Report No. 39710-AO Angola Public Expenditure Review Executive Summary December 20, 2007 A Joint Report by: The World Bank and European Commission (EC) Africa Region Food and Agriculture Organization (FAO) Macroeconomics I United Nations Children's Fund (UNICEF) United Nations Development Program (UNDP) World Health Organization (WHO) Document of the World Bank The World Bank Africa Region Poverty Reduction and Economic Management Department Vice President: Obiageli K. Ezekwesili Country Director: Michael Baxter Country Manager: Alberto Chueca-Mora Sector Manager: John Panzer Task Team Leader: Francisco Galrão Carneiro THE WORLD BANK--ANGOLA COUNTRY OFFICE LARGO ALBANO MACHADO N7 23-25 CAIXA POSTAL 1331 LUANDA, REPUBLICA DE ANGOLA TEL: (244-2) 394-677/727 HTTP://WWW.WORLDBANK.ORG/AO Ministries covered in this report for their support and active collaboration. A For the World Bank, the task was managed by Francisco Carneiro (Sr. Country Economist, AFTP1), who was CKNOWLEDGEMENTS also the primary author of the report. The task team included Stefania Abakerli (Local Development Specialist, LCSSO), Jean-Jacques De St. Antoine (Lead This report is the result of collaboration Operations Officer, AFTH1), Feng Zhao between the World Bank and a group of (Health Specialist, AFTH1), Xiaoyan development partners of the Government Liang (Sr. Education Specialist, AFTH1), of Angola that includes the United Eduardo de Sousa (Sr. Economist, Nations Development Program (UNDP), AFTS1), Maria Teresa Benito-Spinetto the European Commission (EC), the (Research Analyst, AFTP1). Contributions Food and Agriculture Organization of the were made by the Bank consultants United Nations (FAO), the World Health Mafalda Duarte (Education), Rui Fuschini Organization of the United Nations (Education) José Roberto Rodrigues (WHO), and the United Nations Afonso, Thereza Lobo, and Rafael Children's Fund (UNICEF). Useful Barroso (all Decentralization). Mr. Victor information and insights were provided by Hugo and Ms. Henda Ducados (Executive government officials in many departments Director and Deputy Directors of FAS, in the Ministry of Education, Ministry of respectively) offered useful comments and Health, Ministry of Agriculture and Rural suggestions on the background paper on Development, Ministry of Territorial decentralization. Useful discussions on Administration, Ministry of Planning, and decentralization were also held with Ministry of Finance. The collaboration Serdar Yilmaz (Sr. Social Development between the World Bank and the Economist, SDV) and Rodrigo Serrano- development partners was formally agreed Berthet (Local Development Specialist, through a Memorandum of HDNSP). The team is grateful to the Understanding signed by the heads of the Social Development Department (SDV) delegations in Angola in June 2006. The for funding the consultants who worked main counterpart in the Government was on decentralization. Mr. Manuel Neto da Costa, Head of the Cabinet of Studies and Foreign Relations The UNDP, jointly with UNCDF, of the Ministry of Finance (GEREI ­ provided important contributions in the MINFIN). area of decentralization and this report draws partially on conclusions and The joint PER team extends its recommendations which are contained in appreciation to Ms. Ana Dias Lourenço, the report entitled "Diagnóstico da Minister of Planning, Mr. José Pedro de Descentralização Fiscal em Angola" of Morais, Minister of Finance, Mr. Manoel August 2006 authored by Maria Cristina Neto da Costa, Head of the Cabinet of Mac Dowell, Érika Amorim Araújo, Studies and Foreign Relations of the Alexandre Sobreira Cialdini, and Nicoletta Ministry of Finance (GEREI ­ MINFIN), Ferruglio. The counterpart official from and to the Directors of Planning of the the UNDP in the PER team was Mr. Alfredo Teixeira. iv (Consultant of the EU PASS team) The European Commission contributed provided documents and data needed by for the review of public expenditures in the mission. Dr. Alice Otiato (USAID) the health sector. The counterpart official shared her knowledge and views on health from the EC in the PER team was Ms. service delivery. The mission appreciates Tamar Bello. The chapter on health draws the help provided by Dr. Kusunga substantially on the analysis and policy (Director of Bengo Province Health recommendations which are contained in Directorate) during the mission's field the report entitled "Angola: Despesa help. Dr. Maria Julia Grave (HAMSET Pública no Sector da Saúde 2000-2006" Project Office, MOH) offered prepared by the Programa de Apoio ao instrumental help to set up meetings and Sector da Saúde (PASS) for the Ministry field visits. of Health and published by the Ministry of Health early in 2007. Additional The report was prepared under the overall contributions to the review of public supervision of Emmanuel Akpa (Sector spending in the health sector were Manager, AFTP1) who offered overall provided by staffs from the World Health conceptual guidance, provided critical Organization (WHO), and the United analytical advice and ensured quality Nations Children's Fund (UNICEF). The control and management support. Michael counterpart official at WHO was Mr. Ole Baxter, Country Director (AFCCS2), Frank Nielsen and the counterpart official supported the process and provided the at UNICEF was Dr. Guy Clarisse. major guidelines. The peer reviewers, Jeffrey Lewis (DECVP), Delfin Go The Food and Agriculture Organization (AFRCE), and Sameh El-Saharty (FAO) contributed inputs for the review (MNSHD) provided valuable comments of public expenditures in the sector of and suggestions in different stages of the agriculture. The chapter on agriculture report. draws on a background report prepared by Mr. Guillermo Woods (Consultant, The colleagues from the Country Office FAO) entitled "Revisión de los Gastos y in Angola, especially Alberto Chueca- Inversiones Públicas Destinadas al Sector Mora (Country Manager, AFMAO), Agropecuário". Mr. Francisco Chimuco Olivier Lambert (Sr. Country Officer, (FAO) provided useful assistance in the AFMAO), and Christopher Porter contacts with the authorities and mission (Consultant, AFMAO), provided superb preparation for the work associated with support to the task team. Maria Margarida the agriculture sector. The counterpart Baessa Mendes and Domingas Pegado official at FAO was Mr. Frits Ohler. provided excellent logistical support for the missions. Ligia Irias-Castillo went The several missions that were held to beyond the line of duty and showed Angola in connection with this report outstanding commitment to make sure were fully supported by the development that the editorial quality of the report was partners. In the case of the analysis on kept at the highest standards. health issues in particular, Dr. Guy Clarisse (Head of Health Team, UNICEF) and Dr. Fatoumata Binta T.Diallo (WHO Angola Representative) provided constructive advice and input in critical stages of the report. Mr. Lluis Vinyals v Strategic plan for Agriculture. The Ministry of Agriculture informed that that government is adopting new initiatives aimed at exploiting the F employment generation potential of the sector. OREWORD Decentralization agenda. Some This version of the Public Expenditure participants noted that the Review incorporates comments and decentralization process in Angola suggestions from Angolan authorities begins with measures of administrative made during official discussions held at deconcentration and should be move the Ministry of Finance in Luanda on gradually given the implementation October 11th, 2007. Representatives capacity of provinces and municipalities. from the Ministry of Finance, Ministry Rushing through decentralization of Planning, Ministry of Education, reforms can lead to political instability Ministry of Health, Ministry of and harm development prospects for Agriculture and Ministry of Territorial Angola. Administration were present, as well as development partners that contributed to The Public Expenditure Review was this report ­ including the United well received and acknowledged as a Nations Development Program (UNDP), useful set of general considerations and the European Commission (EC), the recommendations aimed at supporting Food and Agriculture Organization of the government in defining and the United Nations (FAO), the World implementing reforms to increase Health Organization of the United efficiency of public spending. The PER Nations (WHO), and the United Nations will hopefully be conducive to further Children´s Fund (UNICEF). A brief cooperation and partnership between the summary of main points raised is Government of Angola and development presented next: partners. Medium-term expenditure framework. Angolan authorities agreed with the importance to prepare spending plans with a multi-year perspective, but also cautioned that implementation capacity at the Ministry of Planning and Sectoral Ministries should be observed. Time horizon for reforms. Authorities from the Ministry of Health, Education and Agriculture highlighted the need to factor in the severe limitations in infrastructure caused by the Civil War which ended in 2002. Hence, sectoral reform plans should adopt realistic goals. - 1 - Executive Summary necessarily guarantee that money will be well spent. It is also necessary to get the policies right and build well- Five Cross-cutting Messages functioning institutions to avoid waste and develop accountability mechanisms. i. Five cross-cutting messages are In order to get the most out of each drawn from the analysis of public kwanza spent by the public sector, the spending and fiscal management in authorities need to pay attention to three the context of this Public Expenditure areas where performance can be Review: enhanced: macroeconomic discipline, strategic priority setting, and efficient The need to prepare public public service delivery. Reforms in these spending plans within a multi- areas involve principles of political year perspective; economy, public economics, budgetary The need to improve the and financial management, and other efficiency of public spending; institutional and regulatory reforms. The need to improve the quality of the data on social indicators iv. The lack of good data and on the budget; constrains the ability to assess the The need to observe equity effectiveness of public expenditures considerations in the preparation and limits the capacity of policy of the budget; makers to use technical criteria to The need for steady progress define budget allocations. One of the with decentralization. recurrent problems in Angola is concerned with the quality and ii. A multi-year approach can completeness of the data on social contribute to close the gap between indicators and budget out-turns. In planning and budgeting and support addition, existing social indicators date macroeconomic stability. The back from the period of the war when it authorities need to strengthen the link was difficult to collect information from between public expenditure policies and the rural areas and conflict-affected the budget process, especially at the zones of the country. Without proper sectoral level. At this point, public data it is very difficult to devise and expenditure policies are established in a monitor a meaningful pro-poor public largely ad hoc manner and without the spending program. underpinning of a medium-term spending plan or strategy. In broad v. The introduction of equity terms, Angola needs to consider how to considerations in the budget will help frame its public expenditure to reduce poverty and vulnerability. policymaking within a medium to long There are no technical criteria for the term framework akin to the permanent allocation of resources from the central income hypothesis in order to insulate government to the provinces. The richest the budget from the volatility associated provinces receive the same budget with the price of oil. allocation as the poorest and more vulnerable ones. For a better iii. The introduction of a multi- geographical distribution, population and year approach to budgeting does not poverty indicators should be factored in - 2 - the decision process. The authorities PSAs and its implications for the could also consider using criteria based behavior of the State's profit oil. Thus, on "positive discrimination" to support more than desirable, it is very necessary the provinces that suffered the most that Angola adopts an approach to during the war to catch up with the budgeting that goes beyond the one-year others. framework of the OGE, to avoid unnecessary disruptions in cash vi. Steady progress with the management and to correctly forecast decentralization agenda is important. the Government's fiscal stance. The authorities have taken the initiative to start a program of deconcentration and ix. The need for a multi-year administrative decentralization. This approach to budgeting is even greater gradualist approach seems appropriate when it comes to establishing sound especially in light of the dearth of public expenditure policies. The link capacity in public administration that is between the latter ­ especially at the especially acute outside Luanda. sectoral level ­ and the budget process is However, it is necessary to deepen this weak in many developing countries, and process in a more meaningful way and Angola is no exception. Public also start preparing the building blocks expenditure policies ­ including fuel for some fiscal decentralization in the price and utility tariff subsidies ­ are future. established in a largely ad hoc manner, and without the underpinning of a vii. These cross-cutting messages medium-term spending plan or strategy. provide the baseline for the policy Therefore, not only the links between actions recommended in this report. policies and budgeting are weak, but the The recommended policy actions along foundation for sound public expenditure with their expected impacts on public policymaking is very shaky as well. The finance management and outcomes are adoption of a medium-term approach to presented in Box E.1. The policy options budgeting, therefore, has to be vary from short-term and highly accompanied by a medium-term politically feasible to medium- to long- approach to public expenditure policy as term and moderately politically feasible well. measures. They are expected to increase efficiency and transparency in public x. The adoption of such medium- spending while also contributing to scale term approaches should be gradual up service delivery and accountability. and preceded by further strengthening of the budget process. It Addressing Existing Challenges is not advisable to move to the outright in Public Finance Management implementation of a Medium-Term Expenditure Framework (MTEF). viii. Over the next few years, MTEFs cannot work if a solid budgetary Angola's revenues from oil will be management process ­ particularly as subject to three sources of variation, regards budget execution ­ is not in in addition to crude price volatility: (i) place. Insofar as Angola's public the changing composition of production; financial management remains (ii) the increasing volume of extraction; characterized by a dichotomy between and (iii) the increased importance of formal and "non-conventional" 3 BOX E1: CROSS-CUTTING POLICY ACTIONS AND EXPECTED IMPACTS ON PFM AND OUTCOMES RECOMMENDED POLICY ACTION EXPECTED IMPACT ON PUBLIC DEGREE OF PRIORITY AND EXPECTED FINANCE MANAGEMENT OUTCOME Adopt a Multi-Year Approach (a) Improved capacity to plan Short-term action to Budgeting (b) Improve fiscal management Expected Outcomes: and predictability Sound macroeconomic management (c) Build capacity for MTEF Improve the links between planning (d) Allow the build up of and budgeting precautionary fiscal savings Improve the Efficiency of (a) Increase rates of budget Medium-term action Public Spending execution Expected Outcomes: (b) Make investment decisions Improved service delivery taking into account future recurrent costs Combat corruption Strengthen the budget process Improve the Quality of the (a) Better knowledge of socio- Short-term action Data on Social Indicators and economic characteristics for Expected Outcomes: on the Budget social spending targeting Improved service delivery (b) Improve capacity for financial and technical Better accountability performance management Build capacity to manage for results Introduce technical criteria to (a) Increase equity in public Medium-term action allocate budget funds to line spending Expected Outcomes: ministries and sub-national governments Higher social welfare Reduce inequalities created by the war Further decentralization by: (a) Strengthened internal Medium- to long-term action (i) revising relevant controls in line ministries and Expected Outcomes: legislation sub-national governments Improved service delivery and (ii) transferring (b) Rationalize functional reduction in inequities administrative responsibilities relations of public administration Encourage mutual accountability to a few pilot cases in all levels of government (central government, sub-national (iii) move to fiscal governments, and civil society) decentralization Build capacity to manage for results 4 mechanisms of budget execution, xiii. Bolder improvements are adopting an MTEF at this point in time needed on the auditing side of the will be difficult, if not impossible. budget process, which remains weak. The major problem remains in the realm xi. Improvements in the recording of the relationship between Sonangol and classification of public spending and the Ministry of Finance. Sonangol, are necessary for a successful pro- at the Government's request, undertakes poor public expenditure policy. A a wide range of activities or tasks on pervasive deficiency in the classification behalf of the Government. In the past, of public expenditures was noticed for the Government has sometimes failed to all sectors covered in this Public reimburse Sonangol, or has been delayed Expenditure Review (Education, Health, in doing so. Sonangol's reaction has and Agriculture). The authorities need to been to reduce the tax and profit oil improve further the quality of public payments it owes to the Government by financial management so that the the amount of the costs it has incurred on government can gain a better Government's behalf. The consequences understanding of its public spending and of this practice for effective revenue increase the effectiveness of financial management are adverse. Disputes arise planning and programming. Key to that because in the past there has not been end is the steady commitment to finalize clarity on which activities qualify for the implementation of the SIGFE and the offset treatment, and because need to improve the classification of expenditures under qualifying categories public spending. Once these steps are have not been audited. concluded, and better data on socio- economic indicators are available, it will xiv. The ring-fencing of quasi-fiscal be easier to design and implement a pro- operations performed by Sonangol poor public spending program. should also aim at addressing the issue of conflict of interests. Certain aspects xii. The authorities have adopted a of Sonangol's role as concessionaire, comprehensive model to forecast oil notably its approval of all major revenues, but sustainability of the new procurement contracts create a forecasting unit should be secured. In significant potential for conflict of April 2006 the National Tax Directorate interest and loss of revenues to the (DNI) in the Ministry of Finance Treasury. Further, the Government lacks formally adopted the Oil Revenue the capacity to oversee effectively Forecasting Model developed by Sonangol's revenues and investment Aberdeen University Petroleum programs. Ring-fencing these activities Economics Consultancy (AUPEC) in the first within Sonangol would help prepare context of the Oil Diagnostic Study. This the transfer. A well defined and time- is a step in the right direction. However, bound plan to achieve normalization in many of the staff in the unit are this process should be adopted by the contracted and paid for by the AUPEC authorities. However attention must be project and are not employed de facto by paid as part of the transition process to the Ministry of Finance. The government upgrade the resources, skills, training, should guarantee the continuity of the internal procedures and reporting and forecasting activities once the contract communication within and among these with AUPEC expires. institutions in order for them to be ready 5 to take back ownership of the Treasury- especially education, health, and like activities currently performed by agriculture, accompanied by a strategic Sonangol. These changes would involve rationalization of spending on other improvements to salary structure, recurrent expenditures. employee career planning and benefits, all of which would require commitment xvii. The introduction of targeting to institutional reform. criteria to divide up spending across provinces is a prerequisite for the Facing Trade Offs in Public decentralization reform. At the Spending moment, a common theme in the analysis of sectoral spending is the xv. Sectoral spending on general complete absence of any coherent or public services and defense relative to transparent means to allocate spending total spending has been responsible across different geographical units. This for nearly half of the total matters, as noted before, for equity and expenditures. Education and health efficiency of spending, but it will also be when considered together, on the other absolutely essential to address as a hand, remained responsible for roughly prerequisite for any meaningful 10 percent of total expenditures while decentralization. The trade off in that there was a doubling of the share of area is clear, as there can be no real spending on social security, welfare, and progress in the decentralization agenda if housing in 2005 alone. The sectoral the mechanisms used to transfer allocation relative to total spending for resources from the center to sub-national energy, agriculture, mining, and governments are not based on transportation declined steadily since technocratic criteria. 2003 from 22.5 percent to just 7 percent in 2005. xviii. As the government scales up public spending in different sectors, it xvi. In practical terms, the is absolutely essential to strengthen increased spending on general goods, monitoring capacity to make sure that consumption, higher wages and money is well spent. Another benefits, means that the government commonality across the sectors analyzed may have to face trade offs in terms of in this report is the weak capacity to public spending. Given the low level of monitor the impact of public social indicators and the challenges to be expenditures. As revenues rise fast and faced by the authorities in their sectoral demands increase, the reconstruction of the country, the authorities face the risk of financing existence of such trade offs is clear, economically unsound projects and since spending on education and health white elephants. To make sure that have remained at low levels while money is well spent bolder expenditures with general public improvements are necessary in the services and defense have increased auditing side and better accountability much faster. Therefore, the low level of mechanisms need to be introduced to social indicators, partly as a result of avoid corruption and waste. decades of war and internal conflicts, call for a quick reprioritization of public spending in favor of social sectors, 6 The Reform Agenda in Education national asymmetries and its national implications. xix. The reform agenda in Education requires improvements in xxi. Dramatic improvements are the capacity to plan more needed in the sector's financial strategically, better public finance management system. Improvements are management, and the introduction of required in several instances ranging an effective monitoring and evaluation from budget preparation, disbursements, system. The review of public spending management of expenditures, patterns and outcomes in the education expenditure classification and sector revealed important weaknesses institutional capacity. An adequate that need to be addressed. The financial management system would strengthening of the overall budget prevent payment of expenditures not system, as discussed in the previous budgeted for (except in special paragraphs, is a pre-condition for circumstances) which would in turn be additional reforms in the education an incentive to improve budget sector. This is so because much of the preparation. Regarding expenditure problems faced by the sector today are classification, it would be most relevant the result of lack of correct prioritization to separate in the functional (too much focus on recurrent spending classification the services of pre-primary and uncoordinated investments), and an and primary education and have a ineffective system to monitor and different function for teacher training evaluate the outcomes of public which is different from secondary and spending in education. technical education. In terms of institutional capacity, it should be also a xx. The planning and budgeting priority to train those using the financial process need to include steps or management system in inserting data mechanisms for coordination (budget according to the proper expenditure preparation) and information sharing classification. (budget preparation and execution of resources) between MEC and the xxii. The capacity for monitoring Provincial Governments. This is and evaluation in the sector of particularly important because education needs to be strengthened. Provincial Governments manage the Another policy recommendation relates resources for the sub-system of to the establishment of a system to education (primary grades 1-6) that assess learning outcomes in all levels of should have the highest impact in the the education system in Angola. A well sector, since it is the level where most of functioning monitoring and evaluation the students are enrolled and the basis system can provide information to the for achieving the MDGs and EFA goals. planning and decision-making levels as In addition, it is the most cost-effective to whether those students who are way to address equity issues, a role that actually graduating from each cycle of can best be played by a central structure primary education have achieved the and in this case by MEC as the minimum standards of learning institution with more specialized recognized internationally and whether knowledge regarding education, the the main causes of inefficiency of the education system are related to 7 endogenous or exogenous factors to the heavy spending is only benefiting a system. small proportion of the population, mostly urban, and a large proportion in The Reform Agenda in Health Luanda, as more than 60 percent of citizens do not have access to health xxiii. The reform agenda in the facilities); (v) spending on the critical health sector calls for scaled up inputs (human resources, drugs, spending and service coverage supplies) should be aligned with the combined with improved efficiency, need to tackle the main health problems; better strategic planning, more and (vi) reviewing the efficiency of effective monitoring and evaluation, hospitals and ensuring that bed and further decentralization. This occupancy rates are raised to the Public Expenditure Review has international standard good practice of identified inefficiencies in public 80 percent. spending on health that demand a more strategic approach to the sector. It is xxv. In the medium term, Angola necessary to spend more on health, but should increase public spending on the additional spending has to be health. This increase should be gradual accompanied by better planning, more so as to ensure an adequate absorption of equity, and effective monitoring and resources by the sector. It is important evaluation. Further decentralization is that the expenditures be well channelled, also necessary to improve the coverage with special attention to scaling up the of service provision, but this process has coverage of services. To maximize the to be carefully designed and gradual and impact of the additional expenditure, this evolve at the same pace as capacity PER recommends that the country constraints are removed. consider the following steps to scale up health service coverage: xxiv. In the short term, Angola should improve the efficiency of Step 1: Undertake social public spending on health. This implies mobilization and behavioral that: (i) health spending should be better interventions as well as supply aligned with the country's main health essential materials to households problems and burden of diseases; (ii) through community-based resources should be carefully planned to interventions. target the cost-effective interventions; (iii) there should be an increased Step 2: Organize outreach and proportion of spending going to the mobile teams to provide a set of primary and secondary levels (at present standardized services to populations spending strongly favors hospital care, without access to health facilities. as 40 percent of public spending on health goes to tertiary care, and only 27 Step 3: Expand the primary health percent goes to primary and secondary care network to provide preventive care); (iv) there should be an increase in and basic curative care. the proportion of primary care spending going to outreach and community health Step 4: Strengthen the first level services so as to bring services closer to referral care that can provide the population (at present, the facility- 8 comprehensive and emergency Angola's progress towards the health care. Millennium Development Goals. The MOH should work with INE to ensure Step 5: Improve the second-level that surveys are periodically conducted referral care that can provide to evaluate the health status of the specialized care. population. The most important is to undertake a Demographic and Health xxvi. Technical criteria for resource Survey (DHS). As population data are distribution should be introduced. essential for decision making in the Health sector allocation and sector, the MOH should also promote expenditures are made on ad hoc basis. the undertaking of a population census. This results in an inequitable and inefficient distribution of resources. For xxix. The MOH should work with a better geographical distribution, the MOF to review budget categories, population and poverty indicators could within the limits established by the be used, especially if information State General Plan of Accounts. The systems and national statistics are instruments available for financial and improved in the medium term. Health technical performance monitoring do not personnel distribution can be another allow evaluating progress in the health criterion. The government should also sector. It is also necessary to evaluate the consider adopting a system of "positive usefulness of the current program discrimination" to help the provinces classifier. A classifier per level of care that suffered the most during the war (primary network, maternities, and catch up with the others. general hospitals, specialized and central hospitals) would provide the information xxvii. The health sector needs a relevant for macro decision-making. Strategic Investment Plan. Investment Finally, when redesigning the Health spending has increased rapidly in recent Information System (HIS), it is essential years but this rehabilitation effort has not to develop an interface with SIGFE and been preceded by a needs analysis and a SINGERH. This will allow SIGFE to proper planning of the desired health provide information for the analysis of network. Also, there is insufficient cost-effectiveness or unit costs of the coordination between the central and facilities. those provincial governments and other partners. Investment spending should be xxx. As the government reviews the based on a map of the existing health National Health Policy and redefines network and projections of different the decentralization of local scenarios with their costs. Such a map is administrations, it should clearly currently being prepared in five define the role of each level. The provinces, and this exercise should be transition to further decentralization has expanded to the whole country, as not been accompanied by measures to quickly as possible in order to reorient transfer responsibilities for the provision the investments already planned. of services that used to be centralized in the MOH. For example, the public health xxviii. The MOH should build its programs of the central level still capacity and create instruments implement activities at municipal level, allowing the government to monitor while the same programs at provincial 9 level have practically no resources each area appropriate to that region's available. The definition of advantages and possibilities. This means responsibilities should be followed by that investments should not be at odds the transfer of corresponding financial with long run potentials, but must also resources, and a major effort to create take into account current evaluations of capacity. This should result in the profitability and market access. channelling of much more resources to the provincial level, especially for goods xxxiii. There should be a clear and services. The implementation of this strategy to gradually decentralize the change would take several years and execution of public spending and should be designed accordingly. investment in agriculture to the provincial level. Given the The Reform Agenda in characteristics of the agricultural sector, Agriculture its vast agro-climatic zones, market proximity, and infrastructure needs, it xxxi. The reform agenda in seems that a faster pace of administrative Agriculture includes scaled up decentralization of public spending in priority for the sector in the budget, agriculture is warranted in Angola. better distribution of investment programs (more equity), more xxxiv. To help private sector accessible credit, and improvements in development in agriculture and job infrastructure rehabilitation. The creation, credit access to farmers review of public spending patterns in the should be made easier. Microcredit sector of agriculture revealed that this experiences around the world suggest sector has not been receiving the degree that this is an area that works best with of attention that it deserves vis à vis its the least involvement from the potential as a source of employment and government. In Angola, the few incomes. Public spending in agriculture successful experiences that have is concentrated on a few big projects in appeared in the recent past, such as the wealthier parts of the country and do Banco Sol and Novo Banco, which have little to reduce existing disparities. been mediated by NGOs, should be Credit constraints and lack of encouraged to develop so that appropriate infrastructure also limit the smallholders who usually find it difficult potentialities of the sector. to obtain credit from formal and official sources can be benefited. xxxii. Total spending in agriculture should increase in volume and in xxxv. Public spending and coverage. Total spending in agriculture investment in agriculture should be is still low, representing 1.33% of the oriented towards infrastructure total budget, and concentrated in a few rehabilitation and extension activities geographic areas and themes. While and research, prioritizing the prioritization must necessarily occur, smallholders. Most of the agricultural and initial efforts will of course not projects supported with public funds happen simultaneously in all parts of the currently in Angola are concerned with country, it is essential that the the support to rehabilitation of large- government's vision and strategy have a scale irrigation schemes, and acquisition coherent national focus, with activities in of heavy machinery and tractors. At the 10 same time, public spending on extension sub-national governments should and research projects has been very prioritize the local sphere (municipal limited. With the infrastructure needs of administrations). the country stemming from the long civil war and the fact that Angola is currently xxxvii. The first phase is characterized experiencing a substantive oil boom, by the implementation of transportation costs are high, access to administrative changes. The proposed markets are almost non-existing, and the changes are quite specific and selective. country has to deal with a significant In political terms, the first phase is appreciation of the real exchange rate. indifferent about how sub-national The current focus of the central authorities are to be chosen, whether government on infrastructure they should be appointed or directly rehabilitation is appropriate, but there elected. With regard to government should also be more attention to research functions, the objective is to contemplate and extension activities which can help some few basic services ­ such as basic increase productivity and reduce unit education, health centers, and garbage costs, which by its turn would be helpful collection. The beneficiaries of in dealing with the effects of an decentralization will be the sub-national appreciated exchange rate. governments to be chosen among those already defined in Law 02/07 as The Decentralization Agenda potential candidates for decentralization. xxxvi. A readily available xxxviii. Fiscal decentralization decentralization blueprint that could is the ideal arrival point. The third be recommended for Angola is out of phase of the decentralization process the question. The experience of should include direct elections for sub- different countries regarding the national authorities and the transfer of all organization of the state and its fiscal basic services to sub-national system is very diverse. Also, the attempt governments. It would also be to group some characteristics and necessary to establish a national system indicate the most appropriate model is for the transfer of funds, control the quite problematic, since a large number indebtedness capacity of sub-national of models are available. This Public governments, and to grant more Expenditure Review discusses three autonomy over the collection of sequential phases for a gradual typically local taxes. The major decentralization process in Angola. The objective is to provide reasonable proposed process starts with autonomy for sub-national governments deconcentration of power, suggests a to exercise their power and execute their move towards administrative expenditures through a more decentralization, and recommends fiscal autonomous fiscal administration. This, decentralization as the final arrival point. however, is considered to be the hardest In practice, these three phases should be part. seen as parts of the same scenario, with clearly defined goals, scope, and time for xxxix. An array of measures should implementation. Underlying the different be adopted in order to grant phases is the notion that the sharing of subnational governments' full power, resources and accountability to autonomy so that they can perform their 11 functions with regard to the major legal loans. This process, however, should not action of the decentralization process. be so decentralized as that of social First, a general sharing fund should be services. Based on the characteristics of created. This fund for revenues obtained the country, the power over these two from the central government and to be types of revenues should remain in the distributed to subnational governments hands of the central government. should have the following Therefore, the implementation, characteristics: definition of tax rates and regulation of taxes (e.g.: property tax, or even taxes on · The fund must contain a the delivery of services, business percentage value on the revenue licenses) should still be under the product. This percentage must be responsibility of the central government, fixed and previously established but the management of tax revenues by some legal act, and should not should be delegated to municipal be liable to any changes by the governments. In the third scenario, federal government's executive changes may be proposed to the central branch and should not depend on government, with the definition of the allocation of funds in the different and higher tax rates for better budget or be subject to financial developed regions ­ which could be programming; collected as additional rates. · This general fund should be Possible Partnerships transferred on a monthly basis, on the same date that was During formal discussions of this report proposed in the case of the very with authorities a request was made to first scenario, to decentralized list possible areas of Technical programs via agreements; Assistance emerging from the PER occasionally, the transfers may recommendations that could be provided be carried out on a fortnightly or by the development partners that weekly basis; participated in the report. The action matrix included next list possible areas · The allocation of funds of technical assistance and can be used should consider the population of to deepen the dialogue between each jurisdiction as a basic development partners and the criterion, in addition to other Government of Angola. municipal indicators closely related to the demand for public goods and services (a proxy that can be easily assessed and updated is the household consumption of electricity, at least in urban areas); xl. Municipal governments could be allowed to use the revenues from municipal taxes and the most developed ones may even contract 12 POTENTIAL PARTNERS THEMES PER DIAGNOSTICS TECHNICAL INVOLVED IN TA ASSISTANCE (TA) Multi-year revenue World Bank, IMF, projection and debt USAID ·Prepare the budget within sustainability analysis. a multi-year perspective Multi-year forecast of World Bank, IMF, ·Improve preparation, spending under current USAID execution and monitoring policy or current level of of the budget. services, by ministry or program. ·Strengthen the links BUDGET between strategic Multi-year estimates of World Bank, IMF, planning, policy cost of new policies, new USAID formulation and budgeting. projects (capital) and expansion of existing programs. CENTRAL ·Improves coordination between MINPLAN and sectoral Ministries. Reinforce budgetary UNDP discussions mechanisms in Parliament Committees. Developing analytical tools UNDP to study the distributive effects of the budget. 13 ·Improve strategic planning Improve budget World Bank, DFID in the sector. classifications to support strategic planning of the sector. ·Increase availability and quality of social indicators and budget classifications in education. Improve statistical capacity World Bank, UNICEF, for producing educational UNDP, EC indicators ·Introduce technical criteria to allocate budget funds to provincial governments. EDUCATION ·Improve efficiency of Capacity building of public World Bank, UNICEF, public spending in the sector workers in the UNDP, EC sector. Ministry of Education (central, municipal, and provincial levels) to formulate, monitor and implement plans of the sector 14 Improve budget World Bank, WHO, classifications to support UNICEF, EC ·Improve strategic planning strategic planning of the in the sector. sector. ·Improve efficiency of public spending in the sector. Improve statistical capacity UNICEF, EC for producing health indicators ·Improve coordination HEALTH between MINSA and provincial governments to avoid duplication of efforts Capacity building of public UNICEF, EC and inefficiencies sector workers in the Ministry of Health (central, municipal, and provincial levels) to formulate, monitor and implement plans of the sector ·Reevaluate the actual geographic distribution of doctors and nurses in the country 15 Support framework FAO, UNDP, EC ·Improve strategic planning development of a new in the sector agricultural research unit and promote partnerships with public entities to support the new unit in achieving productivity increases through new technologies. ·Improve efficiency of public spending in the sector Promote partnership FAO, EC ·Set strategies to improve between the new investments in research agricultural research unit AGRICULTURE and extension activities and the "Programa de Extensão e Desenvolvimento Rural" to transfer and adapt new technologies for immediate use by Angolan producers. 16 Support participatory UNICEF, World Bank municipal planning procedures and the establishment of the Conselho Municipal de ·Develop monitoring Auscultação e mechanisms for assessing Concertação Social the evolution of fiscal de- concentration. Develop participatory PNUD, World Bank budget mechanisms at municipal and provincial ·Capacitação e formação levels de funcionários públicos dos governos municipais e provinciais. DESCENTRALIZAÇÂO Develop monitoring and PNUD, World Bank evaluation mechanisms of public spending at municipal and provincial levels Training municipal and PNUD, World Bank provincial level workers on the budget process.