (US$) 700 920 800 600 to income growth. The decline Poverty headcount index (percent) -- 55 40 -- in income growth rate after Infant mortality (per 1,000 live 102 85 87 100 2001 would imply a slow d o w n births) in the decline of poverty Maternal mortality (per 100,000) -_ -- 730 921 incidence. However, although Life expectancy (years) 49 52 46 46 overall GDP growth slowed in Access to safe water (percent) -- -- 58 58 this period, the non-oil GDP Total fertility rate 6.5 6 5 5 growth remained robust, thus it HIV Prevalence (ages 15-49) 1.o 5.5 7.2 i s fair to assume continued HIV prevalence (female, ages 15- --0 -- -- decline in the poverty 49) incidence since 2001. Literacy rate (percent of pop 15+) 48 58 73 63 Female 35 48 65 55 -- -- -- 1.15 Social Indicators: Net Primary Enrolment 62 -- -- -- -- Despite some impressive Male -- -- -- -- economic performance since Female 1994 and the decline in the Gross primary enrollment (YO) 98 101 107 87 poverty headcount index, Male 107 109 115 94 social indicators have remained Female 89 93 99 80 stagnant and in some Ratio o f girls inprimary (percent) 83 90 90 significant cases, such as life Gross Secondary Enrollment 18 28 33 expectancy, have worsened. In Ratio o f girls in secondary 75 81 86 general, this would indicate (percent) that the quality of life has not Development Indicators: Cameroun, EnquCte Dkmographique et de improved despite the good Santk 2004. economic performance. The survival rates (life expectancy, infant and maternal mortality remain around the average for SSA despite relatively better economic performance by Cameroon since the mid-1990s. On the other hand, there have been some improvements in literacy and education generally. Literacy for both male and female has moved up substantially, and primary school enrollments are up and the female/male gap in primary school and secondary enrollments has narrowed although there are significant regional and urbanhural variations. For instance, the literacy rates are 81 percent and 47 percent respectively for women living in urban and rural areas. I.The Contextfor the PEMFAR Page 4 Similarly, the female literacy rates in the South and Extreme-North provinces are 92 percent and 19 percent respectively6. 1.16 The Government has made the commitment to focus its socio-economic policies on meeting the Millennium Development Goals (MDGs) which requires the reduction o f poverty and associated social indicators by half by 2015. Accordingly, the Government has put priority on the spending on the social sectors and from 1995-1996 to 2001, education expenditures more than doubled from 2.1 percent o f GDP to 4.9 percent, while health expenditures increased from 0.5 percent o f GDP to 1.1 percent. Education spending and reforms appear to be having positive impact on enrolment and equity, but the quality o f education and the efficiency o f the system remain problems. There has been progress in the health sector on the provision o f health services (immunizations, maternal health care, and provision o f potable water) but this has yet to be reflected in the related social indicators. It appears that an increasing incidence o f malnutrition has offset the progress made on the immunization o f children, thus the limited impact on infant mortality. 1.17 Cameroon has made significant strides in fighting the HIV/AIDS epidemic, with an infection rate estimated at to have risen from 1 percent in 1990 to 11.8 percent in 2002. Recent data from the 2004 Demographic and Health Survey indicate that the HIV infection rate i s lower, estimated at 5.5 percent with higher rates for females (6.8 percent) than males (4.1 percent). However, the estimated infection rates for 2002 and 2004 are not comparable as the methodologies for estimation are different. Nevertheless, with roughly 0.8 million people infected, HIV/AIDS still presents an enormous public health challenge. The indications are that the Government's commitment to combating HIV/AIDS i s strong, and has been collaborating closely with the civil society and international health and development agencies and this partnership has resulted in significant progress in fighting the epidemic. The Poverty Reduction Strategy Paper (PRSP) 1.18 The Poverty Reduction Strategy Box 1: Pillars of the PRS (2003) Paper (PRSP) process, launched in 1999 to Promoting a stable and growth enhancing elaborate a reduction strategy (PRS), was macroeconomic environment; designed to put poverty reduction at the Strengthening growth through economic center o f the development agenda o f the diversification; Government and its development partners. Empowering the private sector as the Cameroon produced an interim PRS in 2000 major engine o f growth and a partner in that enabled it to attain the Enhanced social services delivery; Heavily Indebted Poor Countries decision Developing infrastructure and natural point, and a full definitive PRS in 2003. The resources in an environmentally elaboration o f the full PRSP was carried out sustainable manner; with extensive consultations with the civil Accelerating regional integration within society, backed by substantial background the CEMAC framework; analytical work and benefited from a Strengthening human resources relatively large body o f national survey data, development; and giving the Cameroon PRS much more solid foundation than those o f countries with much Improving governance, including in less endowment in data and technical public administration and the legal and judicial system. capacity. The PRS identified key priority actions, clustered around seven pillars (see Box 1) that would promote rapid economic 6 From Cameroun:Enqugte De'mographiqueet de Sante',2004 1. The Contextfor the PEMFAR Page 5 diversification and growth and sustain the momentum o f poverty reduction. The PRS set ambitious targets o f real growth o f GDP o f 5.2 percent in 2003-2006, increasing to 6.8 percent from 2007-2015. These growth economic targets and related social policies outlined in the PRSP were deemed necessary for Cameroon to achieve the MDG targets. Specifically, the implementation o f the PRS required changes in the orientation o f the budget and the process o f public financial management. 1.19 Inthe over three years since its adoption, the PRS has not played the expected central role in shaping the policies, public financial management and implementation o f the good governance reform agenda adopted in 2000. The PRS was expected to be the key policy framework for the budget o f the state, using sector strategies and medium-term expenditure frameworks (MTEF) to link the budget to the PRS priorities and other public actions in a transparent manner. However, progress in moving to an MTEF approach to the budget has been slow and the alignment o f the budget and the PRS remains work in progress. While the education, health and infrastructure sectors have received increases in budget allocations and have prepared sector strategies and MTEFs, until the end o f 2005, there was no global MTEF that would help to bring these sectoral MTEFs into the budget framework. Furthermore, increases in the allocations to and improvements in execution o f the public investment budget, key requirements for meeting the medium-term growth targets o f the PRS, have not materialized. Overall, the impact o f the PRS on the state budget has been limited, although the technical work that would facilitate this direct linkage i s underway. 1.3 Political Economy and Governance Political Developments 1.20 Cameroon has enjoyed a measure o f political stability, with elected governments for several years. The current President has been re-elected three times and has been in office for over 20 years. The constitution empowers the president to name and dismiss cabinet members, judges, generals, provincial governors, prefects and heads o f Cameroon's public enterprises, approve or veto regulations, declare states o f emergency, and appropriate and spend profits o f public enterprises, without consulting the National Assembly. The 180-member National Assembly meets in ordinary sessions three times a year in March/April, June/July and Nov/Dec. and has seldom made major changes in legislation proposed by the administration. A revision in 1996 o f the strongly centralized 1972 constitution provided a measure o f decentralization o f power. The revision o f the constitution also provided for a 100-member Senate as part o f a bicameral legislature, the establishment o f regional councils, and the fixing o f the presidential term to 7 years, renewable once. As o f November 2005, the neither the Senate nor the regional councils had been established as per the constitution. 1.2 1 Legislation adopted in 1990 authorized the formation o f multiple political parties and eased restrictions on forming civil associations and private newspapers. Subsequently, the first multiparty legislative and the presidential elections were held in 1992. The last presidential and legislative elections held in October 2004 reelected the incumbent president with 70 percent o f the vote. In November 2004, the President appointed a new Prime Minister and cabinet, and in the process instituted some reforms o f the portfolios o f the ministries o f finance and plan, with additional responsibilities for the Ministry o f Economy and Finance while refocusing the Ministry o f Plan on long-term strategic planning. 1.22 The political decision making process i s characterized by a powerful presidency, the centralization o f power, and a weak cabinet process. Cameroon's governance is marked by considerable institutional fragmentation, characterized by a large number o f ministries and I.The Contextfor the PEMFAR Page 6 growing number o f cross-sectoral committees (commissions), with responsibilities that overlap those o f ministries and other committees, and often with no sunset provisions. When a problem arises, the typical response i s to appoint a committee to deal with it, rather than assign the task to a ministry or an existing committee. Ministers are accountable only to the president, and by extension, very powerful within their ministries. The ministers largely control the execution of budget within the ministry, within the confines o f the authority granted to them by the Minister o f Finance, and with limited accountability. In the past, ministers have been able to change the composition o f the approved ministerial budget, inserting new activities, reallocating the budget towards favored activities while denting other activities funding. Due in part to the lack o f a strong cabinet process, there appears to be a marked lack o f coordination between ministries. 1.23 Structural reforms and institutions: Cameroon has carried out significant economic and institutional reforms in the last ten years with varying degrees o f success. The reform process, which has been led by a special committee appointed for that purpose, has not appeared to be broadly owned and strong vested interests have been successful in delaying or even derailing reforms. As a result, the implementation o f reforms has been slow and tedious, compromising their impact. Cameroon has not succeeded in building strong public sector management institutions. The development o f strong budget institutions and capacity has been undermined by an uneven and slow public sector reform effort, the centralization of authority, the dispersal o f responsibility; a certain volatility in the appointments of ministers and top civil servants, and poor coordination in government and limited mechanisms to enforce accountability.' 1.24 Decentralization: As noted above, the 1996 revision o f the 1972 constitution provided for the decentralization o f government. Implementation has been delayed but with the support o f donors, a decentralization strategy has been elaborated which has resulted inthe creation o f elected local governments with limited mandate and financial resources. In order to finance local governments, a 10 percent surcharge on central taxes has been earmarked for local communes, and a municipal funding agency FEICOM, was created to channel capital grants and loans to communes. However, the lack o f human and financial resources has hindered the development o f effective local development structures. Moreover, the central Government appoints the regional officers and through these traditionally powerful officers continues to maintain a measure o f control over local decisions, activities and resource management. However, the process towards decentralization has continued to move forward, albeit at a slow pace. A law enacted in July 2004 set the guidelines on decentralisation, laying down the rules applicable to regions and to local councils. An implementation action plan (2005-2009) has been drawn up and capacity building measures for mayors and council members have been introduced. 7 Abuelafia, eta1 (2005) pointed out that the volatility of appointments of ministers and top civil service positions may havethe effect of hindering the sustainability of the reform efforts, noting that the commitment to reforms of a minister/top civil servant tend to grow stronger over time, thus longevity in the job strengthensthe sustainability of reforms. They further specifically notedthat the budget, is significant bureaucratic exercise and bureaucratic work involves a process of team building and learning on the job which takes time and needs staffing and leadership stability for teams to work together and gain experience over time to be effective. [Emmanuel Abuelafia, Sergio Berensztein, Miguel Braun, Lucian0 Di Gresia (2005): Who Decides on Public Expenditures? A Political Economy Analysis of the Budget Process: The Case of Argentina; Inter-American DevelopmentBank]]. ~ ~ I.The Contextfor the PEMFAR Page 7 Governance and Corruption 2003, one o f the highest figures worldwide. Table 2: Governance Indicators for Cameroon Customs, `GovernanceIndicator Percentile Rank procurement, and hospitals are 1998 2000 2002 2004 considered among the top areas Voice andAccountability 26.2 21.5 16.2 14.6 where corruption i s substantial. In Political Stability 21.8 28.5 30.8 21.4 the public financial management ~ o v ~ r ~ mEffectheness e n t 24.6 37.6 29.9 29.3 area, the long and complex public 39.7 48.7 22.4 22.7 expenditure chain, with i t s Rule o f LawQuality 16.8 9.1 10.7 16.4 Control of Corru tion 4.4 7.5 11.2 25.1 Governance andAnti-Corruption Reforms 1.26 These reforms have been primarily undertaken in the context o f the policy and institutional reform program supported by the World Bank and the IMF. The governance reforms initially focused on improvements in public sector management but have been extended to cover other aspects o f governance including the participation o f the population in the affairs o f the state, the reinforcement o f the rule o f law, and fighting corruption. In June 2000, the government adopted the 5-year (2000-2005) National Governance Program (PNG), a comprehensive package o f measures aimed at improving governance including fighting corruption, strengthening public financial management, transparency, accountability and participation in public affairs, and improving justice and human rights. In addition, a subset o f priority actions from the PNG was attached to the I-PRSP as a priority action plan (PAP) for improving governance.8. Implementation o f the PNG started in 2001 and the plan o f action o f the PNG became the instrument to pursue one o f the seven pillars o f the poverty reduction strategy (1'amelioration du cadre institutional, de la gestion administrative et de la gouvernance) adopted in 2003. 1.27 Under the PNG, Cameroon created a number o f units/committees to fight corruption. Anticorruption units, created in all ministries and some public agencies, included civil * The Priority Strategy and Action Plan for Improving Governance and Combating Corruption consist of a subset of priority actions from the PNG. 1. The Contextfor the PEMFAR Page 8 servants and representatives o f the civil society persons; the work o f these units was to be coordinated by a National Anti-Corruption Observatory under the authority o f the Prime Minister (PRSP (2003))'. page 93). In addition, an inspector general o f services in each ministry was put in place to implement the strategy against corruption in liaison with the anticorruption units. Other units created to combat corruption included an Ad-hoc Committee against Corruption, under the Prime Minister; the National Agency for Financial Investigations to combat money laundering and fraudulent financial transactions; and an Ad- hoc Committee to coordinate the operations against commercial crime. These units were generally not effective. 1.28 Some progress has been made on some other areas, particularly in putting in place the legal and institutional framework for addressing problems o f governance. These include the adoption o f new civil service statute, a new penal code and the establishment o f the Chambres des Comptes and the Constitutional Council. A procurement code, with its legal and regulatory framework that conforms to international standards, was adopted in 2004. Furthermore, efforts have been made to promote and consolidate partnerships between the government, the private sector and the civil society, particularly through the PRSP process. Overall, the progress in the implementation o f the PNG has been mixed as the results and outcomes on the ground have been limited. The reforms suffered from both management and program design problems and slow pace o f implementation. The centralization o f the management o f the program in the office o f the Prime Minister undermined the commitment to and support o f the program by other ministers. Furthermore, the efforts to sensitize the populations on their stakes and roles inthe new governance paradigm were not adequate. 1.29 Although the pace o f the implementation o f these reforms was slow, Cameroon's rankings on corruption, from the Transparency International's Corruption Perception Index improved from 2.0 in 2000 to 2.2 in 2005 and index on control o f corruption on the GRICS ranking improved from the 7th percentile in 2000 to the 25th in 2004 (see Table 2). However, for the other GRICS indicators, only the ranking on the rule o f law showed marked improvement; the others remained stagnant or declined. Thus, the challenge to improving governance and fighting corruption remains substantial. With the essential elements o f the legal and institutional framework for improving governance and combating corruption in place, the challenge going forward i s to expedite and sustain the implementation o f reform actions, for instance to urgently ensure that public procurement i s carried out in accordance with the Procurement Code. 1.30 The year 2005 appeared to be a break-out year for government action on governance in Cameroon, with indications o f greater willingness on the part o f the Government to forcefully address governance challenges. Concrete actions were taken or initiated, including the action taken to improve budget reporting and transparency, efforts to apply sanctions for violations o f procurement rules, the establishment o f the Chambre des Comptes, and the adherence to EITI principles and the adoption o f an action plan for its implementation. Some concrete actions were taken in the petroleum sector in line with EITI. Past audits o f the national oil company, Socie`te` Nationale des Hydrocarbures (SNH) were made public and subsequently S N H published production, sales and revenue data for the first half o f 2005 and pledged to update this information quarterly. 9 The Republic of Cameroon:The Poverty Reduction Strategy Paper, page 93, op.cit. I.The Contextfor the PEMFAR Page 9 1.31 The Government launched efforts to sensitize the population on the need to eradicate corruption." It published the names o f more than 70 top civil servants accused o f embezzling public funds in local newspapers. A number o f top government officials were arrested on corruption charges in 2005-2006, unusual occurrences in Cameroon. In December 2005, the Public Contracts Regulatory Agency (Agence de rkgulation des marches publics (ARMP)) adopted the recommendations and a plan o f action o f study on the application o f sanctions on violations o f the procurement code. This plan will pave the way for the strict enforcement o f existing procurement regulations. A new national governance program (PNG 11) covering the period 2005-2010 was adopted by the Government inNovember 2005 and provides the central platform for actions to improve governance and combat corruption." 1.32 PNGII consists o f three main components: democratic governance, administrative governance and economic governance. A fourth and cross-cutting component focused on the improvement in the enabling environment for private sector business development to provide the environment for rapid private sector-led economic growth. Among other interventions, the PNGII includes a subcomponent on the fight against corruption, envisaging the establishment o f an independent agency to spearhead the anti-corruption drive. The Government discussed PNGII with the donor community in Cameroon and sought their support for implementation. A rigorous implementation o f the PNG, with concrete results on the ground, will be needed to demonstrate to the skeptics o f recent actions that the Government i s strongly committed to tackling corruption and improving governance. 1.33 While actions aimed directly at strengthening governance institutions are absolutely necessary, a number of structural reforms launched in the last decade in the forestry, ports, public procurement and the privatization o f public enterprises such as CAMAIR and CAMTEL, will, if fully implemented and sustained, contribute significantly to the breaking- up/weakening of the infrastructures that sustain corruption. Thus, a strong demonstration by the Government o f the commitment to these reforms and the acceleration o f the implementation will be an additional strong signal o f the determination o f the authorities to combat corruption. Budget Discipline 1.34 An important element for the efficiency and effectiveness o f the budget is the respect for the budget process and its resource allocations. The budget process is based on laws and regulations, and the budget i s a law, a legal contract between the people and the executive, and has to be respected. Budget indiscipline i s fomented by the lack o f transparency and accountability in budget preparation and execution processes and by political interference in the budget process, and inadequate institutional arrangements for dealing with unexpected developments that involve the expenditure o f public funds. 1.35 Budget discipline has not been strong in Cameroon. It has been common practice that ministers can change the composition o f the budget o f their ministries without formal internal consultations within their ministries or with the Ministry o f Finance. Thus, ministers can shift resources between activities and even into activities that may not be in the budget approved by the legislature. Budget indiscipline flourishes in Cameroon for a number o f reasons. There i s a strong lack o f ownership o f the budget in the line ministries and among the staff. The poor lo The anti-corruption unit in MINEFI is undertaking intensive sensitization campaign for staffs of the ministry on the dangers of corruption. Posters with anti-corruption messages are all over the ministry buildings. " See Republic du Cameroon, Programme National de Gouvernance 2005-2010, November 2005 1. The Contextfor the PEMFAR page 10 planning and preparation o f the budget may necessitate mid-course corrections during execution. The initial finance law may not be consistent with the emerging policy/political agenda., In addition, Cameroon lacks a formal mechanism to change the initial budget during the fiscal year in a transparent and participatory manner, such as a supplementary budget. Furthermore, the weakness o f budget controls and the absence o f formal reviews o f the management o f the budget and the lack o f enforcement o f budget rules and regulations facilitate budget indiscipline. Cameroon has multiple controls in budget execution but the controllers are neither empowered to do their job effectively nor held accountable for it. A Council for Budget and Financial Discipline (Conseil de Discipline Budge'taire et FinanciBre (CDBT)) i s responsible for sanctioning budget authorizing officers and administrators in the Government and public enterprises for irregularities and mismanagement o f the budget but it i s not functional. 1.4 Macroeconomic Trends and Targets Recent Macroeconomic Developments 1.36 Cameroon's rich oil and forestry resources and favorable agricultural conditions, have made it the most diversified economy in Central Africa and the locomotive for economic growth in the sub-region It has moved from being dependent on oil to having a relatively varied light manufacturing sector, specializing in sectors including aluminum, agro-industry and refined wood and chemical products. Adverse global economic conditions in the mid- 198Os, particular the collapse o f the world oil, coffee, and cocoa prices, in the context o f a fixed exchange rate, resulted in a severe economic crisis from 1986 to 1994. This crisis, which affected the franc-zone countries in West and Central Africa, culminated with the devaluation o f the FCFA franc in 1994. Table 3: Cameroon: Selected Indicators of Economic Performance - - 2000 2001 2002 2004 2005 Real GDP Growth Rate (YO) 5.3 4.5 4.0 4.0 3.7 2.6 Inflation (CPI, period average) 4.8 3.7 2.8 0.6 0.2 2.0 Gross Domestic Investment 17.7 20.3 19.8 18.3 18.9 19.6 Public Finance Revenues 20.6 18.2 16.2 16.0 15.2 17.2 Oil 6.9 5.9 4.9 4.1 3.9 4.9 Non-oil 13.6 12.33 11.3 11.9 11.3 12.3 Grants ai 0.4 0.4 0.3 0.5 0.1 0.2 Recurrent Expenditures 13.0 13.6 13.64 13.2 14.0 11.8 Capital Expenditures 2.8 2.9 2.4 2.1 2.0 2.3 Fiscal Deficit (excl. grants) 2.0 1.2 0.5 0.7 -0.8 3.O Current Account balance (incl grants) -1.7 -4.1 -6.4 -2.0 -2.4 -1.5 External Debt (YOo f GDP) 77.3 ----- 58.5 52.3 48.2 40.7 36.5 Bank staff estimates a/ includes current and capital budgetary grants 1.37 Following the devaluation, Cameroon, with the support o f the World Bank and the IMF, implemented a series o f economic and structural reforms aimed at stabilizing the economy, restoring internal and external balances, and fostering economic growth. The reforms also sought to improve the overall business climate and public sector management, 1. The Contextfor the PEMFAR page 11 and recapitalizing the weak commercial banks to strengthen the financial sector generally. Other reforms aimed at liberalizing the trade regime to bring Cameroon's tariffs in line with the Central African Economic and Monetary Community (CEMAC) regional tariff levels, to improve the governance o f the forestry sector and its contribution to fiscal revenues and benefits to local populations, and to restructure and privatize government-owned enterprises. Furthermore, reforms in the transport sector - roads, the ports and railways - improved performance in those sectors. 1.38 While the pace o f reforms was slower than expected, it enabled the economy to adjust and overcome the exchange rate devaluation shock. This was reflected in the sustained macroeconomic growth and macroeconomic stability over a period o f ten years. Cameroon has consistently complied with the multilateral surveillance criteria for macroeconomic performance set by the regional central bank (BEAC) for the six CEMAC countries. Real GDP growth averaged more than 4.5 percent in 1997-2003 and average consumer price inflation has been consistently about 3 percent per annum (see Table 3). On the fiscal front, Cameroon's overall and primary fiscal surplus (including grants) remained positive except for 2004, while the stock o f foreign debt has been declining due mostly to Box 2: Cameroon: Medium-Term Fiscal Strategy debt relief as well as the The strategy envisions the following: government efforts to be current on the servicing o f external Ensuring fiscal and external sustainability; debts. The rise in the world Basing fiscal planning on conservative oil revenue price o f oil to over $60 per assumptions so as to protect core government barrel in 2004 and 2005 has operations from the fluctuations in oil revenue; given a significant boost to the Gradually increasing non-oil revenue to compensate for country's current fiscal and the expected decline in oil production and the loss of external account positions. The tariff revenue from a potential Regional Economic good record o f macroeconomic Partnership Agreement) with the European Union; performance permitted Expanding capital expenditure to boost growth while Cameroon to benefit from the keeping a lid on current spending and improving public Enhanced HIPC debt relief services; initiative, with the attainment o f Restructuring public enterprises to limit the burden Decision Point in 2000 and the they impose on the budget; Completion Point in 2006. Regularizing domestic arrears to enhance confidence in the government. 1.39 However, since 2004, contrary to the plans in the PRS for accelerating economic growth GDP growth slowed to 3.5 percent in 2004 and an estimated 2.8 percent in 200, due in part to the large decline in oil production. However, non-oil GDP growth remained robust during 2000-2005, although it weakened in 2005 due to supply shocks including electricity shortages and lower than programmed public investments. Fiscal performance worsened in 2004, with the deterioration o f revenues and the financial conditions o f key public enterprises. Non- oil revenue was 13.7 percent o f GDP in 2003, lower than the program target o f 15 percent. Fiscal performance remained weak in 2004, with revenues amounting to only 13.8 percent of GDP against the program target o f 15.4 percent. 1.40 These fiscal slippages and slow pace o f structural reforms derailed the program supported by the Poverty Reduction and Growth Facility (PRGF) arrangement with the International Monetary Fund(IMF) and delayed the attainment o f the HIPC Completion Point. Following these difficulties in 2004, the Government took action in early 2005 to strengthen fiscal performance. This resulted in a new three-year PRGF arrangement with the IMF in October 2005. In the context o f this new program, Cameroon adopted a medium-term fiscal strategy aimed at fiscal and macroeconomic stability, rapid and sustained economic growth I.The Contextfor the PEMFAR page I 2 and poverty reduction (the key elements o f the strategy are in Box 2). The adoption o f the new PRGF supported program also paved the way for the attainment o f the Enhanced HIPC Completion Point inApril 2006 and the permanent relief on the multilateral and bilateral debt. Revenue Mobilization 1.41 Trends: Revenue outcomes have been volatile over the last two decades due to both internal and external factors including exchange rate appreciation, volatile economic performance and the fluctuations in oil and other primary commodities' prices. However, between 1994 and 2000, there was a steady upward trend in revenue performance. The revenue/GDP ratio decreased from 21 percent o f GDP before the crisis o f 1986-1993 to about 12 percent at the height o f the crisis, and rebounded to 21 percent by 2000 (see Chart 1). Revenues contracted in the late 1980's and early 1990's due to a significant contraction o f the economy, the fiscal effects o f trade liberalization including tariff reductions in the CEMAC customs union, the shrinkage o f the oil-sector, and the secular decline o f international commodity prices. The downward trend in revenue from 1984 to 1994 was especially difficult for Cameroonian policymakers because it came at a time o f uncertain international donor assistance. Indeed, the combination o f chronic budget deficits and liquidity problems during this period gave the initial impetus to the adoption o f a stabilization plan for public finances and the negotiations with the World Bank and the IMF on the first Structural Adjustment Program (SAP) in 1988. Chart 1:Revenuesand Expenditures, 1980-2003 (% ofGDP) 30 25 20 15 10 5 0 II 808182838485868788899091929394959697989900010203 +Total Expenditure +Total Revenu 1.42 Composition of Revenues: Taxes on exports and imports, non-tax revenue from parastal marketing boards, together with the oil revenue, had been the mainstay o f the Cameroonian economy in the 1970's and 1980's. With the liberalization o f the trade regime and the structural changes in the economy, international trade taxes that had accounted for more than 30 percent o f revenue in 1985, now represent only 10 percent. The reduction in 1. The Contextfor the PEMFAR page 13 trade taxes has made Cameroon's revenue less vulnerable to declines inthe terms o f trade and the nominal exchange rates than inthe past. 1.43 The sustained revenue increases in the wake o f the 1994 devaluation, particularly the period 1998-2000, were the result o f the widening o f the tax base and reductions o f tax exemptions. The introduction o f the global income tax and a strong corporate tax collection effort contributed to widening the tax base. In January 1999, a value-added tax (VAT) was introduced to replace the turnover tax. This tax, while complex to administer, nevertheless helped to widen the tax base. Furthermore, measures to enforce payments o f special taxes in the forestry and mining sectors have paid dividends. With regard to forestry, Cameroon introduced an innovative system o f decentralized forestry taxation in the mid-19903, with an Annual Forestry Royalty (AFR), an area tax granting access to the timber resource, and an export duty based on the volume o f timber exported. These measures have been quite successful, resulting in a quintupling o f forestry tax revenue from 1995 to 2003. Moreover, the revenues are shared with local governments and communities; with 40 percent o f the tax proceeds going to local councils, 10 percent to local communities and the rest to the central government. Chart 2: Composition of Government Revenues, 1999-2005 ` U 199912000 2000/ 2001 20011 2002 2003 2004 2005 SMP Total Revenue (Including grants) 8 Total Revenue (excluding grants) 0 Non-oil revenue 0 IndirectTaxes Direct Taxes Oil Revenue .Grants 1.44 While Cameroon has successfully widened the non-oil tax base and revenue now has reached pre-devaluation levels, it has not yet attained the peak o f 25 percent o f GDP in 1984. The composition o f Cameroon's revenues has changed over time. Currently, oil revenue accounts for one-third o f total revenue, taxes on goods and services constitute another third, and trade taxes and income taxes make up the remaing share. Chart 2 shows the changing composition of government revenue over the last five years with a parallel gain in both indirect and direct taxes contrasted with a decrease in the share o f oil revenues. However, over I.The Contextfor the PEMFAR page 14 the last two years, non-oil revenue mobilization was weaker than envisaged due to lower than programmed revenues from consumption and corporate taxes. 1.45 International Comparisons: Cameroon made a strong effort at domestic resource mobilization following the devaluation of the CFAF in 1994, with the revenue/GDP ratio reaching a high of 19.3 percent in 2001. Cameroon's revenue/GDP ratio (excluding grants) has been on the high end in sub-Saharan Africa, and compares favorably with Senegal, Mali and Cote D'Ivoire but below countries such as Kenya and Ghana as well as oil exporting countries such as Malaysia and Ecuador (see Chart 3). Cameroon's relative success in revenue mobilization can be attributed in part to favorable natural resource endowments, particularly the large reserves of oil. Secondly, its coastal location and the established port o f Douala allow Cameroon to reap the benefits o f being a transit corridor for many landlocked economies. The policy regime in the post-devaluation period has been conducive to revenue mobilization and the success in widening the tax base, with revenues from goods and services, corporate and personal taxation, can be attributed to improved tax administration and related policies. However, as noted above, Cameroon's performance somewhat stagnated since 2001 in contrast to some of the comparators in Chart 3 due in part to declining oil production as well as the weaknesses in tax administration, particularly with the implementation of new tax measures. Chart 3: InternationalRevenue Comparisons Revenue (excluding grants)/GDP (YO):2003 30 -- I U e Q, 15 n Q, 10 5 0 1.5 Public Internal and External Debt Public Debt Management Structures 1.46 The Caisse Autonome d'Amortissement (CAA), a semi-autonomous debt agency, manages the internal and external debts of Cameroon. CAA participates in the negotiations o f I.The Contextfor the PEMFAR page I 5 external loans and debt rescheduling, and keeps track of disbursements from external debt, debt service obligations and payments, and the total stock of debt.'* It also manages disbursements o f foreign grant. However, lack of timely information from donors makes it difficult for CAA to keep track of grant financing. Disbursements are treated as financial operations and are not explicitly included in the budget o f the state. The CAA keeps the Treasury informed o f disbursements and it registers them in the appropriate accounts. Internal Debt and Arrears 1.47 Classification o f internal debt: The recorded internal debt is classified into two categories: structured debt (dette structure) and unstructured debt (dette non-structuree). The structured debt consists o f (i) formal consolidated BEAC and commercial bank debt; (ii) non- banking sector debt that has been securitized (`titrise`e'); and (iii)non-banking debt under a formal loan agreement (dette conventionnelle). Structured debt includes debt incurred on public works, owed to public enterprises, related to privatization (where the government has assumed liabilities) as well as securitized wage arrears, consisting o f debt o f less than FCFA 100,000 per piece. In addition, there are cross-debts (dette croisee) such as those between the state, S O N A R A (the refinery) and the state oil company, SNH. Non-structured debt consists o f debt that is not subject to a formal agreement (convention), consisting o f debt to private suppliers, rents payable by the government for housing o r administrative functions, salary arrears, compensation payable for expropriations, and treasury advances. According to the 2004 audit, the structured debt amounted to FCFA 763 billion, or about 80% o f the internal debt at the end of 2004, while the non-structured debt accounted for close to F C F A l 8 0 billion. 1.48 Uncertainties in internal debt stock and flows: Since 1997, it has been difficult to establish accurate data on the outstanding stock o f internal debt despite multiple audits to establish it. An audit of the records of the CAA indicated that the stock o f internal debt, consisting o f claims by both the banks and private suppliers, amounted to FCFA 944 billion at the end o f 2004, equivalent to about 11.3 percent o f GDP. The most recent audit, completed in the first semester o f 2005 put the stock at FCFA1.575 billion, but excluded the existing stock of committed and liquidated but not authorized expenditures (DENOs) from the large spending ministries (Public Works, National Defense, Ministry o f Finance); the liabilities of the postal bank (CAMPOST); and new debts resulting from the privatization process, especially for CAMAIR. Besides, the debts o f the economic agents to the state, notably debts f r o m unpaid taxes, are not systematically registered in the debt accounting system and consequently, the system does not facilitate the recovery o f those debts or the regularization o f the cross-debts. The figures on internal debt are not comprehensive and a reliable indicator o f the domestic liabilities o f the state. 1.49 Management and Payments: The principal mandate o f the CAA on internal date mandate is to monitor of the stock o f the debt and make timely service payments. In practice, the CAA intervenes only after the Treasury has provided the necessary funds. These payments are regularized a posteriori by a budgetary commitment (engagement). Regarding debt payments, the CAA monitors and pays the structured and non-structured debt, the Director General o f the Budget monitors and budgets for other types o f debt such as rents, commercial debt and compensations, while the Treasury accounts and makes the authorized debt payments, and reimburses the securitized salary arrears. The management o f internal debt has proved difficult because legal claims against the state can be created in multiple ways and each claim needs to be authenticated before inclusion as internal debt. While changes in l2 The Ministry of Planning also has traditionally had a role inthe negotiation and management of loan agreements. 1. The Contextfor the PEMFAR page I 6 management practices can improve the functioning o f the system for the control o f internal debt, budget discipline and respect for the budget execution processes are crucial for getting the internal debt under control. 1.50 Stock reduction plan: A comprehensive multiyear repayment plan prepared for the period 2004-06 to reduce the stock o f internal debt from the estimated FCFA 944 billion at the end o f 2004 to FCFA 868 billion by end o f 2005, with the main priorities being salary arrears and commercial debt. However, the target at end 2005 has not been attained, with payments o f about FCFA 85 billion against a payment plan o f nearly FCFA 193 billionI3.This was due to (i)fiscaldifficulties in2005; and(ii) emergenceofnewdebtsafter someauditsrelatedto the CAMTEL, the telecommunications company. Arrears 1.51 In Cameroon, the arrears are mainly the stock o f expenditures that have been committed and authorized but not paid (Teste-a-payer). An analysis o f the Treasury's consolidated balance as o f May 2005 indicated that the Account 40 "Creditors current exercise" had a balance o f FCFA 276 billion. However, the amounts included in the treasury balances as arrears are not exhaustive, since they do not include the DENOs or the expenditures that have been authorized but not yet been processed by the treasury. There have been many audits of the arrears but there are still gaps in the knowledge o f the stock o f arrears. There i s currently an ongoing audit, and general estimates suggest that the stock o f arrears could amount to close to FCFA 1,000 billion. With this estimate, the sum o f the internal debt plus arrears would be inthe range FCFA 1,500-2,000 billion. Improving theManagement ofInternaZDebt 1.52 To exercise better control o f internal debt accumulation and improve the transparency and accountability o f internal debt repayments, the Government should: Carry out an exhaustive audit o f the internal debt every year, putting particular emphasis on the DENOs in all ministries, to help to establish a reliable estimate o f the internal debt, thus permitting the proper accounting o f the stocks and flows of the domestic debt; To adopt a strategy for the management of the internal debt, including a strategy for a credible reduction of the internal debt in view o f the opportunity to do this provided the achievement of the completion point and high oil prices. This strategy would need to provide for the control and timely accounting o f DENOs and RAPTs, to bring the accumulation o f domestic debt under control; = Make the CAA responsible for the management o f the internal debt, while giving the Treasury, the responsibility for the payment and accounting of debt service. External debt 1.53 Management o f External Debt: The external debt in Cameroon i s managed by the CAA, based on the loan conventions signed by the Ministry o f Finance and Economy, which 13 Payments on internal debt were FCFA 115 billion in 2001, about FCFA 110 billion in each of 2002 and 2003and FCFA 79 billion in 2004. According to the payment plan, a total of FCFA 188 billion should havebeen paid in 2004. I.The Contextfor the PEMFAR page I 7 negotiates and finalizes these conventions. On debt servicing, C A A uses specialized software that provides detailed real-time information on creditors, loans, and rates to make projections o f the funds required for debt service payments each month. The Treasury then transfers the money to CAA, which makes the payments through the banking system,I4 and sends in reports on what it has effectively paid to justify this advance. Both Treasury and C A A keep accounts o f these operations. The Budget Directorate i s then entrusted with committing these debt service payments onto budget lines. The external debt i s well-managed, particularly in terms o f monitoring the signing o f the loan conventions. However, there is no systematic recording o f information on donor disbursements by the various agencies responsible for the monitoring o f external assistance. The result i s a fragmentation o f debt data. Delays in debt payments as well as payments into the HIPC account at the Central Bank (BEAC) sometimes occur due poor coordination between the Treasury and the CAA. The debt management process could be more transparent and coordination between the agencies involved in debt issues needs to be strengthened. 1.54 Changes in the Stock o f Debt: Cameroon's external debt amounted to FCFA 3,577 billion including 192 billion in arrears on principal and interest payments in end 2004. This represented a decline from a stock o f nearly FCFA 5,000 billion in 2000, Table 4: Change in external debt including arrears 2000- - - including FCFA 666 billion in arrears. 03 (FCFA million) Of the total debt stock, 26 percent was Change in stock 2000-2003 -1,080,072 owed to multilateral creditors, 69% to Service on principal 2001-2003 662,363 bilateral creditors, 4 percent to the HIPC relief 207,000 London Club, and 1 percent to other London Club buyback in2003 151,488 external lenders. The movements inthe Paris & London Club reduction in 2000 dollar-CFAF exchange rate has not (net) 82,645 been a major factor in this reduction o f Total reliefhescheduling 1,103,496 27% in the debt stock since up to about Difference 23,424 70% o f the debt has been held in euro- denominated assets or currencies. Buyback cost 21,966 Table 4 shows the distribution o f the changes in Cameroon's external debt stock in 2000-03. Duringthis period, the HIPC debt reduction was USD 345 million or FCFA 207 billion at the exchange rate o f FCFA 600 to the dollar. Cameroon paid some FCFAF 100-140 billion a year in principal in the period 2000-2004 plus some FCFA 37-100 billion in interest. Other reductions o f the debt stock include debt relief from the London and Paris Clubs.'5 1.55 The external arrears were mostly to private commercial lenders. In 2000 the arrears amounted to a total o f FCFA 666.8 billion, falling to FCFA 584 billion (of which 192 billion were principal, the rest interest past due), all to London Club members. In a buyback operation, Cameroon bought 79 percent o f the London Club principal arrears (FCFA 192 billion) at 14.5 percent o f the nominal value, with the interest arrears erased. After this operation, the remaining arrears amounted to FCFA 123 billion consisting o f the 21 percent in principal (FCFA 41.5 billion), plus the interest due on this part o f the principal. Arrears increased by FCFA 12 billion in 2004 but this was paid in2005. 1.56 At the Enhanced HIPC decision point in October 2000, the debt reduction following the completion point was estimated at around U S D 1,260 million in N P V terms, equivalent to U S D 2 billion or FCFA 1,270 billion in nominal value at the exchange rate o f FCFA 635 to l4 Previously CAA paid through the BEAC, but the latter's charges were too high. l5 The external debt of Cameroon was significantly further reduced with the attainment of the Enhanced HIPC completion point in late April 2006. (see below) I.The Contextfor the PEMFAR page 18 the USD prevailing at that time. The CDD (Contrat de De'sendettement - De'veloppernent) relief from France would yield another FCFA 650 billion over 25 years (USD 1.2 billion in nominal terms). This was on top o f the fact that one third o f the debt relief under HIPC would be from France. Debt relief amounting to U S D 200 million would come from other sources than HIPC and CDD. However, by end-2004, some o f the calculated C D D debt relief - USD 193 million - was already lost due to the delay in reaching the completion point in 2003 as planned at decision point. When the completion point was not reached in 2005, a further U S D 119 million was lost. With the attainment o f the completion point in April 2006, Cameroon avoided further losses from the CDD debt relief. External Debt Sustainability 1.57 One o f the key indicators o f good economic management i s the sustainability o f the public debt, defined as the sustained capacity to service the debt without resort to exceptional financing or a major correction in the balance o f income and expenditure. As the Government i s one o f the few domestic institutions with access to external finance, continued access by the public sector i s important to the diversification o f the financing o f the economy as a whole and would also limit the effects o f crowding out the private sector by the government from the limited domestic financing. However, this access is useful as long as the proceeds finance domestic investments and not solely used to service past debt obligations. Due to debt servicing difficulties, Cameroon's access to external finance has been limited to mainly official creditors. A s noted above, a number o f debt reduction actions, including the recently completed Enhanced HIPC process has been undertaken to bring Cameroon back to debt sustainability . 1.58 The results o f a debt-sustainability analysis (DSA) for Cameroon at completion point indicate that the country's external public debt i s expected to remain sustainable. After HIPC Table 5: Cameroon: Key External Debt Sustainability Indicators ----2015 2005 2006 2008 2010 2020 2025 After NPV o f Debt/GDP 28.2 27.7 24.2 21.4 20.2 19.2 16.1 traditional NPV o f Debt/Exports 129.9 115.7 105.7 106.2 118.4 131.8 120.9 debt relief mechanisms After NPV o f Debt/GDP 33.3 12.7 11.5 10.7 13.3 15.0 13.8 Enhanced NPV of Debt/Exports 153.4 53.2 49.9 53.1 78.2 102.9 103.3 HIPC assistance After NPV o f Debt/GDP 33.3 3.O 4.1 5.2 10.3 13.2 12.8 additional NPV o f Debt/Exports 153.4 12.8 17.8 25.9 60.6 I 190.8 196.2 bilateral assistance and MDRI ----:tion Point Report: Source: The Jorld Bank and IMF sts F estimates for le HIP Corn] The World Bank: Report No. 35801-CM relief, the N P V o f debt-to-export ratio for Cameroon was projected to remain well below the average o f the 18 post-Completion Point HIPCs at end- 2004 (NPV o f debt-to-exports o f 140 percent), even when assuming less concessional borrowing by Cameroon starting from 2011. Following the Completion Point, with the assistance from the Enhanced HIPC Initiative, as well as additional relief from bilateral creditors and the Multilateral Debt Relief Initiative (MDRI), the NPV o f debt-to-exports ratio would drop from 153 percent at end-2005 to 13 percent at end-2006. It would subsequently rise to 96 percent by the end o f 2025 (see Table I.The Contextfor the PEMFAR page 19 5). The N P V o f debt-to-GDP ratio, which would decrease from 33 percent at end-2005 to 3 percent at end-2006, was expected to rise modestly over the medium-term while staying at about 13 percent in the long-run. Finally, the N P V o f debt-to-revenue ratioI6 would decline from 194 percent at end-2005 to 17 percent in 2006 and would average 83 percent in 2016-25. The increase in the NPV o f debt assumes that Cameroon would borrow on IDA "hardened" terms after 2010 when its per capita income exceeds the IDA-only threshold." The grant element o f new borrowing i s assumed to decline from 41 percent on average during the period 2006-10 to 35 percent thereafter. 1.59 Stress tests evaluating the debt sustainability indicators to differing circumstances, conducted by the staff o f the World Bank and the IMF as part o f the standard HIPC diagnostics, found that Cameroon will be able to maintain long-term debt and fiscal sustainability provided it maintains a prudent borrowing strategy, ensuring that the domestic debt stock is gradually repaid, exercising restraint on non-concessional borrowing, and using the borrowed resources effectively. However, Cameroon would still remain significantly vulnerable to terms o f trade shocks. Zmprovingthemanagementofexternaldebt 1.60 The origination o f external debt i s under control at the level o f the signature o f the agreements but there i s no systematic approach for the mobilization o f funding. While successive adjustment programs have restricted borrowing to concessional credits, which have in general been respected, the recent law on decentralization has opened the door to uncontrolled indebtedness by the local authorities. The transparency o f operation o f the system o f external debt management system and its conformity with good budget practices needs to be improved. The opening o f accounts by the C A A and the projects i s contrary to the principle o f unity o f accounts and treasury. Cameroon has had to bear some penalties for late payments o f some debt that could have been avoided by better management o f the treasury and coordination between the Treasury and the CAA. To improve the management o f external debt, the Government should: Confer the CAA the responsibility of administrator (delegated authorizer) for external debt and external assistance, with the responsibility for holding the administrative accounts and the preparation o f the administrative accounts; Confer on the Treasury the responsibility of the holding o f the accounts o f the debt and external assistance (disbursement, repayment) ; To follow and to record in accounting the mobilization o f external loans and grants To formalize the procedure o f budgeting and accounting for the service o f the bilateral and multilateral debts following the PPTE initiative. l6 The country-specific sustainability threshold for the NPV of debt to revenue is 250 percent under the Low Income Country DSA framework. 17 IDA credits at hardened terms have 20 years of maturity and 10 years o f grace, compared to the normal IDA lending terms of 40 years of maturity period, 10 years of grace. Charge fee remains at 0.75 percent. I.TheContextfor the PEMFAR page 20 1.6 Long Term Economic Performance Targets 1.61 The challenge to economic management continues to be to accelerate and sustain growth and maintain macroeconomic stability while keeping expenditures in line with revenues. The PRS set ambitious targets for economic growth, with targets o f 5.2 percent per annum real growth o f GDP in 2003-2006, increasing to 6.8 percent from 2007-2015, while keeping inflation rates at 2 percent per annum (see Table 6). This was the growth trajectory was deemed necessary for Cameroon to achieve the MDGs including a reduction o f the percentage o f households living below the poverty line to less than 20 percent compared to the 40 percent in 2001 .'*The growth targets would require accelerated and deepening o f structural and institutional reforms and substantial increases in gross capital formation, including increases in the rate o f public investments. The Joint Staff Assessment (JSA) o f the PRSP noted that to achieve the medium-term (2003-2006) growth rates, the Government would need to complete its agenda o f ongoing institutional and structural reforms, intensify efforts to strengthen administrative capacity, increase the public investment program and accelerate its implementation, and enhance the overall efficiency o f public spending and public services delivery. Table 6: Long-Term Economic Performance Targets I P R S Projections I 1990-94 1995-2000 2001-03 2004-07 2008-11 2012-15 Real GDP Growth(YO) -1.8 4.7 4.0 5.5 6.7 7.0 End of period Poverty Rate (YO) 53.3 (1996) 40.2 (2001) 35.3 28.1 21.9 A s YOof GDP (end o f period) Gross Capital Formation 15.0 16.8 18.3 19.7 21.7 23.4 Public ExpenditureIGDP 20.5 17.3 15.3 17.3 17.6 17.2 RecurrentExpenditure 17.3 15.5 13.2 13.5 12.7 11.9 Capital Expenditure 3.2 2.3 2.1 3.8 4.9 5.3 Revenue (excl grants) 13.5 15.5 18.2 18.8 18.4 18.4 Public External Debt 104.9 104.6 75.3 35.5 24.5 15.8 External Debt Service 16.6 12.5 8.8 3.O 1.4 0.8 I S I 1.62 Sustained human development, infrastructure investments and private sector-led economic diversification in the non-oil sector within the larger and open sub-regional context, were to be the main motors o f the longer term growth rates. It i s already clear that neither the medium-term reform objectives nor the GDP growth targets will be achieved, making the achievement o f the longer term growth objectives even more challenging. Cameroon therefore significant has catching up to do and needs to urgently accelerate institutional and structural reforms, including strengthening public financial management, investing in infrastructure and promoting private sector investments, inorder to meet the MDGtargets. l8 See the World Bank: Cameroon, Joint IDA-IMF Stag Assessment of the Poverty Reduction Strategy Paper, June 8, 2003. 1. The Contextfor the PEMFAR page 21 Chapter 2 The Evolution of Public Finance/Expenditure Management Introduction 2.1 Since independence in 1960, expenditure trends expanded in parallel with economic growth until the 1986-1993 depression, when sharp expenditure cuts were needed to adjust to the sudden collapse of commodity prices in the mid-1980s. Total expenditure sharply declined from 23.2 percent of GDP in 1987 to 13.9 percent by 1994, and subsequently rose to 17 percent by 2000 following the path of revenue changes (see Chart 1). A s with revenue, government expenditure has not returned to the pre-devaluation levels. Public expenditure and other policy reforms, such as in forestry, trade, financial sector and ongoing public privatizations have influenced both revenues and budget allocations. The PRSP and HIPC debt relief processes have also had a significant impact on the budget process reforms and the composition of the budget. The Legal and Institutional Framework for the Management of Public Finances 2.2 The legal framework for managing public finances is governed by the Ordinance of February 7 1962 and rooted in the revised Constitution of 1996. The financial regulations of 1962, modified several times, including by a 1967 decree, and by a l a w of April 19, 2002, have constituted the fundamental legal basis for the management o f public finances, grounded on the principles o f unified budget, the annual finance law; with the Minister of Finance as the principal accounting officer. The framework for public accounting, prescribed by the decree No" 97.226 of June 25 1997 on the general regulation of accounting for the state, and its decree o f application o f June 30, 1997,is characterized by a strict separation between the administrative and accounting phases of expenditure with a distinction between the budget administrator who initiatedauthorizes the commitment to spend (ordonnateur) and person who handles the payments (comptable), and establishes the principles of the personal and financial responsibilities and their security. However, these laws and regulations have not been updated regularly, contain some inconsistencies and have not been applied consistently. An extensive revision of the legal and regulatory framework for public finances is underway. This will update the laws and regulations but will ensure the alignment with current practices. 2.3 The drafting o f a n e w organic budget l a w (projet de loiportant re'gimefinancier de Z'Etat (LRFE)) to replace the Ordinance of 1962, has been underway since 2001. Several versions of the LRFE have been prepared and examined but debate o n the revisions has remained centered in the Ministry o f Finance (MINEFI). The president o f the Commission of Finance and Budget of the National Assembly was not consulted at the early stages of the preparation o f the n e w lawlg.One issue in contention has been the proposal to abandon the principle of the Minister o f Finance as the sole administrator/authorizer of the budget and confer such authority to all the ministers. This principle that has already been breached in practice but the Ministry o f Finance has not been ready to give up this responsibility. The regulatory framework for public accounting has also been prepared but will be finalized once the LRFE is finalized so that it can be fully in line with the LFRE. 19 In mid 2006, a joint World Bank-IMF mission discussed the draft law extensively with the authorities. This mission also provided the opportunity for the donor community to give its input to the finalization of the new law. 2. The Evolution of Public Expenditure/Finance Management page 22 2.4 The institutional environment for public financial management in Cameroon i s characterized by a centralized and strong executive power. For the management o f public finances, the MINEFI occupies an eminent place in the decision making, while the ministers play powerful roles in the management o f the budgets o f their ministries. The organization o f MINEFI was revised by a decree o f December 8, 2004 that regrouped the budgetary functions within a same department o f MINEFI, including for the public investment budget previously managed by the ministry for planning. Furthermore, for the management o f treasury and accounting functions, a new Directorate General o f the Treasury was created, consisting o f directorates o f treasury and public accounting, and central accounting agency o f the Treasury. These recent changes have tended to strengthen the role o f the Ministry o f Finance. 2.5 Cameroon has some decentralized administrations with 10 provinces, 58 districts (departments) and 339 towns (communes). The decentralization was inscribed in the Constitution since 1996, but the law to implement it was promulgated only in 2004. In the small townships, there are now elected mayors who have some powers o f decision but in the big townships and the two urban communities o f Douala and Yaounde, power remains with appointees o f the central government. The objective i s to transfer the executive power progressively to the mayors by the end o f 2007. However, the Government's representatives would continue to exercise executive power in the regions and Yaounde, and Douala. 2.6 The decentralized institutions do not play an important role on financial management. Local finances are estimated to be about 5 percent o f the budget o f the state. These are derived from own resources (about 30 percent) and transfers. The FEICOM (Fonds Spe`cial d 'Equipement et d"Intervention Intercommunale), a public agency established in 1974 to finance the investments o f the communes collects and centralizes local revenues and redistributes them on the principle o f equalizationzo.But FEICOM plays a large role in the design, financing and implementation o f local projects. Its operations however are not transparent; they are not included in the budget and not subject to parliamentary control. To move forward on decentralization, a coherent fiscal decentralization framework i s essential. This will need to involve the reform o f FEICOM. 2.2 Recent Reforms o f Public Financial Management 2.7 Over the last five years, Cameroon has undertaken reforms to improve public financial management. These reforms were given greater focus and urgency with the adoption o f poverty reduction as the primary goal o f development policy and subsequently the articulation o f the Poverty Reduction Strategy (PRS) the eventual adoption in April 2003 as the policy framework for public actions. The main thrust o f the reforms has been to improve the institutional and human capacity for budget preparation and execution to make the budget an effective instrument for poverty alleviation. Some o f the key reforms include the introduction o f the medium-term expenditure framework (MTEF) in some sectors to enhance the alignment o f the budget with policy priorities, the adoption o f new budget nomenclature and procurement code, the introduction o f integrated management information systems to facilitate fiscal reporting and improve transparency o f the PFM, and the reforms o f the budget-Treasury linkages to facilitate budget execution and accounting. 2.8 A number o f the existing laws, decrees and regulations on public finance are under review and revision. A draft organic law on the public finance management (public finance act) that will replace the 1962 law i s near approval by the legislature. It will, inter alia, 2o The distribution and equalization is based on the population, but the last census of population was held morethan 15 years ago. 2. The Evolution of Public Expenditure/Finance Management page 23 introduce multiple budget authorizing officers (principal, secondary and delegated) and goal- oriented budget programs and recognize the judgment o f the management accounts by the new Chambre des Comptes. A new decree on the public accounting i s also close to approval. Medium-Term Expenditure Framework (MTEF) 2.9 The MTEF has now been widely adopted in many developing countries as an approach to budget preparation, particularly in the wake o f the PRSP process. Conceptually, the MTEF facilitates the alignment o f the government's policies and priorities with the budget and consequently makes the budget an effective instrument for implementing development policies. Cameroon began to introduce concepts o f the MTEF in selected sectors in 2000. By 2005, the ministries o f education and health were ready to prepare program budgets based on MTEF concepts, and other ministries were expected to follow suit. These ministries received assistance from donors to prepare sectoral MTEFs, based on a well-articulated sector strategy and characterized by, a multi-year planning period, a costing o f various programs, and covering all the activities o f the ministry including those financed by donors and HIPC resources. However, the progress in expanding the scope of this exercise and introducing MTEF concepts to the broader budget preparation process was slow. The program budgets could not be based on an agreed and overall medium-term budget framework since global MTEFs were not available. Thus these sectoral MTEFs were not integrated inthe budget cycle and played limited roles in informing the annual finance law. In contrast, Burkina Faso introduced MTEF type program budgets in six pilot ministries in 1999, instituted a global medium-term budget framework in 2000, the MTEF for 2003-2005 in 2000 was fully integrated into the budget cycle, and by 2004, all ministries prepared program budgets2' 2.10 The selective and partial introduction o f the MTEF, that is, where some ministries prepare medium-term expenditure plans and other ministries do something else, has some drawbacks. Most often, these initial MTEF are elaborated under donor pressure and financial support, thus there i s limited domestic ownership o f the process. In Cameroon, the initial sectoral medium-termstrategies and expenditure plans were produced with the help o f donor- funded external consultants, before the commitment o f the Government to the adoption o f the MTEF approach. Consequently ownership o f this process and its role in the formulation o f the annual budget was limited. The partial approach raises the costs o f the investments in analytical work, training and sensitization, institutional reform and systems development required for the introduction o f the MTEF. The economies o f scale and the benefits o f shared training activities are lost. Finally, a partial approach to the MTEF increases the risks that the MTEF reforms would not be sustained since ownership is not widespread. Given the significant investment already made on the MTEF, a rapid move to a global MTEF i s encouraged. In chapter 3, the prospects and requirements for the adoption o f a global MTEF are discussed. Budget nomenclature 2.1 1 A new budget nomenclature, finalized in 2003, provides a detailed and disaggregated administrative, economic, and functional classification o f government expenditures. The revised classification has been adopted for the 2004 and 2005 budgets. Although there i s some criticism regarding the proliferation o f detail, the general consensus i s that the new system represents a major advance from the previous one. The new nomenclature ensures consistency between the recurrent and investment budgets as well as Treasury operations. 2' The World Bank (2005): Burkina Faso, The Budget as Centerpiece of PRSP Implementation: A Public Expenditure Review 2. The Evolution of Public Expenditure/Finance Management page 24 2.12 The change in nomenclature was necessary because the previous system, based on administrative and economic classifications o f expenditures, did permit an understanding o f the objectives o f the operations o f the state from the examination o f budget allocations. There was no consistency between the economic classifications o f recurrent expenditures (wages, operations and maintenance, etc) and the investment expenditures (equipment, construction, etc). Furthermore, the system did not conform to international classification standards (Government Financial Statistics o f the IMF) and to the U E M O A budget conventions. The new nomenclature or budget classification o f 2003 has 17 digits on the expenditure side, covering administrative, functional, and economic classifications. It also has a provision for specifying the location o f the expenditures. The investment budget can be accommodated within the new nomenclature and the new system is generally inline with the Classification o f Functions o f Government (COFOG), developed by the Organization o f Economic Cooperation and Development (OECD) and published by the UnitedNations Statistical Division. 2.13 The new nomenclature is comprehensive but lacks a program and output/results codes. It is very detailed, in contrast to the trend toward less detailed classification. For instance, in the functional classification, it has 69 sectors, in contrast to say Rwanda, whose functional classification starts with 14 sectors". With such high level o f detail, the budget i s likely to be difficult to understand, and besides will require significant efforts and demands for information to support detailed planning, budget preparation and data reconciliation at the end o f the year. Finally, there would be the tendency to allocate resources to every code in the budget, and to spend money on activities that may be o f very low priority. If program and outputs/results are to be coded into the new nomenclature, it would be a complex exercise. Procurement 2.14 Government has adopted a number o f reforms during the last five years that has put the procurement process on solid grounds. The legal and regulatory framework o f the new procurement code, adopted in 2004, conforms to international standards, characterized by respect for competition, transparency, efficiency and economy. Procurement Committees have been set up at national and local levels and are operational. Independent observers have been appointed to these committees, audits o f some procurement exercises have been undertaken and the results o f procurement processes are now published. Nevertheless the implementation o f procurement processes including the observance o f the legal and regulatory framework o f the code has been mixed. The Country Procurement Analysis and Review (CPAR) o f 2005 noted a number o f challenges to effective procurement process in Cameroon: the capacity and professionalism for procurement in both the public and private sectors; the need to integrate the procurement processes into the systems for public financial management; the budget funding for managing the procurement processes; the political commitment to enforcing the rules and regulations including the use o f sanctions; and the potential for political interference in the process. The challenge o f procurement and the summary o f the findings o f the CPAR are reviewed in Chapter 5 o f this report. Budget Information Systems 2.15 SIGEFI, an integrated information system (SIGEFI) linking the main centers o f financial and budget information production and use - Budget department, Treasury, tax and customs operations, all in MINEFI, and related departments in MINPLADAT, became operational in 2003. However, not all the key centers have been directly linked and 22 See World Bank (2003), Rwanda: Public Expenditure Reform for Sustaining Poverty Reduction: A Public Expenditure Management Review (WB website) 2. The Evolution of Public Expenditure/Finance Management page 25 development work is continuing. SIGEFI will integrate several computerized information systems for PFM in use in different departments/ ministries including: I B I S (Budget), CADRE and PATRIOT (Treasury/ Accounting), TRINITE (Taxes), PAGODE and soon S Y D O N I A (Customs), ANTILOPE and SEGIPES (Payroll), with new applications (DEPMI, Expenditures/ministries), PREBIC, (budget preparation) SEBIC, (budget execution) S E T T I N G (Auxiliary Accounting of Revenues and Expenses), CAA, (Debt) and SIGEPAT (investment budget), BEAC (operations and links with BEAC). SIGEFI aims to integrate all these systems through a common database ECOFI. The compatibility, mutual functionality, the integrated development and management of all these systems are challenges for the further development of SIGEFI. 2.3 Expenditures and Budget Allocations Trends in Public Expenditures 2.16 Since independence in 1960, public expenditures have expanded in parallel with economic growth to meet the demands o f the Cameroonian economy, as was the trend in most of the developing world. However, during 1986-1993, the collapse o f international commodity prices forced the government to substantial cut both capital and recurrent expenditures. A s a consequence, total expenditure as a percentage of GDP fell from 23.2 percent in 1987 to 13.9 percent by 1994. After the 1994 devaluation of the CFA franc, and the economic recovery of many of the FCFA zone countries, including Cameroon, expenditure rebounded to 17 percent of GDP by 2000 and reached 17.5 percent by 2004. However, as with revenue, expenditure has not returned to pre-devaluation levels. Chart 4: Current and Capital Expenditures, 1980-2003 (Yo of GDP) 2.17 The capital budget as a percentage o f GDP has declined significantly over time, falling from about 10 percent in the mid-1980's to less than 2 percent by the mid-1990's (see Chart 4). The capital budget was the victim of the economic crisis of 1986-1993 and subsequent reforms to stabilize the economy following the devaluation of the FCFA in 1994. The Government faced with the challenge o f reducing the budget deficit, cut non-wage expenditures (operations and maintenance) and capital investments rather than to reduce the 2. The Evolution of Public ExpenditureIFinance Management page 26 size o f the c i v i l service. However, reflecting increasing donor funding as w e l l as domestic resource mobilization, capital expenditure increased from one percent o f GDP in 1996 to more than 3 percent in 2002. In the last few years, to balance expenditure, the Government has continued to squeeze capital expenditures, to 1.8 percent o f GDP in 2004. Composition of Recurrent and Investment budgets 2.18 Wages and salaries i s the major component o f recurrent expenditure. I t s share o f the recurrent budget increased from 3 0 percent in 2000 to .over 40 percent of total expenditure in 2003 and 2004 (see Chart 5). On the other hand, there was a marked decline in interest payments on domestic and external debt, which fell from 15 percent o f total recurrent expenditure to slightly over 5 percent. The share of expenditure on goods and services and on transfers remained roughly the same relative to GDP over the four year period. The share o f the investment budget in total spending has been almost flat, at around 10 percent. In contrast most other Sub-Saharan African countries the bulk o f investment expenditure in Cameroon i s financed by internal resources, with the share of external resources averaging below 25 Chart 5: Economic Classification of the Recurrent Budget percent from 2000 to 2004. 2000-2004 (% of Total Expenditure) Meanwhile, there has been a significant fluctuation in the inflow o f foreign capital for the investment budget, as externally financed assistance increased from more than 50.00- 4 percent o f total expenditures in 40.00- 2000, peaked at close to 8 percent in 2002 and fell to 6 percent in 2004. 30.00- 20.00- 2.19 This volatility o f external funding has been due to changing 10.00- - h XA donor priorities, especially the 0.003 European Union and the Government 2000 2001 2002 2003 2004 of France, as w e l l as competing claims for scarce aid resources from Wages other countries, especially in light o f ++ -m- Goods and servic s t ~ Transfers interest oavments concerns about governance and the pace o f reforms in Cameroon. Declines in external resources were partially compensated by the arrival o f funds from HIP debt relief, thus, the HIPC assistance, which was supposed to supplement foreign assistance, has in effect been complementary. On the other hand, there has been a significant decline inproject assistance. 2.4 Budget Execution Performance in Budget Execution 2.20 Execution Rates o f Recurrent and Investment Budgets: There i s a significant difference in execution rates between the recurrent and investment budgets. While the recurrent budget has aggregate execution rates frequently close to 100 percent, the gap between planned and actual expenditure for the investment budget has been significant (see Chart 6). It i s not surprising that the execution rates o f the recurrent budget (budget de fonctionnement) tend to be high relative to the overall budget since about 5 0 percent o f recurrent expenditures i s for salaries and m u c h of the rest i s for recurring expenditures such as utility bills. For the development budget, not only has its overall envelope stagnated over the four-year period, the 2. The Evolution of Public ExpenditureIFinance Management page 27 execution rate has remained low, fluctuating over the last f e w years from 57.2 percent in 2000/2001 to 75.3 percent in 2003 and to 70.4 percent in 2004. It appears that the investment budget has borne the brunt o f budget shortfalls, the complexity o f budget execution procedures andthe inadequacies o fthe procurement process. Chart 6: Recurrent and Investment Expenditure, planned vs actuals 2000-2004 (CFA Billions) 1,ooo,oo+--------- -_ -7 200,oo x 2000/012001/02 2003 2004 2005 +Recurrent Plan -m- Recurrent Actual --cInvestmentPlan+Investment Actual 2.21 Budget Execution by Sector: Budget execution rates vary between ministries/sectors. Table 11 in Annex 1 shows the composition of the budget allocations and expenditure outcomes and the execution rates by sector. Education and sovereignty (public order, defense, and justice) have had execution rates, frequently above SO%, while health, equipment, and rural development have seen marked gaps between appropriations and actual allocations (see Chart 7). The education sector recorded an overall execution rate o f more than 90% during the three-year period 2000-2002, while the health sector average was slightly over 70 percent. 2.22 Budget execution by economic categories: While the wages and transfers components o f the budget are relatively stable per quarter, there is considerable fluctuation in the budget for operations and maintenance and in the investment budget. Across ministries, the bias towards financing wages and civil service expansion has a negative effect on core operations and maintenance. From January to June, 2005, cash releases for educational expenditures was blocked by budgetary regulation, with the education ministries receiving cash releases amounting to only 10 percent of its total voted budget for 2005. In practical terms, the budgetary squeezes o n the educational sector has translated into disruptions in supply o f essential materials for schools and the provision of school supplies, textbooks, and funds for maintenance of school buildings and vehicles. The cash releases have been used mostly to pay salaries, leaving little for other recurrent items. The delays in releasing funds for operations and maintenance delay payments to suppliers o f goods and services to the government. These belated payments may result in (i)prices raised unduly, (ii) suppliers work to circumvent the system in collusion with public servants, and (iii) some suppliers not interested in bidding for government contracts. 2. The Evolution of Public Expenditure/Finance Management page 28 Chart 7: Budget ExecutionRates by Sector 2003-2004(YO) Sovereignty Defense Education Health Infrastructure M a i n Factors Underlying Poor Budget Execution 2.23 A number o f institutional and technical factors have hampered budget execution and outcomes, including the complexities o f the expenditure chain, the use of ad-hoc regulations and exceptional procedures that tend to distort the process of funding activities- such as cash budgeting and advance payments (caisse d 'avance), and the inadequacy o f budget preparation. The complexity and redundancies in the expenditure chain slows down budget execution and distorts incentives in the execution process. These have adverse effects on operational efficiency in budget implementation and the quality o f results. The transition from a manual budget processing to a computerized one has also been a factor in the delays o f the start-up o f budget execution, includingthe additional burden o f working with both the manual procedures and computerized systems. Poor budget preparation has engendered delays in the start-up of budget execution and the slow pace o f execution. In particular, technical factors, related to design and costing o f operations and delays in the procurement process have posed problems for the expeditious implementation o f the investment budget. These technical problems arise because o f inadequate attention to these details during the planning and programming stage o f the investment projects. A more detailed discussion o f the challenges t o budget execution and control, including treasury operations, i s contained in Chapter 5 o f this report. 2. The Evolution of Public Expenditure/Finance Management page 29 Chapter 3 The Institutional Framework for Budget Preparation Introduction 3.1 Budget preparation (planningand programming) in Cameroon follows a similar path as in other countries, starting with the estimation of the macroeconomic framework and the resource envelope by the Ministry o f Finance, the determination o f sectoral/ministerial spending ceilings, followed by the issuance o f budget circular to communicate the ceilings and other budget policies to the line ministries, the budget conferences between the line ministries and the ministries o f finance and plan. Following this, a budget is finalized, approved by the Cabinet and submitted to the legislature for discussion. In general, this process i s fine. However, in Cameroon, there are serious issues on the rigor with which the various steps in the process are implemented. For instance, most of the steps have been highly abbreviated as the budget calendar i s very short. In the years up t o 2005, the Budget Circular has been issued in September/October, which gives only two months for preparing the details of the budget. The result i s limited analysis, planningand consultations. 3.2 The preparation and overall management o f the budget is centralized at the Ministry o f the Economy and Finance (MINEFI). The line ministries play limited role in the budget, except the preparation of the budget o f the ministry based on budget ceilings solely determined by MINEFI. The lack o f participation by the line ministries in the establishment o f the ceilings i s a disincentive for strategic planning by line ministries. E v e n the MTEF prepared by some sector ministries have not been systematically integrated into the annual budgeting process. Without the serious participation o f the line ministries, the budget would not necessarily reflect sector priorities. 3.2 Key Budget Planning and Programming Processes The BudgetCalendar 3.3 There has been no fixed calendar on budget preparation, only a logical sequence o f elements (presidential circular, orientation by Minister o f Finance, pre-conferences, budget envelope notification and conferences, concluding with the Prime Minister's budget proposal to Parliament). A budget calendar starting in September/August until early November is very compressed compared to best practices elsewhere. The result o f the short budget calendar i s the inadequacy of the time for broad consultations, coordinated planning o f budget activities, and for line ministries to prepare their budget estimates in compliance with the budget ceilings. It would not allow for the extensive consultations within ministries, between the line ministries and the core ministries (finance and planning), and with the Council o f Ministers in the budget preparation process. Furthermore, consultations with the donors and civil society have been limited by the compressed budget calendar. In short, the short calendar has undermined participation, planningand transparency. 3.4 In end 2004, following a cabinet reshuffle, MINEFI was given more responsibility for the formulation o f the budget. This consolidation of responsibility has considerable merit in terms of supporting the move towards budget integration and unification. However, unless the budget calendar i s significantly decompressed, to allow the time for substantive and wider consultations and coordination, the effect o f the change will be a greater centralization o f the 3. The Institutional Frameworkfor Budget Preparation page 30 budget formulation process, which would further undermine ownership and implementation of the budget. Box 3: Calendar for the Preparation of the 2006 Budget Mid-July: meeting o f the DGB with secretaries-general o f the different ministries for a first sensitization on the challenges o f the new budget; Beginning August: a launch seminar o f the budget exercise with the main actors in the budget from the line ministries -an innovation that should be maintained because o f the opportunity to discuss the methodology for the budgetary conferences with the principal budget staff in the line ministries; First fortnight o f August: budgetary conferences for the review o f the state o f advancement o f the investments projects, to discuss the main objectives, to exploit the existing MTEFs, to estimate HIPC spending, and to inform line ministries o f global budget ceilings. The PRSP monitoring committee participated at this stage o f the process. End August beginning September: finalization o f the project files and the assessment o f - the needs for counterpart funding; First fortnight o f September: harmonization o f the subsidies to public enterprises (PE) in presence o f their representatives and in the context o f the preliminary budget framework to consolidate and evaluate the needs expressed by the PE managers; Third week o f September: consolidation o f the budget framework, consultations with the development partners on the possible level o f their financing; End September - October: budgetary conferences; at this stage o f the procedure, the ministries have presented their project information files (FIP) to support o f their demands o f investment credits, with presentations from the main ministries - Health, Public Works, Agriculture and Higher Education. October: After the budgetary conferences, the Prime minister provides to all ministries their definitive envelope o f credits with the allocations for recurrent and investment expenditures. Mid - November: finalization o f the budget estimates (Loi de Finance Initial (LFI)); transmittal of all the budget documents to the deputies for the parliamentary session o f November. December 13, 2005: vote o f the financial laws o f 2006. 3.5 In 2004, the budget process started somewhat earlier in August, with ministerial pre- conferences following the first instructions f r o m MINEFI. The budget framework came out subsequent to this, giving the envelopes of the ministries. The ministries would then produce the first drafts of their budget proposals to be discussed in conference MINEFI. The FY2005 budget (finance bill/Zoi definance) was adopted by December 15. In a welcome development, the budget process for 2006 started earlier than for 2005, with pre-conferences held in June and the conferences in July (see Box 3). This is in the right direction in terms o f the earlier start of budget preparation and the participation o f line ministry staff and the PRSP committee in the early discussions. However, a budget process that starts in mid-July is still relatively compressed. Besides, there a number of budget steps that are not included in this calendar, for instance, the preparation of the macroeconomic framework including the revenue estimates, and the consultations involved; the review of budget performance o f the previous year as well as the current year to date; the elaboration of sector strategies and MTEFs, and the discussions/consultations with the Council o f Ministers. The budget calendar remains concentrated on the second semester o f the year while the tasks of budget preparation for the sector ministries should start in the first semester of each year. Besides the communication of ~ ~ 3. The Institutional Frameworkfor Budget Preparation page 31 the spending envelopes o f the line ministries after the budget conferences, comes very late in the year. Guidance from the Council of Ministers (the Cabinet) 3.6 The lack of guidance from the Cabinet on the orientation of the budget before and during the preparation of the budget hinders the inter-ministerial coordination in process and undermines the alignment of the budget to policies. Under existing regulations and practices, the budget preparation process is overly centralized and the line ministries have limited leverage in the process and a strong cabinet role in the process would serve to counteract the dominant role of the core ministries (ministries of finance and plan). However, the intervention o f the Cabinet in the budget process is largely limited to the approval of the budget before it is submitted to the legislature. Since this is often close to the end of the year, there is time-pressure on the ministers to approve the budget and send it to the next level, even ifthere are issues that would warrant further discussion and revisions. This limited role ofthe Cabinet in the budget process prevents it from playing the role of assuring a well-coordinated and broadly-owned budget that is aligned to government policies. 3.7 Budget Framework Paper: Good budget practice requires the Cabinet to play a strong coordinating role in budget preparation and warrants its intervention at various stages of the process. In many countries, the budget cycle is initiated by the preparation of a budget framework paper (BFP) that lays out the background issues, policies, priorities and challenges for the country and government, and discusses the options for addressing these challenges in the budget. The BFP would include preliminary estimates of the macroeconomic framework and the resource envelope, and in an MTEF context, provide an update of the medium term budget framework. The BFP would be prepared and discussed by the cabinet before the end of June, would give the time to explore the ways to fully meet identified priorities, for instance by seeking additional financing. The BFP, endorsed by the Cabinet, would be the basis for the preparation o f the budget circular that provides the overall resource envelope and the ministerial/sector/programceilings, in line with the priorities agreed inthe BFP. 3.8 The BFP would b e the equivalent o f the pre-budget report suggested by the OECD Best Practice Note.23Its adoption by Cameroon will enhance would enhance discussion o f budget issues and strengthen the ownership of the budget. It would also enhance the credibility of the budget circular that hitherto has been perceived as an internal exercise inthe Ministry o f Finance, with the ceilings established without consultations with the line ministries, a veritable, top-bottom approach. The budget circular should also be endorsed by the Cabinet before it is circulated to the various ministries. Finally, the Cabinet would discuss and endorse the draft budget before it is submitted to the legislature. Essentially, the cabinet would meet a minimum of three times to discuss the budget. The strong role of the Cabinet will ensure the alignment of the budget with government policies and facilitate the coordination o f the preparation and execution o f the budget. It would also improve the transparency o f the budget process, especially if Ministers consult their staff ahead of the Cabinet meetings, and brief and guide them in the preparation of the budget based on the outcomes o f the discussions in cabinet. Furthermore, these participatory discussions at high level will facilitate the difficult arbitrage decisions that often have to be made in the budget process and its acceptance by all the parties concerned. 23 Organization for Economic Cooperation and Development (OECD) (2002): OECD Best Practices for Budget Transparency, OECD Journal on Budgeting, Volume 1, Number 3, OECD Paris. (Available thruthe OECD website) 3. The Institutional Frameworkfor Budget Preparation page 32 3.9 Cabinet discussions of the budget do not rule out bilateral discussions between the line ministries and the core ministries on the budget. In Chile for instance (see Box 4), the Minister of Finance and the staffs of the budget department meet with each of the line ministers and Box 4: Budget Preparation in ChileL4 Chile i s a middle income country with a tumultuous past but has been noted in recent decades for the sound handling o f its economy and sound management o f public finances. Since the return o f democracy in 1990, successive governments have demonstrated strong commitment to sound economic management and fiscal responsibility. Chile thus has put in place a somewhat unorthodox but simple, participatory and results-oriented system for preparing its budget. Some elements o f this process may be o f interest to Cameroon. Fiscal Rule: Starting in 2001, Chile adopted a fiscal rule that requires a one percent o f GDP structural budget surplus for the central government. In parallel to these two phases, independent experts are appointed to provide inputs [output gap (difference between actual and potential), long-run price o f copper] for estimating the revenue side o f the budget and the structural deficit. These experts provide their input two months before the budget presentation to the legislature. Budget Calendar and Annual Budget Cycle: The budget cycle is divided into two distinct phases. The first phase focuses on a critical examination o f ongoing programs and updating expenditure baselines. It starts in April with an internal review and a systematic assessment o f performance and results o f the execution o f the previous year's budget and an evaluation o f the implementation o f the current year's budget. This i s carried out by a unit in the Budget Office in consultation with the line ministries and provides the basis o f the establishment o f expenditure ceilings for all ongoing programs. These ceilings are communicated to the line ministries in early June and provide the basis for preparation o f the budget for ongoing programs The second phase focuses on selecting new budget programs for funding by the "Bidding Fund". The size o f this fund varies every year and depends on the overall resource envelope and the funding requirements for ongoing programs. The fund was launched in order to improve submissions from line ministries, to counter the incremental nature o f traditional budgeting, and improve the technical quality of funding requests. The Ministry o f Planning assists line ministries in completing their bids in accordance with agreed standards. These bids are discussed in detail between the Budget Office (BO) and the relevant line ministry. Following this, the BO evaluates the bids on two criteria: the technical quality and the consistency with the political priorities o f the President, which had been discussed between the President and each minister and announced in the annual state o f the nation address to the legislature. The BO then proposes a list o f initiatives to be funded. The Minister o f Finance and the Budget Director then holds bilateral meetings with the line ministries to discuss these proposals. Finally, the Minister o f Finance and the Budget Director meets with the President to go over the proposals. Budget Finalization and Presentation: The elaboration o f the budget starts in M a y and ends with the presentation o f the budget to the legislature in the last week o f September. Based on all the reviews and discussions, the Budget Office finalizes the budget and supporting documentation including information on performance and results from each o f the ministries ("sectors"). The budget is presented to the legislature on the last day o f September and approved in mid-November. 24 This box draws from Organization for Economic Co-operation and Development (2004): Budgeting in Chile: a paper prepared by Public Governance and Territorial Development Directorate of OECD for 25`h Annual meetingo f Senior Budget Officials, Madrid, Spain, June 2004 3. The InstitutionaI Frameworkfor Budget Preparation page 33 their staff to discus and finalize the ministerial budget. In addition, the Minister of Finance consults the Presidency on the budget proposals to ensure the alignment of the budget and the political program of the President. This kind of consultations would tend to reduce the incidence of extra-budgetary expenditures during the fiscal year. However, extensive consultations processes require an extended budget calendar. In the case of Chile, budget reviews and consultations for the preparation o f the budget o f the following year starts in April. There are examples in SSA, for instance, Uganda, Burkina Faso, and Tanzania where the Cabinets are very much involved at various stages o f budget preparation, with a budget cycle that starts early in the year (March/April) and thus permits such interventions. Consultations with the Donors and the Civil Society 3.10 Consultations on the budget with other stakeholders - donors, civil society and the private sector - improve the transparency o f the budget process and ultimately lead to better socio-economic outcomes. Many countries that receive significant external assistance also routinely formally consult with the donors in the preparation of the budget. Usually the partnership framework provides the modalities for these consultations. Although the donor contribution to Cameroon's budget is not large in comparison to some other low income countries, it still needs to develop and maintain a relationship with donors that helps to (i) enhance the effectiveness of their assistance; and (ii)sensitize the donors on the financing needs of the increasingly resource-constrained budget to make them more responsive to these needs. The experience in other countries is that regular consultations with the donors on the budget and related policy issues help to build this responsive relationship. 3.1 1 In some countries, the government systematically consults the civil societyhnterest groups on the budget through discussions with different groups - trade unions, private sector, NGOs. In Chile, as outlined in Box 4, independent experts are identified and asked to provide inputs to the estimation of revenues from copper, an important but volatile source o f revenues. In Romania, there is an elaborate system for consultations with the Economic and Social Council, a tripartite board representing the Government, the employers association and the trade unions o n the budget as well as other economic policy matter^.^' The Council, a useful sounding board for the government priori to action, makes written recommendations to the government. In Rwanda, the government holds separate discussions on the budget with the main private sector apex organizations (Rwanda Private Sector Federation), the civil society organizations, and the faculty and students at the University of Rwanda. Budget Planning and Coordination 3.12 There appears to be limited, coordinated and systematic planning o f the activities o f the budget that links proposed budget allocations to policies and outcomes. Part o f this has to be the result of the rushed budget process, the lack of a coordinated and systematic multi-year budget programming approaches, even for the investment budget, and the poor coordination among the principal actors in the budget process. A multi - annual public investment program machinery exists, but implementation is weak. The investment budget lacks coordinated project preparation, appraisal and selection processes. Thus, projects included in the budget may not be consistent with government development objectives, are often not fully prepared and ready for implementation, and do not have assurance o f adequate funding for implementation. N e w budgets are not guided by the lessons o f experience with previous and 25 Ruffner, Michael, Wehner Joachim, and Witt Matthias: Budgeting in Romania; OECD Journal o f Budgeting, Volume 4, Number 4; Organization for Economic Cooperation and Development (OECD), Paris 2005. 3. TheInstitutional Frameworkfor Budget Preparation page 34 similar activities in the absence of rigorous monitoring and evaluation of the budget.26In the absence o f planning, performance review and consultations, the budget formulation would largely be o f an incremental nature. 3.13 Advance planning, grounded on related sector knowledge and experience, further analytical work and consultations with stakeholders, i s essential so that the socio-political and Box 5: The Budget Planning Process Kev Stem in the Process Settingheviewing objectives, strategies and priorities, with consultation o f stakeholders; Monitoring and reviewing past performance including budget/activity outputs and outcomes, organization o f activities and costs o f operations Reviewing activities and plans in the light o f the strategies and priorities and the reviews o f performance Reorientation o f existing activities, including cancellation o f strategically inappropriate and poorly performing activities, identification, appraisal and selection o f new activities in accordance with the strategies, identification o f performance indicators for selected activities, costing o f all activities and aligning them to the expenditure program and system nomenclature; Reviewing the expenditure programs in the light o f global expenditure constraints. Orpanization of the Planning Process A bottom-up planning approach is clearly superior to a top-down approach, thus the process should be rooted in the line ministries and local authorities. The bottom-up approach does not imply minor roles for the core ministries o f planning and finance. Their roles become more strategic and less operational, with responsibilities for providing the broad macroeconomic, policy and strategic guidance, coordinating and monitoring the planning and programming process, ensuring that strategies and plans are consistent with national objectives and resource constraints, providing technical and analytical guidance to the planning process, and integrating the ministerial expenditure programs into a viable national budget. Coordination of the Planning Process A bottom-up planning process requires substantial coordination, within and between the line ministries, and between the core and line ministries. In the line ministries, the Secretary-General and the planning directoratehnit coordinate the planning process in the ministry. Where there i s more than one ministry in a sector, for instance, education, an integrated sector planning process may be desirable, with staff from the various ministries working together to produce a sector plan. As noted above, the core ministries have a key role for operational coordination. The Cabinet, the Prime Minister, and the President also have decision-making roles for coordination by setting and clarifying policies and strategies and arbitrating in a timely manner between competing priorities and interests. 26 Monitoring and Evaluation is discussed in Chapter 6 of this Report 3. The Institutional Frameworkfor Budget Preparation page 35 economic choices in the budget are not only responsive, but are broadly perceived to be responsive to the needs of the society. This requires: (i)the capacity for planning and budgeting in line ministries, where the sector knowledge should exist; (ii) government clear policies to guide the planning process; (iii)capable focal points that coordinate the process to ensure that it functions effectively and produces plans are consistent with Government policies; and (iv) a year round approach to planning with a budget calendar that ensures that the plans feed into the budget. Box 5 shows the key aspects of a budget planning process. Budget Prioritization 3.14 One of the central pillars o f Cameroon poverty reduction strategy, as articulated in the PRS has been the prioritization of public expenditure in line with the priorities identified in the PRS. As a result o f the new strategy, in recent years, there has been significant increases in the budgetary allocations to education and health and production infrastructure, the sector priorities identified in the PRS (see B o x 1). The share of education as a percentage of total expenditure increased from 18.0 percent in 2000 to 26.6 percent in 2005, while that o f health increased from 5.3 percent in 2000 to 7.1 percent by 2005 (see Table 7). Moreover, production infrastructure almost doubled from 9.9 percent to 18.1 percent over the same five year time frame. To accommodate these increasing budgetary allocations, there have been some inter- ministerial reallocations and decreases in the share of transfers and other budgetary subventions. Table 7: Government Expenditures (YOo f total spending) 2000 2001 2002 2003 2004 2005 Education 18.0 21.3 23.9 24.0 25.9 26.6 Health 5.3 6.1 7.3 7.6 6.5 7.1 Production Infrastructure 9.9 10.2 11.8 15.1 17.6 18.1 Other Minand Institutions 34.4 34.8 38.5 43.1 39.5 37.8 Total Ministerial Budget 66.8 71.4 81.5 89.7 89.5 89.6 Transfers and Others 33.2 28.6 18.5 10.3 10.5 10.4 Total Spending 100 100 100 100 100 100 Source: Government of Cameroon (Direction ofthe Budget) 3.15 While the general trend in allocations to these priority sectors has been favorable, the recurrent and capital expenditures have fallen short o f PRS projections. Besides, there does not appear to be clear and unequivocal statements by the Government on its budget priorities for each fiscal year. Furthermore, given the way the priorities are treated in the budget, it not clear that the budget also reflects all the priorities o f the PRS and the importance the Government attaches to the improvement of governance, the growth and diversification o f the economy, the development of the private sector including small and medium-scale enterprises, and the unemployment o f the youths. Execution rates ofpriorityprograms 3.16 It is noteworthy that the Government has progressively been increasing the shares o f the budget allocations to the three main PRS priority sectors since 2001. However, the release of budget credits to implementing ministries has differed from budget allocations, and the 3. The Institutional Frameworkfor Budget Preparation page 36 consistency o f timing of releases and the requirements for efficient implementation i s not assured. Thus, the priorities programs face the same uncertainty in the availability o f funds as every other program. While the execution rate for the budget o f education i s relatively high (83 percent in 2004), the execution rates for the health and infrastructure sectors were 62 percent and 60 percent respectively in 2004 (see Annex 1). By contrast, sovereignty, defense and general administration all have execution rates above 85 percent. There are some compositional (wagehon-wage, capitalh-ecurrent) and technical reasons for these differences in execution rates between priority and other sectors but the fact remains that, inthis context, highbudget allocations do not necessarily translate to high spending and effective delivery o f services. GoodPractices in BudgetPrioritization 3.17 Budget prioritization has become widespread among governments in l o w income countries (LICs), particularly with the advent o f the PRSP. It i s a mechanism for attempting to meet the aspirations o f the population that contributed to the identification of priorities for public action through the PRSP process. In recent years a number o f good practices have emerged inthe domain o f budget prioritization: Budget priorities chosen by programs and sub-programs not by ministries/sectors: This is possible in cases where specific programs can be identified by the budget nomenclature, for instance inthe MTEF/program budget approach. This program approach facilitates the fine-tuning of priorities. Whilst the education, health and infrastructure sectors, the usual priorities, would receive the predominant share of priority spending, not all programs in these sectors would be priorities. On the other hand, priority programs could include, for instance, export and investment promotion, development o f small and medium-scale enterprises, public works programs for youth, water and sanitation services in the rural areas, and community development, without having to treat the responsible ministries as priorities. Priority programs are protected from budget cuts: Thus, while priority programs progressively receive proportionately higher budget allocations, these allocations are also protected from budget cuts during the course o f the fiscal year. Thus, if budget cuts are undertaken, such as those in Cameroon in 2005, these cuts would be borne by the other sectors/programs while the priority sectors would continue to draw on their full budget allocations. Protecting operations and maintenance spending: While it is useful and sometimes more convenient to protect all the allocations for a priority program, since the wages and salaries as well as the administrative components o f the program are invariably protected, it is O&M component that is at risk and needs protection. This component is often small but critical for service delivery and the quality of service^.^' Thus, where possible it is possible to identify it, only the O&M component should be accorded protection. *' In Cameroon education sector budget, administrative costs run to close to 15 percent of the sector budget while less than 10 percent of the educational sector budget is used for pedagogic material (school supplies and textbooks). Inthe education as well as the health sector, only a small portion of the amount allocated for operations and maintenancewas released inthe first six months of 2003. 3. The Institutional Framework for Budget Preparation page 37 Enhanced implementation and monitoring: In addition to providing enhanced budget allocations, the government would aim to provide the implementation units o f the priority programs with the capacity to effectively implement their programs, put in place the mechanism for the monitoring o f the implementation and results o f the programs, and sensitize the civil society and the beneficiaries of the programs and involve them inthe monitoring. 3.3 Framework for StrengtheningBudget Planning and Programming 3.18 Despite years o f efforts to reform public financial management, budget preparation in Cameroon i s weak. Some o f the more glaring weaknesses have been discussed above. These weaknesses remain due inpart to fact that the reforms have not been planned and implemented in a comprehensive fashion, and perhaps without sustained strong commitment and ownership in implementation. Cameroon already has some instruments to underpin a reform of budget preparation: the PRSP, which provides the policy framework and identifies development priorities; and the sectoral MTEFs that attempt to align the budget to the sectoral objectives and strategies, consistent with the priorities o f the PRSP. The key attraction o f the MTEF approach i s that provides a conceptual framework that integrates the principles o f good budget practices in a mutually reinforcing manner. These principles - strategic planning, prioritization, result-orientation, decentralization o f budget decision-making, participation, transparency and accountability -- are also the underlying principles o f the PRSP. 3.19 Cameroon should fully adopt the MTEF as the organizing framework for its budget preparation, recognizing at the outset that the implementation o f the MTEF approach i s a long- term process and sustained success in improving budget outcomes would require substantial institutional reform not only o f the budget processes but o f the public sector management as a whole. A planned and phased process o f implementation and strong and sustained commitment o f the Government and the development partners to the MTEF are essential for sustained improvements in the effectiveness o f the budget. 3.20 Chile's budget process, cited above as good practice, i s technically not an MTEF system since the budget i s essentially based on single year planning. However, all the essential pieces o f the MTEF are in place - existence o f a defined policy framework, a transparent process o f consultations, a relatively decentralized process for budget preparation, the pre- budget strategic planning, and the results-based review o f the performance o f the past and ongoing budget, with feedback into the preparation o f the following year's budget. The Medium-TermExpenditureFramework(MTEF) 3.21 The World Bank Public Expenditure Handbook characterizes the MTEF as a process for linking policy, planning and budgeting that provides line ministries with "greater responsibility for resource allocation decisions and resource use", consisting o f a "top-down resource envelope, a bottom-up estimation o f the current and medium-term costs o f existing policy and, ultimately, the matching o f these costs with available resources.''28 The key operational characteristics could be summarized as follows: (i)the medium-term perspective requiring a budget based on spendingestimates for a 3-5 year period (MTBF)) underpinnedby a consistent medium-term fiscal framework (MTFF); (ii)a process o f aligning budget allocations and spending to government policy objectives through prior elaboration o f clear ** See World Bank (1998), Public Expenditure Management Handbook, The World Bank, WashingtonDC; page 46. 3. The Institutional Frameworkfor Budget Preparation page 38 and transparent national policies, sector strategies and programs, and the costing of program activities as a basis for the medium-term spending estimates; and (iii)a focus on results and accountability and transparency, with emphasis on monitoring o f inputs outputs and outcomes as well as financial reporting and oversight. 3.22 Box 6 shows some o f the key characteristics of the MTEF. The medium-term perspective facilitates the alignment of the budget to policy objectives and related development priorities, provides assurance o f resources needed t o achieve the desired results and gives the appropriate time to make adjustments in budget allocations with minimal Box 6: Key Characteristicsof the MTEF Motivation for an MTEF: A working MTEF system i s one which can consistently generate favorable outcomes from the three main goals o f public expenditure management Maintenance o f a sustainable aggregate fiscal position Allocation o f resources in accordance with strategic priorities Economy, efficiency and effectiveness (i.e., value for money) in the use o f public resources. Essential characteristics/reauirements of the MTEF: In addition to the traditional requirement o f budget discipline, the following technical and institutional factors are essential for a successful MTEF: A decentralized process o f budgeting, with line ministries with the responsibility to prepare their expenditures programs (sector MTEFs) under the guidance o f the core ministries. A clear framework o f national objectives and policies, and sector objectives and strategies, with sector expenditure plans and budgets based on well-articulated sector policies; Realistic medium-term resource projections that ensures predictable flows o f programmed resources to implementing agencies and sector policies and related budget allocation plans consistent with resource constraints A comprehensive budget that captures all the expenditures by the government as well as on behalf o f the government, for instance by donors and NGOs. An integrated budget that enables the budget system to relate results and accountabilities to resource inputs; A budget and program classification that can be linked to the national and sector objectives, that is a functional classification and facilitates the integration o f the budget; Monitorable indicators o f inputs, final and intermediate outputs and outcomes, quantitative and qualitative targets o f these indicators and a system for regular monitoring o f the progress toward meeting the targets. Budgets that are regularly reviewed and monitored by reference to outputs and outcomes. The monitoring provides the basis to assess results and accountabilities and make adjustments in objectives, targets and budget allocations; Budget execution consistent with budget appropriations approved by the National Assembly and Financial management institutions to ensure transparency and accountability in the use o f budget resources. Sources: The World Bank (2003): Rwanda Public Expenditure Reform for Sustaining Poverty Reduction: A Public Expenditure Management Review; and Obidegwu, Chukwuma (2005): The Medium-Term Expenditure Framework: The Challenges o f Budget Integration in SSA Countries; Africa Region Working Paper Series No 82. The World Bank 3. The Institutional Frameworkfor Budget Preparation page 39 operational disruptions. The results orientation, outcomes monitoring and feedback process put emphasis on planning, implementation, efficiency, effectiveness and accountability, with results driving resource mobilization and allocations. The bottom-up planning approach provides for greater participation and transparency inthe budget process and the possibility for competition in the process. The result orientation provides the framework to put emphasis on accountability and its enforcement. 3.23 The medium-term term financing scenario i s derived from the costing o f a strategic plan o f activities needed to achieve specified objectives. The logic o f planning i s that there has to be clear expected results consistent with the objectives, realistic estimates o f the resources needed to achieve the results, the optimal combination o f the different resources subject to constraints, and mechanisms for monitoring inputs, outputs and outcomes. The results o f the monitoring are essential to the feedback mechanisms for improving the models inthe planning process. Monitoring would also support accountabilities and performance management at micro levels. 3.24 The replacement o f the single year, line item budget, such as in practice in Cameroon, with an MTEF approach is a far-reaching institutional change that requires sustained political commitment for reforms in the budget process and related areas in public administration, and support from the donor community, particularly a willingness to change their assistance procedures, and align their assistance to the MTEF. The introduction o f the MTEF requires strong analytical underpinnings related to: (i) diagnostic work on existing budget practices, policies and strategies, and budget cost structures; (ii)rational budget and program classification; (iii)budget monitoring and financial accountability systems; and (iv) the sensitization o f stakeholders and related capacity development inthe civil service. Budget and fiscal discipline, including an adherence to the medium-term budget priorities and projections, and a respect for the budget process, are critical for the MTEF. The linking o f budget allocations to performance/results will enhance the credibility o f the MTEF. 3.25 The adoption o f the MTEF in the context o f weak institutional capacity has to be approached as long-term effort but the choice o f the entry point and the phasing o f implementation actions could be important for the results and the sustainability o f the reforms. Jones and Lawson (2000) noted that the MTEF needs to evolve through three development stages: . a medium-term fiscal framework (MTFF) that provides medium-term macroeconomic and fiscal targets and projections, a medium-term budget framework (MTBF), with projections o f spending by agencies consistent with the MTFF, and activity-output-outcome based budgeting (strategic planning) leading to the production of MTEFs that are consistent with the MTBF and the MTFF. 3.26 The first two stages in this paradigm are essential for any credible MTEF or for that matter any budget system with some planning behind it. These are activities that the core ministries - finance and planning, have to play a core and leading role. The Cameroonian budget system already has elements o f the MTFF but the process o f producing the MTFF has lacked participation and transparency. Neither the MBTF nor the strategic planning approach i s yet a feature o f the Cameroonian budget system. The institutional set-up for budgeting does not support these approaches. The strategic planning activities would be anchored in line ministries using the MTBF as the guide for the planning o f activities and the preparation o f 3. The Institutional Frameworkfor Budget Preparation page 40 program budgets in line with the plans. It is at this stage that a lot o f thinking needs to go into the fundamental institutional changes are required for the MTEF approach and on the phasing o f its introduction. Phasingtheintroductionof theMTEF 3.27 Nevertheless, the introduction o f a full-fledged MTEF may not be practical given institutional weaknesses and poor capacity and a phased approach may be the only option. One approach is to introduce the MTEF system-wide but to phase the adoption o f the different aspects o f the strategic planning model. The second approach i s to introduce the MTEF in selected ministries, and phase in the remaining ministries over time. The initial batch of ministries need not be priority ministries as i s currently generally advocated. Rather ministries should be selected on the basis o f their readiness to adopt the MTEF, including commitment o f the minister and hidher high officials and the capacity o f the staff. A positive demonstration effect will bode well for rapid adoption inother ministries and the sustainability o f the MTEF. 3.28 Another approach to phasing i s to introduce MTEF concepts to the preparation o f the recurrent or investment budget and progressively integrate the other part o f the budget over time. The common practice has been to begin with the recurrent budget but in one case, Nepal started its application o f the MTEF with the capital spending, building on the capacity and medium-term approach and systems already in place for the PIP to improve budget process and outcomes through greater clarity o f objectives, predictability in medium-term budget allocations, comprehensive coverage and transparency in the use o f funds.29 Ultimately, a phased approach will be effective only if it i s in the context o f a well articulated and time bound plan for the adoption o f a full-fledged MTEF. A planned MTEF introduction helps to highlight all the institutional changes required to make the MTEF approach effective. Superimposing MTEF concepts on an institutional process dominated by line item budget thinking is not likely to be effective and sustainable. This has been at the root o f the failure o f the MTEF approach to take root in a number o f countries where it had been introduced. Implementingthe MTEF 3.29 The first step would be the preparation o f a position paper that would aim to define a vision o f budget management in Cameroon and adapt the MTEF to enable the realization o f this vision. This paper would be the instrument for consultations with and sensitization o f policy makers and high level budget staff to concretize the proposals in the paper and build the commitment o f the policy makers. A Task Force, drawn from the ministries o f finance and plan as well as the line ministries would then be put together to draw up an operational plan for implementation and also to lead the process o f implementation. It would be useful for the task force to visit a number o f countries inthe region that have implemented various variations o f the MTEF to get a better appreciation o f the challenges and potential rewards o f the process. From the experience o f many countries that have embarked on the implementation o f the MTEF, the key challenges o f the MTEF would include the following: MTBF/BudgetRealism 3.30 One o f the advantages o f the MTEF is that it provides a resource envelope over a medium-term which facilitates rational planning at sector implementing agencies. However, if these resources consistently do not materialize, the incentive to plan would be greatly 29 The World Bank: Nepal, Joint IDA-IMF StaffAdvisory Note on the Poverty Reduction Strategy Paper Annual Progress Report,November 29, 2005. www.worldbank.org 3. The Institutional Framework for Budget Preparation page 41 impaired and the focus of the budget process will revert to fighting for resources. The MTEF would require realistic estimates o f public resources in the medium-term fiscal (MTFF) and budget framework (MTBF). Furthermore, realistic forecasts o f external assistance will essential, with efforts to ensure that committed and budgeted donor funds are available when needed. BudgetDisciplineand Respect for BudgetAllocations 3.31 A successful MTEF budget would require budget discipline and the respect o f the budget allocations as w e l l as the allocations to programs/sectors in the MTBF. This would provide assurance that the planned resources will be available through the medium-term. A comprehensive budget that covers all items o f expenditure will minimize the raiding of budget allocations to meet for expenditure on unbudgeted items. A nationalpolicy framework 3.32 The PRS provides a national policy framework for MTEF budgets but needs to be fully embraced by the authorities and regularly updated to reflect changes in the socio-economic environment. Planningandprogramming 3.33 This planning and programming process would be centered on the national policies o f the PRS, sector strategies and macroeconomic and resource con~traints.~'The process would involve the elaboration of sector strategies and the identification of sector activities consistent with the strategy and principles of economy; the costing of these activities; the alignment of these activities with system-wide standard program/sub-program definitions; and the establishment o f a sector medium term expenditure program integrating related recurrent and public investment activities. An MTEF planning system would require the rationalization o f institutions involved in the planning and programming process and the reinforcement of the capacity and coordination mechanisms. This may involve the rationalization of functions and realignment o f tasks between the ministries responsible for planning and finance, and in particular, the unification of the units for planning and budgeting/programming in the line ministries. BudgetIntegration 3.34 The integration o f budgets is the most challenging aspect of the MTEF approach, however it i s essential for an effective MTEF budget. Integration enhances the value-added o f strategic planning to the budget process and outcomes. The strategic planning would encompass, in a coherent manner, all the elements needed to produce the desired outcomes. Thus, all public expenditures, w o u l d be covered by an integrated planning and budgeting process as the planning of recurrent and public investment expenditures, and the uses o f resources, irrespective o f their sources, are considered together in the planning process. The 30 A "sector" here refers to related areas o f public action thus includes traditional sectors such as education and health as well as cross-cutting sectors such as gender, capacity development, and environment. For the latter, the planning and programming would require substantial coordination across ministries.The technical work o f planning and programming, including the elaboration o f the sector strategy, would be led by a related specialized unit/ministry but budgeting and execution would reside different line ministries. Thus the specialized unit needs to work closely with the line ministries at all phases o fthe budget process. 3. The Institutional Frameworkfor Budget Preparation page 42 elaboration o f sector strategies, the development and use o f functional budget classification are essential for integrating budgets. Furthermore the rationalization o f planning institutions, the harmonization o f donor assistance procedures and flexibility o f donor assistance would facilitate budget i n t e g r a t i ~ n . ~ ~ Budget Classification 3.35 The adoption o f a functional classification o f the budget that facilitates the alignment o f policy objectives with the budget. Furthermore it facilitates the classification o f like activities into programs and subprograms and thus the integration o f the budget and the adoption o f the MTEF. Cameroon has a budget nomenclature based on a functional as well as economic classification. However, the complexity o f this nomenclature has delayed its full adoption by all ministries. This complexity might be a problem for its use for program budgeting and the MTEF. Some revisions o f the new nomenclature on the functional budget classification (would be needed to facilitate the classification o f spending items into programs and sub-programs and the integration o f recurrent and investment expenditures. Working with the donors 3.36 Although the contribution o f the donors to public spending in Cameroon i s relatively modest compared to some other LICs, the current practices with donor assistance fragments the budget and undermines the potential catalytic impact o f external assistance on budget effectiveness. As noted above, flexibility o f donor assistance, the alignment o f external assistance to the budget process, harmonization o f donor and government procedures, and the inclusion o f donor assistance to the budget and the MTBF will enhance the integration o f the budget and the implementation o f the MTEF. These require a reorientation o f the partnership between the government and the donors including keeping the donors appropriately informed on the government's budget policies and strategies. Monitoring and Evaluation 3.37 This is an important aspect for the strategic planning aspect and the results orientation o f the MTEF. Thus the capacity for monitoring budget performance (output and outcomes) would need to be strengthened (see chapter 6). Sensitization and Training 3.38 Sensitization and training on the MTEF are critical for the successful adoption o f the MTEF. The sensitization should focus on a large audience, including ministers and other high government officials, members o f the legislature, local government officials and members o f local councils, the donor community as well as budget staff in central and line ministries. Training would be focused on budget-related units in the central and line ministries as well as local authorities. The training would have to involve a sequence o f programs that are aligned with the plan o f implementation o f the MTEF32.The training should also be aligned with the budget preparation calendar, thus the staff can begin to apply the techniques from the training to the elaboration o f their MTEFdbudget. 31 See Obidegwu, Chukwuma (2005): The Medium-Term Expenditure Framework: The Challenges of Budget Integration in SSA Countries; Africa Region Working Paper Series No 82, The World Bank 32 A good example of MTEF related training is Rwanda. The approach is described in World Bank: Rwanda, Public Expenditure Management Reform for Sustaining Poverty Reduction, A Public Expenditure Management Review, November 15, 2003, www.wor1dbank.org. 3. The Institutional Framework for Budget Preparation page 43 Alignment ofbudgetprogramsand the organizationofpublic administration 3.39 As the MTEF and the budget programming approach develops, it would be essential to align the organizational structure within ministries and the program structure o f the budget. This would facilitate program management and ultimately the linkage o f budgetshewards and program performance. Summary of the Issues on Budget Preparation 3.40 Budget preparation i s a process o f matching the resources available with the political/policy agenda that i s consistent with these aspirations while respecting the resource constraints. Budget preparation i s thus the stage o f the budget process where the important decisions about the allocation and use o f public resources are made and the attitudes of stakeholders toward the budget are formed. Perhaps, the weakness o f the overall budget process i s rooted in the inadequate budget preparation. The short budget calendar, the poor coordination o f budget preparation, the centralization o f the activity in MINEFI, and the lack o f a strong analytical and planning underpinning result in poorly prepared budget activities and weak ownership o f the budget by the line ministries and other stakeholders. These factors hinder the efficient execution o f the budget and leads to poor budget outcomes. 3.41 Budgets that are not aligned to the aspirations o f the people also have limited development impact even ifthey are effectively executed. The MTEF approach can be applied to link the national policy agenda, rooted in the PRS, to the annual budget process. Some ministries in Cameroon have since embarked on the MTEF, with preparations o f sector expenditure programs based on sector strategies, while there i s also an ongoing effort to extend this effort to other ministries. However, these MTEF type expenditure programs have not been directly linked to the annual budget process. Thus the MTEF has yet to make a substantial impact on budget preparation. 3.42 Cameroon should build on the already substantial efforts to develop sector strategies and expenditure programs to institutionalize the MTEF as the core approach to budget management. The MTEF should be seen as a conceptual framework for building the capacity for budget management. Successful implementation will require a strong commitment to make institutional changes and particularly to develop the planning systems and capacity needed to for the MTEF. The MTEF i s a bottom-up approach to budgeting, thus line ministries would have to be empowered to elaborate expenditure programs and annual budgets while the ministries o f finance and plan undertake advisory, coordination, and monitoring responsibilities, and ensure that the budgets prepared by line ministries are consistent with government fiscal and development policies. 3.43 To move forward, an MTEF plan o f action should be elaborated, to guide the adoption o f a full fledged MTEF over the medium-term. This plan should be prepared in consultation o f the line ministries and other stakeholders. As i s the practice in other countries, a task force, with representative drawn from the core and line ministries, should prepare the plan and guide and monitor implementation. Before implementation, the plan should be discussed and approved by a high level government body, such as the cabinet, to signal the commitment o f the Government to the plan. Finally, it must be stressed that the usefulness o f the MTEF in Cameroon will depend crucially on: the extent to which future expenditure scenarios can be generated for the sector ministries which are sufficiently detailed and realistic to represent a plausible basis for policy and strategy decisions; and 3. TheInstitutional Frameworkfor Budget Preparation page 44 the extent to which a firm political commitment can be made to follow a defined expenditure strategy over the medium term. 3. The Institutional Frameworkfor Budget Preparation page 45 Chapter 4 Public Investment Spending Trends and K e y Issues 4.1 Public investments are largely in social and economic infrastructure. There is a broad body of evidence in the economics literature linking economic performance to gross capital formation and specifically to investments in infrastructure. A recent World Bank study found that for Latin American countries lackluster performance in infrastructure development is having severe consequences on the region's ability to grow, create jobs, and alleviate poverty. It also noted that these countries have fallen behind East Asian countries in several areas in infrastructure and thus losing c o m p e t i t i ~ e n e s s ~Bogetic and Sanogo (2005) suggest ~ . that the decline capital formation, including infrastructure, was a factor in the rapid decline o f the economy of the Cote d'i'voire in 1979-200234 Table 8: Cameroon: Public Investment and External Assistance Public Investment/GDP (YO) Net ODA/GDP (YO) 1975-84 1985-94 1995-MR 1975-84 1985-94 1995-MR Cameroon 4.7 6.0 1.5 3.6 4.0 5.3 Cote D'ivoire 10.5 4.4 5.3 1.9 5.9 6.0 Ghana 2.6 8.5 11.4 3.6 9.7 9.8 Kenya 8.9 8.1 6.0 5.5 7.0 4.7 Madagascar 6.4 7.0 6.6 4.6 11.8 11.2 Nigeria n/a 10.0 8.9 0.1 0.8 0.6 Senegal 4.1 4.1 6.6 10.5 13.2 10.8 Tanzania n/a 7.0 4.4 11.4 21.6 12.9 Uganda n/a 5.1 5.1 4.3 13.1 12.2 Zambia n/a 5.8 9.0 6.3 20.4 21.9 Zimbabwe 2.9 3.0 2.1 1.6 5.5 3.7 SSA n/a 4.4 4.6 4.3 8.3 4.7 Source: African Development Indicators 2005 4.2 The public investment budget (PIB) in Cameroon remains the primary tool for the administrative management o f Cameroon's capital expenditure. The PIB has declined from 10 percent o f GDP in the mid-1980s to less than 2 percent since the mid-1990s. This is a combination of the lower levels of revenues relative to GDP from the mid-l980s, the crowding out of the capital expenditures by the recurrent budget, including the service of external debt, the low levels of external financing that traditionally support public 33 Marianne Fay and Mary Morrison (2005): Infrastructure in Latin America and the Caribbean: Recent Developments and Key Challenges; Finance, Private sector and Infrastructure Unit, Latin America & the Caribbean Region, the World Bank. 34 Zeljko Bogetic and Issa Sanogo (2005). Infrastructure, Productivity and Urban Dynamics in Cote d'lvoire: An Empirical analysis andpolicy implications; The World Bank, Africa Region Working Paper Series, Number 86 4. Public Investment Spending page 46 investments, particularly since 2000, and the low execution rates even for the small amounts budgeted. Public investment as a proportion of GDP has been low in Cameroon (see Table 8) in comparison with other countries in Sub-Saharan Africa, and with at 1-2 percent of GDP in recent years, has been way below the average o f 4.6 percent for SSA countries. Table 9 shows the evolution o f the public investment spending in 2000 to 2004. Between 2001 and 2003, external financing o f the investment budget declined rapidly; this was somewhat compensated for by the availability o f the HIPC resources in 2002. Consequently, it appears that the HIPC resources substituted for declining external financing as well as for domestic financing, thus the expected additionality o f the HIPC resources has yet to materialize. Table 9: Public Investmet Expenditure, 2000-2004 (Milliarc FCFA) 1 2000 2001 2002 I2003 2004 Total Investment Expenditure 295 339 264 271 Capital Spending 260 304 277 302 247 250 Restructuring Operations 35 35 21 Financing of Investment Expenditure Internal Resources 130 155 201 o/w HIPC Grants 0 0 70 External Resources 165 184 70 Loans 70 89 38 Grants 95 95 32 4.3 At current levels o f public investment, Cameroon is not likely to achieve the ambitious growth targets o f the PRSP or even sustain the 4-5 percent growth o f GDP o f recent years. Thus, the poverty reduction goals o f the PRSP would not be achieved. During the consultations for the PRSP, the population identified infrastructure - transport and communications, electricity, water supply etc, as a major priority.35The modest targets set by the PRSP for public investments were not met in 2003-2005 and are unlikely to be met in the coming years unless bold actions are taken to create fiscal space by freeing resources from the recurrent budget for public investments. The challenge i s where those resources will come from in a budget that is already extremely tight. The difficulties that Cameroon has encountered in the privatization o f public utilities indicate that attracting private financing o f infrastructural projects will remain a challenge for some time. While efforts should continue to promote private participation in infrastructure projects, in the short-to medium-term, public financing will be essential for needed investments in productive infrastructure as well as for upgrading and maintaining social infrastructure. 4.4 The efficiency of the implementation o f public investment projects in Cameroon needs to be considerably improved. The rate o f execution o f the public investment budget i s low. For projects financed by internal resources (excluding HIPC), it has been about 63 percent, except in2001 when it reached 73 percent. For externally financed investment projects, the execution rate has varied from 12 percent in 2000 to 78 percent in 2003. Thus even the low amounts budgetedare not fully implemented. There are other factors in the investment budgeting and implementation system that detracts from its efficiency. The weak procedural and analytical underpinnings o f planning and budgeting o f public investments would inevitably result in 35 Republic of Cameroon:Poverty Reduction Strategy Paper, April 2003 4. Public Investment Spending page 47 suboptimal choices o f investments and technologies. The lack o f capacity o f the line ministries for investment projects management including the evaluation, selection and programming o f projects retards the pace o f implementation o f public investments. The weak and possibly corrupt process o f procurement o f goods and services, and slow and unpredictable fund disbursement reduces the efficiency and effectiveness o f project implementation. The accumulation o f arrears to private suppliers raises the costs o f supplies to investment projects. Finally, the poor maintenance o f capital projects, due mostly to inadequate funding o f operational and maintenance by the budget detracts from the value o f money from public investments. 4.5 Consequently, while Cameroon has to strive to increase the level o f Chart 8: Public Investments: 2000-2004 (Billions FCFA) public investments an equally important challenge is to improve the efficiency and effectiveness o f public 40 investment management, from the 0 35 identification, selection, and budgeting 0 30 o f public investments to the execution 0 and implementation o f investment 25 0 projects and the maintenance o f public 20 0 infrastructure. As noted earlier, the 15 0 management o f public investments i s 10 weak, thus any effort to increase 0 5 capital expenditures must be 0 accompanied by changes in the budget 2000 2001 2002 2003 2004 planning and preparation, the T Fiscal Year strengthening budget execution and -TOTAL Internal Resources +Total Int Res minus HIP implementation capacity and ICTOTALExternalResources+t Resources Total rationalizing procedures including for -cCapitalInvestmentSpending procurement, and strengthening monitoring and evaluation. 4.2 Planning and Budgeting for Public Investments 4.6 The public investment budget process follows the traditional "development" budgeting approach that has been commonly used in Sub-Saharan Africa. The heart o f this process i s supposed to be the public investment program, commonly known by its acronym, the PIP. In theory, the PIP i s a rolling multi-year funding program o f largely public investment activities, with good prospects for financing. The first year o f the PIP would be the investment budget (BIP) for that year. The projects included in the PIP would have been carefully selected based on criteria that ensure economic and financially viability and consistency with government development objectives and policies. In many o f the poor countries, externally financed projects dominate the PIP, which often would include both capital and recurrent spending financed by the donors. The result o f significant involvement o f donors in the PIP/development budget process, particularly in project evaluation has been the fragmentation o f the overall budget process. It has also put the consistency o f the PIP with government's policies in doubt. The PIP based development budget approach has been blamed, though perhaps unfairly, for the ineffectiveness o f the budget systems in the countries in SSA and some countries are gradually moving away from the PIP to a broader Medium-Term ExpenditureFramework. ~~ 4. Public Investment Spending page 48 4.7 The financing for the investment budget o f Cameroon comes from a combination o f government resources, donor grants and loandgrants from International Financial Institutions (IFIs). However, the contribution o f external assistance to the budget i s not significant enough for a donor driven budget/PIP process. Until recently Direction des Projets et Programmes (DPP) in the planning ministry prepared a multi-annual investment program (the public investment program (PIP)) that should form the basis for the annual public investment budget. However, this activity requires the coordination with all the various stakeholders including the line ministries and the donors. In practice, this coordination i s weak and the PIP is not respected. Cameroon operates a dual budgeting system with a recurrent budget, managed principally by the Ministry o f Economy and Finance (MINEFI), and a specific public investment budget, formerly prepared by a planning ministry/agency. Under this system, the preparation, analysis and monitoring o f the investment budget has been was also done at the DPP, which was in the ministry o f plan but was transferred to MINEFI in a reorganization o f government in December 2004. 4.8 The existence o f separate ministries o f finance and planning in countries in sub- Saharan Africa has tended to exacerbate the coordination problems in public economic management. For this reason, a merger o f the two ministries i s seen as a way to mitigate these problems and some countries have done so. However, the important factor i s the clarity o f roles, responsibilities and authority and the existence o f functioning mechanisms to coordinate the work o f the ministries. A s noted above, in Cameroon, in December 2004, the budget programming function o f the planning ministry- formerly the Ministry o f Planning and Territorial Administration (MINEPAT), was transferred to MINEFI. The new and restructured successor to MINEPAT -- the Ministry o f Planning, Development Programming and Regional Administration (MINIPLAPDAT) -- retained the planning functions o f MINEPAT. Inthe new framework, MINEFI now has the responsibility for the preparation o f the PIB while MINIPLAPDAT retains the responsibility for the preparation o f the PIP. While the transfer o f the programming function to MINEPAT can facilitate the integration o f the budget, there did not appear to be further institutional clarity to support this move and facilitate coordination between the two core ministries. The Preparationof the PIP 4.9 The PIP is supposed to be a medium-term program o f public investments, with the objective to ensure the allocation o f public investment spending, including resources provided by the development partners, i s in line with the country's development objectives. The development o f the PIP facilitates the preparation o f the annual public investment budget as each expenditure item in this budget i s drawn from a coherent medium-term PIP. A project would not be considered for the PIB unless it has been included in the PIP and has undergone a rigorous process o f evaluation and selection. With the PIP being more or less a round the year activity, there i s enough time to evaluate a project and decide whether it meets the criteria for inclusion in the PIP before it i s considered for the annual budget. The PIP process i s thus one that prepares projects for the annual budget and its actual role depends on the government's commitment to use it as such. 4.10 InCameroon, the PIP has not had a very clear mandate and has played a limited role in the preparation o f the investment budget. Rather, the preparation o f PIP has drawn from the process o f preparing the annual BIP. The information requested by the budget circular from line ministries formed the basis on which the ministry o f plan prepared the three-year PIP. There has been no indication that this PIP i s discussed by the Council o f Ministers or with the development partners, or used in any form for raising external assistance for development projects as has been the case inother countries. 4. Public Investment Spending page 49 4.1 1 However, while the PIP can be an important instrument for improving resource allocation and the results from public investments, Cameroon should not revive it in the current conceptual framework. The focus needs to shift to a framework would support a transition to a comprehensive, medium-term budget that integrates the recurrent and investment budget in a program-based MTEF approach.. If Cameroon were to fully adopt the MTEF, the PIP could be discontinued while institutional arrangements are made and capacity developed to ensure the rigorous identification, evaluation and selection o f projects for the budget as well as the monitoring o f projects under implementation. Cameroon has indeed taken the first step in integrating the PIP functions unto the mainstream budget activity, with the transfer o f the Department o f Projects and Programs from the Ministry o f Plan to the Ministry o f Economy and Finance. The Preparation of the Public Investment Budget 4.12 The preparation o f the PIB suffer from the same impediments faced by the overall budget preparation process as discussed in Chapter 3. These include the short budget calendar, the poor coordination among the involved agencies, lack o f oversight by the council f ministers, lack o f analytical and planning underpinnings, and poor capacity at the line ministries. The negative impact o f these factors for the large and complex investment projects would be greater than for more routine recurrent activities. It would be useful for this discussion to make a distinction between investment expenditures funded by external resources from bilateral donors and .multilateral agencies, and internal resources and HIPC Each o f these follows different procedures in budget preparation and execution. External Resources 4.13 External assistance, in the form o f grants and concessional loans, comes to Cameroon as project and direct budget support, with the bulk o f it in the form o f project support. However, there have been no functioning formal procedures in the government for negotiating donor support and there are no guidelines on what agenciedgovernment officials should engage a donor on discussions on external assistance. Systematic consultations on external assistance needs are not held between the sector ministries and the ministry o f plan. Rather discussiondnegotiations are held in an add-hoc manner between donors and line ministries and MINEFI does not always certify any agreements. The donors worked directly with the line ministries, without consulting the ministries for finance and planning, to discuss and prepare projects for financing. These projects were not discussed in the budget process since the financing was already established, and the preparation o f the projects was essentially done by the donors. Thus, there was limited ownership o f the project by the Government and the consistency o f these donor-dominated projects with government objectives and strategies was doubtful. 4.14 External assistance, either as loans and grants, are not budgeted in an exhaustive manner, nor even fully known, although a data base o f all projects financed by external agencies exists, but has not been kept up to date. In 2004, for global forecasts o f external aide was 203.7 billions o f FCFAF, but only 144.7 billions (71% o f the global forecasts) was budgeted, 70 billions (34 percent) realized and 31.4 billions (15 percent) was included in the TOFE. 36 The use of the HIPC grants will be fully integratedinto the national budget process after Cameroon attains the completion point of the HIPC process. 4. Public Investment Spending page 50 Internal Resources 4.15 The preparation o f the PIB follows the same calendar as the recurrent budget, with the process staring in August/September and ending with the approval o f the budget by the National Assembly in December. The line ministries prepare their investment budgets, with assistance from the Ministry of Plan. The budget circular of October 2004 (for the preparation of the BIP for 2005 and the PIP for 2005-2007) illustrates how the system operated. The circular required each ministry to present its sector strategy along with the proposals for the PIP and BIP, to specify for each project proposal the objective and results expected, to indicate how the proposed projects would contribute to meeting the broader sectoral objectives and to provide the indicators for monitoring progress. Furthermore, the line ministries were required to specify for each project proposal the sector and zone, the nature of the investments and the details o f the operations, the degree o f urgency, the main activities and time table of implementation, the financial and administrative details, the conditionalities attached to the project if financed by external resources, and the financing plan, including the requirements for counterpart funds and the disbursement plan. There were no specific requirements for the underlying project evaluation, economic rates of return/cost-benefit analysis, the environmental impacts, and recurrent costs o f capital budgets. Furthermore, there were no specific requests for information on the performance of on-going activities, indicating that this was not a factor in the budget conference and the decisions on the projects for the investment budget.37 4.16 The submissions from the line ministries are discussed at budget conferences between the line ministries and the DPP, previously in the Ministry o f Plan but transferred to MINEFI in late 2004. Historically, these budget conferences have been held in October/November, towards the end of the budget cycle. A s noted above, the conceptual framework for the preparation o f the BIP and the PIP is in line with that in many other countries. However, in Cameroon, the framework has been inadequately put into practice and not rigorously followed. The planning o f public investments has not followed an analytically sound approach and the programming has lacked the coherence that would ensure value for money choices and consistency with national development objectives. Projects do not pass through a rigorous project cycle process of identification and evaluation, including economic and financial analysis, with the possible exception of a f e w large infrastructure and public works projects where external funding is involved3'. Until 2005, only the ministries of health and education formally prepared sector strategies, even here it is not clear how much the investment proposals were linked to the sector strategies3' The investment budget process has also lacked a rigorous project selection process that would ensure that the best mix of economically and strategically sound projects is funded with the limited resources available for the investment budget. Project selection should not be an affair between the ministry o f finance/plan and the linelsector ministry. Each project selected from one ministry has direct implications for the projects in other ministries. In some countries an inter-ministerial committee i s given the task of selecting projects for the PIP/budget. 37 In Chile (see Box 4), the first phase of the budget process is a thorough review o f ongoing activities and, based on the review and discussions, determine and make resource allocations to them. In the second phase, the proposed new activities are reviewed and the remaining resources, if any, are allocated to the best activities submitted for consideration. Nepal also introduced a similar procedure for the investment budget. 38 Inthese cases, the work is done by consultants 39 In2005, in a welcome development, a number of other ministries including public works started the process o f preparing sector strategies. 4. Public Investment Spending page 51 4.17 There are a number o f underlying factors for the lack o f analytical rigor and procedural coherence in the preparation o f the investment budget. The incentive system for the preparation o f the budget and the compressed budget calendar do not encourage rigorous analysis and planning. With the budget ceilings exogenously determined in advance, there i s not much scope for rewarding a ministry for well prepared and designed projects. Within the ministry, there i s no incentive for staff for rigorous approach to project preparation as the minister could shelve a project that has been approved in the budget if it is not in line with hidher political agenda. The timing and the short calendar for budget preparation severely limits the space for planning, analysis and participatory decision making. Both the staffs o f the Ministry o f Plan and the line ministries do not have the capacity for project evaluation, a factor that i s related to the lack o f incentives for rigorous planning. In this context o f a compressed budget calendar and the poor planning and weak capacity, the budget conference becomes rather a formality than a process for informed discussion and decision-making. 4.3 Execution of Public Investments Execution of Internally Funded Projects 4.18 The execution rate for the investment budget in Cameroon has been low, much lower than the execution rate for the recurrent spending activities. It has also been volatile; for instance, it was 56 percent in 2000 and 75 percent in 2003. Public investment projects are by nature technically complex, often involving large and complex procurement processes, the importation o f goods and services from distant markets, and the coordination and cooperation o f several government agencies. Thus, the execution o f investment budget operations i s more challenging than the execution o f recurrent operations. It therefore the persistent differences in execution rates should not be surprising. 4.19 The execution o f the investment budget in Cameroon suffers from lack o f congruence between the multi-year investment program and the annual release o f budgetary tranches. While most investment projects are multi-year operations, the budgeting and disbursements are on an annual basis. This tends to create a "stop-and-go" pattern o f the execution o f investment expenditure that leads to inefficiencies in implementation. The poor execution rate reflects the weak technical and managerial capacity o f the public administration in comparison with the technical complexity o f investment operations. Since it is known that investment projects are complex, attention should have been given to developing capacity, systems and procedures that would engender efficient execution and implementation o f these projects. 4.20 The weaknesses o f the overall budget system - the poor analysis and planning at budget preparation, the weak interagency coordination, the centralization o f budget preparation all contribute more to the poor execution o f the investment budget than the recurrent budget. Due to the weak project planning and preparation process, many projects in the budget are often not ready for implementation. Projects enter the budget often not fully designed, and with no credible implementation plan, for instance, procurement and staffing plans. Poor interagency coordination renders procurement and disbursement processes complex and time consuming. The general lack o f accountability and incentives to take risks makes it difficult to cut through bureaucratic bottlenecks. Slow and complex budget execution processes, including until 2006, a more than 2-3 month delay in issuing credits from a new budget, delay the execution o f investment projects. The budget approved and promulgated in late December became operational in March or later, and effectively, the budget i s operational for 8 months o f the year. 4. Public Investment Spending page 52 Execution and Monitoring of Externally Financed Projects 4.2 1 In practice, the implementation modalities for externally financed projects vary, depending on the donor and the type o f assistance. Some donors (France, Japan) implement directly, while others (the EU), implements in collaboration with the government according to agreed modalities and procedures in the financing agreement. For other development partners, notably the multilateral development banks, the Government implements, with agreed modalities for a priori and posteriori control (no-objections on important actions, audit o f financial transactions). Typically, the project i s managed by a chief o f the project appointed by the Government with the concurrence o f the donor; and the internal debt agency, the CAA, acts as the banker to the project and makes financial advances to the project as necessary. The projects provide reports to the C A A and to the donor to enable them determine and ensure that the use o f the advances i s in conformity with the loadgrant agreement, which would unlock further advances. The monitoring o f the use o f external assistance should be carried out by the Directorate o f External Financing in MINPLADAT and the Director-General o f the Treasury. The framework for monitoring was proposed by the donors in May 2002 but it i s still not operational. 4.22 As noted above, the execution rated for externally financed investment projects has varied from 12 percent in 2000 to 78 percent in 2003. This low and volatile reflects a number o f deficiencies in the process. This includes a number o f donor-coordination problems: (i) the lack o f harmonization between the procedures used in donor projects and the government's own procedures; (ii)the lack o f a harmonized procedures and reporting requirements amongst the donors; (iii) the poor information to the government's budget authorities on the amounts o f expenditures on those projects directly executed by the donors; and (iv) the lack o f comprehensive information in the reporting to the Treasury on investments financed by external resources. These reflect the inadequacies o f the framework and capacity for coordinating donor assistance and implementing donor-funded projects in Cameroon. In addition, the poor utilization o f external assistance i s due to: (i)failures o f the Government projects to move decisively to fulfill the conditions attached to the external assistance; (ii) the complexity and sometimes lack o f familiarity with the donor procedures; (iii)the inadequate counterpart funds included in the national budget; (iv) the frequent failure to justify expenditures on government implemented but donor financed projects; and (v) lack o f pressure from the government for the donors to performing. 4.23 Counterpart Funds: For externally funded projects, there i s been a persistent problem o f the lack o f required counterpart funds from the Government. This has been a source o f delays in project execution. Part o f the counterpart funding problems is linked to the treatment o f externally funded projects inthe budget preparation process. Many o f the projects that are not included in the budget and therefore get no allocations o f counterpart budgets. Even for those projects included in the budget counterpart funds allocations would often be inadequate. The tendency o f donors to operate their projects in an enclave results in the exclusion o f a number o f projects from the budget. Finally, the lack o f agreement between the Treasury and the planning ministry regarding the disbursement o f the counterpart funding further delays project execution. 4.24 The Government should put a permanent framework for dialogue with the donors on external assistance that would involve MINEFI, MINPLADAT and the relevant sector ministries. The sector ministries should participate actively in the negotiations for externally funded projects relevant to their ministry and ensure that the project is included in the budget, receives adequate counterpart funds consistent with the project agreement, and that the Government fulfills, in a timely fashion, the projects covenants to ensure the implementation continues to move forward. The Government should put in place a system for the Treasury and 4. Public Investment Spending page 53 C A A to receive and manage information on donor funded projects. A s noted above, the Government should intensify efforts to build capacity for project evaluation and management, including for implementing procurement operations, project monitoring and reporting. In that context, the Government should intensify its negotiations with the donors for the harmonization o f procedures. HIPC-funded investments: Possible lessons for the overall investment budget. 4.25 Cameroon was one o f the earlier beneficiaries o f the interim relief o f the Enhanced HIPC initiative, having reached the HIPC Decision Point in late-2000. To end 2004, Cameroon obtained a cumulative interim debt relief o f FCFA 239 billion, or slightly more than 3.1 percent o f 2004 GDP. 4.26 With the weak record o f public financial management and the perception o f high levels o f corruption in Cameroon on one hand, and the high level o f international scrutiny o f the HIPC process on the other, an elaborate institutional arrangement was set-up to safeguard the HIPC funds against mismanagement and ensure their effective use for poverty reduction. A special account for HIPC funds was established at the Central Bank, BEAC, with the funds dedicated to finance poverty reduction programs. A special HIPC Consultative Committee was set up. Comprising o f representatives from the Government, the civil society Chart 9:StatusofImplementationandExecutionof HIPC Projects and the donor community to oversee Untilend-2004 the use o f the HIPC resources. The HIPC Committee was set up by decree on December 1, 2000, with the Minister o f Finance and Economy as chairperson. These HIPC resources financed programs proposed by government ministries and civil society I I groups and formally approved by the I 1 HIPC e Committee. Sectors eligible for HIPC funding were social development, education, infrastructure, health, rural development, and governance. The funds could finance recurrent and capital expenditures. HIPC Approval HIPC Executions 4.27 In operational terms, part o f the HIPC resources were deposited directly by the creditors in the HIPC account, and part was deposited on behalf o f the creditors by the Treasury. A s o f end-December, 2004, 174 billion FCFA was deposited by bilateral donors in the Treasury for onward transfer to the HIPC account in the BEAC, and 65 billion FCFA was deposited directly by the multilaterals in the HIPC account. Execution o f HPIC-financed projects was low in 2003 and 2004 (see Chart 9). There were several reasons for this. Just as for the public investment program, the lack o f capacity at the sector ministries constrained the formulation and implementation o f the projects. Many o f the program proposals were not adequately prepared, without the benefit o f technical feasibility studies and implementation planning. Inaddition, the time frame for preparing the programs, obtaining approvals from the HIPC committee and launching implementation was very compressed. In addition, the pace o f the operations o f HIPC Consultative Committee was slow, its meetings were not as regular as necessary, and the secretariat lacked the resources to monitor and follow up on the projects funded by HIPC. Besides, the lack of alignment between the approval o f HIPC programs and the timing o f the Finance Law hampered the timely transfer the funding to the appropriate line 4. Public Investment Spending page 54 ministries. Some ministries had to wait until May 2005 to get access to funds, not because their programs were not approved, but because the related budget lines were not yet opened. In this state o f affairs, HIPC funds were in some cases used to finance projects that had not been approved by the HIPC Committee and included inthe budget. 4.28 The delays in preparing and approving programs and the low execution o f HIPC funds/programs clearly illustrate the complex weaknesses in project/program management in Cameroon. This HIPC experiment, in which the availability o f funding was not a constraint, highlighted the weakness o f the capacity o f line ministries, the poor coordination, and the adverse impact o f the lengthy procedures for budget execution. Some changes were introduced for 2005 to improve the alignment/coordination o f HIPC funded programs and the national budget and to ensure that HIPC funds were used to finance only eligible projects approved by the Consultative Committee. These included actions to streamline disbursement procedures, strengthen the capacity o f the national consultative committee, and put in place an information system for monitoring project implementation. In particular, the procedures for preparing project proposals were improved, a control unit was set up within the HIPC Consultative Committee to strengthen the monitoring o f implementation o f projects and curtail past irregularities. These measures have started to pay off and the execution rate for HIPC projects, including capital projects, was gradually picking up in 2005. 4.4 Improving the Management of Public Investments 4.29 Public investments drive the evolution o f government activity and expenditures over the long term and consequently influence the government's ability to deliver services, stimulate economic growth and promote the reduction o f poverty. One example o f particular relevance to Cameroon was the massive investment in state-owned enterprises by governments indeveloping countries inthe 1960-80. This was consistent with the development paradigm o f that era, however, the process o f choosing investments was not transparent and the rationale for the choices was often not clear. Inmany cases, political considerations, to the exclusion o f socio-economic justifications, dominated the selection o f projects. Today, many countries are continuing to pay a highprice for those poor decisions, inthe form o f poor services from these enterprises, massive subsidies from the state to keep the enterprises operational, and substantial known and contingent liabilities for the state. In Cameroon, despite some progress in privatization, public enterprises continue to be a drain on public resources, that crowd out spending to support the new poverty reduction strategy. 4.30 The Government o f Cameroon faces two related challenges on public capital investments: (i)to increase the efficiency and effectiveness o f public capital as well as recurrent expenditures; and (ii)to raise the level o f public capital expenditures. The first challenge involves institutional and policy reform, while the second largely calls for changes in resource reallocations and mobilization of additional resources. Improving the performance o f investment expenditures and its positive impact on public service provision can facilitate resource mobilization from the donor community and even the private sector in the context o f private-public partnerships. There appears to be a growing commitment by rich countries to increase external aid to Africa, at the same time, the competition for these resources remain s t i f f and country performance i s an important factor in attracting these resources. 4. Public Investment Spending page 55 Effectiveness of Public Capital Expenditures: 4.3 1 The fundamentals underpinnings o f effective public investment expenditures are: well-articulated national and policies (national policy framework) and sector . strategies, to guide the preparation o f investment projects, identification, evaluation and selection o f projects to determine which interventions, consistent with sector strategies, meet the national development objectives; the selection o f mix o f projects from all the eligible sector projects to meet the national development agenda (which should be consistent with the national policy framework); . monitoring and evaluation of ongoing and completed projects; a decentralized planning framework to ensure that the above analytical functions are effectively performed and the results are integrated into the budget process. 4.32 Broadly, there are two possible approaches to programming public investments, with the distinction being the elaboration o f the medium-termexpenditure programs as per concepts o f the PIP-BIP or the MTEF. The underpinning elements o f public investment planning enumerated above would be important irrespective o f whether the budget process follows the traditional PIP-BIP, line item budget process or the MTEF/program budget approach. The difference would be largely institutional - the organization and coordination o f functions and the ultimate structure o f the national budget. However, the differences are not trivial as these organizational differences determine the synergies between the investment projects and operational activities in the budget. Institutional Arrangements for Managing Public Investments 4.33 National policies and sector strategies: The PRS i s designed to provide the national policy framework for development. It should be progressively tailored to provide strategic guidance to budgeting, with increasing specificity on national objectives, sector strategies, quantifiable targets that can be costed, and monitorable indicators o f performance. Sector strategies have a symbiotic relationship with the PRS, with the sector strategies informing the PRS and the PRS guiding the sector strategies. A sector strategy helps to narrow the choices o f planners and policy makers to a set o f feasible actions needed to achieve policy objectives, thus a sector strategy process facilitates the formulation o f action plans and sector expenditure programs. 4.34 Project Evaluation in the PIP/PIB approach: A s discussed above, the framework for managing public investments in Cameroon has been based on the traditional PIP - public investment budget approach, with budget preparation largely centralized in the Department o f Planning and Programs, previously in the Ministry o f Planning and recently transferred to the Ministry o f Economy and Finance. This approach has not been effectively implemented; in part due to lack o f capacity and incentives in DPP and line ministries, and in part due to the rushed budget process. With budget preparation starting in late third quarter o f the year, there i s limited time for planning, including project evaluation and consultations o f stakeholders. 4.35 One option for moving forward i s to rehabilitate this system, with capacity building in line ministries for project preparation, and in the DPP or a similar agency in MINIPLADAT for coordination o f the process, providing guidance and analytical support to line ministries 4. Public Investment Spending page 56 and ultimately integrating the projects from the line ministries into a revolving public investment program. The preparation of the PIP should then be a year round activity, so that preparation o f the public investment program would essentially consist of selecting projects from a pool o f fully prepared and eligible projects in the PIP, in a way that satisfies the sectoral/ministerial ceilings and the overall financial and other resource constraints. 4.36 Project Evaluation in the MTEF Approach: The recommended option is for the Government to systematically adopt and implement MTEF/program budget approach, as recommended in Chapter 3. This approach would involve the preparation of a multi-year medium-term integrated expenditure plan covering both the recurrent and investment expenditures. Inthis context, the projects that normally would be inthe PIP will be integrated with related recurrent expenditure items into programs and sub-programs in the MTEF. Nevertheless, as these investment projects are lumpy and require substantial funding over a number of years, it would be imperative that these projects be thoroughly evaluated for strategic relevance and socio-economic and financial viability before the government embarks on them. Thus, even in the context of an MTEF, a coordinated process and capacity for ensuring that multi-year investment projects meet the strategic and value for money criteria would remain essential. The key aspects of this process would be: The development o f a pipeline o f feasible public investments for consideration in the budget process, based on established procedures and guidelines for the evaluation and selection o f investment projects. Project proposals that do not meet the guidelines will not be eligible for consideration for the budget; Decentralization o f the planning and budget preparation, including the project evaluations to line ministries; A central coordination unit, such as the DPP, that will provide technical and operational guidance to line ministry planning units, to ensure technical quality and strategic relevance o f the results from project evaluation. It will take a lead responsibility for building capacity for project evaluation and management; Project identification and evaluation treated as a year round activity to avoid bunching o f activities inthe few months before the delivery o f the budget. A systematic monitoring and evaluation o f the performance o f ongoing and completed projects i s important in the result-oriented MTEF framework. Sector strategies and investment projects proposals should aim to identify monitorable indicators o f outputs and outcomes. Both the central and ministerial planning units as well as project management units should have the capacity for monitoring and evaluation. Monitoring of inputs and outcomes from investment projects should be linked to the broader process o f monitoring overall budget inputs and outcomes. Capacity and systems development 4.37 To underpin the analytical, programmatic, transparent and coordinated approach to budgeting of capital investment, a planning process and capacity for the evaluation and selection of investment projects would need to be established. This should focus on: the planning process should be underpinnedby the development o f specific procedures and guidelines to govern project identification, evaluation and selection, monitoring and evaluation o f ongoing projects as well as ex-post evaluations, the establishment o f 4. Public Investment Spending page 57 clear criteria for projects to b e eligible for inclusion in the budget, including minimum analysis and documentation for eligibility for selection in the budget process, and the specification o f the roles of the line and core ministries in carrying out the various activities as w e l l as the coordination responsibilities; the development of capacity in the DPP and line ministries for project evaluation, planning of project implementation, and the monitoringand evaluation o f ongoing and completed projects, inthe context of the planning process above. 4.38 In Cameroon, some ministries, for instance the ministry of public works, have well developed systems of project evaluation and management and could serve as a model for other ministries. Secondly, donors have in the past supported project planning activities, with the establishment of study funds Vonds d 'etudes). These funds supported training of ministry staff but were primarily spent o n funding external consultants who carried out studies and project evaluations. This time round, such a fund could be a useful instrument for staff training and systems development, with outside experts to facilitate the training and the introduction and implementation of n e w systems and procedures. This training would be carried out in Cameroon, with all the related staff in the line and core ministries training together. This should also include training o f trainers, t o ensure the continuity o f the training program. Inthe spirit of the results-orientation approach, a regular evaluation o f the program by outside experts would be needed to ensure that it is meeting its objectives. 4.5 Increasing expenditures on public investments 4.39 Public investment in recent years have been around 2 percent of GDP, The PRSP, in response to the needs expressed by the population for improvements in infrastructure, proposed sharp increases in investment spending to about 4.6 percent o f GDP4'. Consequently, the Government's recent medium-term fiscal strategy envisages a boost to investment spending (Box 2). However, there is a risk that, given the lack o f flexibility in wages and salaries, the projected increase in the investment budget could come at the expense of core operations and maintenance expenditures. This has to be avoided. Some fiscal space needs to be created to meet this objective o f increasing public investment spending. The possibilities include increased mobilization o f revenue, restructuring o f expenditures, the HIPC debt relief and mobilization o f external donor support. Enhanced revenues and expenditure restructuring 4.40 The medium-term fiscal strategy does not envisage a major push to increase revenues, with the revenues projected to remain at 16-17 percent of GDP. This is an appropriate strategy in a context where the private sector has become increasingly weary of tax increasedchanges and in an economy whose performance has become relatively sluggish compared to the 1998- 2003 period, increases in taxes could negatively impact private sector investment and economic activity. ~ 40 This proposal by the PRSP is still modest for an economy that needs to grow rapidly to create jobs, increase incomes and reduce poverty. It has been suggested that a low income country needs public investments o f 8 percent or more o f GDP to continue to grow its economy. This should not be taken as a golden standard or a target but it indicates how much Cameroon's public investment needs to rise to be considered adequate for sustained long-term growth. 4. Public Investment Spending page 58 4.41 The share o f capital expenditures in total expenditures 2003 was 13.6 percent. This is comparatively low and indicates a serious imbalance between investment and operational expenditures that may have a negative impact on the quality, quantity and efficiency o f delivery o f public services. Expenditure restructuring to increase the share o f capital expenditures in total spending is necessary but scope for this in the short-to-medium-term i s limited. The wage bill is an large part o f public expenditures (up to 40 percent). A reduction in the burden o f the wage bill requires a systematic reform o f public administration, including a scaling back o f the scope o f state funded activities. In that context, an acceleration o f the current efforts on public enterprise reforms, will free some fiscal space for raising public capital expenditures. Enhanced HIPC debt relief 4.42 One source i s the resources from the HIPC debt relief that has become permanent with the attainment o f the HIPC completion point in April 2006. This could contribute as much as 1.3 percent o f GDP to public investments, assuming that the Government allocates about two thirds o f the additional resources from the HIPC relief to public investments. The additional spending would raise the level o f public investments to about 3.8 percent o f GDP by 2007, in line with the estimates in the PRS, but would still keep Cameroon's investment GDP ratio still inthe low-end among countries inSSA. Donor Support 4.43 Cameroon's historical relationship with external development agencies has not been particularly strong and the numbers o f donors and their activities in Cameroon has been quite limited. Donor financial assistance to Cameroon has stagnated at a low level in recent years due to a number o f factors including (i)the apparent lack o f strong interest by bilateral donors in the countries in the central Africa sub-region; (ii)Cameroon's history as a major oil exporter; and (iii)Cameroon's reputation for poor governance, particularly the high incidence o f corruption and mismanagement o f the state budget. This i s in context where donors have put emphasis on good governance and performance indetermining the assistance to countries. 4.44 Donor assistance for public investments declined from FCFAF184 billion in 2001 to FCFAF70 billion in 2004 (see Table 8). In 2004, the share o f donor funding o f public investment expenditure (excluding the restructuring o f public enterprises) was 28 percent. The execution rate for externally funded investment project has varied considerably from 12 percent in 2000 to 78 percent in 2003. In the new context o f proposals for enhanced assistance to SSA, Cameroon needs to put itself in a position to benefit from this assistance. Besides, with renewed interests by the donor community to support projects on infrastructure, an area where the needs o f Cameroon are substantial, the Government needs to rebuild the trust with the donor community, with a demonstrated commitment to poverty reduction, a budget process increasingly characterized by improving transparency, accountability and results- orientation, and strong government leadership in donor coordination. Some countries (Tanzania, Burkina Faso, Rwanda) have used the PRSP process to build strong development partnerships with the the donors around the countries' development priorities. This has enabled increases in the level o f assistance, with progress in harmonizing government and donor procedures and the alignment o f donor funding to the government's development priorities and its budget cycle. These countries, with the strong support from the donors, have made significant strides in improving public financial management. 4.45 The donors have recognized that the donor community needs to build a strong partnership with the Government around the whole budget, through the newly formed Donor Platform for Public Financial Management. It is commendable that the Government has 4. Public Investment Spending page 59 signaled its interest to work with this Donor Platform. This opportunity needs to be utilized to rebuild trust and confidence, to engage the donors in support o f a government's program for improving public financial management and governance in general, and to facilitate discussions with the donors on harmonization of procedures. The current practice o f donor assistance through enclave projects will give way to coordinated budget support and coordinated assistance with harmonized procedures. At this juncture, a coordinated donor support for sustained reform o f the public financial management and public sector capacity development i s urgent; enhanced PFM would pave the way for more and flexible donor budget support and the harmonized procedures. 4. Public Investment Spending page 60 Chapter 5 Budget Execution and Control 5.1 Budget Execution and Regulation Framework for Budget Execution 5.1 The general framework for budget execution in Cameroon is governed by the Ordinance n 62/0F/4 dated February 7, 1962, completed by a 1967 decree, and modified by a 2002 law. Accordingly, the Finance Minister is the de jure administrator of funds (ordonnateur principal), but the 1967 decree has been interpreted in such a manner that other ministers can be de facto fund administrators (ord~nnateur).~~ The fundamental institutional feature of the budget execution system i s a strict distinction between the person who initiatedauthorizes the request to spend (ordonnateur) and the person who handles the payment itself (comptable) and thus the strict separation between the administrative and accounting phase of e ~ p e n d i t u r e . ~ ~ . 5.2 The Ministry of Finance and the Economy (MINEFI) i s responsible for issuing the mainbudgetary envelopes and authorizing the release of credits to the line ministries, the main agencies in the execution o f the budget. On the other end of the expenditure chain, the Treasurer (comptable principal) handles the accounting phase o f public expenditure and i s responsible for the payment o f outstanding claims on the government and for ensuring the financial viability of the state. Following the adoption of the annual budget bill (Zoi definance) by the legislature, the MINEFI issues a bulletin (circulaire) to all the line ministers and provincial governors detailing the legal and administrative features of the budget execution process. MINEFI has representatives within the line ministries to ensure that the commitments o f expenditures follow the appropriate practices and are in line with budget appropriations. This first step in budget execution takes place around the middle of January and paves the way for other budget execution processes to start. 5.3 Budget execution in Cameroon i s characterized by multiple controls in the expenditure chain as well as special procedures that can be used to circumvent the controls. The actual start-up of budget execution at the beginning of each fiscal year, that i s when budget implementers can draw on funds for budget activities, has in the past experienced delays o f up to 3 months This period has been required to set-up the system of controls (see Annex 3) and to initiate the procurement process, step needed to allow budget administrators to initiate the commitment process. Beyond this point, the expenditure chain still involves a large number of approvals for an expenditure item to pass from commitment (engagement) to payment (paiement). This slows the execution process and imposes significant transactions costs. In addition to the complex expenditure chain itself, the use o f special procedures, the practice o f 41 There i s a conflict between the Ordinance of 1962 and the Decree o f 1967 on the assignment o f authorizing officers (ordonnateurs) that has not been resolved. The Ordinance of 1962 designates the Minister of Finance as the sole ordonnateur principal, but in practice, the spending ministers are, by the interpretation o f the Decree of 1967, are de facto ordonnateurs. 42 Bouley D, Fournel J., and Leruth L, (2002), How Do Treasury Systems Operate in Sub-Saharan Francophone Africa? International Monetary Fund, IMF Working Papers. 5. Budget Execution and Control page 61 cash budgeting, and arbitrary blockages of the release o f funds from some budget lines disrupt/slow the passage of an expenditure request from commitment to payment. 5.4 Special procedures are used to circumvent the budget execution procedures and pave the way for the payments for favored items without passing through the expenditure chain. This fast-track approach for some items, when used regularly and routinely undermines the credibility o f the expenditure chain and often disrupts the payment of the credits for non- exceptional expenditures. Cash budgeting and blockages o f releases are often employed to deal with cash-flow problems rather undertake a formal and transparent revision of the budget. These practices weaken budget execution and undermine the integrity, transparency and operational efficiency of the budget process and increase fiduciary risks. Sector ministries faced with irregular and delayed releases of funds have only partial control of their own budgets, cannot properly plan their activities for the fiscal year and are often forced to make difficult choices on the activities to finance (arbitrages se'v8res). The Expenditure Chain 5.5 The expenditure chain i s complex. The number o f approvals for an expenditure item to pass from commitment to payment is said to be up to 39 for some categories of expenditure but on average is close to 22 (See Annex 3). While the system with many controls hinders the efficient execution of the budget, it does not prevent the leakages and misuse of public funds. The CFAA conducted in 2002 reviewed the system of budget controls and made several recommendations for institutional reform. However, it appears that limited progress has been made in improving the efficiency of the process. While the tools to make the system work better, for instance management information systems, have improved, the system o f budget control in the expenditure chain remains cumbersome. I Box 7:The ExpenditureChain The Administrative Phase Stape 1: COMMITMENT (Enpapement) This is the stage where the person initiating the spending decision (ordonnateur) commits the state to a future financial obligation. The government enters into an agreement with a private supplier or buyer to purchase a particular good or service. A basic accounting commitment i s created to initiate the process. The Minister o f Finance, the principal ordonnateur o f the general budget o f Cameroon, delegates the decisions to initiate spending further down the chain but oversees the entire process. Stape 2: VERIFICATION (Lisuidationl This is the stage where the government verifies the validity o f the debt contracted and determines the amount actually due. The process ensures the accuracy o f the various purchase orders. Stape 3:AUTHORIZATION (Ordonnancement) This is the stage where the ordonnateur gives the order to pay the amount due which has been determined by the engagement and confirmed by the liquidation. The Accounting Phase Stage 4: PAYMENT (Paiement) This i s the stage where the Treasury effectively issues the actual payment order after agents verify that the items meet the necessary requirements. After the payment order is sent, the government i s freed from any debt obligations vis a vis the creditors and private suppliers. 5. Budget Execution and Control page 62 5.6 The four stages of the expenditure chain are as follows: (i) government enters into the an agreement with a private supplier for the purchase a particular good or service, Le, commitment (engagement) stage; (ii)certification/verification that the goods/services have been delivered (liquidation), (iii)payment request i s authorized and sent to the treasury (ordonnancement); and (iv) the treasury issues payment order (paiement). Each of these four stages (summarized in Box 7 ) can involve several departments and transactions (see Annex 3). The confirmation that a service has been rendered or a purchase made involves verification agents (comptables-matidre) from the Direction de la Comptabilitk-MatiBres in MINEFI. These agents are present in the line ministries and are involved in the `liquidation' o f expenditures, a process that can take a long time, even for small purchases of just more than FCFA 200,000. Although the control activities are computerized, the paper work is the legal basis and this manually-based paper work has to be completed to trigger the next stage in the process. 5.7 Specifically, a number of factors in the expenditure chain have contributed to the slow pace o f budget execution: (i)the absence of a manual of procedures that would ensure a uniform application of budget execution procedures; (ii)the intervention of the comptables matieres to certify a priori the service delivered; (iii)the intervention o f the Director of the Budget in the commitment phase to issue the certificate of confirmation of credit (cartons), and thus undermining the delegated authority of the ministers and contradicting to the legal texts and principles of decentralized budget execution; (iv) the length of the scrutiny of the texts by the Financial Controller, which in theory should be 48 hours but in practice, i s much longer; (v) the absence of linked information system for the ministries t o closely follow the status of their files as it goes through the expenditure chain; and (vi) finally, the introduction of the new budgetary nomenclature, which caused the rejection by financial controllers o f some items due to uncertain interpretation. With a concentration on complex rules and regulations, budget managers, mired in daily management problems, are unlikely to bring innovation and results orientation in the implementation of the budget. Their work would thus not be oriented towards service delivery but rather to overcoming bureaucratic obstacles inthe disbursements o f funds. 5.8 While the multiple controls considerably slow the pace and impairs the efficiency o f budget implementation, it does not prevent the leakages and misuse of public funds. The multiplicity o f operations increases the risks o f corruption. The CFAA conducted in 2002 reviewed the system o f budget controls and made several recommendations for institutional reform. However, progress in improving the efficiency of the process has been limited and has been mainly in the payment (treasury) stage. While the tools to make the system work better, for instance management information systems, have improved, the system of budget execution controls remains cumbersome. The length and the complexity of the expenditure chain create a highfiduciary risk on the budget execution. 5.2 Efficiency and Fiduciary Risk Issues in Budget Execution 5.9 There have been a number of practices in the budget process that cause delays and other inefficiencies in budget execution,, lead to low budget execution and heighten fiduciary risks43.These practices include the use o f special procedures that bypass the expenditure chain and related procedures; the use o f cash budgeting; the lack o f use o f a transparent process o f revisions to the budget; the delays in staring budget execution at the beginning o f the fiscal year, and the poor planningand programmingof the budget. 43 The mains sources o f fiduciary risks are: resources are not used for intended purposes; resources are not properly accounted for; and resources are not used in ways that achieve full value for money. 5. Budget Execution and Control page 63 T h e Use of Special Procedures 5.10 The special procedures (procedure derogatoire) permit the funds release process to bypass the expenditure chain, essentially merging the commitment (engagement) and authorization (ordonnancernent) phases. They are intended to be used to execute expenditures deemed priorities and urgent such as travel on missions, payments to casual workers and for utility bills (water, electricity, telephone, etc). The `regies d'avance ' is such a procedure that operates on the basis o f payments preceding the delivery o f services, with ex-post justification o f payments. For instance, advances provided for travel and urgent missions can be justified after the mission i s completed. Special procedures also permit direct payments by the Treasury for certain expenditures not included in the budget, without prior commitment and authorization. These payments are supposed to be regularized ex-poste but this often was not done, resulting in accounting complications. While special procedures are useful instruments for exceptionalhnforeseen conditions, they can easily be misused and have been misused in Cameroon, with use in situations not warranted and ex-poste justification not provided as required by the regulations. The following are the most common transactions carried out under special procedures: Cash advances (regies d'avances ), exceptions to the principle o f separation o f functions between the spending authority (ordonnateur) and the accountant (comptable), allow the former to delegate one o f his agents to make payments for a set o f narrowly defined expenditures, for instance out-of pocket expenditures. These advances are directly added to the budget as executed expenditures. There are strict . rules for the operation and control o f the regies d'avances. A decree form the Minister o f Finance sets out the nature and volume o f eligible operations. Direct payments for public expenditures by the state oil company (SNH) from the earnings from oil revenues and petroleum taxes. These transactions, which are mostly for activities that are not included in the budget, bypass the expenditure chain completely, are not transparent and furthermore, the accounting for the expenditures, has posed some difficulties for expenditure and income accounting and budget reporting. These expenditures were substantially reduced in 2005. The use o f special Treasury checks, not programmed in the public expenditure system, to make urgent payments, based o n the commitment forms (bons d'engagement). These expenditures cannot be fully integrated and regularized in the budget by the end o f the fiscal year often due to insufficient funds. Other payments from the treasury o f . the state for urgent expenditures (Ordonnancement Hors Procedure, OHP) are not cleared immediately. Internal debt i s budgeted for lump sum amount but is paid on a case by case basis. The Treasury makes a monthly lump sum advance to the CAA, which pays the debt and sends reports to the Treasury to justify the advance. 5.1 1 The use o f these procedures to bypass the complex expenditure chain in a manner that goes beyond truly exceptional situations has tended to undermine the quality o f budget execution and the accounting o f expenditures, and engendered serious fiduciary risks. The use o f special procedures i s being discouraged in Cameroon. The budget execution circular for 2005 stated that `caisses d'avance ', would be allowed within very strict limits. 5. Budget Execution and Control page 64 Cash Budgeting 5.12 Cash budgeting (regulation budgetaire) was formally adopted in Cameroon in 2004 to exercise tight control over spending and improve the government's fiscal position eroded by the accumulation o f large arrears in 2003 and 2004* The cash budget was deemed necessary to bring the arrears Chart 10: Execution Rates for the first Trimester 2005 and the deficit under control in 2005. ( O hof annual allocations per category) Cash budgeting, while effective for stringent controls on expenditure, distorts the budget execution process, creates uncertainty for the implementation o f the budget and induces behavior and efforts focused on getting access to funding rather than producing results. The cash budgeting system adopted in Cameroon was not a de jure cash budgeting, but it was a de facto cash budgeting system whereby the Education Education Heath Health MINEFI rationed the available cash Wages Goods and Wages Goods and to the spending agencies on the basis Services Services o f its periodic assessments o f cash availability. In a formal cash budget system, the proportion and the amounts o f the credits that are frozen are determined by a coefficient o f regulation that is itself a function o f the gap in revenue receipts. In Cameroon, the system has operated in a more informal fashion. 5.13 Cash rationing by the MINEFI has had both a macroeconomic and microeconomic impacts. While on the macro level, the system can help to achieve desired fiscal deficit targets and prevent the accumulation o f domestic arrears, on the microeconomic level, it leads to uncertainties and delays in fund releases to line ministries, to the detriment o f the implementation o f the budget.. The lack o f transparency and predictability in cash allocations hinder the line ministries' ability to plan and execute their budget programs, with a negative impact on service delivery. In early 2005, it had an especially depressing effect on expenditure for goods and services in the priority sectors. The execution rates for goods and services were less than 5 percent for education and less than 10 percent for the health sector in the first trimester o f 2005 (see Chart 10 showing cash allocations for primary education and health for the first trimester of 2005). Extra Budgetary Expenditures - 5.14 These are expenditures that are not in the budget and therefore have no corresponding appropriations in the Budget and Treasury accounts, for example, the payments made directly by S N H (Socie'te'Nationale des Hydrocarbures) from its own revenues for sovereign and non- sovereign activities not included in the budget. Over the years, the Treasury has made cash advances ((interventions directes) to the oil company and other parastatals that were not provided for inthe budget. As the financial position of many public enterprises has been weak, the Government often has had to make unanticipated direct cash transfers to public enterprises to, for instance, meet their payrolls. Cameroon does not use a supplementary budget process which is provided by the law (see below) to deal with expenditures on unanticipated events or shortfalls in revenues. This increases fiduciary risks as it opens the door to off-budget 5. Budget Execution and Control page 65 expenditures that create accounting problems and undermine the transparency and e execution o f the budget. Quite often, an extra-budgetary expenditure is at the expense o f some other approved spending in the budget. Budget Revisions 5.15 The 1962 Ordinance details the procedures that can be used to modify the budget allocations in the initial Finance Law. The legal procedure is the Revised Budget Law (Loi de Finance Rectzjkatif (LFR)) that would authorize adjustments in revenue and expenditure estimates, as well as the final fiscal balance. In fact, Cameroon has never used the LFR but rather relies on more flexible administrative procedures to change the pattern o f spending. This can involve actions by MINEFI to change budget allocations, cause the transfers o f credits between budgetary chapters without the creation o f new ones and to cancel credits. MINEFI has a number o f instruments to effectively change budget allocations and the rhythm o f spending. For instance, in January 2005, MINEFI issued Circulaire No. 3 on Execution and Control o f the Budget that required a precautionary blockage (blocage de precaution) o f 10 percent for all recurrent expenditure for goods and services, with a few exception^.^^ In addition, a series o f trimestrial quotas (quotas d 'engagement de dkpenses) have been used by MINEFIto control the rhythmo f budget execution andavoid undue pressures on the Treasury. These approaches to budget revisions erode the credibility o f the initial budget estimates. A s a document that records the changes in allocations o f different credits i s produced, these procedures are obviously not transparent and consistent with best budget practice. The practice that the Minister o f Finance could, without consultations with line ministries change budget allocations, introduces uncertainty in the budget execution process. Delays in the Start of Budget Execution 5.16 Budget implementation that should be carried out over twelve months is compressed into perhaps less than nine months due to the late start-up o f the process o f budget execution (see Annex 3). Until 2005, delays o f three months from the beginning o f the fiscal year were common. The causes o f these delays included: The approved budget needed to be adjusted to take account o f the comments made by members o f the legislature during the budget discussions. 9 The budget lines have to be `fed', with the budget appropriations, a process that involved two information systems, I B I S in the Ministry of Finance, and DEPMI in the different ministries. DEPMI is managed by the financial controllers from MINEFI that are attached to the line ministries. Although DEPMI was essentially a copy of IBIS, there was no automatic and IT-based link. Therefore the setting-up of DEPMI would commence only after I B I S has been fed with the numbers from the n e w budget. The financial controllers in the line ministries have to obtain from MINEFI the `titres de confirmation de creances' (TCC), known as `cartons', for each commitment. Without the cartons, a commitment of expenditure would not be completed. In addition, line ministries have to obtain and duly register n e w books o f bons de 44 Republique du Cameroun, L e Ministere de L'Economic et des Finances (Ordonnateur Principal du Budget de l'Etat, CIRCULAIRE No 3/MINEFI DU 03 Jan 2005, Portant Instructions relative a 1'Execution et au Contrdle de 1'Execution du Budget de 1'Etat et des Organismes Subventionnkspor I'Exercice 2005. 5. Budget Execution and Control page 66 `commande' or `bons d'engagernent' every year. For the Ministry o f Basic Education, this took some time in 2005, perhaps because the ministry was a new one. Budget credits are often not opened for large amounts (only a fourth or even less o f the appropriation for the first quarter), in some cases what was available for spending on an item was so small that the suppliers would not be interested inthe supply contract. The preparation o f procurement plans where relevant, has also delayed the start-up o f the execution of the budget, particularly the investment projects. The poor planning and preparation o f these projects contribute to these delays. 5.17 With the delays in starting budget execution, the process o f using the funds is likely to be rushed once the resources become available, particularly at the beginning and the end o f the budgetyear. Inadequate budget preparation 5.18 A s was discussed in detail in Chapter 3 o f this report, budget preparation in Cameroon has been a rushed, highly centralized and poorly coordinated process lacking in analytical and planning underpinnings. The result i s that budget projects are often poorly prepared, with inadequate implementation plans that create difficulties in budget execution. These problems are more acute for investment projects that are multi-year and technically complex where detailed plans facilitate efficient implementation. Technical complexity o f budget operations would result in low budget execution in a context o f weak technical capacity, poor incentives for innovation and inadequate planning inthe preparation o f the budget. It most likely explains most o f the differences in execution rates between recurrent and investment budgets that are technically more complex and involve more stringent regulations such as those related to procurement and financial reporting and monitoring. An obvious answer to technical complexity i s capacity development and, in the context o f Cameroon, a functioning institutional framework and incentives for rigorous budget planning, programming and execution are critical for dealing with the technical complexities o f budget execution and implementation. 5.3 Challenges to Treasury Operations 5.19 The problem o f the regulation o f budget flows does not arise from the inconsistency o f the rhythm o f the commitments or authorizations o f payments (payments orders) with the resources o f the treasury. On the contrary, a slow rhythm o f the budget underscores the general problem o f compressed budget execution period resulting from accumulated delays in the preparation o f projects, in making the budget operational, in the procurement process, and at the various stages o f the expenditure prior to payment. The problem o f the rhythm o f the authorizations arises only toward the end o f the fiscal year for the expenditures on investment whose execution remains very weak in relation to the allocations (of the order o f 30% before transfers) but marked by an acceleration o f the liquidations during the last quarter leading to pressure for payments on the treasury o f the first quarter o f the following fiscal year. However, the impact o f this pressure on the treasury i s somewhat attenuated by the usual slow start o f the new budget. 5.20 Budgetary regulation is also difficult due to the significant level of the expenditures without previous authorization or outside the procedures o f the budget. The payments o f the office o f the treasury o f expenditures without prior commitment and authorization, and without sufficient budget allocations, create risks o f accumulation o f reste-h-payer (RAPT) at 5. Budget Execution and Control page 67 the level o f treasury and significant risks o f budgetary slippages, as those experienced in 2004. The slowness in the execution o f the budget also puts a significant burdenon the operations o f the treasury o f the following fiscal year and results in the accumulation o f RAPTs at the level o f the accounts o f the Treasury and arrears in the form o f expenditures committed but not yet authorized (DENOs) at the level o f the authorizing officers that leads to a passive and poorly accounted for accumulation o f internal debt. 5.21 Furthermore, the certificate o f commitment (bons d'engagement) for the recurrent expenditures for those commitments for services are not rendered before the end o f the fiscal year, are not cancelled. The legal procedures for carrying forward credits for the investment budget are not applied, although specific lines o f credit are opened in the budget o f the following fiscal year. This results in the accumulation o f arrears in form o f DENOs. In spite o f some rigor at enforcement at the end o f the 2004 fiscal year, the closing dates o f the commitments and payment orders proved to be difficult to respect, as well as the regularization o f the claims on time. The follow-up on the claims in expenditures and the reste-a-payer (RAPT) does not appear to be treated as a priority by the Treasury given its rather cursory review o f the status o f the RAPTs. The Direction o f the Budget often ignores it and the TOFE, produced on a cash basis case, does not highlight the variation o f such arrears valued by the Treasury to an amount o f 276 billions of FCFA- at the end o f 2004. Management of the Treasury 5.22 The bank account o f the state i s held at the Central Bank (BEAC) by the Central Accounting Agency o f the Treasury. The level o f the cash balances i s consistently monitored against set ceilings and statements o f the cash position are prepared daily, every ten days or monthly depending on the importance o f the account. A new system i s being put in place for the management o f the bank accounts in real time, due to the installation o f a computer network linking the BEAC, the primary banks and the main public accountants. Some difficulties are still encountered in the daily operations o f the financial accounts, the transfer o f funds, the presentation and the cashing o f checks, as well as for the operations o f compensation due to weak capacity. 5.23 The principle o f unity o f accounts and treasury has experienced some notable exceptions. Some local councils deposit their funds in commercial banks and, especially in spite o f the recent efforts undertaken since 2003, some administrative services have opened accounts in commercial banks in the absence o f a framework for operations and without the authorization o f the Minister o f Finance. N o action has yet been taken to close these accounts. The modalities for opening and holding public accounts, including the projects accounts held by the CAA, need to be reviewed and clarified. The transfers o f payment functions from the Treasury to the C A A for the payment o f the debt need to clarified, the process need to be made more transparent, and the accounting o f transfers and use o f the resources improved. Meeting Financing Requirements 5.24 An estimate o f the financing needs o f the treasury is produced each year on the basis o f the approved budget, and based on this annual estimate, quarterly and monthly estimates are prepared. These permit comparisons between actual and forecasts during the course o f the fiscal year. In periods o f tension in the treasury, a weekly treasury plan i s prepared. Finally, a daily situation o f availabilities that determines payments priorities (wage, service o f the debt, etc.) i s prepared for the Minister o f Finance. 5.25 The Government does not use loans for financing the budget deficit that is, in general, covered by external assistance. It does not program to finance itself through financial market 5. Budget Execution and Control page 68 in spite o f the abundant liquidities o f the banks, or through the issue o f treasury bonds to the public. The statutory account o f advance o f the BEAC to the Treasury, with a ceiling o f 20% o f the revenues o f the government in the previous fiscal year, i s practically at the ceiling. The Board o f Directors o f the BEAC has decided to freeze this advance region-wide but this freeze has not been applied and when it becomes effective, the Cameroonian Treasury will be forced to search for other means o f financing. Finally, it i s important to note that the external financing expected on programs, but not released due to unsatisfied conditions or other reasons, often provoked serious difficulties o f treasury. R i s k s in Treasury Operations 5.26 The public financial system in Cameroon faces substantial fiduciary risks (see Section 6.6 for an overall fiduciary risk assessment) .The main source o f risk to the treasury is a financing crisis due to unanticipated events that may erode its ability to meet the payments on non-discretionary expenditures (wage, service o f the debt, etc.). These events would include a large drop in oil prices or other primary commodities, and the uncertain operational and restructuring financing needs o f public enterprises, many o f which face significant financial The poor management o f the risks to the treasury would provoke the waste o f the financial resources o f the state, supplementary costs to the Government, the delays in the payments to the private sector, a bad public credit and the increase in the prices o f goods and services that are delivered to the government. 5.4 T h e Control of Public Expenditures 5.27 Budget execution is subject to three sets o f controls - administrative, judicial, and legislative - that constitute the main framework for internal and external controls o f public expenditure. Administrative controls are exercised internally within the executive either before the expenditure payment (a priori) or after the expenditure payment (a posteriori). External controls, which are independent o f executive power, are exercised by the Supreme Court's Auditing Authority (judicial controls) and by the Parliament (legislative controls). Administrative Controls 5.28 Administrative controls, which constitute the internal controls by the executive, consist Of: A priori controls by the financial controller, A posteriori controls by the Control Division ofthe budget , The control of the Controller - General o f the State (ContrGle Supkrior del'Etat (CSE)), The internal inspections o f ministries, Agencies that exercise internal controls of public expenditures, for instance the directorate o f investment programming and the procurement agency (I'Agence de Rkgulation des March& Publics (ARMP)). 5. Budget Execution and Control page 69 Financial controls 5.29 A priori administrative control o f the budget is undertaken by the sub-directorate o f Financial Controls (Sous - Direction du Contr6Ze Financier (SDCF)),that i s under the broader Directorate General o f the Budget. Financial controllers are organized hierarchically in SCDF and are governed by the decree no2003/165 o f 30 June 2003 on the organization o f the Ministry o f Economy and Finance. In parallel to the financial controllers in the center, there are decentralized financial controllers in the provinces and districts. All the significant expenditures are required to obtain the necessary visa a priori from the financial controller. Under this framework, the SDCF, consisting o f four sub-units dealing with administrative services, accounting, commitment controls, and advances and delegated credits, i s directly responsible for the financial controls in the finance ministry and other administrations as well as the management o f the advances (re`gies d'avances) and delegated credits (dklkgations de credits). Control of budgetary operations 5.30 This control is exercised by the Division o f Control o f Budgetary Operations that also reports to the Directorate o f the Budget. In charge o f a posteriori budget control, it is also responsible for investigations, research and advisory services. Within this framework, it handles control o f the government budget execution o f both national and decentralized agencies, and public enterprises and agencies that receive government subventions. It i s also responsible for the harmonization o f the procedures for internal controls. This control o f budgetary operations i s evolving in light o f the reforms underway in MINEFI. The Division o f Control will be transformed into the Directorate o f Budget Controls and Audit, with its mission expanded to include training and the audit o f the systems and procedures for managing public finances, the evaluation o f the public investment operations, and a physical- financial control o f investment, budget execution, the control o f the structures for salaries and the payroll, the coordination and supervision o f financial controllers in the central government and decentralized structures, and the preparation o f the administrative accounts o f the state Inspector- General ofServices 5.3 1 These technical inspection services within each government department, including the inspector o f the services o f the treasury, taxation, and customs as well as the inspectors o f the sector ministries, also provide the functions o f internal controls within the respective ministries. The Ministry o f Finance and Economy has two units o f recent creation for general inspection (decree no2005/119 o f April 15, 2005): the Inspectorate-General o f Financial and Budgetary Affairs (IGAFB) and the Inspectorate-General o f Economic and Administrative Services (IGSEA), under the authority o f an Inspector-General, with their field o f intervention limitedto the MINEFI. 5.32 The IGAFB i s charged with the performance evaluation o f financial control services relative to the stated objectives; the internal audit and the evaluation o f the functioning o f central and decentralized financial control services, the establishments under their supervision, and the projects attached to them; provide information to the Minister on the quality o f the operations and results from the services o f the financial control establishment; the evaluation o f the application o f the techniques o f organization and methods and the simplification o f the administrative work o f the financial controls establishment; and the implementation o f the anti-corruption strategy in fiscal and customs matters in coordination with the anti-corruption unit ofthe ministry. 5. Budget Execution and Control page 70 5.33 The I G S E A intervenes in the same domains as the IGAFB, with the exception that its competence is focused on the economic and administrative services (central and deconcentrated) o f the other ministries. From a regulatory perspective, each inspection results inthe preparation of a report, addressedto the Minister of Finance, and copied to the Secretary General and the ministers responsible for administrative reforms and the Control Supe'rieur de l 'Etat. A trimesterial report and an annual report of the activities of the two services (IGAFB and IGSEA) are also addressed to the Prime Minister. Although recently structured, these two bodies are characterized by a mandate broader than the manpower and competence needed to effectively perform their functions. In fact, besides the Inspector Generals, the IGAFB consist of two inspectors of the budget, two inspectors o f tax services, and two inspectors of customs while the I G S E A is limited to two inspectors of administrative services and two inspectors of economic services. TbeInspector of tbe Services ofMZNEFI(Treasury, Internal Revenue, Customs) 5.34 These inspection services, internal to MINEFI, were initially attached to the respective directorate (treasury, internal revenues, and customs) but have been placed under the authority of the Secretary General o f MINEFI in the organigram of the decree of June 2003, then were put back under the directors by the decree of 15 April. These internal inspections teams of the MINEFI are currently ineffective due to the lack the human resources. The Controller-General of tbe State 5.35 Recently reorganized by the decree no2005/374 dated 11 October, 2005, the Controller-General of the State (ContrGle Supe'rieur de 1'Etat (CSE)) constitutes the supreme institution for the control o f public finance in Cameroon. The CSE, headed by a deputy minister (ministre de'le'gue'),derives its authority directly from the President o f the Republic and reports directly to him. I t s main mission covers: the monitoring and verification o f the services o f the state, the decentralized local collectives and public enterprises and other parastatals; the control of budget execution and of the projects and programs financed externally; the provision of opinion and advice on legal and regulatory texts relating to public finance; technical assistance to the agencies for administrative controls and for internal audits within ministries, public agencies and parastatals on control and verification. InOctober 2005, the 49 persons were listed as comprising the technical staff of the CSE. 5.36 The CSE is the secretariat of the Council for Budget and Financial Discipline (Conseil de Discipline Budge'taire et FinanciBre (CDBF)) established by the decree No 97/049 of March 5, 1997. The CDBT, composed of five members and headed by the Deputy Minister in charge of CSE, is responsible for sanctioning the irregularities and mismanagement committed by the authorizing officers and budget administrators in the government and public enterprises. Controls ofPublic Investments 5.37 Physical and financial control o f public investments within the Ministry of Finance and Economy is handed by the Directorate o f Programming of Investments, which has administrative controls o f public investments financed by internal and external resources. These controls are formal and are related to the physical developments of the projects, requiring a trimestrial report to be presented to the office of the Prime Minister as w e l l as to the external assistance agencies. 5. Budget Execution and Control page 71 Procurement Regulation and Control 5.38 This is the responsibility o f the procurement agency, (L'Agence de Re'gulation des Marche's Publics), created on February 23, 2001 by the decree n 2001/048, i s a public establishment with a strong legal personality and financial autonomy and i s attached to the Presidency. An assessment o f the procurement process was recently undertaken by the Government and the World Bank which revealed continuing weaknesses in the implementation o f the procurement code adopted in 2004 (see chapter 5, section 5.5 below) Assessment of theAdministrative Controls 5.39 In general, the current system o f controls is characterized by a lack o f effectiveness. Due to its preventive character, financial control i s particularly important since it seeks to prevent the withdrawal o f public funds in violation o f the law and regulations. However, the a priori financial controls appear weak. This i s due in part to the lack o f retention o f institutional memory at the SDCF as a result o f the staff turnover affecting also the heads o f service. In addition to this staffing instability, there i s also a lack o f a manual o f procedures for financial control that formalizes the procedures and would mitigate to some extent the impact o f the inadequate training o f the staff. The inadequacy o f information systems, including the lack o f integration o f existing systems (IBIS, DEPMI) into the main budget management information system (SIGEFI) constrains the activities o f the financial controllers. 5.40 However, it i s the a posteriori controls that are very problematic. In fact, with the somewhat complex organization and overlapping mandates, the lack o f coordination among the various general inspections of the ministries does not permit a global view o f how the system works and its risks. While the legal decrees confer the Controller General the role o f quality control, training o f staff and the coordination o f the financial control activities, it does not have the capacity to do so. The superimposition o f controls and the absence o f a cross- cutting perspective and the confidentiality o f the reports o f the control operations, leads to a real absence o f transparency in the process o f control. Furthermore, there are no indications o f follow-up actions to the recommendations emanating from the activities o f financial control. The lack o f real actions by the budget discipline council (CDBF) i s further indication o f the lack o f effectiveness o f financial controls. Moreover, the role o f the Directorate-General o f the Budget in financial control functions creates a systemic risk since o f its involvement in both a priori and posteriori controls violates international norms, that require a strict separation between a priori controls (including budget preparation and budget execution), from the posteriori controls Judicial Controls 5.41 Judicial controls are exercised by the external control audit body for state finances (Chambre des Comptes) o f the Supreme Court, which according to article 38 o f decree no96- 06 dated January 18, 1996 i s the highest authority injudicial, administrative and legal matters in the domain o f auditing. The organization and operations o f the Chambres des Comptes have been set by the decree no2003 - 005 o f April 21,2003. Its main mandate i s to review and pass judgment on the controls and financial accounts o f public establishments, decentralized collectivities, and public enterprises. It i s required to prepare an annual report detailing its observations and making recommendations for improvements in the accounts and in public accounting. 5.42 A s o f the end o f 2005, the Chambre de Comptes was significantly understaffed, although 22 magistrates andjudges have been selected. The chief clerk o f the chamber, as well as the clerks o f the various sections, has also been appointed. The various legal texts and ~~ ~ ~~ 5. Budget Execution and Control page 72 operating manuals, including the general instructions for the elaboration and production and presentation management accounts by the public accountants, and the manual o f procedures o f the chamber, are being finalized. 5.43 The establishment o f the Chambres des Comptes holds considerable promise and represents an important advance in public financial management in Cameroon. There are however, some problems. In first place, the chamber's mandate i s limited to the domain o f judicial control o f accounts, and thus has no role in a broader audit o f the management o f public funds. This strict limitation rules out its involvement in the necessary task o f probing and revealing the dysfunctions o f public financial management in Cameroon. The judges o f the chamber will have neither the mandate nor the authority to sanction the spending authorities for violations o f regulations and procedures, which govern budget execution. Similarly, the chamber will not have the means to detect and transmit to the judges the material evidence for a penal conviction in case o f corruption, except those committed by the public accountants. 5.44 In sum, the texts that created the Chambre des Comptes have not put in place an institution with the appropriate mission o f control o f public finances. Without a strong auditing body independent from the executive branch o f government, with a mandate in line with the norms o f the International Organization o f Supreme Audit Institutions (INTOSAI), the control o f public finances and budgetary oversight in Cameroon will not be rigorous and fully effective for . The Government, recognizing the shortcomings o f the newly established Chamber, intends to expand the mandate o f the Chamber to harmonize it with the norms INTOSAI after two years o f operations within its current mandate. Controls by the Legislature 5.45 The mission o f the control o f the government and its finances i s conferred by the Constitution on the National Assembly. The Finance and the Budget Committee, consisting o f 20 members, with representatives o f all the parliamentary groups, including the opposition, plays an important role on the economic and financial The internal regulations within the National Assembly clearly define the role and scope o f the interventions o f the Committee, with the key focus on budget, taxation, and borrowings. However, in actual practice, the short time granted to the National Assembly (with parliamentary session fixed at 30 days) to discuss and adopt the finance law leads them to exert only a formal control on the management o f public finances. 5.46 This situation is exacerbated by the lack o f clarity o f the budget documents. Moreover, the lack o f consistency between the settlement law (loi de reglement) that reconciles the spending o f a previous budget, and the proposed finance law before the legislature, does not allow legislators to develop a real understanding and appreciation for the content and historical perspective o f the budget. The Committee i s not involved upstream in the elaboration o f the budget, and does not receive periodic reports o f budget execution, nor does it have access to the reports o f the various groups o f controllers o f finance. Without a full understanding o f the budget strategies, structures and estimates, it i s difficult to comprehend well and put in a proper context all other budget reports, when they are available. Furthermore, the Committee's ability to carry out its control mandate i s further weakened by its lack o f logistical and technical capacity. In a context where the presence o f a dominant majority party tends to limit the debates o f on the budgetary documents, the lack o f resources 45 The position o f vice-president of the Committee is held by a member of the opposition. 5. Budget Execution and Control page 73 for this Committee to undertake an intensive review of the budget documents limits the scope and effectiveness of parliamentary financial controls. 5.5 Public Procurement 5.47 The process o f public procurement i s a key element of budget execution and control. The implementation o f the procurement process i s often cited as one o f sources of delays budget execution. A sound procurement process and a mastery of it by the relevant public officials and interested private sector agents i s essential for an effective budget execution process, for ensuring value for money and the efficient delivery of public services. A s a critical part of the public finance management the process o f procurement needs to be governed by the same principles o f transparency, accountability, decentralization and results orientation and be well coordinated with the other processes of the PFM system. Quite often though, procurement has been treated as a separate exercise from the management of the budget, with different rules and regulations that respond largely to political and regulatory imperatives, managed outside the budget process, with its operations moving at a rhythm that is unrelated to the exigencies of producing timely results from budget operation^.^^ Procurement agencies have been seen more as regulators and enforcers o f strict and complex rules rather than as partners in the execution of the budget. Procurement i s prone to corruption and abuse of public funds, thus a sound procurement process is an important element in the fight against corruption. Public Procurement Assessment 5.48 The Country Procurement Assessment Report (CPAR) undertaken by the Government and the World Bank in 2000 found that the institutional framework in Cameroon for managing procurement conformed t o the "classic model that ought to function satisfactorily, but are impeded by the inefficiency in the use o f public resources, and a non-transparent management style on the part o f institutions responsible for procurement." The report noted the emerging commitment to the reform of the system and proposed an action plan t o improve transparency and accountability in the process, improve the use o f resources, build capacity and create partnerships to strengthen private sector and enhance competition. 5.49 Weaknesses and delays in the public procurement system have continued to hamper budget execution, particularly the investment budget, thus improvements in public procurement are necessary for enhancing effectiveness of public investments and public service delivery. To this end, it was essential to regularly monitor progress in procurement management and make appropriate changes to strengthen it. In that context, the detailed analytical review of Cameroon's procurement system (CPAR 2005) initiated in 2004 by the Government of Cameroon in partnership with the W o r l d Bank was timely and necessary. The main purpose of the review was to update the action plan to improve a country's system for procuring goods, works, and consulting services in a manner that enhances public financial management and improves governance and service delivery. 46 Inthe new procurement code of Cameroon that is excellent inmany respects, the management of the procurement process i s placed under the Prime Minister, not under the Ministry o f Finance as other parts of the PFM system. 5. Budget Execution and Control page 74 5.50 The CPAR 2005 confirmed that the Government has taken a number o f actions during the previous five years that put the procurement process on solid grounds4'. The legal and regulatory framework o f the new procurement code, adopted in 2004, conforms to international standards. Procurement Committees have been set up at national and local levels and are operational. Independent observers have been appointed to these committees, audits o f some procurement exercises have been undertaken and the results o f procurement processes are now published. Nevertheless problems remained with implementation o f procurement processes including the observance o f the legal and regulatory framework o f the code. As noted above, the slow pace o f procurement continued to be cited frequently as a major contributor to delays in budget implementation. There have also been reports o f efforts to bypass the system by exploiting the loopholes. Recent Key Actions Taken by the Government 5.51 In terms o f more specific diagnostics, over the last few years, several important measures have been undertaken: (i)the publication o f Decree No. 2000/155 o f June 30, 2000 regulating procurement, and Decree No. 2000/156 o f June 30, 2000 on the mandate, organization, and operation o f procurement commissions; (ii)the creation o f a new Procurement Regulatory Agency (ARMP) in February 200148; (iii)the legal obligation for "maitre d'ouvrages" to prepare and update a procurement plan for the investment program and (iv) the institutionalized presence o f independent observers in procurement commissions and recruitment o f independent auditors to audit procurement contracts upon their completion and (iv) a new procurement code, characterized by respect for competition, transparency, efficiency and economy in conformity to international standards, was adopted in 2004 and the enabling decree published inthe Official Journal o f the G ~ v e r n m e n t ~ ~ . 5.52 The ARMP, the tender commissions, and the specialized control commissions are fully operational, with independent observers working on a regular basis since April 2001. The creation o f the ARMP enhanced public private consultations and partnership on procurement matters. Inthe spirit o f decentralization, committees have been set up at both the national and local levels. These decentralized procurement entities have partial authority in conducting actual buying operations. Moreover, annual audits o f public procurement contracts have been conducted by an independent consulting firm for the periods July 2000-June 2001, July 2001 - December 2002, January 2003-December 2003, and January to December 2004. In 2004, the Government organized a round table conference with private partners, donors and government officials to discuss, on the basis o f the conclusions o f the audit, the progress and obstacles in the implementation o f the procurement reforms. 5.53 In line with the recommendations o f the roundtable for systematic sanctions on violations o f the procurement rules, the ARMP has conducted a study to develop a framework for the application o f sanctions for contraventions o f procurement rules and prepared a manual o f procedures. With regard to the dissemination o f information on non-compliance, the 47 World Bank (2005), Rapport Analytique du System de Passation des Marches Publics (CPAR) au Cameroun (processed); Banque Mondiale : Operational Quality and Knowledge Services, Region Afrique, !2 AoQt2005. 48 By Decree No 2001/048 of February 23, 2001 on the creation, organization, and operations of the agency for the regulation o f public procurement (I'agence de regulation des marches publics (ARMP)) 49 Decree No 2004/275 of September 24, 2004 on the Procurement Code published in the Official Journal of October 1, 2004, 5. Budget Execution and Control page 75 Government has published all sanctions taken since 2004. The Government has also began to enforce the statute barring any enterprise that has violated the procurement rules from bidding for contracts and all enterprises are now required to obtain a certificate o f "non exclusion" from the ARMP in order to compete. Regulations to discourage practices that tend to exploit loopholes in the laws and regulations, for instance the slicing o f contracts to fall below thresholds requiring public tenders, and the treatment o f addenda (additional work on existing contracts), are being enforced. To facilitate the implementation o f the procurement, the ARMP has prepared and published several operational manuals, including a user's guide, a draft manual o f procedures for executing agencies, and a draft General Conditions o f Contracts, as well as draft models o f tender documents. Main Challengesand the Planof Action 5.54 In spite o f the advances in the legal and regulatory framework, there are many implementation challenges. The CPAR 2005 noted a number o f challenges to effective procurement process in Cameroon: (i)the development o f the capacity and professionalism for procurement in both the public and private sectors; (ii)the integration o f procurement processes in the systems for public financial management; (iii)the inadequacy o f budget funding for managing the procurement processes; (iv) the political commitment to enforcing the rules and regulations including the use o f sanctions, and fighting the general malaise o f corruption to enhance and sustain the integrity o f the procurement process; and (v) the potential for political interference in the process. The report noted that the attachment o f the procurement process and its management - essentially a technical function to the Prime Minister, a political authority, rather than the Ministry o f Finance, was not helpful in mitigating political interference in the process. The report suggested the irrespective o f whether the procurement process is under the Prime Minister or moved to the Ministry o f Finance, a strong technical team should be put in place in the supervising ministry to support the process. 5.55 The CPAR identified two main axes o f development: the importance o f reinforcing the capacities which will allow the agents o f the public sector and those o f the private sector to develop their competence and professional skills, and the careful application and enforcement o f existing rules to support the emergence o f the desired behaviors and the cultural changes. The mandate o f the ARMP gives it key roles in addressing these challenges. While the ARMP i s operational and its management has shown strong signs o f commitment to professionalize the sector, it has been weakened by the financial difficulties due to the late payments o f its annual financial support from the budget o f the state". The CPAR recommends a national strategy for the development o f capacity for procurement in the public and private sectors. It notes that the ARMP has the mandate for capacity development and a national strategy for the task, and proposes that, in place o f delivering training programs itself, the ARMP should concentrate on conception and supervision o f a global program o f training and certification o f trainers and training institutions that would deliver the training. The program o f capacity development could eventually consist of: (a) a formal program o f training leading to a diploma; and (ii) the creation o f professional associations that provide accreditation in the area o f procurement. The CPAR further recommends that procurement should be included as a discipline inthe programs o f high institutes o f training o f public administration personnel. 5.56 The integrity and effectiveness o f the new procurement process will depend on the progress made in combating corruption nationally, as well as in the procurement process. The 50 ARMP is a public administrative establishment, to be supported by subventions for the state budget until it attains financial autonomy through fees from its regulatory activities and other services. 5. Budget Execution and Control page 76 Government's national program for governance, with component for combating corruption, i s under implementation. A vigorous implementation o f the PNG and its corruption component will send a strong message on non-tolerance for corruption inprocurement and other areas. A s in other parts o f sub-Saharan Africa as well as in most o f the world, there has been a strong perception that procurement-related corruption in Cameroon remains the most lucrative and endemic form o f corruption. Overbidding, and consequently inflated contracts, has been regarded as a common practice. The Government needs to work vigorously and transparently to endow the procurement process with a measure o f credibility in the minds o f the public and the private sector in line with the recommendations o f the CPAR 2005. This requires a very transparent and accountable bidding system, with the rules and regulations enforced in a fair and open manner. Follow-up actions on the audits o f procurement operations have been slow. These audits should be published and identified follow-up actions taken promptly. Ultimately, the key signals that will change perceptions o f corruption in procurement would be timely delivery of government services, particularly from large infrastructure projects but this would also require actions on other aspects o f budget management. 5.57 The slow pace o f procurement remains a problem for budget execution. The procurement code and the circular 001CABR o f October 29, 2004 require that a procurement process for a spending activity cannot be concluded unless there i s an approved commitment o f funds for the activity. As the approval o f commitments i s itself a slow process, this slows down the initiation o f the procurement process, implying further delay to the budget execution process. The Government needs, as matter o f urgency, to develop the capacity o f line ministry staff and the central procurement agencies to prepare and process procurement operations in a timely fashion and in accordance with the code. Furthermore, the Government should ensure adequate resources for procurement operations and for the capacity development efforts to be coordinated by ARMP. Moreover, cumbersome requirements discourage small firms from bidding for contracts and government payments arrears to private erodes the ability o f these firms to raise funds to participate in the procurement process. These factors reduce competition. 5.58 In the context o f the CPAR 2005, the Government, with the assistance of the World Bank team, developed an action plan to address these challenges (Annex 6). The Government i s seeking assistance for the implementation o f this plan from the development partners. This assistance for i s likely to be provided by the development partners, including the World Bank, inthe context o f a coordinated program o f support for public financial management. 5. Budget Execution and Control page 77 Chapter 6 Improving Budget Transparency and Effectiveness Introduction 6.1 This chapter covers a number o f cross-cutting elements that are essential for an effective financial management process, the enhancement o f the value-for-money in public spending, and improvements in governance. Transparency in the management o f public finances i s recognized as a key element in improving the effectiveness o f the budget. Budget monitoring and evaluation contribute to the transparency o f the budget process and are important elements o f budget planning, results orientation and accountability and therefore contribute to the improvement o f budget outcomes. The regular preparation, auditing and reporting o f public financial accounts and the wide dissemination o f these accounts enhances transparency and promotes broader understanding and constructive discussions o f the public financial issues among interested stakeholders. This will strengthen accountability and progressively enhance budget effectiveness. A major factor for producing results from the budget i s the human resources input that influences the quality o f budget preparation and implementation o f budget activities. Broad and progressively improving public sector capacity and competence i s essential for improving budget effectiveness. Poor performing public enterprises in particular pose a burden on public human and financial resources and, as in Cameroon, drains budget resources in an unpredictable manner, thus constituting a substantial risk to budget effectiveness. Financial Management Information Systems 6.2 Increasingly, integrated financial management information systems are playing a central role in improving the transparency o f public financial management as, once it is in place, it enhances the access to and speed o f information flows, and facilitates budget reporting, monitoring and evaluation. Cameroon has been developing an integrated information system (SIGEFI) that links the main centers o f information production and use, for instance in the budget department, treasury, tax and customs operations, all in MINEFI. The system became operational in 2003 but not all the key centers have been directly linked and development work i s continuing. There are also a number o f other M I S applications in use for public financial management and related activities already operational or are in various stages o f development and linkage to SIGEFI. The compatibility, mutual functionality, the 51 integrated development and management o f all these systems in a somewhat poorly coordinated public sector management system have to be challenging. While the M I S provides rapid information on financial flows, information on actual budget performance, outcomes and impact has to be sought by more labor-intensive monitoring and evaluation techniques. 6.3 The system SIGEFI has already made significant contributions to budget execution, monitoring and reporting at the central and provincial levels, with improvements in the follow up on budget execution, auxiliary accounting o f the expenditures, general accounting, and collection o f customs duties and taxes. Furthermore, it has made possible the automatic 5' The main applications of SIGEFI are IBIS (Budget), PATRIOT (Treasury / general Accounting), TRINITY (Taxes), PAGODE and soon SYDONIA (Customs), ANTILOPE (Payroll), with new applications (DEPMI, Expenditures/ministries), PREBIC, (budget preparation) SEBIC, (followed budgetary execution) SETTING (Auxiliary Accounting o f Revenues and Expenses), CAA, (Debt) and SIGEPAT (investmentBudget), BEAC (operationsand linkswith BEAC). 6. Improving Budget Transparency and Effectiveness page 78 development o f the TOFE from the balance o f Treasury accounts and the TABORD from the ECOFI data base. However, at this time, the SIGEFI is not fully operational; it i s only partially integrated and some key linkages have not been completed. At the present time, the maintenance o f SIGEFI i s weak and it i s essential to organize the network o f users, beneficiaries and administrations o f services to agree on the respective roles in its maintenance and applications development. In that context, continued funding for the maintenance and development o f SIGEFI i s essential. 6.2 Transparency Issues Participation 6.4 Wide participation in shaping the budget is an important element o f transparency as participatory consultations provide the medium for dissemination and sharing information and knowledge o f the budget and strengthens the base for constructive dialogue. Participation in the Cameroon budget process i s weak. The management o f the budget is highly centralized, reflecting a centralized structure o f government and the existing legal and regulatory frameworks for the budget. Participation in the budget process i s limited by (i)the centralized nature o f budget preparation and control, reinforced by the short budget calendar which results ina rushed budgetpreparation and related consultations; and (ii) o ftimely information on lack the budget process and budget execution; (iii)limited policy input and guidance by the Council o f Ministers on the planning and programming phase o f the budget; (iv) lack o f formal consultations with civil non-government organizations on the budget; and (v) a limited role o f the legislature in the budget process. The National Assembly rarely amends the draft budget presented to it by the Executive and routinely adopts the bill. Subsequently, the Ministry o f Finance makes some changes in the budget to reflect the discussion o f the budget in the legislature. A substantive role of the Assembly is limited by poor information and knowledge o f the budget process, in particular on budget execution, outputs and outcomes and the short time the Assembly has to for consultations and discussions o f the budget. Transparency of the Budget Process 6.5 Transparency o f the budget process in Cameroon has been weak, hampered by a centralized budget preparation process without the underpinnings o f planning, participation and coordination, weak budget monitoring and limited efforts to disseminate budget information to the wider public. Carlier and Jennes (2003) noted that the quality o f financial information was one o f the weakest aspects o f the Cameroon budget system.'' It further characterized the draft budget as unreadable, resulting from a very complicated budget nomenclature, and noted the absence o f timely budget execution reporting. As noted earlier, the budget settlement law (Loi de Reglement (LDR)) has not consistently been prepared. 6.6 Since the budget document i s voluminous and very detailed, it is unlikely that many people will wade through it. A simple and brief version could be prepared for public consumption. In Uganda, there has been the practice to provide a short and concise document that provides the highlights of the budget. This is made available to the general public. Regular reports o f budget outputs and outcomes are not prepared and made available to interested parties within and outside the government, the investment in budget information systems (SIGEFI and others) notwithstanding. With the information system that i s already in place, it should be possible to prepare regular management reports o f budget performance, 52 Carlier Krit, and Jennes Geert (2003) Country Case Study 3: An Assessment of the Cameroon MTEF, Center for Aid & Public Expenditure, Overseas DevelopmentInstitute, London. 6. Improving Budget Transparency and Effectiveness page 79 which could be made available for public dissemination, perhaps through the government or MINEFI website as it has started to do. However, since access to the internet i s limited, the distribution o f printed materials remains an important avenue for dissemination. 6.7 The OECD Note on Best Practices for Budget Transparency defines budget transparency as the full disclosure o f all relevant fiscal information in a timely and systematic manner.53 It notes that transparency - openness about policy intentions, formulation and implementation - i s a key element o f good governance, and furthermore, that there i s a strong relationship between good governance and better social and economic outcomes. The Note on Best Practices provides a reference tool for countries to use in designing measures for improving budget transparency. It stresses the importance o f a comprehensive budget that encompasses all government revenues and expenditures, a budget document with detailed review o f major revenue and expenditure programs, a full discussion o f the objectives, policies, and economic performance factors underlying the budget, and a review o f the performance o f the past and ongoing budgets and the targets o f performance inthe new budget under discussion. 6.8 The Note recommends a number o f budget reports including a pre-budget report that would encourage debate on the budget aggregates, monthly, mid-year and year-end reports o f performance, as well as an occasional long-term report that assesses the budgetary implications o f changes in the society and economy and the long-term sustainability o f current government policies. Furthermore, it recommends the full disclosure o f economic assumptions underlying the budget, tax expenditures, the government's financial liabilities and assets, contingent liabilities, non-financial assets, and employee pension obligations. 6.9 For Cameroon, the attainment o f best practice in budget transparency i s a long-term proposition. However, it i s essential to have a commitment and a plan to progressively improve budget transparency. In 2005, the Government appears to have taken the first steps to a more open and transparent management o f public affairs including the budget. It i s important to identify priority actions to promote budget transparency and begin to implement these actions in a manner that i s consistent with best practice. There are three fundamental foundations for the transparency o f public financial management which should receive high priority in the medium term: (i)the active role o f the legislature in the public financial management process; (ii)the framework for public accounting and financial reporting to enable the publication o f audited reports o f government financial operations; and (ii)the reinforcement o f the human and institutional capacities o f the organs o f financial control and the supreme audit institutions, discussed in Chapter 5. The Role of the Legislature 6.10 The process of budget approval and public information: The articles 16 and 34 o f the Constitution refer, in a very general way, to the role o f the Parliament the approval o f the budget. The Ordinance o f 1962 requires that the legislature should have 20 days to debate the Finance Laws and adopt the budget. The National Assembly must receive, in principle, the budget documents 15 days before the date o f the debate o f the Finance Law project, some days before the beginning o f the budgetary session. At the same time as they are submitted to the National Assembly, the budgetary documents are communicated to the newspapers, radio and television. They are the subject o f special communication efforts in all national media by 53 Organization for Economic Cooperation and Development (OECD (2002)): OECD Best Practices for Budget Transparency, OECD Journal on Budgeting, Volume 1, Number 3, OECD Paris. (Available thru the OECD website) 6. Improving Budget Transparency and Effectiveness page 80 MINEFI. On the opening o f the proceedings o f budget debate, the Prime Minister has to deliver an economic and financial report as a general background to the proposed Finance Law (budget bill). 6.11 The proposed Finance Law, when submitted to the National Assembly, is initially examined by the Finance and Budget Committee o f the Assembly, which, like the eight other committees, has limited resources in terms o f dedicated offices and staff, to carry out a proper review o f the proposed budget. In any case, the Parliamentarians cannot propose any additional article or amendments to the proposed budget, except to suppress or to reduce a proposed expenditure, to create or to increase a revenue receipts, thus ensuring that the overall budget balances in the proposed law do not worsen. 6.12 Parliament has limited role in the process o f elaboration o f the budget. The Budget and Finance Committee does not participate, upstream, in the elaboration o f the budget and MINEFI does not provide periodic assessments o f the execution o f the budget to the Committee. The belated arrival o f the budgetary documents is an obstacle to any rigorous analysis o f their contents, even if some deputies, who belong to the Finance and Budget Committee, have the technical qualification to do so. The volume o f these documents, the abundance o f data in them and the lack o f synthesis reduces the clarity and value o f information communicated to the legislators, but also discourages any efforts to undertake meaningful analyses. 6.13 Furthermore, the Budget and Finance Committee does not have access to the reports o f the different administrative bodies that intervene in the control o f the management o f the public finances or o f the assessment on the different structures o f the public sector. The absence o f a detailed settlement law (Loi de Reglement (LDR)) has been an obstacle to even a simple comparative analysis between the expenditures presented in the proposed budget and actual spending in past years. In sum, the Budget and Finance Committee does not have the capability to play an effective role in the elaboration o f the budget. The presence o f a dominant party in the Parliament also tends to reduce the incentives for extensive discussions o f the management o f the state financial operations. 6.14 The National Assembly needs more time to examine the budget documents, and perhaps these documents should be simplified, with some brief synthesis o f the budget strategy and major issues. Inthe course o f the fiscal year, the Budget and Finance Committee should have access to reports on budget execution and control, and should be able to discuss these reports with the relevant authorities in Government. Furthermore, the Committee needs material resources and the capacity to carry out its responsibilities. A s a start, MINEFI has undertaken to deliver the budget documents to National Assembly as early as October 20 o f every year, which should allow the legislators more time to review them. Furthermore, it i s planned to provide the Committee with a tax expert and an economist, a good beginning for sensitizing the members o f the Committee as well as other members o f the National Assembly. This might help to initiate a process o f capacity enhancement on budgetary matters for all the legislators, to enable them to carry out their mandates o f participating constructively on the management o f the finances o f the country. The work of the Budget and Financial Committee would benefit from the recent establishment o f the Chambre des Comptes, which should be providing its annual report on public financial accounting to the Committee. 6. Improving Budget Transparency and Effectiveness page 81 6.3 Public Accounting and Financial Reporting The Institutional and Organizing Framework 6.15 The system o f public accounting in Cameroon i s inspired on the French system with a centralized public Treasury supported by a network o f public accountants. The financial regulations o f 1962, modified several times, have constituted the fundamental legal basis for the management o f public finances, with the Minister o f Finance as the principal accounting officer. The framework for public accounting i s prescribed by the decree No" 97.226 o f June 25 1997 on the general regulation o f accounting for the state, and its decree o f application o f June 30, 1997. The accounting nomenclature was adapted and harmonized with the budgetary nomenclature by the decree o f February 09, 2003. This nomenclature i s has been set-up and henceforth applied for the execution o f the budget in all accounting posts o f the Treasury. The treasury/accounting system i s based on the principles o f the unity o f payments and treasury with some exceptions: accounts o f the local collectives and public establishments (CAA, FEICOM, and the Road Fund) that have accounts in the commercial banks. The public accountants have a particular status which establishes the principle o f their personal and financial responsibility, and o f their security. 6.16 Inaccordance with the decree No 2003.165 o f June 30, 2003 on the organization o f the Ministry o f Finance still in force, the administration o f public accounting included, a Directorate o f the Treasury at the central level responsible for the management and coordination o f the network o f the public accountants composed o f a Central Agency of Treasury Accounting (ACCT), a Paymaster General o f the Treasury (Pairie General du Tresor (PGT)), accountant of the wages and all ministerial expenditures executed at the central level, 11 General Treasury Paymasters/Provincial, senior and principal accountants, all centralized, 53 central revenue collectors, 264 local collection agents, and 34 accountants stationed at embassies and diplomatic posts. 6.17 ACCT was created in 2004 and i s only partially in place although its role i s crucial in the centralization o f the data on the execution o f the budget. In December 31, 2004, the personnel o f the public accounting included 2.269 staff, o f which 170 were posted in central services and 1.986 in the network o f public accountants. The information system for public accounting in Cameroon i s managed through SIGEFI, the integrated financial information system o f the Ministry o f Finance that i s linked to through a data base ECOFI, to the independent applications in customs, taxes, payroll, budget, and accounting, as well as the new financial applications under development. 6.18 A number o f the existing laws, decrees and regulations on public finance, including the regulations for public, administrative and management accounting, are under review and revision. A draft organic budget law (Zoi portant rkgimeJinancier de Z 'Etat (LRFE)) i s under preparation and discussion. It will, inter alia, introduce multiple budget authorizing officers (principal, secondary and delegated) and goal-oriented budget programs and indicators, and 6. Improving Budget Transparency and Effectiveness page 82 recognize the judgments o f the management accounts by the new Charnbre des Cornptes. The Government has also worked on a new decree on the public accounting; the basic instructions on the production o f the management account, and the instructions on public accounting and the administrative accounts. A draft decree on the organization o f the new Directorate General of the Treasury and the Financial and Monetary Cooperation (GDT) has proposed a large number o f directorates, divisions, services and offices in GDT. The proposed structure would make GDT a very large department, entailing high costs in office space and furniture, human resources and operational and maintenance costs. 6.19 The organizational structure o f the ACCT was not yet formally in place but the urgent task has been to put staff in place to support the accounting. The ACCT's role o f centralizing and integrating the network for accounting, currently highly dispersed, i s essential. This network includes more than 400 accountants' stations o f the Treasury and its agencies in the embassies. Some o f these stations operate in parts o f the territory with a limited number o f operations; this raises the question o f their utility. It i s essential to rationalize the network o f accounting stations o f the Treasury. Regarding staffing, a five year recruitment plan should be prepared, based on an assessment o f the needs in the new structure o f ACCT and taking into account impending departures due to retirement as well as the need to progressively improve the overall competencies o f the staff. T h e System of Accounting and Reporting 6.20 Balances of the Treasury: The system o f public accounting in Cameroon provides for monthly, quarterly and yearly production o f status reports on budget execution. It is required that the monthly accounting balances be produced on the last day o f the following month, at the latest. The integrated information system, SIGEFI has facilitated the production o f these balances and the presentation o f the status o f budget execution in a consolidated form. Since 1999, the installation o f the public accounting software PATRIOT has enabled the Treasury to produce and publish accounting reports. The reconciliation of the budget execution and book entries i s undertaken monthly by the Directorate o f the Treasury for the preparation o f the TABORD and the TOFE. 6.21 The production o f the balances o f the treasury accounts and the status o f expenditures does not pose a major problem. On the other hand, the production o f the synthesis o f the status o f customs, taxes and other revenues remain very problematic. The definitive annual balance o f the Treasury would in principle be available in March 31 o f every year, three months after the closing o f the accounts o f the previous exercise. This time-table has never been respected in the past. However, the balance o f accounts for fiscal 2004 budget was available in April 2005 although with some irregularities. Some delays were in part attributable to the difficulties in the setting up o f the new budgetary and accounting nomenclature. With the adoption o f the ministerial instruction setting out the modalities o f production o f management accounts, the accountants of the state will have a legal framework for the production o f the management accounts for 2004. 6.22 The "reporting" on the budget execution appears weak, whereas effective reporting would permit the identification o f problems linked to budget execution. However, no assessment of the management o f budget i s done outside MINEFI. Further, the certification o f the accounts o f the state by an authority independent o f MINEFI i s neither provided by the Controller General o f the State (Control Superior de Z'etat) nor by the law creating the Chambre des Cornptes. Besides, the latest version o f the draft law on public finances (LRFE) does not provide for the auditing and certification o f the public accounts by the new Chambre des Comptes. While ministerial departments should produce quarterly reports o f execution o f their budget; with MINEFI producing a synthesis o f these reports, these reports are not 6. Improving Budget Transparency and Effectiveness page 83 produced. Some ministries produce reports on the engagements o f expenditures, but these reports are, in general, not available. As noted earlier, the National Assembly has not been provided with a detailed settlement law (LDR) during the annual budget sessions as required by the law. 6.23 To strengthen accounting and reporting, the Government should (i)to produce management accounts by public accountants starting with the 2004 budget; (ii)to begin to require the certification o f the accounts o f the state by an authority independent o f the Ministry o f Finance; and (iii)elaborate and submit a complete Loi de RBgIement o f the 2006 budget to the National Assembly as required. 6.4 Budget Monitoring and Evaluation 6.24 There i s a growing appreciation in the development community o f the importance o f results or performance orientation in the public sector. Both the PRSP process and the MTEF, the recent popular instruments for effective public sector actions stress results and performance orientation as well as the related process o f monitoring and evaluation (M&E). A s noted by Mackay (2006), this evaluation culture "is considered to be one avenue for improving performance o f a government in terms o f the quality, quantity and targeting o f the goods and services which the state Budget monitoring and evaluation o f results i s a logical place to start to incorporate systematic monitoring and evaluation in public sector management. 6.25 Budget monitoring may be designed as a process o f comparing actual inputs, outputs and outcomes against corresponding plans. The impact o f budget monitoring depends on the extent to which the information generated i s used to improve budget planning, programming, execution and implementation, and to enhance transparency and accountability. Consequently, monitoring needs to be accompanied by various levels o f review/evaluation o f performance, using the results from monitoring. It is good budget practice to institute regular monitoring and evaluation o f budget performance and based on the evaluations, to take actions to keep the budget on track and focused on the expected results. Thus, budget monitoring and evaluation i s an important element in improving budget planning and programming and the effectiveness o f the overall budget process in delivering results. Timely dissemination o f budget monitoring results, to government agencies involved in budget preparation and execution as well as to the public, i s essential for the integrity and transparency o f the budget process. Budget Monitoring and Review Process 6.26 Cameroon does not have a functioning and systematic budget review process. The OECD Best Practice Note suggests a number o f regular budget monitoring reports to enhance accountability. However, each country would need to decide on a reporting, monitoring and evaluation schedule that meets its needs and consistent with its resources and capacity. The key point i s that some regular schedule o f monitoring, evaluation and reporting needs to be in place, with provision for some ad-hoc reviews as necessary. In practice, different levels and instruments for budget monitoring and evaluation are needed to serve different purposes and audiences. Specific circumstances may require a review o f budget outturns and performance, such as before a revision o f the budget during the fiscal year or to feed into the formulation o f the budget for the coming year. 54 Mackay, Keith: Institutionalization of Monitoring and Evaluation Systems to Improve Public Sector Management; Evaluation Capacity Development (ECD), ECD Working Paper Series N o 5: January 2006; IndependentEvaluation Group (IEG), The World Bank; www.worldbank.org/ieg/ecd. 6. Improving Budget Transparency and Effectiveness page 84 6.27 A practice of regular reviews of the budget needs to be institutionalized. With computerized management information systems, it would be possible for the budget department to routinely monitor the daily outturns from the budget. However, the monitoring for reporting with a wider distribution outside the MINEFI and the Government should be done at specified intervals - monthly, quarterly, and annual, with each exercise designed to meet the different operational and reporting needs. It would b e useful to have a planned process o f reviews, with the identification of areas, activities and projects to b e reviewed during the fiscal year as part of the budget planning and programming process. Guidelines should be developed for the reviews. Monthly and Quarterly Reviews 6.28 Monthly budget reviews can be useful in ensuring that budget execution is in line with the budget, the resources available and the macroeconomic framework. This should be limited to quantitative comparisons between revenues and spending from the beginning o f the fiscal year up to the end o f the last month, against what was planned as reflected in the approved budget. Such regular reviews of revenue and spending help to improve cash planning and the realism of budget estimates and plans. The monthly review should be followed by a revision of the spending plans for the rest of the year if necessary. 6.29 Quarterly reviews should include: (i)a quarterly review of actual expenditures against planned expenditure by major categories o f expenditures (ministries, sectors, programs and sub-programs) that could be summarized in a report and given wide distribution; and (ii)a review focusing on performance and results of budget operations by budget program administrators, with MINEFI and MINIPLADAT using the information to put together a global picture o f progress and problems. This second set could include selective and more intensive reviews carried out jointly by line ministries and MINEFI and MINIPLADAT. This would be particularly useful for multi-year investment budget operations, and would serve to assess results, identify implementation bottlenecks and ways to address them, and to adjust implementation plans and budgets and refocus the project for the achievement of concrete results. These reviews could include targeted client satisfaction surveys - focused for example on the users of agricultural extension advice, the parents of schoolchildren or the users of health services -and periodic measurements of output delivery. For example, it is relatively easy and inexpensive to organize random counting exercises to assess the availability of drugs in rural health centers or text books in schools: such exercises then set a simple benchmark against which future performance may be assessed. Annual reviews 6.30 Annual reviews are essential for supporting the budget planning and programming process and improving budget transparency by informing the public of the results o f the budget of the past year. One required annual review process is the settlement l a w (Loi de Reglement (LDR)) that, by law, should be presented to the legislature along with the new finance law (budget). A s noted earlier in this report, the LDR is required to reconcile budget estimates with actual spending but complete L D R s have not been prepared in recent years. The latest attempts at LDRs provide only aggregate data by ministry of amounts approved for payment (ordinancement), not actual payments. 6.31 Reinforcing the LDR: Preparing a detailed LDR that meets the legal requirement is important. However, the current practice is that at year T, the LDR o f year T-1 is presented to the legislature with budget (finance law) for year T+1. Thus, the impact of the LDR on the discussion/evaluation of the budget presented for approval is likely to be limited. Furthermore, the LDR does not include an analysis o f performance and outcomes and thus will not provoke 6. Improving Budget Transparency and Effectiveness page 85 a constructive discussion of these important aspects of budgeting by the legislature. It is essential to (i)reinforce the LDR with an assessment o f performance and outcomes from the budget; and (ii) advance the discussion of the LDR in the legislature by about six months, to coincide with the period of the preparation of the budget for the next fiscal year so that the discussion can inform the budget under preparation. 6.32 Ministerial Reports: Line ministries in Cameroon are required to prepare reports of budget execution but this has not been done with any regularity. It is good practice for line ministries to closely monitor developments in their sectors, for instance the ministry of education would regularly track enrollments and the performance of students in examinations; the ministry of health would track some health conditions and performance and the use o f health facilities; while the ministry o f agriculture would monitor the production o f commodities in the sector, especially in areas where the budget has provided support. These monitoring activities are very useful for assessing budget effectiveness as well as social and economic developments and ministries should receive adequate budgetary allocations to undertake them and make the results available to the public. To support planning and programming, permit stakeholders to follow and assess ministerial activities and enhance accountability, annual ministerial reports should focus on the use of budget resources and the results produced, with efforts to link policies and expenditures to results. These ministerial reports could take the form o f annual sector expenditure reviews, undertaken by the ministry staff, which would not only look backwards in terms of performance and outcomes but also look forward interms of future policies and the medium-term expenditure implications. Other scheduled and Ad-hoc reviews 6.33 Some necessary monitoring and evaluation activities may not fit into a regular schedule but are neededto review results and distil lessons for future actions. Most of these relate to the activities in the investment budget such as ad-hoc reviews of problem projects, scheduled reviews of project performance (for instance a mid-term review) and project completion reports. These evaluations would often require the use of experts from outside the government to assess the performance and results and make recommendations for the way forward. In the case of project completion reviews, the objectives would include an assessment of the project design, implementation performance, results, sustainability of interventions, and the lessons for future activities. This review would also review the disposal of the assets and liabilities of the project consistent with the enabling laws and conventions. Beneficiary Assessments 6.34 Beneficiary assessments are essential elements for assessing the outcomes of budget interventions. In the context of Cameroon, there are two groups o f beneficiaries for budget monitoring purposes - the intermediate beneficiaries consisting o f the facilities that provide the services, and the final beneficiaries consisting o f the people that use and benefit from the services. The first group includes such facilities as schools, hospital and health centers, and agricultural extension services. The public expenditure tracking survey (PETS) was developed as an instrument to assess whether and how and how m u c h o f the budgeted resources actually reach the beneficiary facilities. PETS carried out in many countries including Cameroon, has revealed lags and potential leakages in the flow of resources from central budgets to operating facilities around the country. These findings not only reveal serious shortcomings of the public financial management at critical stages as these weaknesses hamper the effectiveness of the delivery o f public services. 6.35 For the assessment of the impact on the final beneficiaries, a number of statistical approaches are available such as the household surveys and an abbreviated version of it-the 6. Improving Budget Transparency and Effectiveness page 86 Core Welfare Indicators Questionnaire (CWIQ) survey. In contrast to the household expenditure surveys, the CWIQ is light, and can be carried out and the results analyzed quickly. The questionnaire can be tailored to include questions o f specific interest, for instance about the incidence and effects o f HIV/AIDS that i s not part o f the core questionnaire. CWIQ i s useful for a rapid statistical assessment o f the views o f beneficiaries on the services provided by the Government. Other tools for beneficiary assessments include the participatory poverty assessment (PPAs) which has been in use in Cameroon in the context o f the PRSP. Finally, the use o f statistical approaches for monitoring results and beneficiary assessments would require that the ministries work closely with the statistical agency, and that the latter have to capacity to respond to requests o f assistance in carrying out surveys by ministries. Public Expenditure TrackingSurveys 6.36 A public expenditure tracking survey (PETS) is an instrument for tracing the path o f budget funds from the treasury to the facilities that use these resources to provide services to the population, assessing the flow and use o f these resources and possibly their use by the facilities. PETS was born out o f a common phenomenon in many developing countries that budgeted resources were not getting to intended facilitiedbeneficiaries. Thus, the central issues to be resolved by a PETS exercise include how much, when, and in what form did the resources get to the facility, the possible causes o f delays and leakages if any, and the systems for accounting for the resources and their uses. PETS could also assess beneficiary satisfaction and benefit incidence. 6.37 Two PETS have been conducted in Cameroon with the assistance o f the World Bank. These focused on service delivery in the education and health sectors. A summary o f the results from the health survey (see Box 8) provided powerful guidance for policy poor information sharing, the absence o f a systematic approach to notifying beneficiary facilities o f expenditure authorization, and poor governance and accounting practices at facility. These were powerful findings and provided the basis for specific actions to deal with very specific issues o f budget execution as well as governance. Civil society organizations, for example the local chapter o f Transparency International, have also started to undertake budget tracking and disseminate the results widely, which would help the population to understand and have information on the budget and perhaps participate in monitoring the budget. This effort requires the full cooperation o f the government to be done effectively, particularly in making budget information widely available. Fortunately, the indications are that the government is cooperating with the civil society organizations. It i s also important for the Government to adopt the use o f PETS as a regular monitoring tool for budget operations. PRSPMonitoringProcess 6.38 The PRSP has set ambitious targets for economic growth and social indicators and designed program for monitoring these developments. These monitoring activities includes a number o f large statistical surveys (HHES, MICS, DHS) as well as improving aggregate national accounting. The results from these surveys will be useful for reformulating budget policies and support medium-term budget planning and programming, including the preparation o f sectoral MTEFs. Similarly, the reports from budget monitoring and evaluation will be critical for assessing progress in meeting the targets set by the PRSP. It is important that monitoring o f the budget and that o f the PRSP i s well coordinated. 6. Improving Budget Transparency and Effectiveness page 87 Box 8: Budget Tracking Survey in the Health Sector The survey, carried out in 2004, reveals that accessibility. transparency, and the timely availability o f budgetary resources for the smooth implementation o f critical programs are central to improved delivery in health services in Cameroon. In particular, long delays between the promulgation o f the State Finances L a w and the availability o f the resources to the frontline service providers have adversely affected the absorption capacity o f service providers, hindered the smooth execution o f investment programs, and reduced the quality o f the public expenditure. Pervasive information problems reduce the efficiency o f the budget allocation and execution process. First, some health centers receive no resources from the Ministry o f Health (MOH) to cover recurrent non wage expenditure. The survey results show that as much as 25% o f health facilities surveyed had not been identified in the State Finances Law. Therefore, they did not receive any funds from the central government. Second, facilities that are listed in the government budget often receive no clear information from the MINEFI with regards to their authorized expenditure envelope. Abnormally long delays in the notification o f expenditure authorizations hampers activities o f health service providers and the efficiency o f public expenditure. With no formal notification from the MINEFI to the "budget holders," including the head o f province or district administrative agency, health care facility managers learn about fund authorization often through word o f mouth. This usually happens -- the earliest in February, but often as late as May, o f the fiscal year, with regional disparities in the date for the availability o f fund. These delays not only translate into difficulties for the absorption o f available resources by health facilities, but also adversely affect activities and health outcomes. Surprisingly, this i s not reflected in the execution rates o f the recurrent expenditure budgets which varied between 90% and 100% in 2002 and has reached 96% for the first three trimesters o f 2003. These high execution rates, however, hide underlying holders are inclined to precipitate spending before the end o f the fiscal year -- thus adversely affecting the problems in the quality o f the expenditure. Because they receive their resources after long delays, budget quality o f spending. As a result, they often find themselves hostages the local suppliers who have mastered the budget game and are apt in the perverse art o f overpricing materials and side-contracting. Poor governance entails a high cost to the government. This invariably translates into large losses estimated at one fourth o f the budget. The tracking exercise did not uncover serious leakage problems in the sense o f intended beneficiaries receiving less than stated in the Finance Law. Effective leakage was estimated at 2%. Overpricing arises as local suppliers (i) anticipate delays and uncertainties into converting their bills in cash at the regional treasury, (ii)price the eventuality o f side payments at the treasury level to receive their payment, and (iii) know the budget holder has limited, ifany, room to maneuver. Side contracts between the head o f the facility and the supplier also emerge quite often. Indeed, to circumvent the rigidity o f the budget which i s organized into specific credit lines, a budget holder i s tempted to reallocate among the credit lines by asking the supplier to deliver cash for instance on the "fuel and gas" line. This obviously comes at a cost. As a result, although, the execution rates are close to 1OO%, the budget holders evaluate the worth o f their budget between 67 and 75% o f its face value. Poor record keeping at the peripheral level leads to a complete lack o f accountability. Facilities do not keep track o f their expenses and are not sanctioned to do so in the absence o f ex-post controls. As a result, the M o H may know the `theoretical' execution level o f its budget, but cannot gauge whether the budget has been executed as planned. This becomes a major difficulty during the PETS since the lack o f information make it difficult to assess the extent to which facilities, in executing their budget, diverged from the MoH plans. For example, such situation may arise if the head o f facility spends the maintenance credit line on furniture or medical consumables, or just cashes the money by signing a side contract with a local supplier. Source: The World Bank, Cameroon, Development Policy Review: A new resolve to sustain reforms for inclusive growth, June 2004 (in process) Development of Systematic Monitoring and Evaluation Capacity 6.39 The section has discussed a number o f examples o f monitoring and evaluation (M&E) activities and their potential roles in improving governance and the effectiveness o f the budget. Some o f these activities are carried out in an ad-hoc manner in Cameroon (for instance, the PETS, which were carried out primarily to fulfill the Enhanced HIPC Completion point triggers). As part o f its institution building for budget management, Cameroon needs to start to institutionalize M&E. This would involve the creation o f the capacity and systems that, 6. Improving Budget Transparency and Effectiveness page 88 on a regular basis, produces monitoring information and evaluation findings that are used in the pursuit o f good governance, judged valuable to stakeholders, and with sufficient demand for the M&E function to ensure its funding and sustainability (Mackey (2006)).55 6.40 Box 9 drawn from Mackey (2006) shows a number o f key lessons for building country M&Es. Four points need emphasizing: The process should be demand- Box 9 :Lessons from Building M&E Systems driven rather than supply driven: In . Substantive government demand i s a Cameroon the limited efforts on prerequisite for successful institutionalization M&E have been largely supply Role o f Incentives driven. Demand by the government K e y role of a powerful champion and domestic stakeholders m a y be Start with a diagnosis o f existing M&E limited because o f lack of experience and use of M&E. Thus, Centrally driven, by capable ministry it is necessary to build awareness of Build reliable ministry data systems the potential uses and benefits o f Danger of over-engineering the system systematic M&E as well as .....Utilization i s the measure o f success changing processes (budget Limitations on relying on government laws, preparation procedures and decrees and regulations calendar) to permit the integration Role o f Structural arrangements to ensure M&E o f results from M&E . objectivity and quality A long-haul effort, requiring patience Incentives: This i s an important I aspect for creating demand for M&E. There has to be some incentives for people to use the results of M&E. For instance, where the quality of the preparation of a project/program, including the integration of the lessons from past similar programs, i s a key factor in deciding whether a project/program should be included in the budget, or given priority status, M&E is likely to be taken more seriously and results used. Limits of relying on laws, decrees and regulations: Adopting laws and decrees mandating M&E may be useful in legitimizing the process but do not ensure that the considerable capacity building, incentives, coordination, and systems development efforts required for a successful M&E system will be undertaken. Building a sustainable M&E is a long term process: Experience shows that even in developed countries, building sustainable M&E process is a slow incremental process. In a developing country like Cameroon, this can be a challenge because of the difficulties in establishing the appropriate sequence and sustainable pace o f activities. Some difficulties also arise from pressures, sometimes from the development partners, 55 Mackey, Keith (2006), ibid. This paper summarizes the experience in setting up country M&E systems and contains a number of very useful references on the subject. The paper is part of the outcome of the extensive work on M&E by the World Bank Group's InternationalEvaluation Group (IEG), formerly the Operations Evaluation Dept (OED). The IEG reports on evaluation (the ECD Working paper series) are available from the World Bank Group website: www.worldbank.ora/iea/ecd. Another paper from the series that is most relevant to Cameroon is on the experience of Uganda on setting up M&E and using it to promote development ( Hauge, Arild, The Development of Monitoring and Evaluation Capacities to Improve Government Performance in Uganda, ECD Working Paper Series, N o 10, The World Bank; October 2003.) 6. Improving Budget Transparency and Effectiveness page 89 to quickly establish monitoring and evaluation systems in forms that may not be consistent with long-term needs, does not build on existing systems, and not sustainable. The appropriate approach is to have a realistic and funded medium-term plan for M&E and stick to it. 6.5 Managing H u m a n Resources 6.4 1 Public financial management i s a labor and knowledge intensive undertaking requiring strong institutions. In the context o f a developing country such as Cameroon, a discussion o f PFM reforms would be incomplete without a reference to capacity and institutional development. Relative to other countries in SSA, Cameroon has well trained and qualified people but the operations and performance o f the public services do not reflect this accumulation o f human capital. Cameroon has carried out a number o f reforms in the area PFM over the years but the concrete results from these efforts have been limited. Perhaps, the poor results could be partly due to the lack o f a corresponding effort to strengthen the institutional framework and human capacities. Thus, there i s a risk that future reforms in P F M and governance reforms will not yield concrete results unless there are sustained efforts for progressive improvements inhuman and institutional capacity. 6.42 This review o f the human resources aspect is not intended to comprehensive but to highlight the importance o f institutional and human capacity development for sustained progress in PFM and related areas inthe public sector. Inthis rapidly changing and knowledge based world, it i s imperative for government to have continuous programs for knowledge building and institutional adaptation. This is not the case in Cameroon, the result is that ideas for are raised and discussed but never really fully adopted and institutionalized because the required capacity, including through learning by doing, i s not developed. For budget management, capacity development comes through formal training as well as on the job training. As it i s a largely complex bureaucratic exercise, it requires processes o f team building, learning on the job and the maintenance o f institutional memory. These processes take time and require staffing and leadership stability to allow teams to work and learn the craft together, share experience and improve team -work skills. This further requires a stable path for career growth for staff, and incentives for them to stay within the system.56These will be possible in a stable institutional environment with incentives for work and learning. Institutional obstacles 6.43 Sustained development o f human and institutional capacity for PFM i s unlikely to take place in isolation from rest o f the public services and the overarching economic and political institutions in the country. The machinery o f government in Cameroon i s highly fragmented, with the bureaucracy characterized by a large number o f line ministries competing with a growing number o f cross-sectoral committees. The result i s the lack o f rational empowerment o f the ministries and even the committees, a confusion o f roles, goals and responsibilities, distortion o f incentives and poor interagency collaboration. Energy i s expended on turf battles rather than on long-term development and delivering services to the population. The excessive institutional fragmentation and overlapping responsibilities can lead to conflicting decisions and difficulties in establishing accountability, and puts a heavy burden on already weak coordination functions. Inaddition, there are a large number o f public enterprises, whose roles 56 . [Emmanuel Abuelafia, Sergio Berensztein, Miguel Braun, Luciano Di Gresia(2005): Who Decides on Public Expenditures? A Political Economy Analysis of the Budget Process: The Case of Argentina; Inter-American DevelopmentBank]]. 6. Improving Budget Transparency and Effectiveness page 90 may intersect with those o f the government and the private sector. Control o f these enterprises by the government is largely circumstantial. This fragmented institutional environment i s not conducive to sustained capacity enhancement. Performance related incentives 6.44 The civil service in Cameroon has an establishment roughly estimated at about 165,000 agents, a relatively large number for a population o f 16.4 million. However, the exact number o f civil servants, consisting o f regulars and contracted workers, i s not known with precision due to the weaknesses in the systems for keeping track o f employees. A consequence o f the fragmented institutional set-up i s the distortion o f incentives for civil servants that undermines the effectiveness o f the public service. The lack o f transparency and accountability in personnel matters promote staffing decisions more likely to be based on patron-client relationships not on merit. 6.45 As noted earlier in this report, budget processes are poorly implemented due in part to the lack o f incentives for good performance. It was noted that the lack o f analytical rigor and planning in the budget preparation process i s due in part to the lack o f demand, recognition and reward for analysis and planning. Some ministries in Cameroon prepare sector strategies and MTEFs, a clear advance for the elaboration o f the budget. Untilrecently these efforts were not even recognized in the budget planning and programming process and not discussed in budget conferences. This lack o f recognition does not give the staff in those ministries the incentive to develop the work further, thus, without donor pressure and support, these efforts would have collapsed. The alignment o f incentives, monetary and non-monetary, with performance i s essential for sustainable capacity development. Low wage levels 6.46 The institutional fragmentation and the distortion o f incentives are compounded by the low wage levels within Cameroon's civil service relative to the country's per capita income and to comparable countries in Africa. In the early 199Os, as part o f an overall fiscal retrenchment effort, the Government of Cameroon addressed the challenge o f reducing the wage bill by cuts in civil service salaries. Real wages experienced further reductions by the currency devaluation and the ensuing high inflation in the second half o f the 1990s. The low morale and the widespread corruption in the civil service have been attributed to this low wage policy. Many government employees use the low wage rates to justify some o f their shady practices such as influence peddling and profiteering from public work contracts. The widespread acquiescence to these practices has compounded the task o f combating corruption. 6.47 However, the wage bill has remained large, officially 5.4 percent o f GDP and 33 percent o f total expenditures in 2004, excluding the payments for the contract staff and the accumulation o f the salary arrears. The Government has over time attempted to respond to the challenges o f a large wage bill and a poorly functioning civil service. On the payroll, the strategy was a freeze o f regular employment and nominal wages. On the functioning o f the civil service, the Government has resorted to the creation o f special assignment committees and the use o f contract workers. But these have led to unintended consequences including (i) difficulties in managing the payroll and providing financial incentives to civil servants; (ii) the proliferation o f these special assignment committees, often intended to be temporary, but usually end up as permanent structures; (iii)the overlap o f mandates o f committees and line ministries; and (iv) high costs o f central administration due to the costs o f these committees and the contract workers. Furthermore, these have expanded opportunities for patronage and corruption. 6. Improving Budget Transparency and Effectiveness page 91 Need for Reforms 6.48 Cameroon needs broad public sector governance reforms to develop efficient and transparent public institutions essential for progressive improvements in human resource utilization and capacity development. Traditional civil service reforms that emphasize and ministerial structures and functions, changes in the establishment, and compensation and benefit systems and related performance based incentives, will not be enough for improvements in capacity. Reforms to reduce the institutional distortions and streamline incentives, promote interagency collaboration and combat fraud and corruption will be essential. Reforms would also include changes in the overarching institutional framework, for instance the role o f the Council o f Ministers, the empowerment o f ministries and their staffs in carrying out their responsibilities through an effective decentralization o f decision-making, and the integration o f technical considerations into national decision making. Strong political commitment to reforms for good governance, the support o f the civil society and development partners will be essential to implement and sustain reforms. 6.49 The development o f efficient and transparent public institutions would require (i) developing capacity to effectively perform functions such as public administration, policy making and implementation, regulation o f economic and social activity, and public service delivery; and (ii)enhancing the state's accountability-both internally among the executive, legislative, andjudicial branches, and externally, to citizens, users o f public services and other stakeholders5'. The reform agenda would be a long-term one, and would be underscored by a shared vision o f the public sector and be implemented through a series o f medium-term action plans. A diagnostic study o f the public sector would be needed to identify the main public sector issues, including surveys o f the population to identify their views on the performance o f the public sector and its appropriate role, and o f the main stakeholders to determine the level o f commitment for public sector institutional reforms. 6.50 Wide consultations, including with the existing civil service, would be needed to discuss and understand the problems with the existing system as a background for articulating a long-term vision o f the public sector, sensitize the population on the proposed changes and establish the scope o f the plans for reforms. These plans should be synchronized with the plans to reform public financial management including the adoption o f the MTEF, and the national program o f governance. The approach should avoid any semblance o f a major institutional surgery, staff retrenchment or comprehensive civil service reforms, where a large number o f reform actions are attempted simultaneously. Rather, it should emphasize the establishment o f a vision, the sequencing o f actions over the medium-term; and the framework for implementation, monitoring o f progress and consultations with stakeholders. .This is consistent with the PRSP approach to institution building and reform.58 Managingthe Payroll 6.51 The challenges o f human resource management in the public sector Cameroon are illustrated by the difficulties in managing the staffing and payroll. The development o f an effective civil service requires sustained actions over the long-term, the sustaining the improvements would depend on the systems and capacity in place to control its staffing and " See World Bank, The Public Sector Governance Reform Cycle: available diagnostic tools; PREM NotesNumber 88, July 2004 www 1.worldbank.orglpremlotesps.cfm 58 The PRSP process could be used to establishthe vision and reform framework. The next revision of the PRSP could make governance and public administration reform as a major focus of the PRSP, and given emphasis inthe consultations of the population. 6. Improving Budget Transparency and Effectiveness page 92 manage associated costs (payroll): How many o f them? Where does each staff work? What does each do? What qualifications does the staff have and how i s it related to hidher position and tasks? What i s the appropriate pay for each position and the incumbent? These questions also have significant implications for any efforts to effectively manage and reform the civil service and for the formulation and execution of the annual budget. Indeed, a good budget process covers, not only the allocation o f financial resources, but allocation o f human resources as well, to ensure coherence in the use o f all resources. Cameroon has attempted reforms in personnel management but does not yet have a proper handle on the control o f the establishment and the management of the payroll. This i s a source o f fiduciary risk. The management o f the payroll i s largely a technical function, requiring the implementation o f tasks in accordance with established laws, regulations and policies. However, where the policies are not clear and the controls on staffing are inadequate as in Cameroon, management o f the payroll can be difficult, provide opportunities for fraud and corruption, and create uncertainty about how much government spends on the wage bill, and the accumulation o f contingent liabilities inthe form o f arrears on salary payments. Budgeting for thepayroll 6.52 The best practice in managing the payroll i s that the staffing needs by positions o f the agencies and units within them are determined during the budget preparation. Agreement on the disaggregated numbers o f staff by ministry/programs provides the basis for disaggregated budget allocations for wages. This process provides for consistency between the aggregate wage bill and the overall desired staff establishment, facilitates hiring and deployment decisions and the control o f the overall establishment and in particular, the control o f the use o f contract employees. In Cameroon however, there i s no direct link between the actual staffing and the budget for the wage bill. The estimates o f the wage bill are made rather mechanically, based on the actual expenditures on wages and salaries in the previous year, neither on the basis o f the establishment needed to execute the planned program, nor the wage bill due (actual plus arrears) for the previous year. This reflects the lack o f rigorous planning inthe budget process. A s long as the budget estimate for wages and salaries is not determined by the numbers and types o f positions and corresponding pay scales, the estimates o f the actual wage bill, the salary arrears and the size o f the personnel establishment are not likely to be accurate and credible. Part o f the payments for contract staffs i s paid from the budget allocations for goods and services, although how much i s not known. Thus, the recorded payments from the budget allocation for the wage bill are unlikely to reflect the actual staffing costs. Execution of the Payroll 6.53 The payroll i s managed by the Directorate o f Payroll (DP) under the Director-General o f the Budget (DGB) in the Ministry o f Economy and Finance. The D P liaises with the Ministry o f Public Service (Fonction Publique) for the verification o f the legal and administrative positions o f the civil servants. The personnel files o f staff in the ministries are held centrally and monitored empirically by the DP. A pilot decentralization o f the personnel management function was introduced about 3 years ago, with an integrated management system (SIGIPES software) linking the pilot ministries and the DP. It was envisaged that this decentralized system would permit a vigorous monitoring and timely updating o f personnel files thus ensuring the accuracy o f the information for the determination o f payments o f salaries and benefits. Since the pilots have not been fully implemented, there are yet no lessons from the experiment. 6.54 A census o f civil servants is underway; this will help to update o f the personnel files. However, it i s essential to establish a management information system for the payroll that 6. Improving Budget Transparency and Effectiveness page 93 ensures that the information on every staff member i s secure, with accurate and up to date information. The M I S currently in use for the payroll (ANTILOPE) has had operational interruptions and security problems. With a secure system, targeted censuses can be held from time to time for selected staff/agencies to ensure the validity o f information on the files and assess the overall rate o f errors in the system. Decentralization can help in maintenance o f accurate personnel records but only in the context where the annual budget process provides allocations to a payroll budget o f each ministry based on agreed staffing plan for the ministry. There would also be a need for rigorous monitoring and oversight by the Ministry o f Public Service to ensure that these staffing plans and payroll are respected and decentralization does not present opportunities for corruption and fraud and contingent liabilities for the Government. Control over the Payroll 6.55 To progressively enhance the control over the civil service establishment and payroll, the following measures are recommended: = To introduce progressively the management system o f the "obs by budgetary positions" and establish a direct link between the personnel o f every ministry and the corresponding budget allocations for wages and salaries; To pursue actively the decentralization o f the management o f the personnel while deploying the application o f SIGIPES after its assessment inthe pilot ministries; To reinforce the capacity for managing the payroll and related information systems of the DP, the Ministry o f Public Service and related units inthe other ministries; = To reinforce and to secure the circuit o f the information on payroll data between the DP and the employing ministries; To put in place on a permanent basis, an instrument in the Ministry o f Public Service, for monitoring and control o f the use o f contract staff. 6.6 Spending and Performance of Parastatal Agencies 6.56 A notable feature o f the Cameroonian economy is the major role o f public enterprises inthe economy, dominating a broad range o f economic activity, particularly in manufacturing and agro-business. Cameroon has about 300 public enterprises in petroleum, other energy, airlines, water, aluminum, palm oil, rubber, cotton, and other influential sectors o f the economy. However, many o f these have lost their original vision, are poorly managed, run large losses, accumulate liabilities o f the Cameroonian state. These constitute a budgetary drain and pose considerable risks to public financial management. Furthermore, these enterprises comprise the major part o f the infrastructure that promotes patronage and corruption. Dismantling this extensive infrastructure will be an important element for improving governance in Cameroon. 6. Improving Budget Transparency and Effectiveness page 94 T h e Burden of Poor Performing Public Enterprises 6.57 Many o f the public enterprises have accumulated debts and need state subsidies to meet operational expenses including staff salaries, a financial burden on the national budget and the accumulation by the government o f real and contingent fiscal liabilities. The Government subsidies to these enterprises are often unanticipated and therefore not budgeted, thus these subsidies are often at the expense o f legitimately budgeted activities, Chart 11: FiscalDebts of Key Public Enterprises eroding the credibility o f the budget (CFA billions) process and contributing to the low and inefficient budget execution. The large losses in the airline (CAMAIR), electricity (SONEL), and telecommunications (CAMTEL) sectors in 2003, which together amounted to close t o FCFA 100 billion led to unanticipated and unbudgeted expenditures by the Government. The weak financial position o f public enterprises in 2003 and 2004 contributed to a massive accumulation o f arrears, rendering the PRGF arrangement SONEL CAMAIR CAMTEL with the IMF off track and delaying the attainment of the HIPC completion point. The accumulation o f cross-debts between the public enterprises and the Government also creates difficulties for commercial banks that sometimes passively and indirectly finance these debts. Thus the poor performance o f public enterprises and the efforts by the Government to keep them afloat erodes effectiveness o f the state budget and imposes substantial costs to the economy. 6.58 The most prominent among the financially distressed public enterprises has been the national airlines company, CAMAIR. The company, which has 96 percent o f capital held by the Cameroonian state and 4 percent held by Air France, has been in considerable financial distress for many years. Government financial support has kept the company afloat, and repeated attempts to revive the bankrupt enterprise since 1995, the year CAMAIR was put in a list of companies to be restructured, have not been successful. The estimates o f its debt range from FCFA 50 billion (76 million euros) to FCFA 70 billion (close to 100 million euros). Efforts have been underway since 2005 to privatize CAMAIR. 6.59 In the telecommunications sector, Cameroon's fixed-line telephone company (CAMTEL) has struggled under the combined weight of accumulated debts as well as government arrears to the company. While private operators have entered the mobile telecommunications sub-sector, the plans to privatize the state phone company launched in 1997, was declared inconclusive in 2002 after negotiations with the first and second bidders failed. The GOC has pledged to end the state monopoly and sell the company by the end of June, 2006. Debt problems plague other important public enterprises, particularly in the energy, oil, and postal system. The local refinery (SONARA) incurred large losses in 2004 due to a suspension in the mechanism for adjusting national prices to international oil prices. The GOC has pledged to raise fuel prices and make budgetary transfers to S O N A R A to compensate for consumer subsidies. The water utility (SNEC) accumulated large debts to private suppliers and the initial the attempt at restructuring/privatization was not successful. 6. Improving Budget Transparency and Effectiveness page 95 Finally, CAMPOST, the postal savings bank, is bankrupt and requires government cash injections to pay depositors. 6.60 Contingent Liabilities: Public enterprises have been a major source of contingent liabilities for the Government. It is hard to get a precise handle on the magnitude of the government's contingent liabilities, but the government's guarantees for Cameroon's banks and enterprises, especially the parastatals described above, are significant. While the government sold its last bank in 2000, it is still legally responsible for assisting troubled banks in case of default. Furthermore, the country's state insurance schemes and pension funds are also guaranteed by the Government o f Cameroon. The costs o f public enterprise restructuring that will be borne by the budget can change substantially as further losses accumulate as liabilities that are not currently known are discovered. These contingent liabilities put at risk the sustainability of the government's fiscal program. The absence o f a proper regulatory framework or supervisory institution also adds uncertainty to the government's fiscal bill. A detailed study o f the contingent liabilities is needed for the government to prepare to confront this risk. Reform of Public Enterprises 6.61 With the enactment o f the General Statute o f Public Enterprises in 1999, Cameroon launched its public sector reform process o f public enterprise restructuring and privatization. There has been some progress on the restructuring and privatization o f activities in the ports, agro-industry and utilities, as w e l l as liquidation of some nonperforming companies, but the complex political economy in the country has rendered public sector reform process a difficult and slow one. Progress has been very slow and in the meantime, there has been a continued financial and operational deterioration o f public enterprises. The shadow o f privatization has heightened uncertainty about the future and resulted in a management culture that is not forward looking and does not encourage risk taking and innovation. 6.62 The case for privatization/liquidation of these troubled enterprises is stronger than ever. With further delays, the costs o f eventual privatization/liquidation would continue to rise and crowd out the funding o f budget priorities, particularly the investment budget, and undermine the growth and poverty reduction efforts. The Government appears to be responding to pressures and has made commitments to reform and to privatize public enterprises as part o f its medium-term fiscal and structural reform programs (see Box 2). It is engaged in a systematic study o f the viability of these enterprises and a systematic revision o f collective agreements regarding salaries and workers rights, and has reinvigorated efforts to restructure/privatize/liquidatea number o f troubled public enterprises (CAMAIR, CAMTEL, CAMPOST, SNEC, etc). 6.63 T o this end, the Government has been allocating resources inthe investment budget for public enterprise restructuring. In 2004, this allocation amounted to 7.7 percent o f the investment budget, but it was not sufficient to meet the needs of the restructuring process. The provisions made in the budget for these allocations amounted to FCFA 40 billion and FCFA 82 billion in 2005 and 2006, respectively. The resources have been dedicated to the privatization o f CAMTEL, CAMAIR, and CDC, to establish a public-private partnership (SNEC) for water, and implement a restructuring plan for C A M P O S T and S O N A R A . The Government has also committed to pay on a timely basis, for all the services it receives from public enterprises and utilities. 6.64 In 2004, the Government launched another major effort to deal with CAMAIR. It announced a plan for a scission-liquidation of the company and the termination of the government's policy of payments o f salary arrears and enterprise debts. Scission-liquidation 6. Improving Budget Transparency and Effectiveness page 96 involves the identification and liquidation o f the bad assets o f the company and the privatization o f the good assets. This process was expected to be completed in mid-2006 and lead to a new private airline replacing CAMAIR59.The estimate o f the costs o f restructuring was close to 1 percent o f GDP against budget provisions in the investment budget o f 0.2 percent o f GDP for all enterprise restructurings. 6.7 Assessment of the Fiduciary Risks in Key Areas 6.65 There are three main sources o f fiduciary risk in public financial management: (i) resources are not used for intended purposes (diversion or crowding out risks); resources are not properly accounted for (accountability); and (iii)resources are not used in ways that achieve full value for money (effectiveness/efficiency). This report's review o f the operations and performance in several areas indicate that, in general fiduciary risks in the PFM system are high, more so in some areas than others. Table 10 summarizes the elements o f fiduciary risk associated with the key areas o f the Cameroon public financial management process, with rankings o f low/moderate/high/very high. This overall high level o f fiduciary risks in several areas reinforces the conclusions that the PFM system does not function effectively in delivering public services. It also reinforces the need for urgent and sustained action in reforming the PFM and related public sector institutions, developing capacities, holding regular consultations and dialogue with principal stakeholders, systematic monitoring o f performance including outcomes, and undertaking regular analytical work to assess progress and pave the way for further actions. Therefore the Government should give priority to the preparation o f a coherent action plan for improving public financial management that has been under discussion with the Donor PFM Platform since 2005. The preparation o f this plan would help to unlock donor financial assistance to the Government for implementation o f programs based on the action plan. 59 The privatization process was brought to the point of sale but it ran into last minute problems and was not successfully concluded. 6. Improving Budget Transparency and Effectiveness page 97 Table 10: Fiduciary Risks in Key Areas Area Observations Overall level o f risk Estimates and allocation o f Estimates o f budgetary expenditures do not cover high budgetary expenditures the entirety o f government's activities. Budget planning and programming i s weak, the process i s often rushed (compressed budget calendar), budget objectives and policies are not clearly articulated, and the PFM process lacks systematic input, output and outcomes monitoring and analysis. The PRSP and the MTEF, recognized instruments for aligning budget choices and allocation to government policies, has not been used rigorously in formulating the ministerial/sectoral budgets. These engender risks o f misalignment o f budget allocations and development objectives, with expenditure choices and allocations are likely to be sub-optimal in the sense o f not being aligned to stated government development objectives and policies such those in the PRSP and increase risks o f diversion o f resources and accountability. Collection and estimating While there are problems and high risks o f moderate o f budgetary revenues accountability in the collection o f revenues, the estimation o f revenues has been fairly close to the realization. Engagement, liquidation The execution o f the budget involves a large very high and payment order o f number o f interveningparties and transactions, budgetary expenses including comprehensive procedures for apriori (administrative phase o f the controls. The multiplicity of procedures, with some expenditure circuit) redundant, steps, prolong the expenditure circuit but do not necessarily mitigate the fiduciary risks. Rather, they slow down budget implementation, diverting the energies o f the staff to dealing with the transactions costs o f the system rather than focusing on the outcomes o f the spending. The also provide opportunities for corruption. Overall, the system o f budget execution impairs the achievement o f value for money, hampers accountability and provides the scope for diversion o f resources. U s e o f exceptional Although the legislative and regulatory instruments very high procedures in budget for special procedures are appropriate, their expenditures excessive use (management o f advances notably) creates very high risk o f diversion o f resources and accountability. 6. Improving Budget Transparency and Effectiveness page 98 Area Observations Overall level o f risk Procurement The main risks here relate to value for money. While foundations o f a sound procurement systems IIhigh are in place, delays in procurement, due in part to lack o f capacity, continues to hamper budget I implementation. The uneven enforcement o f the procurement regulations also presents some risks o f diversion o f resources. Payment phase o f the The controls necessary to reduce risks inthe high execution o f the budget payments phase are not effective or do not function. (Accounting phase) Public debt Management The modalities for monitoring and making moderate payments on the known public debt appear to function relatively well. However, there are some significant risks o f accountability in debt accumulation that stems from the problems o f the payments phase o f budget execution, the use o f special procedures and off budget expenditures. Execution o f the payroll The system for the management o f payroll does not high. function adequately despite the significant I very investmentmade inthe reforms and the establishment o f a management information system for the payroll. There remain significant risks o f accountability and diversion/crowding out o f resources that stem from lack o f proper controls o f I the staffing establishment and the poor maintenance o f the payroll management systems. Treasury management The risk i s systemic; it i s founded on the absence o f high independent internal controls within the services responsible for the state treasury. Public Enterprise Public enterprises face financial and operational very high Management difficulties, make unanticipated demands on public finances and are sources o f contingent liabilities for the government. Public Accounting The reduction o f the period for the production o f moderate the accounting balance makes the risk on the management o f available funds moderate. Reporting and Oversight The combination o f weak internal control and high absence o f production o f management and administrative accounts leads to a high risk that mistakes and difficulties in identifying fraud and illegal diversion o f funds. The legislature i s not provided with adequate and timely information and accounts on the management o f public accounts for it to exercise its oversight functions. 6. Improving Budget Transparency and Effectiveness page 99 Annex 1: Cameroon: Public Expenditure by Sector 2004 Table 11: CAMEROONPUBLICEXPENDITURE2004 BY SECTOR (CFA BILLIONS) Dotation Engagement Disponible OrdonnancementExecution(% o f Tota1F;xecution Rates(% Ord/Dot Sovereignty 87.2 76.9 10.3 75.1 5.84 86.12 Wages and salaries 22.9 22.4 0.6 22.4 1.74 97.82 Goods and services 33 26.5 6.5 25.4 1.98 76.97 Own resources 29.7 26.4 3.2 25.9 2.01 87.21 Transfers 1.6 1.6 0.0 1.4 0.11 87.50 Defense 158.9 150 8.8 148.8 11.58 93.64 Wages and salaries 129.7 126.7 3.0 126.7 9.86 97.69 Goods and services 17.9 14.0 3.8 13.2 1.03 73.74 Own resources 10.9 9.0 1.5 8.6 0.67 78.90 Transfers 0.4 0.3 0.5 0.3 0.02 75.00 General Administration 96.7 83.7 13.1 81.9 6.37 84.69 Wages and salaries 41.8 40.6 1.2 40.6 3.16 97.13 Goods and services 22.1 16.0 6.2 15.3 1.19 69.23 Own resources 29.7 24.1 5.6 23.0 1.79 77.44 Transfers 3.1 3.0 0.100 3.0 0.23 96.77 Education 259.1 222.7 36.4 214.9 16.72 82.94 Wages and salaries 185.8 175.1 10.7 174.5 13.58 93.92 Goods and services 31.8 17.5 14.3 14.5 1.13 45.60 Own resources 40.0 28.7 11.31 24.5 1.91 61.25 Transfers 1.5 1.4 0.09 1.4 0.11 93.33 Culture and Sports 20.3 16.7 3.6 16.1 1.25 79.31 Wages and salaries 10.4 9.9 0.4 9.9 0.77 95.19 Goods and services 7.2 4.8 2.4 4.4 0.34 61.11 Own resources 2.4 1.8 0.75 1.6 0.12 66.67 Transfers 0.3 0.2 0.05 0.2 0.02 66.67 Health and Social Services 88.7 62.8 25.9 54.6 4.25 61.56 Wages and salaries 34.7 32.1 2.6 32.1 2.50 92.51 Goods and services 27.5 13.3 14.2 11.3 0.88 41.09 Own resources 26.1 17.1 9.01 10.9 0.85 41.76 Transfers 0.4 0.3 0.09 0.3 0.02 75.00 nfrastructure 137.3 91.7 45.6 82.6 6.43 60.16 Wages and salaries 18.6 18 0.6 18 1.40 96.77 Goods and services 25.6 14.5 11.1 13.6 1.06 53.13 Own resources 66.2 46.9 19.3 39.3 3.06 59.37 Transfers 26.9 12.3 14.6 11.7 0.91 43.49 'roduction 58.1 46.6 11.4 44.2 3.44 76.08 Wages and salaries 25.4 24.4 1 .o 24.4 1.90 96.06 Goods and services 19.1 12.6 6.4 10.9 0.85 57.07 Own resources 9.9 6.6 3.3 6.0 0.47 60.61 Transfers 3.7 3.0 0.7 2.9 0.23 78.38 Ithers 640.6 570.6 69.7 567.1 44.12 88.53 External debt payments 129.5 129.5 0 129.5 10.07 100.00 Internal debt payments 240.5 240.1 0.4 238.9 18.59 99.33 Wages and salaries 1.5 0.9 0.6 0.9 0.07 60.00 Goods and services 33.1 29.7 3.4 28.0 2.18 84.59 Own resources 135.2 124.6 10.4 124.1 9.65 91.79 Transfers 100.8 45.8 54.9 45.7 3.56 45.34 ;RANDTOTAL 1,547.0 1321.7 225.3 1285.4 100 83.09 ource: Government o f Cameroon(Direction o f the Budget) Annex page 100 Annex 2: Calendar of Execution of the State Budget Beginningofthe fiscal year operations of year N mstructionsonthe execution andcontrolof (December3Is'year N) Endof thcommitmentsof 1 new spending i 9 Decem& 30thyear N) 1 / ovember 1st * Nominationofcredit administrators Distributionofthe Bons de Engagemenr ei Eons de Commande April 1st * Beginnmg of the use o f credits UIthe ministries //\ - / beptember 1st May l s j \ I Budgetary Execution w e a r v ~ BudgetaryExecution 1st / managementaccountsof publlc (YearN) fmances of Year N (May31"YearN-1) Annex page I O I Annex 3: The 2 Phases, 18 Stages and 21 Actions of the Circuit o f Expenditures on Goods and Investment Operations Financed by Internal Resources I.AdministrativePhase A. THE COMMITMENT ADMINISTRATOR OF CREDITS 1. Establishes and transmits to the Financial Controller (FC), a certificate o f commitment (bon d'engagement (BDE)) in favor o f the supplier, accompanied by supporting documentsjustifying the commitment o f the expenditure* FINANCIAL CONTROL (FC) Verifies the conformity o f the file -Registers the file o f ADMINISTRATIVE SERVICE commitment. CHIEF OF THE FC 2. Assigns the file to the Service o f Commitments Accounting (Service des engagement comptables) FC: Service o f the Commitments 3. Verifies the accreditation o f the administrator o f Accounting (Office o f credit and certifies the BDE (gives a visa). Accreditations) FC: Legal Service for 4. Verifies the regularity and the legality o f the Commitments expenditure as well as the market price and transmits the file to the Chief o f the FC. CHIEF OF THE FC 5. Cerifies the BDE and transmits the file to the Direction o f the Budget for issuing the certificate o f confirmation o f credits (Titres de Confirmation des Creances (TTC or cartons)). DIRECTION OF THE BUDGET 6. Receives the file, issues the TTC and sends the file back to the FC. FC: Service o f Commitment 7. Enters the credits in the computer system Accounting (Bureau du pool de 8. Sends back the BDE and its documentary evidence as saisie) well as the TCC to the Financial Controller for distribution to the Administrators o f Credit who can thus place order to the supplier or the service provider. B. THE LIQUIDIDATION RECEPTION COMMITTEE6' 9. Verifies the service provided or the supply o f goods and gives a PV o f receipt signed by all members. When the amount o f the expense i s lower to 200.000 FCFAF, the verification o f the service made i s made by the comptable matiere. 6o This committee consists of : (i)the beneficiary of the service/works or its representative as the President of the Committee; (ii)another member designated because of hidher competence; (iii) the provider of the service/works; and (iv) an assets accountant (comptable matieres) or contols engineer for the works and studies, as the rappoteur (secretary). Annex page 102 documentation mentioned above accompanied by a certificate o f delivery or the attestation o f service made and the P V o f receipt duly signed. 11. Transmits the file to the FC ADMINISTRATIVE SERVICES Collects the file o f liquidation and transmits it to pool o f FC computer entry Commitment Accounting (Pool de 12. Collects the file and transmits it to the verifiers saisie) Legal Service for Commitments 13. Controls the regularity and the legality o f the liquidation and transmits the file to the Chief o f the FC. CHIEF OF THE FC 14. Affix the seal" VALIDATED EXPENSES" on the TCC and transmits the file to the authorizing officer (ordonnateur) for authorization o f payment. C. PAYMENT ORDER ADMINISTRATORS OF THE 15. Signs the TCC CREDITS 16. Registers the file o f authorization, enters the information into the computer system and transmits this file to the financial controller. CHIEF OF THE FC 17. Verifies the regularity and conformity o f the file and transmits it to the Direction o f the Budget. DIRECTION OF THE BUDGET 18. Closes the liquidation: signs the BDE and the TCC to confirm liquidation and the due date o f the credit. 19. Publishes the listings o f payment from IBIS, the computer system, and transmits the file to the Directorate o f the Treasury for payment. DIRECTION OF THE 20. Verifies the regularity o f the expenditure (availability TREASURE/PAYER GENERAL o f the credits, absence o f opposition, assignment o f OF THE TREASURARY expenditure, presence o fjustifying documents and appropriateness o f the accounts) and certifies the different documents. DIRECTION OF THE BUDGET 21. Signs the warrants and statements o f payment MAIL DB / DDI Transmits the file to the public accountant. 11.Accounting Phase D: THE PAYMENT DIRECTION OF THE TREASURY 22. Records the authorization (ordonnancement) in the / PAYMASTER GENERAL OF computing application PATRIOT and makes the THE TREASURARY(PGT) payment. Annex page 103 Annex 4: T h e Procurement Action Plan6' The action plan i s articulated around the four pillars constituting the principal axes of the reform, with a series of actions to be carried out over the three years. At the time of the discussions of the priorities and the action plan in August 2005, an estimate of the costs of setting-in and implementation was prepared. The options of financing o f the priority activities were also discussed with the Government and the development partners active inthe country. PILLAR1:LEGALFRAMEWORK ANDREGULATION 1.1 Publishthe circularonthe X End Applicability of PM applicationofthe Code. Dec the Public 2005 Procurement - Code. I l l 1.2 Finalizeanddisseminatethe I x I End Disseminate PM/ ARMP manuals ofprocedures. Mar the standard 2006 documents. - 1.3 Finalizethegeneraladministrative X End Disseminate Equip conditions for contracting Dec the CCAG Cameroun (CCAG) andputit inforce. 2005 with alegal - andregulatory 1.4 Adopt anddisseminatethe I x 1 I I (a> at Disseminate PMIARMP framework in standardcompetitivebidding the the standard conformity End documents. withthe Mar international 2006 standards and (b) contin - uous 1.5 End Applicability of ARMP I to complementthe provisionsof Dec the Public Administra- the Coderelatingto the delegation 2006 Procurement tion ofprocurementresponsibilitiesto Code. concernedI publicservices. Consulting 6' Source: Banque Mondiale: Rapport Analytique du System de Passation de Marche Public (CPAR) au Cameroun; August 2005. (Translated from French) Annex page I04 1.6 I Putinplaceregulationsand proceduresfor prohibiting a firm JUn thepracticeso f ICSE/ or anindividualindefinitely or for 2006 corruption, MINJUSTI a givenperiodfiom tenderingto a hud,collusion C E I public procurementifit is found or o fphysical CONSULT- byasanctionscommitteeor a threats ING legalapparatusthatthe firmor the individualdirectly or throughan Equip agent, hasengagedinpracticeso f Cameroun corruption, ofhud,physical with a legal collusionor threatsinthe and regulatory h e w o r ko fapublic framework in - procurementbiddingprocess. - conformity 1.7 Undertakea study to speclfythe X End Applicability o f with the conditions for o fuseo fnational JUn the Public international tenders andor o finternational 2006 Procurement standards tenders. Code. - 1.8 Specify witha circdar the End PM responsibilitieso fthe contracting Dec authority (Ma?& d'Ouvrage 2005 (MO)) andthedelegated contractingauthority (MOD) for archiving andpreservingo fthe original documentsfor thepublic procurement. PILIER2 :TheINSTITUTIONALFRAMEWORKAND CAPACITYDEVELOPMENT - - Improvethe 2.1 Installaninformationprocessing X ARMP / programming systemdedicatedto theplanning, delaysinthe CONSULT- the biding implementation, monitoring and ING process, the the control ofpublicprocurement procurement follow-up of andto makeitavailableviathe process. execution, and websiteoftheARMF'. controlof public procurement. - A fvst-class 2.2 Ensurethe effectivepaymentsby End Assured PMI and functional MOandMODto the Special N o v financingofthe MINEFI Agency of Account for theregulation o f 2005 regulatory Regulationof public procurementactivities. function. Public Procurement (-1 - Improvethe 2.3 Give instructionsto the End Improvements PM collectionof contractingentitiesto transmitto Dec inthe documenta- theARMP alldocumentation 2005 collectionand tion relating topublic procurement archiving o f activities. i om ti on. Annex page I 0 5 2.4 Develop anationalstrategyfor the X End Bringingallthe ARMPI reinforcemento fthe capacityfor JUn actorsinthe CONSULT1 public procurementinthepublic 2007 systemof NGI sector as well as inthe private public MINESUP sector. procurementto the same level - - ofknowledge. 2.5 Definetherole andthe X End The PMIARh4F responsibilitieso fthe ARMP as JUn development, I the authority onthe training in 2007 withthe CONSULT- public procurement(national assistanceo f ING strategy) anditsrelationshipswith specialized Elaboratea theagenciesresponsiblefor agenciesin national assuringthe executiono ftraining. training, o f strategyof national Training - - 2.6 GiveARMP theresponsibility for X End expertiseon ARMPI the conceptionandsupervisiono f JUn regulation, MINESUPI theprocurement-relatedtraining 2007 executiono f Institutes o f schemes, as well as the public Training monitoring andthe evaluationo f procurement, theprogramsofferedby audits, controls organizationsspecializedin ex-ante andex- - relatedcapacitybuilding. - post,the 2.7 Includepublic procurementinthe X End handling o f ARMPI corecurriculum ofthemajor JUn appealsandthe MINESUP I schoolso fmanagementand 2007 applicationo f Institutes of training for the administration's sanctions. Training seniorstaff. PILIER3 :TheOPERATIONS OFPUBLICPROCUREMENTAND PRIVATESECTORPERFORMANCE - Profession- 3.1 Set-up objectivecriteria o f X Qualifiedand ARMPI nalizethe selectiono fthe personnelfor skilled actors CONSULT- systemof public procurementinterms o f ING makingofthe training andexperience. public procurement. - Ensurean 3.2 Validate andapply theresultso f X (4 Useful ARMPI efficient the studyonthe harmonizationof End databases to CONSULT- management theproceduresandthe Dec evaluatethe ING ofthe improvementoftheperformance 2006 performanceo f databases inarchiving atthenationallevel et (b) the actorsand andimplementthe results. End the Jan managemento f 2006 public procurement. Annex page 106 Professionalize 3.3 IAdopt the implementationtexts X I I I End IApplicabilityof relating to theproceduresfor Jun thepublic I management amicablesettlementenvisagedin 2006 ProcurementCo MTNJUSTI the Code. de. C E contractsand the resolution ofthe 3.4 ARMP technicalassistanceto the Continuous. Practicesin ARMP MOsandDMOsfor the conformity monitoring andexecutionofthe with II procurementcontracts. international Standards. 3.5 Reinforce competences o fthe End Qualifiedand ARMPI actors involvedinthemonitoring Jun skilledActors MINJUSTI Program andexecutionofthecontractsand 2006 CEI Reinforcement the settlemento fe litigations. Institutes of ofthe Continuous. Training Capacities 3.6 Develop centerso fcompetenceto ARMPI supportthe actiono fthose MOI MOD responsiblefor themonitoring and CONSULT- executionofcontractsand ING settlemento flitigations. 3.7 Putinplaceprogramsoftraining andthereinforcementof capacitiesprovided bytheARMP andotherspecializedtraining agencies. -PILIER4 :THEINTEGRITYOFTHEPUBLICPROCUREMENTSYSTEM - 4.1 Withinthe W e w o r k ofthe x End Ensured PMIARh4P study onsanctions, putinplace Dec effective provisions to ensurethatcontracts 2005 sanctions. awardedinviolationo ftherules ofgood governance, trading o f favors, conflicto finterestor Mechanisms collusion, are cancelled. ofcontrol - - leadingto 4.2 Ensurethat thebiddersand x End Moreprecise PMI ARMP effective contractorsthat feel wronged in Dec textsreducing sanctions. theprocurementprocessor inthe 2005 the executiono fa contract,havea discretionary right ofrecourseandto obtain capacityo fthe appropriatecompensationfor Authority in damages. chargeo fthe 4.3 Continue thetrainingo fthenew Cor inuous public ARIm actorsofthe system andensure procurement. the continual updatesfor those alreadytrained. Annex page 107 Centralize the 4.4 Finalize the internalprocedures x End An effective management manualfor the managementand JUn managementof ofmechanisms processingofthe complaintsby 2006 centralized ofrecourse ARMP. complaints. andto improvethe decision- makingwhich resultsfrom the process. ---- 4.5 Reinforcetheprocurement X End Improvement PM/ARMP services o fMOandMODby Dec o fthe providingthem withthe 2006 performanceof instrumentsfor analysis, the conservationo fdocumentsand procurement the methodsguaranteeingthe services. Improvethe respecto ftheir obligations to diffusionof transmit documentsto theARMP. information - 4.6 Publishthe complaintsandthe cor inuous Improve the ARMP relatingto the decisionsinthe (( Journal des transparencyo f actionsoffight Marchds Publics JDMandon )) thedecisions against internet siteo fthe ARMP. takenand corruption - 4.7 PublishingintheJDMthe Continuous ensureabroad and sanctions decisionsinthe infiingements o f diffusion o f inthepublic public procurementprocess these. procurement - field. 4.8 Publishthe list o fh n sprohibited Continuous ARMP fiom biddingfor public tmcurement contracts. 4.9 Ensurethe accessto information Continuous ARMP through the Information EducationandCommunications (IEC) campaigns. - - 4.10 WithintheW e w o r k ofthe X End Complaints are PM I studyonthesanctions,to envisage JUn effectively MINJUSTI the constitutiono fateamthat will 2006 takeninto CE/ ARMP Improvethe receiveandinvestigateallthe account. diffusionof complaintsrelatingto information infiingements o ftheregulationso f relatingto the thepublic procurement, andto actionsoffight undertakelegalactionagainstthe against peoplewho, accordingto corruption. investigations',havecontravened the regulationso fthe public procurement.Thisteamwould constitutethe correspondentofthe ARMP. Annex page I08 r 4.11 Designandorganizetraining on theregulationofthepublic Sept effectively procurementforjudges and I x I 2005 equippedto magistrates. to makedecisions End relatingto Dec public 2006 procurement andcontracts. Annex page 109