Report No. 50815-NE NIGER Second Public Expenditure Management and Financial Accountability Review (PEMFAR II): Volume I : Main Report January 2011 Poverty Reduction and Economic Management 3 AFTPC Country Department AFCW3 Africa Region Document of the World Bank, co-produced the United Nations Development Programme and the African Development Bank Fiscal Year of Budget January 1- December 31 Currency Equivalents Currency unit: Franc CFA (FCFA) US$1 = 444.00 (Exchange rate effective July 2009) Weight and Measures Metric system Abbreviations and Acronyms AfDB African Development Bank ACC Agent Comptable Central du Trésor (Central Accounting Agency of the Treasury) ARMP Autorité de Régulation des Marchés Publics (Public Procurement Regulatory Agency) BCEAO Banque Centrale des Etats de l’Afrique de l’Ouest (Central Bank of West African States) CAADIE Center Autonome d’Amortissement de la Dette Intérieure de l’Etat (Central Executing Agency for Settlement of Domestic Arrears) CAS Country Assistance Strategy CFAA Country Financial Accountability Assessment CET Common External Tariff CCD Commissioner for Development CCP Compte Chèques Postal (Giro Account) CE Commissariat de l’Economie (Commissary of Economy) CNR Conseil National de la Regulation (National Regulation Council) COGES Comité de Gestion des Etablissements Scolaires (School Management Committee) CPAR Country Procurement Assessment Report CWIQ Core Welfare Indicator Questionnaire DAC Development Assistance Committee DAF Direction des Affaires Administratives et Financières (Financial and Administrative Affaires Directorate) DCE Direction du Contentieux de l’Etat (Public Dispute Settlement Directorate) DCF Direction du Contrôle Financier (Financial Control Directorate) DEPP Direction des Entreprises Publiques et Parapubliques (Directorate of Public and Parastatal Enterprises) DGFI Direction Générale du Financement de l’Investissement (General Directorate of Investment Financing) DGB Direction Générale du Budget (General Directorate of Budget) DGCF Direction Générale du Controle Financier (General Directorate of Financial Control) DGCMP Direction Générale du Controle des Marchés Publics (General Directorate of Public Procurement Control) ii DGD Direction Générale des Douanes (General Directorate of Customs) DGI Direction Générale des Impôts (General Directorate of Taxes) DGIF Direction Générale de l’Inspection des Finances (General Directorate for Financial Inspection) DGPE Direction Générale du Patrimoine de l’Etat (General Directorate of State Assets) DGTCP Direction Générale du Trésor et Comptabilité Publique (General Directorate of Treasury and Public Accounts) DIF Direction de l’Informatique Financière (Directorate for Financial Information Technology) DO Direction de l’Ordonnancement (Payment Order Directorate) DPP Direction des Programmes et du Plan (Planning and Programming Directorate) DS Direction de la Solde (Payroll Directorate) DSA Debt Sustainability Analysis EC European Commission EDS Enquête Démographique et de Santé (Demographic and Health Survey) EFA-FTI Education for All-Fast Track Initiative EPA Etablissements Publics à Caractère Administratif (Administrative Public Enterprises) EPIC Etablissements Publics à Caractère Industriel et Commercial (Industrial and Commercial Public Enterprises) EU European Union EPN Établissements Publics Nationaux (National Public Establishments) FCFA Franc de la Communauté Française de l’Afrique (Franc of the French Community of Africa) FMIS Financial Management Information System GDP Gross Domestic Product HDI Human Development Index HIPC Heavily-Indebted Poor Country IDA International Development Association IGE Inspection Générale d’Etat (General Public Inspectorate) IMF International Monetary Fund INRAN Institut National de Recherches Agronomiques du Niger (National Agronomic Research Institute of Niger) MDRI Multilateral Debt Relief Initiative MEF Ministère de l’Economie et des Finances (Ministry of Economy and Finance) MEN Ministère de l’Education Nationale (Basic Education and Alphabetization Ministry) MFP/T Ministère de la Fonction Publique et du Travail (Public Service and Labor Ministry) MSP Ministère de la Santé Publique (Public Health Ministry) MTEF Medium Term Expenditure Framework NIF Tax Identification Number NGO Non-Governmental Organization NPV Net Present Value iii ODA Overseas Development Aid OECD Organization for Economic Cooperation and Development PDDE Programme Décennal pour le Développement de l’Education (10-Year Education Development Program) PEFA Public Expenditure and Financial Accountability PEMFAR Public Expenditure Management and Financial Accountability Review PER Public Expenditure Review PETS Public Expenditure Tracking Survey PGT Payeur Général du Trésor (Treasury Paymaster) PREM Poverty Reduction and Economic Management Network (World Bank) PRGF Poverty Reduction and Growth Facility PRS Poverty Reduction Strategy PRSP Poverty Reduction Strategy Paper PSOP Paiement sans Ordonnancement Préalable (Payment without preceding Payment Order) RAP Reste à payer (Outstanding payments) RGCP General Public Accounting Regulations SDR Stratégie de Developpement Rurale (Rural Development Strategy) SNIS Système National de l’Information Sanitaire (National Health Information System TGN Trésorerie Générale du Niger (General Treasury of Niger) TOFE Tableau des Opérations Financières de l’Etat (Table of Government Financial Operations) UNDP United Nations Development Programme UNICEF United Nations Children Fund VAT Value Added Tax SDRP Stratégie de développement et de réduction de la pauvreté (Poverty Reduction and Development Strategy) SYSCOA West African Accounting System WAEMU West African Economic and Monetary Union WFP World Food Program WHO World Health Organization Vice President : Obiageli K. Ezekwesili (AFRVP) Actg. Country Director : Kathryn Hollifield (AFCW3) Actg. Sector Director : Jan Walliser (AFTPM) Sector Manager : Jan Walliser (AFTP3) Team Leaders : Robert Utz (AFTP3) Amadou Ibrahim/Marcelo Andrade (AFTP4) iv NIGER Second Public Expenditure Management and Financial Accountability Review (PEMFAR II) Table of Contents 1. INTRODUCTION .............................................................................................................................. 1 A. Political And Social Context ............................................................................................................ 1 B. Recent Economic Patterns ............................................................................................................... 3 C. Medium-Term Prospects and Development Priorities ..................................................................... 7 2. FISCAL SPACE OUTLOOK ......................................................................................................... 10 A. Context ........................................................................................................................................... 10 B. Recent Extractive Industry Revenue Trends and Use of Resources .............................................. 10 C. Medium And Long Term Oil And Mining Revenue Outlook ....................................................... 12 D. Capacity To Forecast Oil And Mining Revenues And To Adjust To Volatility............................ 14 E. Transparency In The Use Of Oil And Uranium Revenues ............................................................ 19 F. Summary Of Recommendations .................................................................................................... 21 3. PUBLIC EXPENDITURE REVIEW ............................................................................................. 23 A. Context ........................................................................................................................................... 23 B. Trends In Composition Of Public Expenditure.............................................................................. 24 C. Expenditures In Priority Sectors .................................................................................................... 31 D. Niger’s Public Investment Management System ........................................................................... 46 E. Developing Strategic Budget Tools ............................................................................................... 55 F. Summary Of Recommendations .................................................................................................... 59 4. REVIEW OF PUBLIC FINANCIAL MANAGEMENT SYSTEM ............................................ 62 A. Context ........................................................................................................................................... 62 B. Overview ........................................................................................................................................ 64 C. Legal and Institutional Framework ................................................................................................ 66 D. Budget Credibility, Comprehensiveness and Transparency and Policy-Based Budgeting ........... 70 E. Accounting, Recording And Reporting ......................................................................................... 76 F. Predictability and Internal and External Control of Budget Execution ......................................... 84 G. Donor Practices .............................................................................................................................. 97 H. Summary Of Recommendations .................................................................................................... 98 5. PROCUREMENT ASSESSMENT ............................................................................................... 104 A. Context ......................................................................................................................................... 104 B. Overview ...................................................................................................................................... 105 C. The Government’s Reform Program ........................................................................................... 110 D. Assessment Of The Public Procurement System ......................................................................... 111 E. Summary of the Recommendations ............................................................................................. 121 v List of Tables Table 1.1 : Niger poverty indicators: 1994-2008 ......................................................................................... 2 Table 1.2 : Poverty incidence by area of residence ...................................................................................... 3 Table 2.1 : Contribution of the extractive industries to budgetary revenue ............................................... 11 Table 2.2 : Medium and long term mining revenue projections ................................................................ 14 Table 3.1 : Quantitative targets for priority sector spending in PRSP-I .................................................... 23 Table 3.2 : Public expenditures by economic category.............................................................................. 24 Table 3.3 : Public expenditures by economic category.............................................................................. 24 Table 3.4 : Public expenditures execution rates by economic category (in percent of initial budget) ....... 25 Table 3.5 : WAEMU – Economic composition of public expenditures .................................................... 26 Table 3.6 : Functional allocation of public expenditures ........................................................................... 27 Table 3.7 : Functional classification of expenditures (actual, in billion CFAF) ........................................ 27 Table 3.8 : Execution rate total expenditures ............................................................................................. 28 Table 3.9 : Execution rate of capital expenditures ..................................................................................... 28 Table 3.10: Functional classification of current expenditures (actual, in billion CFAF) ............................ 29 Table 3.11: Education and Health expenditures in some African countries in 2007 .................................. 30 Table 3.12: Regional comparison of education outcomes: MDG indicators (2007 or 2008) ..................... 32 Table 3.13: Education sector expenditures (in billion CFA Francs) ........................................................... 32 Table 3.14: Public education expenditures by level.................................................................................... 33 Table 3.15: Education sector expenditures ................................................................................................. 33 Table 3.16: Primary education contractual teachers (2003-2008) .............................................................. 34 Table 3.17: Comparison of education expenditure efficiency indicators.................................................... 35 Table 3.18: Health sector expenditures: actual expenditure (in billion CFAF) .......................................... 36 Table 3.19: Health sector expenditures: actual expenditure (in percent of GDP) ....................................... 37 Table 3.20: Regional comparison on health outcomes ............................................................................... 37 Table 3.21: Ratios of health workers to population by region (2000) ........................................................ 38 Table 3.22: Ratios of health workers to population by region (2008) ........................................................ 39 Table 3.23: Niger Rural Development Strategy and Programs ................................................................... 42 Table 3.24: Rural sector actual expenditures (in billion CFA Francs)........................................................ 43 Table 3.25: Rural sector actual expenditures (in percent of GDP) ............................................................. 43 Table 3.26: Comparison of Niger’s yields of cereal production with peer countries ................................. 45 Table 3.27: Budget nomenclature ............................................................................................................... 46 Table 3.28: Niger – Capital expenditures, 2003-2008 ................................................................................ 47 Table 3.29: Table of Recommendations ..................................................................................................... 59 Table 4.1 : Summary of PEFA scores ........................................................................................................ 63 Table 4.2 : Comparison by country – Summary of PEFA scores .............................................................. 65 Table 4.3 : Status of implementation of the WAEMU Financial Directives ............................................. 67 Table 4.4 : Composition of payments “without prior payment order� as of end-2007 ............................. 93 Table 4.5 : Dates of presentation and passing of Budget Execution Review Law .................................... 94 Table 4.6 : Table of Recommendations – Public Financial Management ................................................. 99 Table 5.1 : WAEMU – Public procurement: Average score by the OECD/DAC pillar .......................... 109 Table 5.2 : Table of Recommendations – Public Procurement ................................................................ 122 List of Figures Figure 1.1: Niger: Human development index ranking ................................................................................ 2 Figure 1.2 : The agricultural sector has been driving overall real GDP growth .......................................... 4 Figure 3.1: Priority sector expenditures, as percent of GDP....................................................................... 30 Figure 3.2: Main crops production in 2007................................................................................................. 44 vi Figure 5.1: Niger – Public procurement – Aggregate score by OECD/DAC pillar .................................. 106 Figure 5.2: Niger – Public procurement – Aggregated score by indicator ............................................... 107 Figure 5.3: Niger – Public procurement –Comparative scores of the 2008 and 2009 Reviews ............... 108 Figure 5.4: Public procurement system Average score by OECD/DAC pillar: comparison with other countriesa/ b/ ............................................................................................................................. 109 List of Boxes Box 2.1: Use and allocation of exceptional mining and oil revenues in 2007-2009 (CFAF billion)......... 12 Box 2.2: Options for Dealing with Revenue Volatility.............................................................................. 16 Box 2.3: Dealing with the “Resource Curse� ............................................................................................ 18 Box 3.1: PEMFAR I Priority Action Plan Recommendations related to new budget tools ...................... 55 List of Annexes Annex 1: PEMFAR I – Status of Implementation of the Priority Action Plan ........................................ 128 Annex 2: MEF and Public Procurement Institutions Organigrams.......................................................... 132 Annex 3: Revenue Projections ................................................................................................................. 134 Annex 4: Assessment of Diagnostic Questions for Evaluating Public Investment Efficiency ................. 138 Annex 5: Normative Budget Preparation Timetable ................................................................................ 142 Annex 6: Normal Expenditure Procedure ................................................................................................ 143 Annex 7: List of Documents Consulted ................................................................................................... 144 Annex 8: Update on recent developments (October 2009 to November 2010) ....................................... 146 vii ACKNOWLEDGEMENTS 1. The Second Public Expenditure Management and Financial Accountability Review (PEMFAR II) for Niger was undertaken by the World Bank in close partnership with the African Development Bank (AfDB) and the United Nations Development Program (UNDP). The Government set up a Steering Committee comprising different departments of the Ministry of Economy and Finance (MEF) and representatives from line ministries. The Steering Committee was chaired by Mr. Boubacar Moumouni Saidou (Commissioner in Charge of Economy), assisted by Mr. Saadou Bakoye (General Director of Economy). Other key government PEMFAR II Steering Committee members included Mrs. /Messrs: Sani Yacoubou (Commissioner in Charge of Development); Habou Hamidine (General Budget Director - MEF); Fatchima Rabo (Budget Director-MEF); Kamaye Zabeirou (DGB-MEF); Abdoulaye Issaka (Deputy Director, Public Treasury – MEF); Seydou Yaye (Monitoring and Evaluation Director – MEF); Mahamane Ousmane Maiga (Financing General Directorate - MEF); Iro Souley (Sectoral Programs General Director); Ibrahim Abdoulaye (Studies and Statistics Director - MEF/DGI); Mahamane Balarabe Ibrahim (Studies and Statistics Department - MEF/DGI) Boukary Wassalke (ARMP Executive Secretary- Prime Minister Cabinet); Yahouza Sani (DGCMP-MEF); Aga Salmanou (Studies and Accounting and Financial Regulation Director, MEF-DGTCP); Adam Amadou (DEP-MEN) and Aboubacar Chaibou Begou (DEP-MSP). Following the Coup d’Etat in February 2010, wide ranging personnel changes took place in Government and the Ministry of Economy and Finance and Mr. Sani Kanta (Commissioner for the Economy, MEF) led the Government team for the review, validation, and finalization of the report 2. The backgrounds reports on which the PEMFAR II is built are based on the findings and recommendations of the main mission conducted in February 2009 in Niamey jointly by the Government, UNDP, AfDB and the World Bank. The conclusions of this mission were shared with H.E.M. Ali Mahamane Lamine Zeine, Minister of Economy and Finance and senior staff of the MEF. They were also shared with main donors represented locally in Niger. The draft report was reviewed by Government in May/June 2010 and comprehensive feedback and comments were provided to the Bank team. Subsequently, a validation workshop was held in Niamey from November 10-11, 2011, where the report was broadly endorsed. 3. Since March 2010, the World Bank team was led by Robert Utz (AFTP3). Previously, the team was led by Amadou Ibrahim (Task Team Leader) and Marcelo Andrade (Co-Task Team Leader), both from AFTP4. The primary author of the socio-political and macroeconomic context of this report was Amadou Ibrahim (Sr. Economist, AFTP4). The chapter on the fiscal space outlook was prepared by Amadou Ibrahim (AFTP4) with inputs from Mamadou Barry (Sr. Mining Specialist, MIGOP), Robert Yungu (Sr. Resource Management Specialist, AFTPR) and Emilio Sacerdoti (Consultant). The chapter on Public Expenditure Review was prepared by Pierre Demangel (consultant) and Amadou Ibrahim (AFTP4); Robert Yungu (AFTPR) and Jerome Chevallier (Consultant) prepared the Assessment of the Public Investment Management System. Robert Cauneau (Consultant) was the main author of the chapter on Public Finance Management. Moustapha Lo (Consultant) and Eric Jean Yoboue (Sr. Procurement Specialist, AFTPC) drafted the chapter on Public Procurement. Team members included Marcelo Andrade (Sr. Economist, AFTP4), Philip English (Lead Economist, AFTP4); Issa Faye (Sr. Economist, AfDB); Mamadou Yaro (Sr. Financial Management Specialist, AFTFM); Janet Owens (Poverty Economist, AFTP4), Rahamane Ibrah Sanoussi (Procurement Specialist, AFTPC), Jose Pedrosa (Economist, UNDP), Eliane Tchapda (Program Assistant, AFTP4) and Salifou Noma (Team Assistant, AFMNE). viii 4. The UNDP and AfDB provided important technical and financial support for this exercise. The IMF provided detailed valuable comments on an early draft of PEMFAR II background documents. Abebe Adugna (Sr. Economist, CFPIR), Bernard Myers (Sr. Public Sector Management Specialist, ECSP4) and Francisco Carneiro (Advisor, OPCCE) were peer reviewers. The report was written under the guidance of Antonella Bassani (Former Sector Manager, AFTP4) and Jan Walliser (Sector Manager, AFTP3) and benefited from support from Ousmane Diagana, (Former Country Manager for Niger, AFMNE) and Madani M. Tall (Former Country Director for Niger, AFCF2). Glaucia Ferreira (AFTP4) and Paula Joachim White (AFTP3) provided editing and report processing support. ix EXECUTIVE SUMMARY Introduction  The PEMFAR II report provides analysis of the fiscal space outlook, a review of public expenditure management, including of the public investment management system, and assessments of the public financial management and public procurement systems. The review covers the period since the 2004 PEMFAR until 20091 and the detailed analysis of public expenditures focuses on three key sectors (education, health and rural development) which represented about 52 percent of the voted budget in 2007 and 2008 and are the pillars of Niger’s PRSP II. The PEMFAR II proposes a comprehensive short and medium term (2010-2012) reform agenda which would assist the Government to prepare and adopt an action plan to improve the effectiveness of public resources management in Niger. This report constitutes the main report (Volume I) of the PEMFAR II. Volume II of the PEMFAR II provides the detailed report of the evaluation of the public procurement system. Key Messages  The five main messages of the 2009 PEMFAR are:  Strong political commitment at the highest level and adequate technical assistance are key prerequisites for effective public sector reform. Limited implementation of the PEMFAR I recommendations (see para. 1.9) reflects an ineffective political support for implementing sensitive policy reforms (e.g. reform of the Treasury, implementation of the Court of Accounts, regular and timely closing of accounts). Given the country’s significant capacity constraints, technical assistance from donors is also needed to provide timely support to key departments to implement agreed policy measures.  Strengthening domestic revenue management and transparency is crucial as the country prepares to mobilize important oil and mining revenues. Domestic revenues from the mining and oil sectors, estimated to increase by less than 1.0 percent of GDP over the next four years and some 3.0 percent of GDP in the longer term, will remain modest compared to the development needs – and to the population’s expectations. The authorities will need to allocate these resources wisely in order to reduce poverty and help other sectors to avoid the Dutch disease effects by improving their competitiveness. The government could usefully implement a stabilization fund to mitigate the revenue volatility historically associated with international mineral and oil price fluctuations. As increased rent-seeking is another common feature of resource booms, it will also be important to enhance transparency in revenue flows related to uranium and other extractive industries, especially by effectively implementing the actions agreed in the context of the EITI. These should be accompanied by continued and enhanced efforts to increase other domestic revenue mobilization and strengthen the public investment management system (see further below). 1 Annex 8 provides selected updates on developments since 2009. x  Budget credibility and execution need to be improved as well as public investment management. The level of aggregate expenditure outcomes differed considerably (between 12 and 23 percent) from the originally approved budget during the period 2004- 2008. The three main priority sectors covered by this review developed strategic budget instruments (costed sector strategies, MTEF and program budget). However, budget consistency with PRSP priority sectors is not evident. In addition, the review of Niger’s public investment management (PIM) revealed that almost all of the “must have� features of a credible system are missing. Strengthening PIM is essential to ensure effective developmental impact in the use of expected mineral revenues and lay the foundation for a successful implementation of a medium-term expenditure framework (MTEF).  Integrity and accountability of public financial management remain a challenge. The country’s public financial management system now generally complies with the WAEMU Directives. The Ministry of Economy and Finance (MEF) formulated a computer master plan that helped to modernize the MEF’s departments. Still, the following five key challenges require priority attention from the Government: (i) eliminate the excessive use of exceptional spending procedures which poses serious issues of governance and hinders effectiveness of public expenditure; (ii) ensure timely, comprehensive and accurate fiscal accounting and reporting; (iii) improve budget comprehensiveness and transparency; (iv) make operational the new Treasury structures and improve cash management; and (v) strengthen internal control and increase external oversight of budget outcomes, including by strengthening the capacities of the Court of Accounts.  Serious weaknesses affect the transparency and efficiency of the public procurement system. Even though progress has been made in recent years, particularly with the setting up of the Public Procurement Regulatory Agency (ARMP), further improvement of public procurement2 should be considered a priority by the Government given its key role in ensuring cost-effective delivery of public services and infrastructure. Currently, the three key challenges are: (i) the non-conformity to WAEMU Directives of certain provisions of the current procurement code (e.g. excessive use of non competitive methods linked to a specific and high threshold, and limiting access to contracts conducted through national competitive bidding only to local contractors) poses a substantial risk to transparency, competition and equity; (ii) persistence of areas of substantial conflict of interest, namely the involvement of the ARMP in prior reviewing any directly negotiated contract as this does not ensure the requisite independence of its Disputes Settlement Committee (CRD); and (iii) lack of efficient internal controls of most contracts awarded by the contracting authorities and absence of regular public procurement audits by the ARMP.  This executive summary further details the key messages emerging from the PEMFAR II review. The summary, after the above overview, reflects the underlying themes 2 The PEMFAR evaluation was not able to obtain comprehensive data and statistics on procurement. Whereas the investment budget represented in 2008 an amount of CFAF 260 billion (Official Gazette), that of the contracts awarded the same year was estimated at only 60 billion (about 3 percent of GDP) according to the information received from the Government (DGCF). xi that emerge from the assessments of fiscal space outlook, public expenditures including public investment management, the public financial system, and the public procurement system. At the end, the summary proposes a set of targeted priority actions aimed at improving the developmental impact of public expenditures. Fiscal Space Outlook  Niger’s public expenditure management has been hampered by low and variable domestic revenue collection. Revenue mobilization is still very low compared to regional levels and somewhat unpredictable. The tax revenue to GDP ratio is estimated at 11.7 percent in 2008 and averaged 10.8 percent over the period 2003-2008, far from the 17 percent stipulated under the WAEMU convergence criteria. Moreover, projected and actual domestic revenues differ and this adversely impacts sound expenditure management. The gap between voted and actual revenues, while lower in 2007-2008, averaged about 15 percent during the period 2004-2006. The customs and internal revenue offices have developed medium term action plans for improving revenue collection and the government should ensure full implementation of those action plans.  Capacity to manage expected important mining and oil revenue will need to be strengthened. Domestic revenues from the mining and oil sectors are estimated to increase by less than 1.0 percent of GDP over the next four years and some 3.0 percent of GDP in the longer term. The Ministry of Mining and Energy and the Ministry of Economy and Finance lack technical skills to prepare reliable revenue forecasts in the mining and oil sectors. In addition to developing that capacity, the Government should consider implementing a mechanism for coping with the typically high volatility of international mineral and oil prices. This is essential to avoid sharp swings in government revenues and thereby promote budget predictability and avoid the adverse impact of the “Ducth disease� as occurred in the 1970s. In this regard, building on good practices from other countries, the sovereign fund proposed in the PRSP II could usefully be designed and implemented as a stabilization fund.  Transparency of revenue management should be strengthened. Niger is a full member of the EITI initiative since 2007 and developed an action plan for implementing the initiative. However, implementation of the action plan, especially regarding the audit of revenue flows, has been slow and no independent audit has been performed to date. Renewed commitment to the goals and actions spelled out in the EITI action plan, including conducting and publicly disclosing the audits of revenue flows, is necessary if the country’s medium and long term development objectives are to materialize. These should be complemented by enhanced efforts to increase other domestic revenue mobilization (which is not a topic of this report) and strengthen the public investment management system (see further below). Public Expenditure Review  Budget credibility has yet to be established. Important deviations, ranging between 12 and 23 percent during the period 2004-2008 between actual and voted total primary public expenditures, are one of the causes for the inefficiency of budget execution at the line ministries’ level, especially in priority sectors. Also the stock of arrears is very high representing more than one-third of total primary expenditures at end-2008. Uncertainty of expenditure funding xii discourages line ministries from making and implementing work plans, and exacts a toll in service delivery efficiency. The reported deviations are the result of serious weaknesses in both budget preparation and budget execution. Budget preparation needs to be improved by giving sufficient time to line ministries to prepare their own budget proposals and adequately involving them in the formulation of the capital expenditures budget. Budget execution remains too much at the discretion of the Ministry of Economy and Finance. To tackle under-spending during budget execution, it is important to ensure the timely release of funds and shortening of the period for the freezing of commitments, which currently starts early in the final quarter of the fiscal year. Within ministries, budget management is too centralized, with most expenditure executed at the central level, even if they target local beneficiaries. Decentralized offices of ministries are also often understaffed or under-trained.  Efficiency of public expenditure is low compared to regional averages. Indicators of efficiency in the social and rural sectors need to be improved. With a population growth of 3.3 percent, the country should improve the efficiency of public spending in key PRSP sectors for reaching its development objectives. In the rural sector, for instance, the yield of the main crop (millet) is 50.3 percent lower than in peer countries.  Additional steps are required to improve the links between PRSP policy priorities and actual budgetary execution. Budget consistency with PRSP priority sectors is not evident and on average, the share of total non-debt public expenditures allocated to priority sectors decreased from 2000-2002 to 2003-2008. Protection of PRSP priority sectors is also not evidenced by public expenditure execution rates. Moreover, current expenditures on priority sectors during 2003-2008 have been lower on average than they were during 2000-2002.  The public investment management (PIM) system needs to be strengthened. The assessment of the current PIM showed that Niger meets one of the ten “must have features� of an efficient public investment management system. Among its weaknesses, the system especially lacks: (i) first-level screening of all projects: such screening must be undertaken to ensure that they meet the minimum criteria of consistency with the strategic goals of government and meet the budget classification tests for inclusion as a project rather than as a recurrent spending item; (ii) cost-benefit or cost effectiveness screening, as little economic analysis is carried out by the Government which does not have a formal and well-publicized guidance on the technical aspects of project appraisal; and (iii) capacity to monitor project implementation. Some project units are equipped with a monitoring capability, but this is the exception as project implementation is seriously deficient. As the country’s investment budget is currently driven mostly by donors, the Government has perhaps relied on donors to conduct some of this monitoring. This will become all the more important as increased revenues from the oil and mining sectors will help reduce this dependence on donors.  Sector MTEFs should be aligned to the Budget and the overall MTEF. Sector MTEFs should reconcile sector priorities with budget discipline. However, the way they are now conceived, they tend to determine budget levels based on strategic objectives with insufficient consideration for what is financially feasible. “Desirable� outputs are determined, for which expenditure programs are calculated. Since there is a discrepancy with budgetary envelopes, “financing needs� are derived, which may or may not correspond to projected donor financing. This methodology does not help develop budgets that are operational. Hence the need for an xiii overall MTEF which provides coherence to the various sector MTEFs, and makes them consistent with the overall macroeconomic constraints. In addition to appropriate consideration of budget constraints, a credible MTEF will also require a sound PIM system so that resource allocation trade-offs can be properly evaluated. Public Finance Management  The excessive use of payments “without prior payment order� should be considerably reduced during budget execution. Those payments represented 25.4 percent of the total expenditures in 2006, 51.2 percent in 2007 and 26.1 percent in 2008. From the analysis of the composition of payments “without prior payment order�, as of end-2007, two key conclusions can be drawn: (i) a considerable share of these payments, about 46 percent, does not seem to fall within the types of emergency expenditures listed in the regulations (see para. 4.129); and (ii) tax refunds (fiscalité compensée) represent an unusually high share of these payments. Moreover, these payments are not timely regularized as mandated in the General Public Accounting Regulations. The extent of use of such exceptional (called simplified) procedures and the fact that they are not timely regularized show a disturbing lack of rigor in public financial management that needs to be reversed as it considerably affects transparency of public spending and good governance.  Periodic analytical fiscal reporting has yet to be established. Also, public access to key fiscal information is limited. In spite of well-designed “Budget� and “Treasury� information technology tools, it is important to ensure an appropriate interface between the two applications so that the publication of timely, comprehensive and reliable within-year and end- year fiscal accounts and analytical budget execution reports is feasible.3 Public access to fiscal information needs to go beyond publishing the annual Budget Law in the official gazette. The planned MEF website offers a great opportunity to start posting in-year and end-year fiscal reports, and written information in local languages and radio broadcasts could also be put in place.  Budget comprehensiveness and transparency require further improvement. Although the budgetary classification is in line with regional standards, the budget does not reflect all the externally-financed operations and has yet to provide appropriate coverage of revenues/expenditures of EPAs. The presentation of budget documentation needs to be improved, by incorporating the presentation of the budget deficit, a sufficiently detailed presentation of the financing of the deficit, spelling out the amount of the debt stock and the amount of financial assets, reporting the status of execution of the previous year budget presented in the same format as the budget estimate, providing budget summary tables and, lastly, including the impact analysis of proposed fiscal measures.  The Treasury Services have yet to fully play their role. The Government’s accounting system follows regional standards but not all the accounting principles are followed. The rule of 3 It should be noted that in terms of computer interfaces between the DGB and the Treasury: - Interface "go" Budget / Treasury is fully functional; - Interface "return" exists in terms of computer programs but the information as it is in the Treasurey database does not allow an exact matching of payments and commitments. xiv recording transactions into the year they belonging in is not always respected. The accounting services of the Treasury conduct bank reconciliations only once at the end of the year instead of on a monthly basis, about four weeks after the end of the month. Also, monitoring of suspense and advances accounts will need to be improved and be properly reflected in the government’s accounting system. Control of the release of resources for primary service delivery is not sufficiently monitored and implementation of the Public Expenditure Tracking Survey (PETS) recommendations would pave the way for increased cost-efficient delivery of basic services. The centralization of accounting entries and supporting documents of expenditures corresponding to the transactions from remote areas needs to be conducted in a timely manner and treasury management should enable the preparation of the general accounts of financial administration (CGAF). Timely closure of the accounting year has been suffering considerable slippage, which in turn delays the preparation of the draft budget execution review law. Progress in treasury management depends upon implementation of institutional reforms of the Treasury so that the country meets the WAEMU standards.  Internal and external controls of public expenditure need to be substantially improved. Some expenditure controls could be eliminated as they are recognized to be redundant and control of the services provided needs to be stepped up to ensure better value for money. The system of “régies d’avances� should be brought under the control of the Public Accountant. Control by financial controllers should be systemic and based on risk criteria. The recent transformation of the Chamber of Accounts into a Court of Accounts marks important progress towardsensuring adequate and independent external scrutiny of the use of public resources. Provision of adequate financial and human resources to the Court of Audits is essential to allow it to fully play its role. Control of the draft budget execution review law relates only to the details of expenditures and revenues and follow up of the recommendations made by the National Assembly to the Executive should receive appropriate priority. Public Procurement  Further improvements are required to strengthen transparency and efficiency of the public procurement system. While in recent years the country has improved the legal and regulatory framework with the setting up of the ARMP, the need to align certain provisions of the current code to the WAEMU Directives and good practices in procurement is essential to reduce the substantial risk of non-compliance with principles of transparency, competition and equity. In particular, it is problematic the use of a mode of non-competitive procurement with a higher ceiling than that which conforms with the WAEMU practice. In the same way, limiting access to contracts conducted through national competitive bidding only to local contractors is one of the main weaknesses of the current system and is not in conformity with WAEMU guidance. Finally, conditions for international bidding are not clearly defined to ensure healthy competition and promote capacity-building.  Measures should also be taken to avoid conflict of interest which persists in the system. The Code approved in 2002 directly involved the ARMP in ex-ante control of awards by directly negotiated contracts, due to the fact that there were no ex-ante central and decentralized control structures in place within the administration. In conformity with the Guidelines of WAEMU, with the creation of the Directorate General for Public Procurement Control (DGCMP) within the MEF and a Public Procurement Division (DPMP) at each ministry, the xv ARMP should relinquish its current responsibility in authorizing directly negotiated contracts to avoid a conflict of interest with its function as a regulatory body and its key role in complaint resolution mechanism. In the same way, the Government has involved the private sector in the Bid Assessment and Award Commissions. With the ARMP operational, and especially with a system of complaints resolution, which gives the private sector the means for citizenry control, it is necessary to end the direct involvement of representatives of the private sector in the bid assessment and adjudication process.  Weak internal controls and absence of regular audits of public procurement are an important risk to the procurement system. The rejection of the Ordinance 2008-06 of 21 February 2008 by the Parliament, which sought to create the new public procurement directorate (DGCMP) for internal control of procurement transactions handled by the contracting authorities, contributed to weak the entire internal control system of the contracting authorities. Many difficulties have been encountered in setting up this institution as an internal control mechanism, thereby leaving a wide margin of responsibility4 to the contracting authorities in the procurement process which does not necessarily correspond to their capacity and translates into considerable risks. The Public Procurement Divisions (DPMPs) are, in most cases, responsible for procurement, whereas according to international good practices and WAEMU Guidelines their principal role should be to ensure internal control. Besides, the financial control unit, which should ensure temporary ex-ante control5 of contracts signed by the contracting authorities, lacks the tools and adequate capacity to carry out its mandate. In view of these problems, and given the weak financial resources6 allocated to the ARMP, substantive annual public procurement audits have yet to be conducted, even though certain inquiries/investigations have been carried out. Proposed Policy Recommendations  The proposed policy recommendations for upgrading Niger’s public expenditure management, financial accountability and public procurement are summarized in Table 1. At the end of each chapter, the PEMFAR II proposes corrective measures to address major issues identified by the review. Of all proposed measures, those that merit priority attention in the Government’s PFM reform program are presented in the Table below. The PEMFAR validation workshop planned to take place in Niamey offers the opportunity to review their prioritisation and sequencing. The workshop is expected to involve the Government and main donors providing budget support and technical assistance for public expenditure and financial management reforms in Niger. 4 Circular 215/CAB/PM/ARMP of 28 July 2007 of the Prime Minister, in consideration of the difficulties associated with the full operationalization of the DGCMP, entrusted to the contracting authorities’ full responsibility for procurement in an amount not exceeding CFAF 300 million. 5 This transitional control framework has been adopted pending the deconcentration to the contracting authorities of the services of the DGCMP. 6 Even though the Government has instituted a regulation fee, a provision will have to be promulgated to facilitate and effect the payment of this fee by the contract holders and be made available to the ARMP. xvi Table 1: Policy Recommendations Area Policy Recommendations Time Frame I. Fiscal Space Outlook 1. Improve the predictability and level of 2011 tax revenues by implementing DGD and DGI medium term action plans 2. Design the sovereign fund as a 2011 stabilization fund to cope with mining and oil prices volatility 3. Accelerate implementation of EITI 2011 II. Public Expenditure 4. Prepare an overall MTEF, allocating 2010 the resource envelopes between ministries, following the procedure of distinguishing on-going policies/programs and new initiatives 5. Increase budget credibility by reducing 2011 deviation between voted and executed budget, ensuring the timely release of budget resources to the PRSP priority sectors and protecting them from expenditures cuts 6. Adopt a comprehensive strategy to 2011 strengthen Public Investment Management in Niger III. Public Finance Management 7 Limit the use of simplified expenditure 2011 procedures only to cases allowed by the regulations and clear, on a monthly basis, operations charged to provisional and non-regularized accounts 8. Provide adequate human and financial 2011 resopurces to the new Treasury structures (DGTCP, ACCT, PGT and RGT) 9. Publish timely comprehensive 2010 quarterly budget execution reports. IV. Public Procurement Systems 10. Establish at end of year the General 2010 Financial Administration Accounts based on the model used by countries in the sub-region (Côte d’Ivoire for example). 11. Improve the presentation of budget 2010 documentation 12. Provide adequate financial and human 2011 resources to the Court of Accounts 13. Conform procurement Code and 2012 standard bidding documents with WAEMU guidelines 14. Entrust control of compliance and 2011 opportunity of directly negotiated contracts to the DGCMP 15. Introduce regular procurement audits 2010 xvii 1. INTRODUCTION A. POLITICAL AND SOCIAL CONTEXT 1.1. Niger is a large, landlocked country with one of the world’s fastest population growth rate averaging 3.3 percent per annum. With a population of 15 million by end 2008, Niger is one of the 8 countries in Africa with less than 12 inhabitants per square kms. It has no maritime borders, faces recurrent droughts and only about 12 percent of all its land is arable, with rainfall in these areas at less than 350 mm per year. The country is endowed with important mineral resources such as uranium, gold and oil.7 The fertility rate is estimated at 7 children by woman in 2008 and Niger’s population8 is concentrated in the southern region of the country, as the northern and middle (two thirds of the territory) regions are essentially desert. 1.2. Since the last PEMFAR, the political situation has evolved. General elections were held in 2004 and the current President was reelected for a second term with a strengthened coalition of six parties out of the 9 represented in the Parliament. Also, Niger’s first local elections were successfully completed on July 24, 2004 as part of a program of political decentralization. Meanwhile, the country faces resurgent rebellion in the northern uranium rich region. The roots of this armed insurgency relate to concerns over the equitable share of mineral revenues. The government initiated ongoing direct peace talks with the rebel groups in March 2008. 1.3. However, recent political developments are a matter of concern. Political tensions escalated earlier in 2009 when the President expressed his intentions to remain in power, beyond his second term, against what is stipulated in the constitutional provisions. He dissolved the Parliament in May 2009, the Constitutional Court in June and held a controversial referendum controversial referendum and legislative elections in August and October 2009 to adopt a new constitution and elect new Members of Parliament (MPs). Smooth resolution of the ongoing political crisis is a key element to an effective implementation of economic reforms after the legislative elections in 2009. 1.4. Niger is a poor country with an improving but still weak human resource base and is endowed with substantial natural resources. Niger’s HDI is lagging compared to Sub- Saharan Africa but catching up with the WAEMU average (Figure 1.1). Niger is ranked 174th out of 177 countries on the UNDP Human Development Index (HDI), up slightly from the very last place in the previous assessment. The GNI is estimated at US$330 in 2008, up from US$280 in 2007. The gross primary school enrolment rate has increased significantly from about 29 percent in the early 1990s to 68 percent in 2008 and the ratio of girls to boys in primary schools also increased from 25 to 40 percent over the same period. Infant and under-five mortality rates 7 The Bank is elaborating a comprehensive report on “The political economy of the mining sector in Niger�jointly with the government. The PEMFAR report will limit its analysis of this topic on forecasting revenue from the mining and oil sectors in the medium to long terms and coping with the resource curse issue. 8 Demographic issue in Niger was largely analyzed in a recently completed World Bank report: “Niger - Providing all Nigeriens with food, education and health care: a demographic perspective – Report No 34219�.2004. The Bank is also supporting the government in implementing its population control strategy with a US $10 million Grant. have decreased respectively from 126 to 81 per 1,000 and 280 to 198 per 1,000 in 2003 to 2008. Niger is the fifth producer of uranium in the world and is expected to triple its production by 2018 when a new uranium ore will come on stream. A new petroleum refinery is being built by a Chinese company and should start production in 2012. Figure 1.1: Niger: Human development index ranking 0.60 0.50 0.40 Niger 0.30 WAEMU 0.20 SSA 0.10 0.00 1975 1980 1985 1990 1995 2000 2004 2005 Source: Human Development Index reports (UNDP) and Staff calculation. 1.5. Niger will not likely meet any of the Millennium Development Goals (MDGs) by 2015, based on current trends. Despite the improvements noted above, Niger remains behind on most of the Millennium Development Goals. The World Bank’s recent Country Economic Memorandum (CEM) noted that Niger is off-track in achieving the MDGs and that changing this course requires a forward-looking and comprehensive public investment program in priority sectors. It also requires a concerted follow-through on the ongoing reform program backed up by adequate resources from Niger’s development partners. 1.6. The first PRSP results in terms of poverty reduction were mixed as poverty incidence declined only to 62.1 in 2005, down from 63 in 1994 but far from the objective of 59 percent. Poverty updates in 2008 indicated that poverty incidence is at 59.5 percent. This Household Survey showed also that the depth and severity of poverty remain high, at 19.6 and 8.4 percent respectively against 21.7 and 10.1 percent in 1994 and 24.1 and 12.3 in 2005 respectively. Table 1.1 : Niger poverty indicators: 1994-2008 Poverty Baseline data PRSP I poverty Actual poverty Poverty reduction levels (1994) reduction targets in 2005 reduction outcomes in outcomes in 2008 2005 Incidence 63 59 62.1 59.5 Depth 21.7 20.3 24.1 19.6 Severity 10.1 9.5 12.3 8.4 Source: 1994-2008: HH; 2005-CWIQ; Ministry of Economy and Finance (MEF/INS). -2- 1.7. Poverty is mainly a rural phenomenon in Niger. The last Household survey confirmed that illiterate, rural people are most affected by poverty. In 2008, 63.9 percent of the rural population is poor and 30.3 percent is extremely poor compared to 36.7 percent of poor and 26 percent of extremely poor for urban areas. The depth and severity of poverty are all higher in rural areas though the numbers decreased in the 2008 census. The regions of Maradi and Tillabery contribute the most to poverty incidence with on average about 72 percent of their population below the poverty line. Table 1.2 : Poverty incidence by area of residence Area of Poverty Poverty Poverty Demographic Contribution to Residence Incidence Depth Severity Weight Poverty Urban 36.7 11.3 4.9 16.0 9.9 Rural 63.9 21.2 9.1 84.0 90.1 Source: 2008-HH; Ministry of Economy and Finance (MEF/INS). 1.8. Niger is still rated low in the Kaufmann and Kraay indicators which track governance9 in 2008. Niger ranks in the lowest quintile for “Control of Corruption;� “Political Stability-No violence;� “Government effectiveness� and “Rule of Law;� in the fourth lowest quintile for “Regulatory Quality� and “Voice and Accountability.� Other sources of information such as the Transparency International Global Transparency Report 2008 indicate that the governance indicators trends are not improving. 1.9. Challenges in governance are also affected by the mixed progress in implementing the PEMFAR I priority action plan (PAP) regarding public expenditure management and financial accountability. However, progress in strengthening the legal and regulatory framework of public procurement was encouraging. Globally, 53 percent of the 2004 PEMFAR Priority Action Plan (PAP) 32 actions were fully or substantially completed, 28 percent registered some initial progress and 19 percent were poorly or not initiated (Annex 1). The Government has carried out several of the key actions proposed in the 2004 CPAR. Donors have committed important resources for supporting public sector reforms in Niger, over the last couple of years. Strong political willingness is needed to support the successful implementation of the reform program which will be derived from the PEMFAR II. B. RECENT ECONOMIC PATTERNS Real Sector 1.10. Niger’s economic growth over the past several decades has been volatile and low on average though more resilient to shocks in recent years. From 1960 to 1974, before the first uranium boom in the mid-1970s, the economy was essentially dominated by rain-fed agriculture, and GDP growth averaged 1.4 percent. Following a five-fold increase in uranium prices, during 9 Governance consists of the traditions and institutions by which authority in a country is exercised. This includes the process by which governments are selected, monitored and replaced; the capacity of the government to effectively formulate and implement sound policies; and the respect of citizens and the state for the institutions that govern economic and social interactions among them. -3- the international oil crisis, real GDP growth rose to 3.3 percent from 1975 to 1983. Through a combination of declining uranium prices due to the stabilization of oil prices, a succession of droughts, and political upheavals in the nineties, real economic growth decelerated to 2.2 percent. 1.11. Real economic growth has accelerated again since 2004 averaging 5.5 percent. Political stability, relatively successful implementation of economic reforms, and increased uranium prices resulted in steady growth. GDP per capita growth has averaged 2.2 percent since 2003. In 2008, real GDP growth reached 9.5 percent due to an exceptional increase in agricultural output, estimated at 25.0 percent, as well as increased investment, both public and private, which amounted to 26.4 percent of GDP. Private investment for oil drilling and the building a new oil refinery, and expansion in the uranium sector, were notable. However, as indicated in Figure 1.2, growth remained volatile, underscoring the country’s vulnerability to droughts and its undiversified and small private sector base in sectors other than natural resources. Figure 1.2 : The agricultural sector has been driving overall real GDP growth 30.0 25.0 20.0 Real GDP 15.0 Real agric sector growth 10.0 5.0 Public investment (% of GDP) 0.0 2003 2004 2005 2006 2007 2008 Private investment (% of -5.0 GDP) -10.0 -15.0 Source: Ministry of Economy and Finance and Staff calculations. 1.12. The impact of the recent global food, energy and financial crises on Niger has been mixed with only a moderate effect on the economy. Inflation rose to double digits in 2008 at 11.3 percent level which had not been seen since the aftermath of the CFAF devaluation in 1994. To cope with the global food and energy crisis in 2008, the authorities implemented a program of both targeted free and low-cost distribution of cereals and eliminated taxes on sensitive food items for several months in 2008, at an estimated cost of CFAF 13 billion (0.5 percent of GDP). While many countries in Africa experienced in 2009 a slowdown in mining and oil related investments as a result of the global economic crisis, this has not been the case for Niger, where investments were initiated before mid-2008 and because the world price of uranium has remained strong by historical standards. However, the flow of remittances from Niger’s workers abroad (currently about 2 percent of GDP) is expected to drop. -4- Table 1.3 : Key economic indicators, 2003-2009 2003 2004 2005 2006 2007 2008 2009* (annual percentage change) National Incomes and Prices Real GDP growth ( percent) 7.1 -0.83 8.4 5.8 3.3 9.5 1.0 GDP deflator -0.4 0.6 7.1 1.4 3.3 7.6 4.9 Inflation (CPI - percent, annual. average) -1.8 0.4 7.8 0.1 0.1 11.3 5.0 (in percentage of GDP) Gross investment 16.3 14.6 23.1 23.6 23.6 26.4 36.1 Of which non government 12.1 9.1 16.1 16.8 17.2 19.8 28.7 Gross national savings 8.9 7.3 14.2 13.9 14.6 13.9 14.9 Of which non government 5.8 7.1 12.9 10.0 11.2 8.0 8.8 Domestic savings 6.4 3.5 3.6 10.5 11.4 11.2 11.6 External Sector (annual percentage change) Exports F.O.B 5.0 12,8 9.2 5.4 19.8 25.0 -2.0 Of which: non uranium exports 7.4 13.0 8.0 7.3 -5.8 12.4 2.4 Imports F.O.B -0.8 10.6 30.0 -3.6 9.7 33.2 30.9 Terms of trade (deterioration -) 1.9 -2.6 4.7 0.8 23.3 19.9 -3.3 Real Effective Exchange Rate (REER) -0.8 3.7 -3.1 1.5 3.9 9.8 (in percentage of GDP) External accounts balance Excl. official grants -10.3 -10.5 -12.2 -10.9 -10.0 -13.6 -24.0 Incl. official grants -7.5 -7.3 -8.9 -9.7 -9.0 -12.6 -21.2 Memo items Debt service ratio in percentage of: Exports of goods and services 24.9 13.6 10.1 252.8 2.9 2.8 3.0 Government revenue 38.4 21.8 15.9 32.0 3.4 2.8 4.2 NPV of external debt 22.5 21.8 10.2 10.5 9.2 10.9 Foreign aid 10.8 9.1 9.8 7.2 10.2 (CFAF billion) GDP at current market prices 1,534 1,530 1,777 1,906 2,035 2,398 2,546 * Projections Source: Ministry of Economy and Finance and IMF. Recent Fiscal Performance 1.13. Niger’s fiscal position has improved during the period under review (2003-2008). Niger is a member of the West African Economic and Monetary Union (WAEMU) and shares a common currency, the CFA franc, with the other member countries. The WAEMU member countries agreed to adhere to macro economic convergence criteria. In 2007 and 2008, Niger was in compliance with 5 of the 8 criteria. The Government’s fiscal objectives are to comply with the WAEMU convergence criteria concerning the first order criteria. However, its tax revenue to GDP ratio of 11.7 percent in 2008 is well below the 17 percent target and is among the lowest in the WAEMU countries. However, Niger met the basic fiscal balance, the change in domestic and external arrears and the wage and salaries to fiscal revenue criteria. -5- Table 1.4 : Central Government Operations, 2003-2008 (in percentage of GDP) Years 2003 2004 2005 2006 2007 2008 Total domestic 10.2 11.4 10.6 13.0 15.2 18.4 revenue - Tax revenue (excl. 9.9 11.0 10.2 10.7 11.5 11.7 Grants) - Grants 1.6 1.7 2.2 1.0 1.4 1.5 Total expenses 17.9 20.8 20.2 19.8 23.4 22.9 - Non debt service 16.8 20,2 19.6 19.5 23.0 22.6 expenditure - Interest 1.1 0.5 0.6 0.3 0.3 0.2 Overall balance (excl. -7.7 -9.4 -9.5 -6.8 -8.2 -4.4 Grants) Primary balance -2.8 -3.3 -2.8 0.3 -0.9 1.3 Financing gap 8.5 10.7 10.2 7.5 8.6 5.1 - External 8.8 9.1 10.1 12.3 9.7 7.0 - Internal -0.2 1.6 0.1 -4.8 -1.1 -1.9 Source: Ministry of Economy and Finance and staff estimates. 1.14. The country’s recent fiscal stance has been stable and the budget deficit regularly covered by external budget support mainly from the EU, IDA, France and AfDB. The primary balance was positive in 2008 (1.3 percent of GDP) and around -1.4 percent of GDP on average in 2003-2008 (Table 1.4). The overall budget deficit (excluding grants) also remained stable at 7.7 percent of GDP on average but is projected to increase substantially in 2009 to 12.4 percent of GDP. This is because expenditures will remain high, financed by a one-time oil- related bonus payment received in 2008, while total revenues will return to more normal levels (12.2 percent of GDP compared to 18.4 percent in 2008). Niger did not tap domestic bank financing in the past four years and has even been able to build up its net international reserves, which are held at the regional central bank (BCEAO) and were estimated at more than 5 months of imports in 2008. There was some decline in external donor financing between 2006 and 2008 that was offset by greater domestic revenues, mostly from dividends payment and new licenses in the uranium sector and from the US$300 million (F CFA 123,375 billion) signature bonus for the oil extraction and refinery contract. External Current Account 1.15. The external account deficit, excluding grants, has been stable as a proportion of GDP at around 11 percent on average under the review period. Niger’s high external financing needs and narrow exports base explain this high and steady level of external account deficit. The current account deficit deteriorated in 2008 (from 10 percent to 13.6 percent) and is projected to widen to 24.0 percent in 2009. This deterioration is mainly due to large equipment goods imports in the petroleum and mining sectors and to a lesser extent to food and energy price hikes. Exports of non-mining products (onions, livestock, etc.) are also projected to be affected by a decline in demand from Nigeria and Ghana. -6- Debt Sustainability 1.16. The recent joint IMF-World Bank debt sustainability analysis completed in December 2008 showed that Niger remains at moderate risk of debt distress. Although the country’s debt indicators have improved in comparison to the 2007 Debt Sustainability Assessment (DSA), the overall assessment remained the same. Niger’s Net Present Value (NPV) of external debt to export ratio has been reduced to the 55-65 percent range, which is well below the threshold of 150 percent. The NPV of debt to GDP ratio has come down to nearly 10 percent, which is also well below the threshold of 40 percent. The main assumptions underlying this assessment are: (i) real GDP growth is expected to rise from its historical average (1998- 2007) of 4.8 percent to an average of 5.2 percent in 2009-2013, fostered mainly by increased investment in and production of oil and uranium; and (ii) the investment rate is projected to range between 27 to 44 percent of GDP in 2008-2012, largely as a result of planned oil and uranium related investments. C. MEDIUM-TERM PROSPECTS AND DEVELOPMENT PRIORITIES 1.17. The macroeconomic framework for 2009-2011 supported by the IMF Poverty Reduction and Growth Facility (PRGF) forecasts a temporary decline in average annual GDP growth due to the global economic crisis. Real economic growth is projected at 4.0 percent compared to 5.5 percent on average in the period under review, but this growth rate is likely to be exceeded. Ongoing investments in the mining and oil sectors coupled with planned government spending on infrastructure should give a strong boost to the economy for some years. Efforts to expand irrigation schemes to mitigate the negative impact of recurrent droughts will also help. In the longer run, however, this growth rate will likely decrease if sound economic policies aiming to diversify the economy’s sources of growth beyond the mining and oil sectors are not implemented. 1.18. Public expenditures are projected to peak in 2009 before falling back in 2010-2011 to levels similar to those in 2005-2007 (21.5 percent of GDP on average). Public expenditures are expected to rise to 24.6 percent of GDP in 2009 due to the oil signature bonus received in 2008 but not fully spent in that year. Total revenues are expected to decline somewhat thereafter to 12.3 percent of GDP on average, since no further exceptional revenues from oil are anticipated although dividends from uranium should remain strong. The overall budget deficit before grants is projected to fall from 12.4 percent of GDP in 2009 to around 9.2 percent in the following two years. Even with higher projected support for projects from donors, the basic budget balance will move from virtual equilibrium in the last three years to a deficit of 4.4 percent of GDP in 2010 to a deficit of 3.9 percent in 2011. -7- Table 1.5 : Projection of central government operations, 2009-2011 (in percentage of GDP) Projections Average 2009 2010 2011 2009-2011 Total revenue 12.2 12.2 12.4 12.3 Tax revenue 11.7 11.6 11.9 11.7 Non tax revenue 0.4 0.4 0.4 0.4 Special accounts revenue 0.1 0.4 0.1 0.1 Total expenditures and net lending 24.6 21.6 21.3 22.5 - Of which: domestically finances 18.0 14.4 14.2 15.5 Total current expenditures 12.3 11.4 11.1 11.6 Budgetary expenditure 11.1 10.9 10.6 10.9 Wages and salary 3.6 3.6 3.6 3.6 Materials and supplies 3.4 3.3 3.1 3.3 Subsidies and transfers 3.8 3.7 3.5 3.7 Interest, scheduled 0.2 0.3 0.3 0.3 Special account expenditure 1.2 0.5 0.6 0.8 Capital expenditure and net lending 12.3 10.2 10.2 10.9 Capital expenditure 12.3 10.2 10.2 10.9 Domestically financed 5.2 2.6 2.6 3.5 Of which: HIPC resources 0.5 0.4 0.4 0.4 Externally finances 6.6 7.2 7.2 7.0 Of which: Grants 4.7 4.7 4.7 4.7 Net lending 0.0 0.0 0.0 0.0 Overall balance (excl. grants) 12.4 9.4 8.9 10.2 Primary balance 7.5 4.4 3.9 5.2 Source: Ministry of Economy and Finance and IMF. 1.19. The current account deficit is projected to increase substantially in the medium term. The current account deficit is projected at 29.6 percent on average during 2009-2011, up sharply from 13.6 percent of GDP in 2008. It will revert back to the 10 percent range by 2013. This is the result of the surge in FDI in the uranium and oil sectors. Sharply increased FDI will finance a major expansion of capital imports during the period 2009-11, subsiding (although still high) in 2012-13. 1.20. The second PRSP (PRSP II) for 2008-12 has set an intermediate growth scenario target of 5.7 percent annual growth. The PRPS II is based on seven pillars: (i) promotion of strong, diversified, sustainable and job creating growth; (ii) ensuring equitable access to quality social services; (iii) slowing down population growth; (iv) reduction of inequalities and strengthening of social security for vulnerable groups; (v) infrastructure development; (vi) promotion of good governance and capacity building; and (vii) effective implementation of the PRSP. 1.21. The government development targets are consistent with the millennium development goals (MDGs). The PRSP II objectives are aligned with the MDGs; however, Niger needs a sustained growth rate of more than 7 percent to reach the MDGs, which is out of reach with the current trend. The intermediate growth scenario is more likely to be achieved, with a corresponding lower development impact, but nonetheless improved living conditions for Nigeriens compared to the first PRSP implementation period. -8- 1.22. The key structures managing public expenditure and financial systems, public investment and public procurement systems are anchored at the Ministry of Economy and Finance. The Ministry of Economy and Finance plays a central role in preparing and executing the government budget, including public investment and procurement. The organigrams in Annex 2 present the different departments of the MEF and the different structures dealing with public procurement. 1.23. Sound public expenditure management relies on appropriate capacity to forecast revenue collection in the medium to long term. Actual fiscal revenue collection has been in line with projected amounts in recent years. However, the government has limited capacity to forecast the windfalls from the new uranium ores and the oil sector. The next chapter will assess the expected revenue windfalls from the mining and oil sector over the medium to long term and provide recommendations for enhancing the government capacity to monitor and manage effectively the revenues from the mining and oil sectors. This chapter will not cover domestic revenue collection from customs and internal revenue departments as the government has devised medium term strategies for improving fiscal revenue collections, with technical support from donors. The recommendation here is to provide the needed financial and human resources for effectively implementing the plans. -9- 2. FISCAL SPACE OUTLOOK A. CONTEXT 2.1. Niger revenue collection has been historically low compared to the regional average and is far from meeting the WAEMU convergence criterion. This criterion calls for a fiscal revenue to GDP ratio of at least 17 percent. Recent studies 10 on Niger revenue mobilization performance showed that the main causes of weak revenue performance are: (i) defiscalization of the primary sector in the 1970s during the first uranium boom; (ii) adverse fiscal impact of trade liberalization in the 1980s; (iii) economic recession following the uranium decline in the 1980s and 1990s; and (iv) limited success of the VAT in mobilizing revenue due to the large informal sector (representing 35 percent of the non agricultural GDP). 2.2. Mining revenues have provided a modest share of total government revenues over the last 20 years, but they are now expected to expand significantly due to rising uranium prices, expanded uranium production, and the discovery and development of oil. In the last three years (2006 to 2008), the country benefitted from exceptional revenue from the oil and mining sector which represented up to 5.3 percent of GDP in 2008. This chapter will review the recent revenues associated with natural resources and their use; the medium and long term natural resources outlook and its impact on the overall resource envelope; the capacity of the Niger government to forecast oil and mining revenue and to adjust to volatility; and transparency in the use of oil and mining revenues. Finally, this review will provide recommendations to better manage the expected windfall gains in the medium and long terms. 2.3. The assessment of the medium and long term outlook is based on a sensitivity analysis of the expected mining sector windfalls over the medium to long terms. A calculation is made of the projected main contributions of the five large mines in Niger to government revenues from 2009 to 2018 through royalties, profit taxes, profit sharing, and dividends taxes. To these figures are added very rough estimates of the contributions of the artisanal mining sector (gold) and the various fees and relatively small taxes that the mining companies pay. Indirect contribution via taxes on employees or sub-contractors or the revenues generated through multiplier type expenditures are not included. If these were included, it seems likely that the figures in this report would increase substantially although without a much greater knowledge of the structure of expenditures of the mining companies and their employees (including artisanal miners); it is difficult to even make a rough estimate. The hypotheses are summarized in Annex 3. B. RECENT EXTRACTIVE INDUSTRY REVENUE TRENDS AND USE OF RESOURCES 2.4. Extractive industries are poised to consolidate their role as Niger’s main source of export earnings. Since the 1970s, uranium has been the leading export of Niger, accounting on average for about 50 percent of export earnings. In recent years, exports of gold and uranium have represented 70 percent of export receipts. The value of uranium exports is expected to grow significantly with the development of new deposits and the rise in prices resulting from 10 Ali Zafar (2005): Revenue and the Fiscal Impact of Trade Liberalization: The Case of Niger. World Bank Policy Research Working Paper 3500, February 2005; World Bank (2007): Country Economic Memorandum for Niger. - 10 - renewed interest in nuclear energy. In January 2009, the French firm AREVA signed a convention for developing the Imouraren uranium deposit, which would come on stream in 2013-14 with a production capacity of up to 5,500 tons. The Azelik uranium mine is also currently under development. Investments in these greenfield developments and capacity improvements in existing operations are projected to triple uranium production from the current level of 3,200 tons to 9,600 tons by 2015. In another effort to step up extractive sector exports, the government signed in June 2008 an agreement with China’s National Oil and Gas Exploration and Development Corporation (CNODC) for building an oil refinery and a pipeline in the south-eastern region and to explore further sites. The economic impact of these agreements is already being felt. In 2008, the CNODC agreement generated US$ 300 million in signing bonus, and new mining licences were sold. The average contribution of the extractive industries to government revenues increased from 0.42 percent of the GDP during 2003-2005 to 3.6 percent during 2006-2008. However, no exceptional revenues are expected in 2009 so the fiscal contribution is likely to drop significantly but remain higher than in the early 2000s. Table 2.1 : Contribution of the extractive industries to budgetary revenue (in percent of GDP) 2003 2004 2005 2006 2007 2008 2009 Tax and dividends 0.43 0.44 0.41 0.50 1.29 0.95 1.46 Exceptional mining receipts 0.0 0.0 0.0 1.60 1.35 5.15 0.0 Revenue from mining 0.42 0.44 0.41 2.0 2.65 6.1 1.46 Total revenue 10.2 11.4 10.6 13.0 15.2 18.4 12.2 Source: MME and staff calculation. 2.5. The exceptional extractive sector revenues received in 2006-2008 raised interesting new budget allocation challenges for the government. Since the revenues were not anticipated, they were allocated to the following year’s budget. In May 2007, the Parliament voted a revised Budget Law to integrate exceptional revenue received in December 2006 from the sale of exploration licenses in the uranium sector (CFAF30 billion, or 1.3 percent of GDP) and finance a Priority Investment Fund (PIF) created to support development projects in the social sectors, rural development, roads and security. In the end, the entirety of the PIF was allocated to security spending, in light of the need to strengthen the armed forces to confront Tuareg insurgent attacks. Exceptional mining revenues received in 2007 and in early 2008 (CFAF27 billion) were inserted in a May 2008 Supplementary Budget, which included also other exceptional revenues related to sale of a telecom license and new aid, and amounted to CFAF78.4 billion or 3.2 percent of GDP. Finally, in June 2008, the government received a bonus of US$300 million (CFAF123 billion or 5.1 percent of GDP) upon signature of an oil production and refining contract, which was included in the 2009 budget. 2.6. The resources of the 2008 supplementary budget and the additional mining resources in the 2009 budget were mostly allocated in line with the PRSP priorities, while increased resources for security spending were contained to CFAF10 billion both in 2008 and 2009. In particular, the 2009 budget allocated the petroleum signature bonus received in mid-2008 to strengthening outlays in road, rural development, electricity generation, priority industrial projects, and the social sectors. Therefore, the recent response of the authorities to these exceptional mining revenues appears appropriate. There would have been some merit to - 11 - spread the 2008 signature bonus over two budget years, rather than only the 2009 budget, but the decision was taken in order to dispel in the public opinion any fear that these resources were siphoned off in a non transparent manner, as the budget process does not have at its disposal the instrument of a multiyear budget authorization. Box 2.1 details the use and allocations of those exceptional resources in 2007, 2008 and 2009. The government allocated parts of exceptional resources for investments whose feasibility was not technically assessed and hence were not likely to be implemented; this reflected a relatively weak programming capacity, as Niger lacks a comprehensive pluriannual public investment management system to guide its capital budgeting decisions. These constraints make it difficult for Niger to absorb rapidly and effectively the exceptional revenues and point to the need for a mechanism to spread out windfall gains over time. Box 2.1: Use and allocation of exceptional mining and oil revenues11 in 2007-2009 (CFAF billion) 2007 2008 2009 Voted Actual Voted Actual Voted General Public Service 2.7 Security 30 11 9.1 Economic affairs 2.8 2.3 7.5 Education 14.7 12.1 Health 7.5 6.2 3.8 Energy 1.1 0.9 10.0 Roads/Transport 28.1 Rural development 23.6 19.5 27.5 Others 17.7 14.6 43.4* Total 30 78.4 64.8 123.0 * Essentially counterparts funds of externally financed projects ** Estimates based on 2008 average execution rate of investment program financed by internal resources (82.6 percent) and average execution rate by sector for the current Budget. NB: In May 2007, the government earmarked CFAF 30.0 billion to a Priority Investment Fund to finance development programs in the social, rural, infrastructure and security. The Parliament adopted a revised Budget Law in that regard. Those resources were spent in the security sector Source: Ministry of Economy and Finance. C. MEDIUM AND LONG TERM OIL AND MINING REVENUE OUTLOOK 2.7. Significant expansion of the extractive industries is expected over the medium and long term. The execution of major private investment projects aimed at improving existing capacity and adding new production capacity could significantly expand the size of extractive industries in Niger. There are two major uranium deposits and an oil refinery under development. By developing the Imouraren and Azelik mines and keeping production rates at existing mines, Niger could produce about 10,000 tons of uranium and become the world’s second largest exporter of this mineral. Prices are also expected to be considerably stronger than in the past 20 years. The coming on stream of the Zinder petroleum refinery will lead to refined oil production of 20,000 barrels per day, or 7.2 million per year. In addition, the country’s geologic structure offers a potential for new discoveries of gold and base metals in the Precambrian formations and of uranium and oil in the sedimentary basins. There are currently 30 companies exploring for gold, uranium and other minerals. 11 Including the sale of a global telecom license (CFAF 31 billion), and additional aid (CFAF 6 billion) to cope with the food crisis in 2008. - 12 - 2.8. The economic contribution of extractive industries will increase markedly. The average contribution of mining and oil operations to government revenues could amount to about US$150 million per year during 2009-2018 (see Annex 3). The annual contributions could range between US$190 and US$300 million after the ramp-up of uranium and oil production in 2016. These figures are based on a number of assumptions about planned production, prices, operating costs, and key elements of the fiscal package. Government revenue accrues in the form of royalties, dividends, profit taxes, and dividend taxes and sale of the government’s share of output. 2.9. The average annual projected revenue could range in the period 2009-2018 between 0.7 and 2.2 percent of GDP, according to different scenarios, compared to 0.42 percent in 2003 to 2005 (see Table 2.2 below). The average annual revenue in the base case scenario would amount to 1.8 percent of GDP, rising to close to 3 percent in 2016-18. Projected revenue is identical under the three scenarios up to 2010, but declines in the low case scenario starting in 2011 due to significant assumed amortization of investments costs in the uranium sector. In the following paragraphs, the expected impact of the oil and mining sectors will be examined under the base case scenario, which seems more likely to materialize. Forward and backward linkages are relatively minimal in view of the capital intensive nature of extractive sector projects and the low level of development in Niger. 2.10. Despite a dramatic growth of mineral production and revenues, the size of expected revenues is likely to remain quite modest relative to the country’s needs. Nevertheless, the new revenue flows could provide the government with more fiscal space to implement the PRSP II (2008-2012) priority action plan. Annex 3 provides details of the assumptions and expected revenues from mining and oil sectors under three scenarios. The projected oil and mining revenues would cover about 70 percent of the funding gap identified under the PRSP II intermediate scenario in 2009-2012. Under the base case scenario (see Table 2.2), judged to be the most probable, the additional revenue flow is estimated at 1.55 percent of GDP over the PRSP II period, which will raise the fiscal revenue to GDP ratio from 10.2 percent in 2003 to 14 percent in 2014, still well below the WAEMU convergence criteria of 17 percent. This represents approximately CFAF45 billion of revenue on average per annum, and CFAF180 billion in the 2009-12 PRSP II period, compared with the PRSP II additional internal and foreign financing requirements which stood at (i) CFAF338.6 billion for the intermediate growth scenario of 5.7 percent, consistent with recent GDP growth trends; and (ii) CFAF2,565 billion for the MDG scenario with an average growth rate of 7 percent, which remains out of reach given the current GDP growth trend. Niger will need to allocate all the additional revenues wisely, improve its mobilization of internal resources, and significantly improve allocation, efficiency and effectiveness of its public resource use to attain the MDG scenario targets. Historical trends of foreign assistance are far below those projected in the PRSP II MDG scenarios (by about 45 percent), and the expected additional mining revenue in 2009-2012 of CFAF180 billion represents less than 12 percent of expected additional foreign assistance under the MDGs scenario. 2.11. Information constraints limit the accuracy of revenue estimates. Uranium mining is often conducted through state-to-state arrangements were prices and costs are distorted by strategic considerations. A complication arises where Niger is a price taker, especially when it sells its uranium to a single buyer who is also a key shareholder. Moreover, government equity stakes are often negotiated as a part of a Mining Convention. They have ranged from 20 percent - 13 - to 36.6 percent depending on the bargaining power at the time of negotiation. The two operating uranium mines are run as corporations in which Niger has a free carried interest of 10 percent plus an option for a larger share (which it has taken). These mines pay dividends and are subject to profits and dividends taxes. The gold mine (Samira Hills) and the two prospective uranium mines operate as joint ventures with limited liability. In this case there are no dividends but the government (through SOPAMIN) directly gets a share of the profits. Revenues from artisanal mining are not included in the estimates, because most of the output is sold through informal channels with little effect on government revenues. Table 2.2 : Medium and long term mining revenue projections (in percentage of GDP)* Years Base case High case Low case Total tax scenario scenario scenario revenue** 2009 1.46 1.46 1.46 12.2 2010 1.63 1.63 1.63 11.6 2011 1.70 1.70 0.96 11.9 2012 1.40 1.80 0.67 12.20 2013 0.53 1.09 0.1 12.61 2014 1.52 2.07 0.23 12.49 2015 1.62 2.10 0.07 13.07 2016 2.06 2.52 0.12 13.71 2017 3.05 3.75 1.23 13.36 2018 2.85 3.5 1.15 13.26 Average 1.78 2.16 0.70 12.60 * See Annex 3 for an explanation of the different scenarios. ** Without the boom: based on recent historical trends in which uranium revenues accounted for 0.4 percent of GDP. Source: Staff forecast. 2.12. Niger will update its PRSP beyond 2012 with better capacity to finance it on its own resources. In that regard, the government should be able to step up implementation of key development outlays for reaching its poverty reduction targets, but this will be predicated on effective public sector management and careful selectivity in projects, with choices based on sound selection criteria. Additional resources will approach 3 percent of GDP by 2017, bringing total fiscal revenues above 16 percent, but still below the WAEMU target. D. CAPACITY TO FORECAST OIL AND MINING REVENUES AND TO ADJUST TO VOLATILITY 2.13. The vicissitudes of the uranium market could exacerbate revenue volatility. Historically, the economic performance of Niger has been largely affected by swings in uranium demand. The boom of the mid seventies gradually brought the mining contribution to GDP to 15 percent by 1981. This period was also marked by a significant increase in government spending. Between 1993 and 2003, uranium entered a recessionary period which saw the sector contribution to GDP plunge to below 3 percent by 2003. However, Niger’s uranium agreements provide some stability to prices. In bust periods, stability was achieved through long term contracts with shareholders, while in boom periods the government has been able to renegotiate long term price agreements and to increase the volume it can sell on its own account in the spot market. Price renegotiations in 2006 considerably raised royalties, and by 2007 the operating mines became profitable and started paying profit taxes. Therefore, uranium revenue volatility has more to do with quantity sold rather than price volatility. - 14 - 2.14. Oil revenues will hinge on the economic robustness of the Zinder refinery. The profitability of the refinery is not guaranteed, and the marketing of its output is quite uncertain. Petronas, Exxon, and Elf have all considered the refinery at one point but had to give up in view of daunting export challenges. CNOGDC has not yet produced market studies or export options to justify the economics of the US$1.2 billion investment and to ascertain the economic viability of the refinery. The marketing arrangements provide for the government to sell on its account 40 percent of the production, and CNOGDC will buy the remaining 60 percent with a provision giving the government the right of first refusal. The refinery is hoping to sell into nearby Nigeria, since the other population centers in Burkina Faso and Mali are remote and would require new pipelines. The project is also betting on possibilities offered by the 4,128-km Algeria-Nigeria pipeline, but this is a US$13 billion project which will take several years to obtain financing and become operational. The terms under which the Government will buy from the refinery are unknown, and it is possible that it may find itself obliged to buy at prices above those prevailing in available markets. This risk is particularly relevant given the high level of oil product subsidies in Nigeria, the main potential market. Thus, the oil refinery could actually be a drain on the government budget in some years. 2.15. The government has very weak technical capacity to oversee extractive industries operations and forecast oil and mining revenues to allow sound planning of resources use. The Ministry of Mining and Energy (MME) is insufficiently endowed in human and financial resources to perform its mission, including negotiations skills regarding contracts. The DGI lacks expertise on the fiscal system of mining and oil sectors for adequately assessing their financial statements. The institutional capacity within the MME and the Ministry of Economy and Finance needs to be strengthened, for a better management of the mining sector. Donors are providing financial support and TA for modernizing the structures of the Ministry of Mining and Energy and improving the legislative and regulatory framework of the sector and they are also supporting the Ministry of Economy and Finance for upgrading its capacity in the areas of macroeconomic management, revenue collection, budget preparation, execution, monitoring, and cash management.12 12 The Reform Management and Technical Assistance Project for Niger were approved in July 2009 by the Bank Board and its main objectives are to improve: (i) the credibility and reliability of budgets allocated to budget managers in each ministry; and (ii) the internal controls of the use of said budgets. - 15 - Box 2.2: Options for Dealing with Revenue Volatility Niger can learn from the experience of resource-rich countries in managing the volatility of mineral revenues arising from rapid changes in demand and prices, including the use of stabilization funds. The main objective of stabilization funds is not only to insulate an economy from commodity market volatility, but also to promote long term sustainability by instilling fiscal discipline. Stabilization funds direct the government to save transitory income (from boom cycles) and to spend only “permanent� income, which is a notional income calculated as the constant real annual amount that has the same discounted value as the Net Present Value (NPV) of projected mineral revenues. A number of resource-rich countries including Botswana, Chile, Iran, Norway, Oman, Papua New Guinea, Russia and Venezuela have successfully established revenue stabilization funds to smooth the stream of revenues over time. Some best practice examples are discussed below. Botswana: Using the National Development Plan to Address Volatility Diamonds dominate Botswana’s exports even more than uranium does in Niger. In order to protect the country from swings in commodity markets, the government adopted a multi-year budgeting process called National Development Plan with four objectives: (i) accumulate reserves in boom times and use them to smooth revenue shortfalls in bust times; (ii) sterilize the reserves to avoid local currency appreciation; (iii) support a vigorous public investment program in infrastructure, education and health; and (v) expand credit to SMEs and the tradable sector. In 1972, the government established a Revenue Stabilization Fund and a Debt Service Fund to which it channeled most of the surpluses generated out of diamond mining. As a result, the country’s foreign exchange reserves grew from US$75 million in 1976 to nearly US$6 billion in 1998. Around 40 percent of the proceeds were placed in offshore investments which generated interest revenue equivalent to 12 percent of GDP by the mid 1990s. These savings were adequate to meet revenue shortfalls and maintain public expenditure levels in difficult times for the diamond market. Accumulation of reserves and their sterilization averted currency appreciation and helped preserve the competitiveness of non-mining exports, such as beef. In addition, as part of its National Development Plan, the government invested heavily in infrastructure, education, and health. Botswana also established in 1996 a sovereign wealth fund, the Pula Fund, which currently stands at US$6.9 billion, As a result of these policies, Botswana has experienced until recently a sustained increase of mining output and remains one of the fastest growing countries in the world. Namibia: Using a Medium Expenditure Framework to Manage Revenue Volatility Namibia is a major producer of diamonds, but also hosts the Rössing mine which is one of the world’s largest uranium operations. The mining sector is mostly private-led consisting of joint ventures, with government participation limited to management. The government gets revenues from taxes and its equity interest in joint ventures which varies from 3.37 percent to 50 percent. Mine revenue management is governed by the provisions of the State Finance Act and the Export Processing Act. There is no stabilization fund, but mining revenues are clearly identified and fully fungible in the state fund. They are spent through standard appropriation. In order to control budget spending, the government has adopted a rolling three-year Medium Expenditure Framework. In addition, the government has adopted a Vision 2030 Macroeconomic Framework and a National Development Plan aimed at reducing the economy’s dependence on primary commodities and diversifying into the small manufacturing and agribusiness sectors. Chile: Using Explicit Fiscal Rules to Stabilize Revenues Chile is a world leader in copper mining, accounting for 43 percent of the world’s copper exports. Copper is an important source of government revenue. For instance, the major producer, CODELCO which accounted for 22 percent of total production, contributed about 16 percent to government revenues in 2007. In order to reduce copper revenue instability, Chile uses a stabilization fund and an explicit fiscal rule for determining the timing of spending of mineral revenues. Boom-time windfalls are used as follows: (i) taxes are accumulated in a Fund for Social and Economic Stabilization to smooth out swings in copper prices; (ii) royalties are allocated to a Fund for Innovation and Competitiveness; and (iii) another portion of revenue is used to grow a Pension Reserve Fund. Together, these funds represent the Sovereign Wealth Fund of Chile, which currently stands at US$21.8 billion. - 16 - 2.16. All resource-rich countries must be aware of the risk of the Dutch disease. In a number of such countries, an increase in mineral export revenues has led to an appreciation of the exchange rate, making the country’s exports more expensive abroad and the imports cheaper in local currency. As a result, the tradable sector loses competitiveness and goes into a decline. In the case of Niger, nominal exchange rate appreciation is less of an issue because the country is a member of a monetary union, but the real effective exchange rate can still rise if there is an increase in inflation. The Dutch disease can also manifest itself in the form of shifting domestic spending priorities which overly favor imports and the non-traded sector. 2.17. Niger has suffered from a mild form of the Dutch disease in the past. The launch of uranium production in 1971 radically changed the structure of agriculture production and exports of Niger. The main cash crops production (groundnuts) and main source of exports before the uranium boom collapsed from 260,000 tons in 1972 to about 18,000 tons in 1990. Also cotton production slumped from about 8,000 tons in 1972 to 2,000 tons in 1982. In a matter of a decade, the share of mining in total exports grew from 0.1 percent of the GDP to 75 percent of the GDP. This growth was accompanied with a rapid expansion of the non-tradable sector while the non-uranium tradable sector declined. Government spending priorities turned to mining and ancillary industries while agriculture went into a severe contraction. Between 2002 and 2006, the share of minerals in total exports increase from 53 percent to 70 percent. During the same period, the share of agricultural products in total exports declined from 15 percent to less than 10 percent, while the share of livestock products decreased from 23.3 percent to 14.7 percent. 2.18. The increase in the mining export share after 2002 is due to the strong increase in the negotiated export price of uranium. The price doubled between 2006 and 2008, while volume remained broadly stable. However, in this period, as opposed to the 1970s, agriculture has performed very well, with an average real growth rate in 2006-08 of 13.7 percent. The two main cash crops production increased substantially in that period (cowpeas production increased from 586,000 tons in 2005 to 1,500,000 in 2008 and groundnuts production increased from 139,000 tons to about 318,000 tons in 2008). Key agricultural exports, such as tomatoes, onions, and cowpeas, rose in volume terms, and there were encouraging signs of agricultural diversification, with private entrepreneurs entering into new fields, such as drying onions for exports, and the production and export of Arabic gum, sesame and sisal. The average annual GDP growth rate in 2000-08 was about 4.8 percent, with only modest increase in mining volume. So far, there is no evidence that the increase in mining exports after 2006, because of higher uranium export prices, has had negative effects on the growth of the economy, but it will be essential to use some of the increased revenues to support higher productivity in agro-pastoral and other exports. However, more attention should be paid to the potential occurrence of the Dutch disease, in case of a substantial increase of uranium and oil prices in the near future. Box II provides an overview of options for dealing with the Dutch Disease and the so-called “Resource Curse.� - 17 - Box 2.3: Dealing with the “Resource Curse� The “Resource curse� is associated with a situation in which a country endowed with abundant natural resources is unable to translate their use into benefits and thus experience less economic growth and development, usually as a result of mismanagement and unequal distribution of wealth. One of the main factors contributing to this situation is the “Dutch disease�, which occurs when an increase of export revenues from mining and oil sectors translate into an appreciation of the real exchange rate, thus hampering the competitiveness of other traded goods (specifically cash crops and livestock in the case of Niger). Other factors are rent-seeking or high volatility of oil or mining resources. Analysis of economic performance in resource rich countries shows that five countries (Botswana, Chile, Namibia, Ghana, and Poland) have consistently achieved GDP/Capita growth much higher than the average in their region. The same analysis shows that five other resource-rich countries (Cameroon, Zambia, Ukraine, DRC, and Sierra Leone) underperform their regional GDP/Capita growth by a factor of 2 to 7. The difference in performance is partly related to broader issues of political governance which are often affected by mineral wealth. They could also be linked to success in the management of Dutch disease effects. Top performing countries are those that successfully built on their mineral wealth to promote economic growth. For instance, Botswana and Namibia built a private-led mining industry while the government has focused on its role as a regulator and facilitator. Mining revenues were used to finance public investment projects in support of economic growth (infrastructure, health, education). This contrasts with the case of DRC and Sierra Leone where the plundering of mineral wealth led to protracted civil strife. The experience of successful mineral economies shows that the Dutch disease can be avoided by:  Accumulating savings in stabilization funds or sovereign wealth funds to help smooth out revenue instability and prevent exchange rate appreciation to maintain the competitiveness on the non-mining tradable sector. Examples of funds in developed countries include the Alaska Permanent Fund (USA), the Alberta Heritage Fund (Canada), and the Norwegian Petroleum Fund. Among developing countries, Botswana and Chile use stabilization funds to grow their own sovereign wealth funds.  Investing the funds in sustainable development projects: this includes investments to improve the enabling environment for the private-led growth (e.g. Botswana’s investment in infrastructure and human capital), investments to diversify away the economy from the extractive industries (e.g. Chile’s diversification), or investments in offshore stocks and bonds with a view of transforming wealth from an exhaustible resource into renewable wealth which can be sustained across generations (e.g. Persian Gulf oil wealth funds).  Redistributing rents to citizens: this is achieved by lowering non-mineral taxes, by subsidizing key social programs, or making direct transfers to citizens (Alaska) or affected communities (Indonesia). 2.19. Baseline mining revenue projections indicate a relatively steady trend, and, as indicated above, revenues would still remain short of the financing need of the PRSP in the period 2009-12. In these circumstances, there would not appear to be a case for putting aside a part of the mining revenue in a Stabilization fund, and even less for creating a Savings fund for future generations. It could not be excluded, however, that some significant exceptional revenue would arise in the period ahead, for instance in connection with the signing of new uranium or oil concessions. Also, future significant spikes in the international price of oil could generate higher revenue from royalties and profit taxation. Serious thought should therefore be given to widening the existing budgetary tools and the creation of a Stabilization Fund where revenues in excess of forecasts would be lodged to be drawn down in following - 18 - years on the basis of budget laws approved by the National Assembly. Simple rules should govern the functioning of the Stabilization Fund, so that they are clearly understandable to the civil society. One possibility would be to stipulate that any excess of mineral revenue during the year with respect to the budgetary forecast would be deposited in the Stabilization Fund, provided this excess is above a threshold, which could be set at 0.5 percent of GDP. 2.20. The Mining Law provides that 15 percent of government mining revenues have to be allocated to the local communities where the mines are located. With the exceptional revenue that the government received in 2007 and 2008 (mining concession fees, special AREVA dividend) the amount to be assigned to the local communities has increased significantly. The mechanism that the government uses for these transfers is specific allocations in the Budget Law. While this mechanism involves some delay in the transfers to local communities when government mining revenue increases, it has the advantage of transparency. The allocations in the 2008 and 2009 budget laws were consistent with the Mining Law. The government has totally transferred the resources to the local communities; however, local communities do not provide statements of budget execution for assessing use of those additional resources. There is a need to strengthen the monitoring by civil society at the regional level of the use of these resources, which should be transparent, with an annual reporting that should be easily available. 2.21. The government should be encouraged to move decisively toward the establishment of a Medium-Term Budgetary Framework (MTBF). Chapter 3 provides details of the rationale for developing a MTBF in Niger. The establishment of a MBTF, despite the difficulties and uncertainties inherent in such an exercise, is important to instill discipline and rigor in the budgetary process. It would force the government to extend its revenue and expenditure outlook and to plan expenditures on the basis of a longer horizon, based on expected revenue and donor budgetary support. E. TRANSPARENCY IN THE USE OF OIL AND URANIUM REVENUES 2.22. Preliminary findings of the review of the Niger’s mining sector based on the EITI++ methodology indicate significant vulnerabilities and inefficiencies along the value chain.13 There are governance issues in the: (i) awarding of contracts and licenses, (ii) regulation and monitoring of operations, (iii) collection of taxes and royalties, (iv) revenue distribution and management, and (v) implementation of sustainable development policies. Like in many countries with weak institutions where the winners strive to maintain the status quo, a short-term vision and the need to quickly garner resources probably explain this situation. 2.23. Licensing and contracting are not always done in a transparent way. Following the 2006 increase of the uranium price when it crossed the US$50 per lb. mark, the government issued many exploration permits to companies without proper vetting. In 2006, four companies or consortia were granted exploration licenses. Without counting three extensions of permits already granted in 2006, the government agreed to 19 uranium exploration licenses in 2007 and 11 in 2008. Most beneficiaries are small and newly established companies, not listed on any major stock exchange, or even in mining company repertoires. The situation is the same for gold and other metals where nine exploration licenses were granted between 2006 and 2008. The total 13 The Political Economy of the Mining Sector in Niger, Report prepared by Jerome Chevallier, March 2009. - 19 - area licensed during 2006-08 was 73,000 sq km (62,000 for uranium and 11,000 sq km for gold and other metals). The annual area fee paid by the license holders as a result of these licenses amounts to CFAF 73 million, or about US$150,000. 2.24. Mining licenses and oil exploitation agreements are often subject to sole-source contracting and bonus signature. The contract for the development of the Imouraren mine did not go through open bidding, but involved political negotiations at the highest level between Niger and France. On the other hand, the oil exploitation agreement with the China National Oil and Gas Exploration and Development Corporation (CNODC) has been done in a competitive way through bidding. After the Government specified that it expected bidders to pay a signature bonus and build a refinery, twenty-three companies expressed an interest, twelve visited Niger to look at the data, and nine submitted bids. Although a quick and easy way for the Government to gather revenues, the practice of signature bonuses is not generally considered as a good fiscal tool as it may lead to fewer revenues for the Government in the future when the mining company seeks to recoup its investment. This practice also can turn away good potential investors who may not want to commit significant amounts in advance. 2.25. Collection of mining revenues through taxes, dividends, and royalties is not exhaustive and transparent. Following the commodity boom in 2006 – 08, the share of mining revenue in percentage of total revenue rose from 3.8 percent in 2005 to 33.2 percent in 2008. The share of mining revenue would have been greater if the mining fees paid by new companies were properly reported and revenues from gold mines were realistic (they paradoxically went down when the gold price increased). With the revision of the mining code, significant customs exemptions have led to declining customs revenues (from 20 percent of total fiscal revenue in 2005 to about 3 percent in 2008). The share of royalties also declined from 43 percent in 2005 to 19 percent in 2008. On the other hand, from 2005 to 2008, the share of direct taxes and dividends respectively increased from 14 percent of total fiscal revenue to 31 percent and from 5 percent to 13 percent 2.26. Niger became a full member of EITI in August 2007 but has not published audits on mining revenue flows. Greater transparency and public involvement in mineral revenue management could improve accountability and reduce political capture. Signing up to EITI is a first step toward improving transparency of extractive sector revenues. The Steering Committee comprising representatives of government, mining companies and civil society was established by Decree in July 2005 and anchored at the Prime Minister Cabinet. The government appointed the EITI Permanent Secretary and validated the action plan in 2007. Government provides budget allocations for the implementation of the EITI responding to the EITI requirement that countries fund the implementation of the EITI from their own resources in order to ensure their sustainability. Donors are providing technical support to the permanent secretariat. 2.27. The risks of political capture and conflicts are high. Niger has had a tumultuous history marked by political instability through the 1990s. Disagreements over the control and distribution of resource wealth could threaten the political situation. After calming the Tuareg rebellion over the sharing of uranium wealth, the country is undergoing a constitutional crisis. Arguing that he needs time to see through the mega projects that were launched under his tenure, the President of the Republic has held a controversial referendum to remove the term limit and get a three-year extension. The consensus that formed the bedrock of the relative peace has been shattered, and the influence of watchdog entities (such as the National Assembly, the - 20 - Constitutional Court, and civil society) has been greatly diminished. Enhancing transparency in revenue flows related to uranium and other extractive industries is crucial to help prevent conflict in Niger as well as ensure an efficient use of related windfall gains to the benefit of key PRSP sectors. The government has committed to return 15 percent of mining revenue to local collectivities where the mines are located. Beyond auditing revenue flows from the extractive industry under the EITI program, the second phase of the initiative would be to enhance public awareness and oversight on the use of the revenue. 2.28. Efficiency of public expenditures is a key to effective basic service delivery and poverty reduction in Niger. While creating additional fiscal space expected windfalls in the mining sector will have limited impact on Niger’s overall fiscal picture. In a context of limited resources, the authorities should therefore take actions to increase the efficiency of public expenditures. The next chapter will review the trends of public spending in the period 2003-2008 and their efficiency in three PSRP priority sectors (health, education and rural sector). It will also assess the public investment management system and the budget programming process in Niger. F. SUMMARY OF RECOMMENDATIONS In the short term:  In the process of negotiating mining contracts, ensure that technical advice is appropriately taken into account in the decision making process;  Strengthen the capacity of MME to develop a Mining Sector Policy;  Undertake periodic reliable independent audits of financial flows in the mining sector;  Publish and disseminate audit reports to all stakeholders (public administration; private sector; NGOs; etc);  Strengthen the capacity of MME to manage efficiently the mining sector as a whole; in particular with respect to the analysis, negotiation, and follow up of mining sector contracts;  Strengthen the capacity of MEF and MME to oversee extractive industries operations;  Use competitive bidding processes for granting exploration licenses and improve the screening of applicants for exploration licenses (out of the 38 companies, which were granted mining exploration permits in 2006-2008, 8 are not listed on any stock exchange and 12 have no credentials in the mining sector);  Increase the area fee (the area fee paid by the companies which got licenses does not justify the freezing of large areas by companies which may not intend to make substantial investment in exploration).  Improve transparency in the sector, including by creating a website for the Ministry of Mining and Energy, and publishing accounts of public enterprises in the sector;  Publish mining contracts; create a website for SOPAMIN;  Accelerate the EITI process; - 21 -  Introduce a reporting mechanism on the use of the 15 percent of the government mining revenue that is being allocated to the local community. An annual report should provide details on how these resources have been used. In the medium term:  Establish a stabilization fund to smooth international prices fluctuations of mineral resources and ensure steady revenue to the government budget which takes into account the absorptive capacity to support the poverty reduction strategy implementation. The rules governing the stabilization fund would be simple and transparent. The fund would receive the excess of mining resources over the annual budgetary forecast, if the excess is larger than a threshold, which could be set at 0.5 percent of the GDP. The resources of the stabilization fund could be used only through appropriations in the budget law.  Review the current fiscal regime which puts more weight on royalties compared to other countries. Shift the emphasis on direct taxing and build required capacity in this area. - 22 - 3. PUBLIC EXPENDITURE REVIEW A. CONTEXT 3.1. The Poverty Reduction Strategy Paper I (PRSP-I of January 2001) identified public spending as playing a critical role in the fight against poverty. Specifically, public expenditure was the main instrument to: (i) develop basic infrastructure needed for economic growth; (ii) build human capital; (iii) provide basic public services to the poor; (iv) foster rural development; (v) help directly the poor and the most vulnerable; and (vi) help create a governance environment favorable to private sector growth. As a result, priority sectors were identified and quantitative allocations to those sectors were targeted. Furthermore, sector strategies detailed quantitative goals for sectors and sub-sectors and the actual achievement over 2003-2008 (average share) is assessed in table 3.7 (last column). Niger’s PRSP-I summarized those targets as follows: Table 3.1 : Quantitative targets for priority sector spending in PRSP-I Sector Targets Source Education 20 percent of total non-debt public PDDE*, 2002 spending Of which: basic education 50 percent of total non-debt public PDDE 2002 spending on education Health 17 percent of total non-debt public PRSP 2002 spending Of which: basic health 66 percent of total non-debt public I-PRSP 2000 spending on health Rural Development 12 percent of total non-debt public PRSP 2002 spending Road infrastructure 12 percent of total revenues PRSP 2002 Water 3.3 percent of total non-debt public PRSP 2002 spending * Plan décennal du développement de l’éducation. 3.2. This chapter will review successively: (i) trends in the composition of public expenditure; (ii) expenditures in priority sectors; (iii) the public investment management system; and (iv) the development of strategic budget tools. The analysis covers the period from 2003 to 2008, thus complementing the PEMFAR I review, which covered the period from 1997 to 2003. The data for 2008 are preliminary, as reports for external financing and debt service are still being finalized by the authorities. The sectoral analysis will review particularly two specific issues: (i) program budgeting; and (ii) human resources management. As recommended by PEMFAR I, sectors are conducting annual detailed sectoral PERs and this review is informed, among others, from those. - 23 - B. TRENDS IN COMPOSITION OF PUBLIC EXPENDITURE Economic Composition of Expenditures 3.3. Non-debt total expenditures were close to 18 percent of GDP on average over the period under review (2003-2008). The wage bill was contained at slightly below 4 percent of the GDP on average, largely due to the freeze of recruitment in the civil service since 2000. Except for 2003, the wage bill has been kept within the WAMEU criteria (35 percent of fiscal revenues). In 2003, that ratio reached about 37 percent. Since then, it has been declining and represented an estimated 29 percent in 2008. Non wage current expenditures have been stable at around 5.7 percent of GDP on average in 2003-2008. Table 3.2 : Public expenditures by economic category (actual, in percentage of GDP) Category 2003 2004 2005 2006 2007 2008 Average Wages 3.7 3.8 3.5 3.6 3.6 3.4 3.6 Goods and services 2.4 2.8 2.5 2.2 2.7 2.2 2.5 Subsidies and transfers 2.3 2.9 3.1 2.7 3.2 3.8 3.0 Total current 9.8 9.5 9.1 8.5 9.5 9.4 9.3 Capital 7.7 8.8 7.9 7.3 8.7 9.4 8.3 Total 17.5 18.3 17.0 15.8 18.2 18.8 17.6 Source: MEF and Staff estimates. 3.4. Almost half of public expenditure is classified as capital. During 2003-2008, wages and salaries represented an average 21 percent of total non-debt expenditures, while goods and services were 14 percent and transfers 17 percent. Contractual workers wages in the health and education sectors increased gradually from 12.3 percent of subsidies and transfers in 2003 to 25.2 percent in 2008. Actual capital expenditures are lower than officially accounted for, as projects cover current expenditures, including personnel expenditures. Table 3.3 : Public expenditures by economic category (billions CFAF) 2003 2004 2005 2006 2007 2008 Average share % prelim Personnel 57.1 58.8 61.8 68.7 72.4 82.1 20.9 Goods and services 37.3 42.2 44.6 42.7 54.4 53.8 14.3 Transfers 35.0 43.7 54.8 51.3 66.1 90.0 17.1 Capital 118.7 134.6 139.6 138.4 177.7 225.2 47.7 Total 248.2 279.2 300.6 301.1 370.6 451.1 100.0 Source: MEF and staff estimates. 3.5. External financing represents 60 percent of capital expenditures. Project loans amount to 20 percent of capital expenditure and grants to 40 percent. Of the 40 percent domestic - 24 - financing of capital expenditures, 5.5 percent comes from HIPC funds. HIPC funds are used practically in the same way as treasury funds, and almost exclusively for capital expenditures in education, health and the rural sector. During 2003-2008 HIPC funds represented only 9 percent of total capital expenditures for these three sectors (but a notable fraction of “autonomous expenditure�, not linked to externally financed projects). 3.6. The overall execution rate of public expenditures rose from 73 percent of budgeted expenditures in 2003 to 86 percent in 2008. This execution rates varies according to expenditure categories: personnel expenditures are executed practically at 100 percent every year, as the personnel appropriations are “protected� from cuts and freezes. Other current expenditures have a rather low execution rate of 82-83 percent, despite the scarcity of those funds and the needs for operations and maintenance resources. This shortage comes from the fact that those expenditures suffer from treasury shortages and delays in the expenditure circuit. Capital expenditures, where the execution rate is traditionally the lowest, have shown improvement, with their execution rate rising from 60 percent of budget in 2003 to 88 percent in 2008. Part of the low execution rate of expenditures is due to the lags in the procedures for releasing and committing appropriations. In particular, the habit of releasing funds by quarters has often resulted in the funds being released late in the first quarter and not being available in time for the last quarter, and thus not been spent. 3.7. Capital expenditures have an execution rate which averages 73 percent. This is the result in part of slow project implementation, but in a larger part of over-programming and too optimistic forecasts. As discussed later, given the relative share of projects in total public expenditure, it is vital for the success of sector strategies that a greater role be played for the Public Investment Program management by the ministries themselves, and not left only to the General Directorate of Financing (DGF), project units and donors. Table 3.4 : Public expenditures execution rates by economic category (in percent of initial budget) 2003 2004 2005 2006 2007 2008 Average prelim Wages 102 100 98 99 99 95 99 Goods services 84 89 82 76 88 76 83 Transfers 80 92 88 77 74 82 82 Capital 60 73 68 67 79 88 73 Total 73 82 78 75 82 86 80 Source: MEF and staff estimates 3.8. Overall, the key conclusion is that budget credibility should be strengthened. Considerable deviations between actual and voted total primary public expenditures are the cause for the inefficiency of higher allocations in priority sectors analyzed later in this chapter. These deviations are the results of serious weaknesses in both budget preparation and budget execution. Budget preparation is hampered by insufficient preparation time, the complete separation of current budget and capital budget preparation, and because ministries themselves are not in the driver seat for the preparation of their own budget. Priority sectors prepare MTEFs, but those are disconnected from budgetary constraints. Budget execution remains too much at the discretion of the Ministry of Economy and Finance: funds are released too late or not sufficiently and cash management impedes the implementation of sector programs. The capital budget is managed - 25 - mostly by the General Directorate of Financing, not the ministries themselves. Within ministries, budget management is too centralized, with most expenditure executed at the central level, even when it concerns local beneficiaries. Decentralized offices of ministries do not have enough responsibilities and are often understaffed or under-trained. This problems need to be corrected before a proper implementation of the MTEF and program budgeting can be envisaged. 3.9. Also, in general, Niger compares well with patterns of public spending of WAEMU countries. Lower shares of total public expenditures on wages, goods and services and interest payments have allowed for somewhat higher shares of domestically-financed investment expenditures when the country’s ratios are compared to the average of the WAEMU countries (table below). Table 3.5 : WAEMU – Economic composition of public expenditures (Average 2004-2007, in percent of total public expenditures) Wages Goods Transfers Interest Other Domest. Extern. and and Financ. Financ. Services Subsidies Investm. Investm. Bénin 26,7 18,8 17,8 1,5 5,9 13,6 15,7 Burkina Faso 21,7 11,3 16,7 2,5 0,0 22,8 25,3 Côte d’Ivoire 32,6 22,7 7,0 9,6 13,2 9,0 5,8 Guinée Bissau 29,1 9,6 10,5 8,8 7,6 7,0 27,4 Mali 18,9 31,3 0,0 2,2 6,5 17,0 24,1 Sénégal 22,4 14,7 17,3 3,4 0,7 26,6 14,9 Togo 26,6 23,7 17,5 10,4 9,3 5,9 6,7 Niger 17.6 13.6 11.4 2.1 5.4 18.5 31.4 WAEMU 24,5 18,2 12,3 5,1 6,1 15,1 18,9 Source: Data 2004-2007 from country reports posted on the IMF website. Sectoral Composition of Total Expenditures 3.10. The analysis presents a mixed picture in terms of achievement of public spending targets by sectors. First, education expenditure was broadly on target at about 20.5 percent of non-debt expenditure, but short of the PRSP-I target of 4 percent of GDP, at 3.6 percent. The good news is that the targets were exceeded in 2008. Public spending on basic education is about 72 percent of public spending on education. In turn, this has raised the issue of insufficient resources for secondary and higher education. Public expenditure on health, at about 12.3 percent of total non-debt expenditure, was far under the target. As for road expenditure, the expenditure for equipment and transport as a whole averaged 8.5 percent of government revenue for the period, far under target. Public expenditures on rural development (as defined in the rural development strategy) averaged 20.2 percent of total non-debt spending over the period. There may have been fluctuations in the definition of the rural sector between PRSP-I and the SDR, but the overall trend is clear: donors have shown a clear preference to financing rural development projects rather than roads. Defense expenditures averaged 1.3 percent of GDP, but increased by 1.5 percent of GDP in 2007, when the government upgraded military equipment to cope with the rebellion in the northern region. Overall, non priority expenditures increased by about 1.5 percent of GDP in 2007 and 2008 compared to 2006, while priority expenditures in health, education and rural sector decreased by 0.5 percent in 2007 and increased by 1.3 percent of GDP in 2008. - 26 - Table 3.6 : Functional allocation of public expenditures (actual, in percentage of GDP, 2003-2008) Sector 2003 2004 2005 2006 2007 2008 Average Administration 0.8 0.9 0.8 0.8 0.8 1.1 0.9 Defense 1.0 1.2 1.1 1.0 2.5 0.9 1.3 Public order 1.0 1.0 1.0 0.9 1.1 0.6 0.9 Rural sector 2.9 4.4 3.3 3.5 3.4 3.5 3.5 Equipment and transport 1.1 1.1 1.1 0.4 1.3 1.4 1.1 Health 2.2 1.8 1.8 2.4 2.0 2.5 2.1 Education 3.3 3.5 3.6 3.4 3.4 4.1 3.6 Social development 0.1 0.1 0.1 0.1 0.1 0.2 0.1 Other expenditures 3.9 4.3 4.1 3.1 4.6 4.7 4.1 Total (non debt) 16.2 18.2 16.9 15.8 18.2 18.8 17.4 Source: MEF and staff estimates. 3.11. On average, the share of total non-debt public expenditures allocated to priority sectors decreased from 2000-2002 to 2003-2008. The three main priority sectors – education, health and rural sector – represented 52 percent of total non-debt expenditure over the period 2003-2008. For those three sectors the authorities have adopted sector strategies and started to prepare MTEFs. Allocations to those sectors are generally the best “protected� at the time of budget preparation. Adding equipment and social protection makes the total PRSP priority sectors represent 59 percent of total non-debt expenditure, a ratio that remained fairly constant over 2003-2008. This represents a slight decrease compared to the data observed for 2000-2002, when they were 66 to 69 percent. Table 3.7 : Functional classification of expenditures (actual, in billion CFAF) 2003 2004 2005 2006 2007 2008 Average prelimin share (in percentage) 2003-2008 General public services, public 41.7 47.7 53.1 55.1 67.9 58.7 17 order and defense Rural sector 43.9 66.6 58.7 65.8 68.9 83.5 20 Equipment and transport 17.0 17.3 18.8 7.3 27.3 33.7 6 Health 33.6 27.0 31.7 46.3 40.9 59.7 12 Education 50.9 53.3 63.1 65.1 70.2 98.6 20 Social development 1.5 1.5 1.6 1.7 2.5 4.0 1 Other expenditures 59.6 65.8 73.6 59.9 92.9 112.9 24 TOTAL (non debt) 248.2 279.2 300.6 301.1 370.6 451.1 100 Source: MEF and staff estimates 3.12. Protection of PRSP priority sectors is also not evidenced by public expenditure execution rates. The execution rate of priority sectors is under the average for total expenditure. The execution rate for health and education is about average, but the execution rate for the rural sector is only 65 percent of planned, compared to 80 percent for expenditures as a whole (Table 3.7). The discrepancy stems mostly from the composition of expenditures, with capital expenditures being predominant in rural sector expenditures. However, as seen in the table on capital expenditures (Table 3.9), the execution rate of capital expenditure varies across sectors. With regard to the latter, the average capital expenditure execution rate in education and the rural - 27 - sector was much lower, at 57 percent and 63 percent, respectively, than the average rate of 73 percent observed at the aggregate level. Capital expenditure in the health sector at an average of 81 percent has been the highest. According to the PETS review, procedures at the regional health office were reasonably well mastered. In the education sector, officials complain of complicated circuits and difficulty in obtaining correct submissions from suppliers. As a result leakages and long delays have been observed. For the rural sector, the low execution rate comes from a high number of externally-financed projects, and a tendency to underestimate the execution lags for each project. Table 3.8 : Execution rate total expenditures (in percent) 2003 2004 2005 2006 2007 2008 Average prel. 2003-2008 General public services, public order and 81 85 88 85 94 70 84 defense Rural sector 53 70 67 56 66 76 65 Equipment and transport 66 84 68 48 72 117 76 Health 68 76 84 110 74 85 83 Education 88 81 79 82 73 83 81 Social development 88 50 48 52 93 58 65 Other expenditures 82 103 85 78 116 108 95 TOTAL (non debt) 73 82 78 75 82 86 80 Source: MEF and staff estimates. Table 3.9 : Execution rate of capital expenditures (in percentage) 2003 2004 2005 2006 2007 2008 Average Prel. 2003/08 General public services, public order and defense 40 45 69 72 88 76 65 Rural sector 52 69 63 55 64 75 63 Of which domest. financed 48 69 80 10 70 67 57 Of which external. financed 49 73 64 65 64 77 65 Of which HIPC 72 47 53 62 72 87 66 Equipment and transport 65 79 60 58 75 134 79 Health 65 72 68 128 68 83 81 Of which domest. financed 59 82 54 80 64 86 71 Of which external. financed 62 80 61 142 64 80 82 Of which HIPC 79 65 98 98 96 100 89 Education 59 74 50 61 43 58 57 Of which domest. financed 88 50 46 60 41 50 56 Of which external. financed 52 77 45 57 36 56 54 Of which HIPC 72 59 83 90 87 77 78 Social development 91 42 41 44 95 51 60 Other expenditures 79 90 96 66 245 117 115 TOTAL (non debt expenditure) 60 73 68 67 79 88 73 Source: MEF and staff estimates. 3.13. Looking at a breakdown of capital expenditure execution rates according to the source of financing, several lessons emerge. For the rural sector, the execution rate is broadly the same for treasury financed, externally financed or HIPC funds. It is because often all sources of financing contribute to common programs and the low rate of execution of externally-financed expenditures affects the rate of execution of other sources of funding. Another lesson is that for education and health, HIPC-financed capital expenditures have a high execution rate reflecting - 28 - the special monitoring devoted to the “Special Program of the President.� Conversely, domestically-financed investments for the three priority sectors have on average very low execution rates, but no real conclusion can be drawn considering the very low amount of resources covered by this category and the fact that most of those credits are counterpart to externally-financed expenditures. 3.14. Current expenditures on priority sectors during 2003-2008 have been lower on average than they were during 2000-2003. The share of the five main priority sectors in total current expenditures declined on average to 47 percent of the total compared to 50 percent in 2000-2002. Current expenditures for health dropped from 11 percent to 10 percent, and for education from 31 percent to 30 percent. Table 3.10: Functional classification of current expenditures (actual, in billion CFAF) 2003 2004 2005 2006 2007 2008 Average prelim. share (in %) General public services, public order and defense 36.3 42.7 44.8 45.0 53.9 42.7 27 Rural sector 5.7 7.2 9.4 8.5 9.5 14.8 5 Equipment and transport 0.7 4.7 5.9 2.3 4.1 3.9 2 Health 11.4 13.5 18.5 16.8 19.3 26.1 10 Education 39.0 37.6 48.9 50.9 55.4 80.1 30 Social development 0.5 0.5 0.5 0.6 0.7 1.0 0 Other expenditures 35.9 38.4 33.0 38.7 50.0 62.5 25 TOTAL (non debt) 129.5 144.6 161.0 162.7 192.9 231.1 100 Source: MEF and staff estimates 3.15. Overall progress in the implementation of the PEMFAR I recommendations was mixed. As seen above, budget consistency with PRSP priority sectors is not evident. On average, the share of total non-debt public expenditures allocated to priority sectors decreased from 2000- 2002 to 2003-2008 and protection of PRSP priority sectors is also not evidenced by public expenditure execution rates. Moreover, current expenditures on priority sectors during 2003- 2008 have been lower on average than they were during 2000-2003. On the positive side, three priority sectors – education, health and the rural sector – prepared sectoral strategies and medium-term expenditure programs and related program budgets. All these actions were recommended by PEMFAR I. However, the sectoral MTEFs have not been aligned with the budget and the Medium Term Budgetary Framework. As a matter of fact, the Ministry of Economy and Finance has not yet prepared an overall MTEF to provide a framework for the sector MTEFs. The program budgets suffer from the same problem as the sector MTEFs, as they are not being based on the budget envelope. Finally, delegation of budget management to ministries and to local offices has been almost inexistent, making progress on the efficient use of resources difficult to attain. 3.16. It must be noted that higher public spending in a priority sector is not correlated with better outcomes. Compared to initial targets in the PRSP-I, outcomes have not been better in rural development, where expenditures have been above targets than in education where spending targets have just been met, or health which fell short of the quantitative spending targets. Even within a sector, as in basic education, regional outcomes are not correlated with the relative share of resources going to that region. In fact, Niger is far behind in meeting MDG targets in education as well as in health. In the rural sector, there are not enough indicators yet to evaluate the effectiveness of the public expenditures in the sector. - 29 - 3.17. The quality of expenditure plays a major role in the effectiveness of sector expenditure. This is the major reason why PEMFAR I emphasized the development of strategic budget instruments such as sector strategies, Medium Term Expenditure Frameworks (MTEF) and program budgets. However, as discussed in this report, the actual implementation of this recommendation has not provided yet the expected sector outcomes. One reason is that the whole planning exercise is disconnected from actual macroeconomic constraints, spending limits, and actual budget preparation. The other is the need to correct existing weaknesses in budget execution. 3.18. The three priority sectors (education, health and rural sector) have maintained a high share of GDP. This share has been rising starting in 2005, and was at 4.1 percent of GDP for education, 2.5 percent for health and 3.5 percent for the rural sector in 2008. Total expenditures on education rose from 3.3 percent of GDP in 2003 to 4.1 percent of GDP in 2008. Those for health rose from 2.2 percent to 2.5 percent; for the rural sector, the increase was from 2.9 percent to 3.5 percent. All together the share of the three priority sectors rose from 8.4 percent of GDP in 2003 to 10.1 percent of GDP in 2008. This paralleled the rise of total public non-debt expenditure from 17.5 percent of GDP in 2003 to 19 percent in 2008. Figure 3.1: Priority sector expenditures, as percent of GDP 5.0% 4.0% 3.0% Education 2.0% Health Rural Sector 1.0% 0.0% 2003 2004 2005 2006 2007 2008 3.19. Public expenditure on education in 2007, at 3.4 percent of GDP is on par with the average of other WAEMU countries. The increase in 2008 to 4.1 percent of GDP likely put Niger ahead of the pack. By contrast, public expenditures on health, at 2 percent of GDP, are higher than in other WAEMU countries. Of course, for both sectors, the share of GDP is much lower than in a performer such as Botswana with respectively 8.3 and 4.7 of GDP. Table 3.11: Education and Health expenditures in some African countries in 2007 (as a percentage of GDP) Country Education Health Benin 3.6 1.7 Botswana 8.3 4.7 Burkina Faso 2.3 1.9 Côte d’Ivoire 4.4 0.9 Niger 3.4 2.0 Togo 3.5 1.0 Source: IMF and World Bank staff estimates. - 30 - C. EXPENDITURES IN PRIORITY SECTORS Education14 Background and Objectives 3.20. The Government has endorsed a 10-year education program (PDDE 2003-2012) within the framework of the Fast Track Initiative (FTI). The key objectives of the Government program are: (i) increasing access to both formal and non-formal basic education, in particular for children in rural areas, girls, and the poor; this is done in particular by decentralized recruitment of contractual teachers, accelerating the school construction program, and actions to boost girls' enrolment, maintenance and success at school; (ii) improving the quality and relevance of education, by reforming the pre-service teacher training, restructuring of the in- service training program, and distribution of free textbooks in both public and private primary schools; and (iii) developing capacities for the strategic and operational management of the sector at both the central and regional levels, enhancing decentralized management and fostering communities participation. 3.21. Basic education, which represents 72 percent of total education expenditures, is administered at three levels: at the national levels (the Ministry of National Education), the regional level (Regional Directorates of National Eduction) and the district level, administered by district education offices (Inspectorates for Basic Eduction, IEB). Education is of course delivered at the local level in schools. Each school is linked for administrative purposes to a district office. 3.22. After years of stagnation, education coverage has recently improved significantly, especially over the past five years. Primary gross enrolment has increased from 41.7 percent in 2001/02 to 52 percent in 2004/05, 54 percent in 2005/06, 57.4 in 2006/2007, 62.1 percent in 2007-2008, and 67.8 percent in 2008-2009, while the completion rate has risen from 25.6 percent to 36.4 percent in 2005, 40 percent in 2006, 43 percent in 2007, 42.9 percent in 2008, and 48.2 percent in 2009. The proportion of the national budget (based on actual expenditure) for the education sector has been maintained at about 20.5 percent during 2003-2007, but has risen to 22 percent in 2008. Compared to neighboring countries, Niger has lower MDG indicators outcomes, except for expenditure per primary student, which denotes a low productivity of education expenditure. The targets of PRSP II for primary education are rather ambitious: gross enrolment is targeted to grow from 54 percent in 2005/06 to 94 percent in 2012 and the completion rate from 40 percent in 2006/07 to 93 percent in 2012. Given the present trends, these goals seem difficult to reach. 14 The education sector is composed of three ministries: the Ministry of Basic Education, the Ministry of Secondary and Higher Education, and the Ministry of Technical Education. - 31 - Table 3.12: Regional comparison of education outcomes: MDG indicators (2007 or 2008) Niger Burk. Faso Mali Benin Togo Primary completion rate 40 33 49 64 57 Ratio of girls to boys in primary and 71 82 78 73 75 secondary education Public expenditure per primary student 29 36 21 13 10 (as a percentage of GDP per capita) Source: World Bank database. Structure of Education Expenditures 3.23. Public spending is the main instrument for implementing Niger’s education policies. About 89 percent of education expenditures are financed through the budget (including budget support by the donors). The balance is financed by donor projects (11 percent). This latter figure is down from 25 percent in 2004 and 15 percent in 2005-2006. During 2003-08 the share of education remained stable at 20 percent of total public expenditures but slipped down to 18 percent in 2008. Similarly, education spending accounted for about 3.5 percent of GDP in 2003- 2007 but rose to 4.1 percent in 2008. If this record is maintained, the PRSP I objective (4.0 percent) will have been met during the first year of PRSP II. The share of basic education in the total education expenditure has remained at around 72 percent. Table 3.13: Education sector expenditures (in billion CFA Francs) 2003 2004 2005 2006 2007 2008 Recurrent expenditures 39 37.6 48.9 50.9 55.3 80.1 Salaries 23.1 23.4 23.8 25.9 38.1 60.6 Other current 15.9 14.2 25.1 25 17.2 19.5 Capital expenditures 11.9 15.9 14.2 14.2 14.7 18.4 Total 50.9 53.3 63.1 65.1 70.2 98.6 Source: MEF and staff estimates. 3.24. Basic education absorbs the largest part of public expenditures for education. In 2007, the share of basic education was 60 percent of total education expenditure. The shares of secondary, higher and technical education were respectively 22, 15 and 3. In 2008, the relative share of basic education grew to 67 percent while the shares of the three other sub-sectors were respectively 20, 11 and 2. While those percentages respect the priority given to basic education, they raise the question of whether the resources for secondary and even more higher education are at all sufficient for the development needs of the country. - 32 - Table 3.14: Public education expenditures by level (in percentage of total education expenditure) 2007 2008 Basic 60 67 Secondary 22 20 Higher 15 11 Technical 3 2 Total 100 100 Source: DGB and World Bank staff calculations. 3.25. The share of salaries in education expenditures is dominant. According to budget classification, the proportion of salaries in total education expenditures was on average 47 percent during 2003-2008, other current expenditures were about 30 percent and capital expenditures about 23 percent. The share of salaries in total education sector expenditure has been growing, with salaries representing 54 percent in 2007 and 62 percent in 2008. The growth of the wage bill is mostly due to the doubling of the salary costs of contractual teachers between 2007 and 2008. This was caused in part by the increase in the number of contractual teachers from 24,000 to 28,000, but mostly to a salary increase obtained in the 2008 supplementary budget. Table 3.15: Education sector expenditures (in percent of GDP) 2003 2004 2005 2006 2007 2008 Execution rates Recurrent expenditures 2.5 2.5 2.8 2.7 2.7 3.4 93 Salaries 1.5 1.5 1.3 1.4 1.9 2.6 97 Other current 1.0 0.9 1.4 1.3 0.8 0.8 87 Capital expenditures 0.8 1.0 0.8 0.7 0.7 0.8 58 Total 3.3 3.5 3.6 3.4 3.4 4.2 81 Source: MEF and staff estimates. 3.26. Since the 1998/99 school year, the Government has expanded its policy of recruiting primary school teachers on contracts. These teachers initially had limited term contracts without benefits and at salaries about half those of civil service teachers. This was supposed to substantially reduce the unit cost of primary education and facilitate a rapid expansion of the number of teachers without increasing the number of civil servants. The number of contractual teachers grew from about 10,000 in 2003 to over 30,000 in 2009 and now represents about 75 percent of the total number of teachers. Along the way they received salary supplements and benefits which have increased their unit cost (and the total wage bill). Similar developments occurred in secondary educations where about 6,000 contractual teachers have been recruited. This creates a challenging fiscal issue as a large share of available resources in education tends to be devoted to salaries. The situation also creates some social unrest as contractual teachers demand higher compensation and to be integrated as permanent staff. - 33 - Table 3.16: Primary education contractual teachers (2003-2008) 2003 2004 2005 2006 2007 2008 Number of contractual teachers 10,288 13,119 16,022 20,288 24,448 28,038 Total salaries (billion CFA Francs) 4.6 6.9 9.2 10.9 13.5 25.7 Contractual salaries as share of education 12.3 18.1 28.8 25.1 23.2 26.2 transfers Ratio of contractual salaries to overall tax 3.0 4.1 5.1 5.3 5.8 10.0 revenue Source: MEN/MEF. 3.27. Budget implementation rates are satisfactory for current expenditures but very low for capital expenditures. At 58 percent, the implementation rate of capital expenditures is very low, even compared to the national average for capital expenditures, which is 72 percent. There are general causes, such as over ambitious budgeting, but also specific reasons linked to the sector’s implementation capacity. The Education Sector PER for 2005 mentions as possible causes for the poor performance: i) technicians who control the quality of public works are over- worked; ii) poor adherence to the terms of contracts by contractors; iii) poor geographic programming; and iv) the adverse effect of cash management often disconnected from budget priorities. It can be noted that over the 2003-2006 period, construction and equipment of primary schools (HIPC funds) recorded a completion rate of close to 100 percent in Niamey compared to 75 percent in the rest of the country. Main Issues in Education Expenditure Management 3.28. Quality of education is low while disparities remain high. Results of learning achievement evaluations have shown consistently that learning remains low in Niger. The PDDE has planned a wide range of actions to tackle this important issue. Ensuring adequate progress in the implementation of these actions will be essential to avoid the persistence of low quality education. Despite some recent positive results, the disparities between gender and across geographical areas persist. The gross enrolment rate (GER) in rural areas is estimated at 50 percent (compared to 52 percent for the entire country) and girls represented only 41 percent of total primary enrolment in 2005. Among regions, the primary gross enrolment rate varies between 81 percent (Agadez) and 45 percent (Diffa). 3.29. Poor allocation and management of resources lead to lower efficiency of spending. Despite the ongoing decentralized recruitment of contractual teachers (which correspond to almost two-thirds of total teachers in the country), the distribution of teachers across the geographical districts is still not equitable and the teacher allocations to schools are unbalanced. In 2005, the pupil/teacher ratio in urban areas was 41 compared to a countrywide average of 45. Overall resource management remains weak although progress has been made recently in empowering the communities in school management. As indicated above, the execution rate of school construction and equipment is low. As a result, too many schools are housed in precarious facilities, with resulting poor working conditions. Efficiency of Public Expenditures in Education 3.30. The internal efficiency of the primary education system remains low. Most of Niger education efficiency indicators are below comparing neighboring countries or SSA average, - 34 - except for the percentage of repeaters in primary school (5 percent in 2007), for which Niger fares ahead in SSA; and survival rate to grade 5 which is on line with SSA average at 72 percent. School completion rate increased up to 46 percent in 2007 (from 39 percent in 2003), but is still far from SSA average of 60 percent. Progression to secondary school is one of the lowest in WAEMU countries at 40 percent in 2006. The gross intake rate to grade 1 is also well below SSA average at 65 percent compared to 117 percent. In 2007, only 70 percent of entrants reached the sixth year. However, the repeater rate in the fifth year is high (23 percent). The allocation of resources among regions does not seem to be correlated with outcomes, for example the success rate to the end exam, which reinforces the notion that resources are not well utilized. Table 3.17: Comparison of education expenditure efficiency indicators (2008 or most recent available data) Niger Benin Burkina Côte Senegal Togo SSA Faso d’Ivoire Percentage of repeaters (in %, primary) 5 8 11 52 10 24 11 Gross intake rate to grade 1 65 115 88 70 100 94 117 Completion rate 46 75 62 42 52 42 60 Survival rate to grade 5 72 72 80 78 65 54 72 Progression to secondary level (in %) 40 71 52 48 60 53 Source: World Bank: Edstat. 3.31. The acquisition of knowledge and skills by primary education students is very low. Evaluations performed in 2007 revealed that in the fifth year 72 percent of students were not mastering basic skills in mathematics compared to 48 in 2000 (72 percent also in French compared to 58 in 2000). These results are in regression compared to evaluations performed in 2000 and 2005 and are the lowest in SSA and compare only to Chad and Mali. As a result most students in high school have difficulty understanding the teaching. The deficiency in understanding the teaching language seems to be the key to the overall poor learning outcomes. Other factors mentioned include the lack of resources devoted to pedagogical training and monitoring. 3.32. Most of the problems in outcomes result from an insufficient allocation of resources to improving quality, as compared to resources devoted to increase coverage. In particular resources are missing for the proper initial training of teachers for allowing inspectors to devote time out of administrative duties and for pedagogic support, for the training on the job, and for the improvement of curricula. 3.33. Improving education outcomes will depend on sustainable human resources management. As seen above, massive recourse to contractual teachers has been conceived as a means to improve the quality of education within budgetary constraints. In order to keep a sustainable payroll, the government will have to devise a strategy for education employment, salaries and benefits that can be financed over the longer-term. In particular, the modalities of integrating the contract teachers (now 70 percent of teachers) into the civil service will have to be planned in adherence of WAEMU Directives for the wage to fiscal revenue ratio of 35 percent, and alternative salary financing sources, such as communities or local governments, will have to be explored. 3.34. Spending increases do not always translate into more supplies to the schools. As highlighted by the Public Expenditure Tracking Survey (PETS) of November 2008, there is a 50 - 35 - percent leakage between notebooks and draw-books procured by the Ministry of Basic Education and notebooks and draw-books received by schools. Part of the leakage reflects excessive delays in the transmission of supplies from one level of administration to the next, going from the Ministry (and book suppliers) to regional education offices to Education Inspection offices to schools. Even for textbooks procured by a foreign-financed education project, the PETS showed a 25 percent leakage rate, based on the sample survey. The PETS notes that leakages seem to materialize mostly between district offices and schools. On the other hand, schools largely passed on resources received to their students. Another conclusion of the study was that availability and quality of records at the regional education office level were problematic. Improving the procedures and recording would be prerequisites for better program budgeting. Health Background and Objectives 3.35. Health expenditures occur mostly at the decentralized level, even though they are mostly centrally administered. The Ministry of Health operates at two decentralized levels: at the regional level with 8 regional directorates and at the district level (there are 42 districts). There are about 50 hospitals, 600 integrated health centers, and 2,000 “health houses.� There are about 200 private health facilities. 3.36. The Government has adopted a ten year health strategic development framework (2002-2011) which is now being implemented through a five-year National Health Development Plan (NHDP 2005-2010). The NHDP reflects the following major orientations in the health sector: (i) lowering maternal and child mortality; (ii) reducing inequalities through improved resource management (both human and financial); and (iii) improving quality and availability of health services. Structure of Health Expenditures 3.37. Health expenditures have increased from 1.9 percent of GDP in 2003-2005 to 2.3 percent of GDP in 2006-2008. As a share of total non debt expenditures, health expenditures have averaged 11.2 percent in 2003-2005 and 13.2 percent in 2006-2008. This increase reflects the government’s willingness to increase funding for the sector, although resources are still insufficient to meet WHO standards (see later on personnel issues). Although capital expenditures have kept pace with GDP, the increase in total expenditures comes from current expenditure, a virtuous development. Table 3.18: Health sector expenditures: actual expenditure (in billion CFAF) 2003 2004 2005 2006 2007 2008 Recurrent 11.4 13.5 18.5 16.8 19.3 26.1 expenditures Salaries 4.7 4.9 5.2 6.7 7 10.1 Other current 6.8 8.6 13.3 10 12.4 16.1 Capital expenditures 22.2 14.4 13.2 29.5 21.6 33.6 Total 33.6 27.0 31.7 46.3 40.9 59.7 Source: MEF and World Bank staff calculations. - 36 - 3.38. The execution rates of non-salary current expenditures have improved compared to 2000-2002, but execution rates for capital expenditures have deteriorated, as a result of weak implementation capacity in the context of increased allocations. Donors used to finance more than half of health expenditures. This share has declined to about 27 percent (not including HIPC financing of expenditures). Table 3.19: Health sector expenditures: actual expenditure (in percent of GDP) 2003 2004 2005 2006 2007 2008 Execution rates (average) Recurrent expenditures 0.7 0.9 1.0 0.9 1.0 1.1 85 Salaries 0.3 0.3 0.3 0.4 0.3 0.4 102 Other current 0.4 0.6 0.7 0.5 0.6 0.7 78 Capital expenditures 1.4 0.9 0.7 1.5 1.1 1.4 79 Total 2.2 1.8 1.8 2.4 2.0 2.6 83 Source: M/EF and World Bank staff calculations. Efficiency of Public Expenditures in the Health Sector 3.39. Despite some considerable improvement over the last ten years, progress in the health sector continues to be mixed and the country is still falling far behind in meeting the MDG health outcome targets. The Demographic and Health Survey of 2006 indicates that the infant mortality and under five mortality rates have declined (respectively 81 per 1,000 in 2006 against 156 per 1,000 in 1998 and 198 per 1,000 against 265 per 1,000 in 1998) and immunization coverage has increased (from 18 percent to 29 percent ). Only for one third of births the mother receives skilled attendance, and only 17 percent of births take place in health facilities. The Government has identified reduction of population growth and maternal and child mortality as the key health priorities in the country. Compared to its neighbors, Niger’s MDG indicators show a mixed picture: while it has the lowest prevalence of HIV and tuberculosis, its immunization rate is the lowest. The other indicators stand as average for the region. Table 3.20: Regional comparison on health outcomes Niger Burkina Mali Benin Togo Faso Under-five mortality rate (per 1000) 176 191 196 123 100 Immunization against measles (percent of children 12-23 months) 47 94 68 61 80 Maternal mortality rate (per 100,000 births) 648 700 970 840 510 Prevalence of HIV (percentage of population 15-49) 0.8 1.6 1.5 1.2 3.3 Tuberculosis incidence (per 100,000) 174 226 319 91 429 Source: World Bank MDG Database - Most recent MDG indicators: 2005 to 2007. Resource Management Issues in Health 3.40. The shortage of health personnel and its uneven distribution are key problems in the management of resources in the sector. The staff allocation among regions and between rural and urban areas is inadequate. Niamey, and to a lesser extent other urban centers, attracts - 37 - health professionals with better opportunities for additional income and career growth and better living conditions than rural areas. Niger has only one physician for 47,530 people, while the WHO norm is one for 10,000. A similar deficit exists for midwives, while availability of nurses is better (see table below). These ratios are significantly worse in poor and rural areas than in richer urban areas with Niamey standing out with a surplus of physicians, nurses and midwives measured against the WHO norms (e.g., Niamey concentrates 33 percent of the total health staff with only 6 percent of the nation’s population). These issues are compounded by poor motivation of staff due to low salaries, which are sometimes not paid or are paid very late, weak co- ordination and support systems leading to delays in financial flows, procurement, and personnel and payroll management, and poor co-ordination among departments and levels. As a result, there are no incentives for already low paid workers to operate in rural areas. 3.41. The situation for staffing has improved between 2000 and 2008. As illustrated in the two tables below, the ratio of WHO norms to the actual workers to population ratio has improved from 5.1 in 2000 to 4.8 in 2008 for physicians, from 5.9 to 5.2 for midwives, and from 1.9 to 1.1 for nurses. Although the situation for nurses is practically adequate in terms of numbers, the improvements in terms of number of physicians and midwives are marginal and the shortage of personnel remains critical. In addition, the inequality among provinces remains high, although the situation has slightly improved: a gross indicator of inequality shows progress for the distribution of nurses, slight progress for midwives, but no progress for physicians. Table 3.21: Ratios of health workers to population by region (2000) Ratio of WHO norms15 to actual number of health workers, regions ranked according to poverty incidence (poorest to richest) Physicians Midwives Nurses 1.Tillaberi 17.7 10.0 3.0 2.Dosso 8.5 9.0 2.4 3.Maradi 11.1 13.6 3.2 4.Zinder 8.8 12.3 2.2 5.Tahoua 7.4 11.8 3.0 6.Diffa 1.8 3.6 0.7 7.Agadez 3.2 3.7 1.2 8.Niamey 0.7 0.8 0.5 Niger total 5.1 5.9 1.9 Source: World Bank (2004b), poverty incidence according to the World Bank’s poverty assessment (World Bank, 1996). 15 WHO norms are 1 physician per 10,000 inhabitants and 1 midwife and nurse per 5,000 inhabitants. - 38 - Table 3.22: Ratios of health workers to population by region (2008) Ratio of WHO norms to actual number of health workers, regions ranked according to poverty incidence (poorest to richest) Physicians Midwives Nurses 1.Tillaberi 11.4 6.3 1.6 2.Dosso 12.4 6.6 1.4 3.Maradi 10.0 9.0 1.9 4.Zinder 9.9 6.1 0.9 5.Tahoua 17.3 13.5 2.2 6.Diffa 4.4 4.2 0.8 7.Agadez 2.2 2.5 0.6 8.Niamey 0.9 1.4 0.4 Niger total 4.8 5.2 1.1 Source: Ministry of Health - 2009 3.42. Access to health facilities suffers from inequities of many types – geographic, structural, financial, and cultural – while the health services delivered are seriously inadequate in terms of quality. More than 50 percent of the population is still more than 5 kilometers from a health facility providing basic curative and preventive services, and one out of six lives more than 15 km from the nearest health center. The quality of available health services and their coverage are both severely limited. Given the poor quality of services, the average per capita usage rates have been declining from 42 percent in 1996 to 26 percent in 2006. Coverage of routine immunization, one of the cheapest and easiest basic health interventions, is particularly problematic, as only 29 percent of one-year-old children are fully immunized. Public Expenditures Tracking in Social Sectors 3.43. The recently completed Public Expenditure Tracking Survey (2009 PETS) has put in evidence discrepancies in financial records between the Ministry of Economy and Finance and the Health and Education Ministries, and between the Ministries of Health and Education, the regional offices of the Ministry of Economy and Finance and Health (idem for the education sector). In the case of foods for patients in hospitals, records have been fully consistent between agencies. In the case of essential medicines, some leakages seem to exist between district health offices and integrated health centers. Also, medicines received by clinics are insufficient, and most clinics bought medicines with their own funds to meet their need (which raises an issue of equity, since this implies that patients may only obtain medicines if they pay for them). 3.44. Many factors can contribute to inefficiencies of resource distribution. In Niger, the main factors are weak public procurement practices within line ministries, inadequate financial management processes and systems and inadequate control of the release of resources to primary service delivery units. In this regard, to improve public financial management effective service provision, the PEMFAR II, in addition of PETS recommendations (bullets 1 and 2), suggests to:  Improve resource management transparency by developing a reporting system that can easily trace the amount, the quantity and the unit of resource flows, whether financial or material, and the dates at which transactions take place. Eventually, data on resource - 39 - flows should be made publicly available and disseminated to stakeholders to improve transparency and foster government’s accountability;  Establish mechanisms and channels to ensure transparency and accountability in the use of public resources. This can be only achieved if information can easily be reconciled at each administrative node and is made publicly available through diverse medias that are easily accessible by the population, including bulletin boards, radio shows, and newspapers. In fact, the PETS revealed that when precise records were readily available, the efficiency of public resource distribution tended to be higher.  Strengthen the capacity of local administration to monitor resource management, including non-financial assets and by prioritizing the social sectors;  Improve the quality of control of service provided, notably by involving the beneficiary in the process. 3.45. District offices are front line agencies that have complex responsibilities to work with a large number of service providers. Given their critical role in linking public supplies with service providers, the PETS recommended to:  Evaluate the capacities of district offices against their mandates, including human resources, skills and incentive structures. Based on the findings, the government should systematically plan and implement district level capacity building strategies;  Evaluate the distribution procedures for textbooks and notebooks in the education sector and compare with other countries’ more decentralized procedures. The findings should point towards ways of simplifying procedures in order to improve efficiency. The same can also be done for the food expenditures in the health sector. Distribution systems in other countries could be studied to improve Niger’s system; and  Identify the reasons behind the budget implementation bottlenecks at the ministerial level to strengthen budget implementation. 3.46. Having a more effective budget implementation system in place is a prerequisite to improve the equity of public resource allocation between poor and better off regions. Thus, the PETS also recommends to:  Deepen understanding of the inefficiencies and bottlenecks in resource distribution by conducting a more issue-focused analysis (for example, in essential medicine distribution, including procurement of the essential medicines); and  Specify criteria (based on existing poverty data and estimated resource needs) to determine public resource allocations among regions. - 40 - Rural Development Background and Objectives 3.47. The rural sector contributes about 40 percent of GDP, a declining trend since 1980, with agriculture accounting for about 52 percent and livestock about 30 percent of rural output. Agro-pastoral products accounted for about 24 percent of export revenues recorded in 2007. Overall, the country’s agricultural trade balance remains heavily in deficit and imports of foodstuffs represent a third of the country’s import bill. The majority of the rural population pursues subsistence farming and animal husbandry using low-productivity and traditional techniques. Almost 83 percent of the country’s population lives in rural areas, most of them below the poverty line. With increasing concentration of population in the most productive zones, the sustainable management of natural resources has become a major challenge. 3.48. With an average annual sectoral growth below 2 percent over the past 40 years, well below the annual population growth rate of 3.3 percent, the challenges for the rural economy as an engine of growth are daunting. The biggest challenge is to achieve rapid and sustainable modernization of the agriculture and livestock sectors conducive to rural growth and poverty reduction. In the absence of market access opportunities, sufficient land tenure security, access to key services (rural finance, agricultural research, knowledge and information systems, veterinary services), private investment for the expansion of irrigated agriculture for the improvement of rain-fed farming systems and for the intensification of livestock production, much of Niger’s rural growth potential remains untapped. As an example, the estimated irrigable land covers 270,000 ha, of which less than 100,000 ha have so far been developed, and even less is actually being irrigated. 3.49. Food insecurity, affecting 80 percent of the population, is chronic in Niger. It is aggravated by high incidences of rural poverty, translated at the household level in low purchasing power and lack of access to food by vulnerable groups. Following a locust invasion and an extended drought, the 2004-05 agricultural season was marked by a 25 percent decline in production compared to the average of the five previous years. Worsened by low institutional capacity, this agricultural crisis (cereal and fodder shortage) quickly deteriorated into a severe food crisis, illustrating the fragility and vulnerability of the country to exogenous shocks. In spite of favorable agricultural production years in 2006, 2007, the 2008 food price crisis has increased food insecurity. This crisis highlighted the nutrition dimension of food insecurity in Niger, in a context where social indicators are among the lowest in the world. The Rural Development Strategy (SDR) 3.50. Niger adopted a comprehensive rural development strategy (SDR) in 2003. This strategy covers the sector as a whole and was jointly prepared by the five ministries in charge of rural development.16 The SDR is linked directly to a key pillar of the country’s PRSP-2 -- 16 These are the following: Ministry for Agricultural Development (Ministère du développement agricole), Ministry for Livestock (Ministère des ressources animales), Ministry for Water Resources (Ministère de l’hydraulique), Ministry for Environment and Fight against Desertification (Ministère de l’environement et de la lutte contre la désertification) and Ministry of Land and Community Development (Ministère de l’Aménagement du territoire et du Développement communautaire). A few activities under the responsibility of the Prime Minister’s office are also included in the RDS. - 41 - “Promoting growth and increasing income.� The ultimate goal of the SDR is to reduce the incidence of rural poverty from 63 percent to 52 percent by 2015, within a policy and institutional environment conducive to sustainable economic and social development in which food security and the sustainable management of natural resources will be guaranteed. This was elaborated on the basis of a medium-term approach focused on providing an operational framework for the definition and implementation of the country’s rural development policy and sectoral components. To achieve these objectives, the SDR is structured around three strategic pillars and relies on a variety of initiatives, including structural reforms (programmes structurants) aimed at creating an enabling environment, and high-priority programs (programmes sectoriels prioritaires) aimed at promoting the development of certain subsectors (see Table 3.23). The SDR Action Plan prepared in 2006 is now under implementation with the guidance and monitoring of an inter-ministerial committee and with substantial donor support. Table 3.23: Niger Rural Development Strategy and Programs Strategy pillars:  Improving access of rural populations to economic opportunities; to promote conditions for sustainable economic growth in the sector;  Improving food security and ensuring sustainable management of natural resources; and  Enhancing capacity of public institutions and rural organizations to improve living conditions in the rural sector. Structural programs: 1. Local and community-based development 9. Reducing household vulnerability 2. Local governance of natural resources 10. Environmental protection 3. Producer organizations and supply chain management. 4. Rural infrastructure Priority sector programs: 5. Rural finance 11. Irrigation development 6. Research – Training – Extension 12. Pastoral management and development of secure 7.Strengthening rural public institutions pastoral systems 8. Water and sanitation improvement. 13. Land rehabilitation and reforestation 14. Kandadji dam: ecosystems in the Niger River Valley Source: SDR Executive Secretariat SDR Action Plan. 3.51. The steering mechanism for the SDR comprises an Inter Ministerial Committee of SDR supported by two technical organs: the Rural Development Technical Committee and the Executive Secretariat of the SDR. Every program of the SDR is entrusted to a technical ministry which ensures the management and coordination of the program. The budgetary mechanism for the implementation of the SDR is based on program budgets (linked to output levels and other indicators) consolidated into a three year Medium Term Expenditure Framework. Although the institutional arrangements for the SDR provide excellent analysis and planning expertise, as discussed in the next section on the budget management mechanism, several features of the system prevent from yielding the full benefits expected from the use of a MTEF/program budgeting system. 3.52. Furthermore, the SDR Action Plan was updated in 2009. In the context of the AU/NEPAD’s Comprehensive Africa Development Program (CAADP) process, which was completed on September 30, 2009, the SDR is being realigned with this regional program, following the signing of a Charter on Agricultural Development between the government and partners, along with a new National Agricultural Investment Plan (SDR/PNIA). 3.53. During 2003-2008 the Government reached some milestones in the reform agenda in agriculture and rural development. The action plan of the rural development strategy (SDR) has been revised to include the Food Security through Irrigation Development program - 42 - (PLIADI). Costing for all SDR programs was completed, which provided the basis for the finalization of the rural Medium-Term Expenditure Framework (MTEF) (covering all five line ministries). A bill was adopted on land tenure, security and local governance of natural resources to gradually install regional land administration offices (SPR-CR). Finally, following successive workshops organized by the government, a Presidential decree approved the study of the national system for food crisis management and prevention and validated it as a National Emergency Plan for the Management of Food Crises. Structure of Public Expenditures in the Rural Sector Table 3.24: Rural sector actual expenditures (in billion CFA Francs) 2003 2004 2005 2006 2007 2008 Recurrent expenditures 5.7 7.2 9.4 8.5 9.4 14.8 Salaries 3.2 3.2 3.3 3.8 3.8 5.0 Other current 2.5 4.0 6.1 4.7 5.6 9.8 Capital expenditures 38.2 59.4 49.4 57.3 59.5 68.8 Gov, financed 1.0 1.3 1.2 1.9 9.6 17.4 Ext. financed 30.5 52.8 43.3 46.6 41.1 47.8 HIPC 6.7 5.3 4.9 8.8 8.8 3.6 Total 43.9 66.6 58.8 65.8 68.9 83.6 Share in total non-debt public exp. (percent ) 18 24 20 22 20 19 Execution rates (percent) 53 70 67 56 66 75 Ratio recurrent/ Cap. Expenditure (percent) 15 12 19 15 16 22 Source: MEF and staff estimates. 3.54. The share of the rural sector in total non-debt public expenditures was maintained at an average of 20 percent throughout 2003-2008. As stated above, the decline after 2004 is due mostly to the peak of irrigation projects in 2004. The share of the sector in total public expenditure averages 17.5 percent, which is much higher than the PRSP I target of 12 percent. This reflects the intensified implementation of the rural development strategy, and the donors’ interest in financing it. Table 3.25: Rural sector actual expenditures (in percent of GDP) 2003 2004 2005 2006 2007 2008 Execution rates Recurrent 0.4 0.5 0.5 0.4 0.5 0.6 76 expenditures Salaries 0.2 0.2 0.2 0.2 0.2 0.2 93 Other current 0.2 0.3 0.3 0.2 0.3 0.4 67 Capital expenditures 2.5 3.9 2.8 3.0 2.9 3.0 63 gov financed 0.1 0.1 0.1 0.1 0.5 0.7 57 ext financing 2.0 3.5 2.4 2.4 2.0 2.1 65 HIPC 0.4 0.3 0.3 0.5 0.4 0.2 66 Total 2.9 4.4 3.3 3.5 3.4 3.6 65 Source: MEF and staff estimates. - 43 - Efficiency of Public Expenditures in the Rural Sector 3.55. Niger is a leading agricultural producer in WAEMU but yields are, in general, far below SSA and regional averages. According to the FAO database, in 2007 Niger was the first producer of cow peas and the third producer of millet in the world. In recent years (2003-2008), and thanks to favorable rainfall conditions, agriculture real output has increased on average by 7.8 percent compared to 2 percent in the previous last four decades, below the population growth rate (3.3 percent). However, this increase in agriculture output depends essentially on increased areas under cultivation and traditional cultivation methods are still dominant. Agricultural activity, mainly rainfed, with less than 6 percent of cultivated areas under irrigation, involves 80 percent of the country’s total labor force, and is essentially subsistence and food security oriented. . Figure 3.2: Main crops production in 2007 Source: FAOSTAT. 3.56. Productivity of the rural sector is very low compared to Sub-Saharan and regional averages. As shown in table 3.26, yields per hectare of main agriculture products are very weak for all the three main crops (millet, sorghum, and groundnuts) and are 43.2 percent lower on average compared to other SSA countries. Likewise, labour productivity is very low with 246 kg of cereals per capita, although within the average range of other Sahelian countries with similar economic and agricultural paterns. Beside the high dependency on volatile rainfall, the weak agricultural productivity is mainly due to poor use of fertilizers and limited access to effective technologies, namely improved seeds and irrigation and cultivation practices. Rice yield per hectare is in line with the region’s average, and the livestock subsector continues to drive the sector exports along cowpeas and onions. As recommended in the PEMFAR I, the government should promote rural savings and financial intermediation, to allow farmers to modernize their cultivation practices and increase productivity in the sector. - 44 - Table 3.26: Comparison of Niger’s yields of cereal production with peer countries Average yields, in Kg/Hectare (2003-2007) Millet Sorghum Rice Groundnuts Burkina Faso 885.4 1,034.3 1898.5 733.7 Chad 571.6 702.9 1,259.8 877.0 Mali 722.9 812.2 2,297.9 887.3 Mauritania 184.1 397.9 4,218.7 800.5 Niger 444.6 335.0 3435.6 534.4 Senegal 617.7 811.6 2,523.5 775.4 Western Africa 875.5 978.2 1,574.0 1,177.3 SSA 793.5 900.6 2294.5 990.2 Source: FAOSTAT. Issues in Resources Management 3.57. The relative decrease of capital expenditures after 2004 comes mostly from the slowing down of irrigation projects. It seems due mostly to donors awaiting government’s decisions on a management framework for irrigated perimeters. This is an important issue that can thwart the development of the rural sector. 3.58. The numerous changes affecting institutions in the rural sector make difficult a proper monitoring of resources for each sub-sector. For example, the Ministry for Livestock seems to receive only 4.5 percent of the total allocation for the rural sector, in contrast with the importance of livestock in Niger. The reason is probably that some expenditures (projects for instance) which affect livestock are implemented under the oversight of the Ministry of Agricultural Development or by the Ministry for Water Resources. Similarly, personnel for ministries that were separated may still be nominally administered by a single ministry. There are discrepancies between records and the reality of resources utilized by each subsector. A clarification of information will be needed in order to properly implement MTEF and program budgeting techniques. Furthermore information on government spending in the rural sector –as determined under the SDR- should be further broken down to get a clearer picture about specific spending on agriculture development and allow for better monitoring of the country compliance with the AU Maputo declaration, as well as an easier assessment of the implementation of the CAADP in Niger. 3.59. The share of current expenditures in total sector expenditures is much higher than estimated. It is estimated that 15 percent to 20 percent of projects expenditure is in fact current expenditure. Part of it is used to cover administrative costs of the central or local offices of relevant ministries in the sector. However, this contribution is not distributed according to an overall rational administrative organization but depends on the decisions of donors in individual projects. 3.60. There are too many performance indicators in the rural development strategy action plan and too limited actual performance monitoring. The action plan is a very sophisticated construction, with each of the 14 programs divided in subprograms, themselves divided in specific objectives. Altogether there are several hundred indicators, much more than can be managed in program budgeting (although they can be useful for the monitoring and evaluation of the action plan itself). It is recommended that institutions in the rural sector start recording their performance, as has been done for a while in health and education. For that to be - 45 - easier, it will be desirable to rationalize the set of indicators and select fewer critical ones easy to monitor and to report on. D. NIGER’S PUBLIC INVESTMENT MANAGEMENT SYSTEM 3.61. A good public investment management system (PIM) is crucial for economic growth and poverty alleviation in Niger. With the prospect of increased fiscal revenues of about 4 percent of GDP for at least 30 years stemming from of a booming mining sector, Niger needs to develop an effective and efficient PIM to support the development of well-targeted investments in infrastructure, education, health, and other priority sectors. Following a quick background review of the definition of the investment budget in the context of Niger and capital expenditure trends, some key recommendations for addressing existing weaknesses and building an effective and efficient PIM system are presented. Defining the Investment Budget 3.62. Public investments executed by the Government are reported under Title 5 of the national budget (Titre 5: Investissements exécutés par l’Etat). They include physical assets such as building, furniture, equipment, land, and infrastructure. The table below presents the different investment assets included in the Title 5. Table 3.27: Budget nomenclature 211 Research and Development expenditure 213 Concepts of organization system and software 219 Other intangible rights and values 221 Land 222 Underground deposits and quarrying 223 Plantations and forests 224 Water plans 229 Other lands 231 Administrative Buildings serving as offices 232 Administrative Buildings for military and civilian housing 233 Administrative Buildings for technical usage 234 Works and Infrastructures 241 Office and housing furniture and equipment (other than computers) 242 Office computer equipment 243 Transport equipment for the service and function 244 Machinery and technical equipment (other than for the office) 245 Transport equipment 247 Strategic or emergency stocks 248 Livestock 250 Military Buildings (other than housing) 252 Works and Infrastructures 253 Furniture, machinery, and military equipment Source: Ministry of Economy and Finance. - 46 - 3.63. Title 5 does not include the costs of repair and maintenance which are typically reported under Title 3 “Operating Expenses� (Dépenses de Fonctionnement). However, there are some costs elements in Title 3 such as the acquisition of vehicles which should in principle be part of the Investment Budget (Title 5). So the classification of physical assets either through monetary value or time horizon is not very clear and makes difficult a full account of capital assets inventory. Furthermore, it is unclear whether the depreciation and other amortization expenses of capital assets, which are typically recurrent expenditures, are included in Title 5 or in Title 3. One major risk, which is pervasive in many developing countries, is the failure to account the depreciation and other costs for renewing capital assets. 3.64. It is worth mentioning that government subsidies and other current transfers which are reported under Title 4 (Subventions et autres transferts courants) may also contain some elements of capital expenditures. Subsidies and transfers made to public companies or the national university may very well be used to acquire capital assets. 3.65. Another factor which affects the planning and execution of the public investment budget is the contributions from donors which are often unpredictable. Donors’ disbursement plans for the projects that they support are incorporated in the Investment Budget, but there are often delays and no fulfillments of commitments which affect the execution rate. There is also the issue of the comprehensiveness of the public investment budget as some of the donor-financed projects are not reported and integrated in the Title 5 as they should. Public Investment Trends in Niger 3.66. The public investment program is driven by donors, who finance the bulk of the investment budget. Investments are more or less equal to recurrent expenditures depending on the year, but the investment budget of 10 ministries was over 80 percent of their total budget in 2009. This is notably the case of the ministries in charge of economic activities. The investment budget of five ministries (water works, mining and energy, regional and community development, public works and enterprise reform and development) is over 90 percent of their total budget. In priority social sectors, the share of the investment budget in their total budget is lower (57 percent for health and 32 percent for basic education), because of the importance of the wage bill. For secondary and higher education, the share of the investment budget of the relevant ministry is 16 percent of its total budget for 2009. Table 3.28: Niger – Capital expenditures, 2003-2008 (billion of CFAF) 2003 2004 2005 2006 2007 2008 Capital expenditures and net lending 115.5 144.9 192.9 202.3 236.6 247.1 Domestically financed 28.5 34.0 51.0 51.5 73.7 96.7 HIPC resources 12.0 17.0 22.3 15.6 13.8 13.6 Externally financed 75.0 93.0 120.0 135.2 149.1 136.8 Net lending 0.0 0.9 -0.2 0.0 0.0 0.0 Source: Niger: Selected Issues and Statistical Appendix. February 2009, IMF Country Report N0. 0970. 3.67. Donors indicate how they wish to support PRSP implementation and try to coordinate their activities. For instance, 8 donors provide assistance to the basic education development program. Their approach remains basically project-oriented, however, with a proliferation of project units which are not adequately integrated in the ministries and often cost - 47 - more to operate than the ministries themselves. In the report on the execution of the 2007 investment budget, 28 donors were listed for 144 projects. A small minority of these projects are supported by several donors. In any event, the list of projects is not exhaustive as information is lacking on some activities financed by donors. 3.68. The Government finances a share of the investment budget through the Treasury and the use of HIPC funds. The Treasury finances projects which have not attracted donor support, and contributes to donor-financed projects through counterpart funding. HIPC funds are used to finance the Special Program of the President. The program includes small irrigation and rural water supply projects, construction of schools and nutrition centers and a number of discrete activities. These projects are approved by the Presidency but their funding is registered in the relevant ministry’s budget. Implementation of these projects is the responsibility of regional authorities using local contractors. In 2007, HIPC funds financed 21 projects. Actual capital expenditures have more than tripled from 1998 to 2007, respectively from CFAF 70 billion to CFAF 237 billion. Domestically financed capital expenditures increased more drastically (660 percent), but externally financed investments still represented 63 percent of total capital expenditures in 2007. 3.69. Urgent need for Niger to develop an effective and efficient PIM system. The review of the Niger PIM system has revealed that most of the “must have� features of PIM are missing or poorly performed. Across the board, there are weaknesses regarding: (i) investment guidance and preliminary screening; (ii) formal project appraisal; (iii) independent review of appraisal; (iv) project selection and budgeting; (v) project implementation; (vi) adjustment for changes in project circumstances; (vii) facility operation; and (vii) evaluation. Assessment Framework of Public Investment System in Niger 3.70. To assess the country’s public investment management system, a diagnostic framework defining ten “must have� features for an efficient public investment system and providing a questionnaire for evaluating public investment efficiency was used. The detailed filled out questionnaire is presented in Annex 4. 3.71. Critical features for an efficient public investment system and the actual status in Niger follow: a) Broad strategic guidance: the PRSP and development plans in priority PRSP sectors provide an adequate guidance for public investment. b) First level screening of all projects. Such screening must be undertaken to ensure that they meet the minimum criteria of consistency with the strategic goals of government and meeting the budget classification tests for inclusion as a project rather than as a recurrent spending item. There is some screening at the sectoral level, but not at central level. The investment budget includes a large share of operating expenditures. c) Cost-benefit or cost effectiveness screening. The investment budget is driven by donors. Little economic analysis is carried out by the Government, which does not have a formal and well publicized guidance on the technical aspects of project appraisal. - 48 - d) Ex ante value of project evaluation depends on the quality of analysis, which in turn depends on the capacity of the staff. Little capacity exists to carry out project appraisal and there is little upstream investment in training in project appraisal techniques. e) When line ministries undertake project appraisal, an independent review might be necessary. Such review does not exist. The Commissariat Chargé du Développement does not carry out project analysis. f) Relationship between project selection and budget cycle. MTEFs prepared by sectoral ministries are not used in the budget preparation process. Recurrent expenditure of investment proposals is not taken into account in the budget process. g) Implementation realism. The low execution rate denotes a lack of realism in planning. h) Flexibility in the funding review process. The funding process is for its most part dependent on decisions made by donors. i) Capacity to monitor project implementation. Such capacity is limited. Efficient project units are equipped with a monitoring capability, but this is the exception. More broadly, the monitoring of program implementation is seriously deficient. j) Asset registry. There is no asset registry system in place. k) Ex-post evaluation. Donors have invested significant resources in the preparation of investment programs and MTEFs, but little in ex-post evaluation. 3.72. The analysis above shows that, except for the first one, the “must have� features are absent from the country’s public investment management system. Strengthening Public Investment Management in Niger Investment Guidance and Preliminary Screening 3.73. The PRSP approved in October 2007 provides a foundation from which to prioritize investment decisions. The sources of economic growth are clearly defined and the necessary development programs are reasonably well articulated. The PRSP Secretariat, which operates in the Prime Minister’s Office, monitors the implementation of the PRPS. To this end, it has prepared an Action Plan based on the activities and costs included in the sector medium-term expenditure frameworks. However, the needs articulated in the PRSP may require further prioritization because they exceed available resources and should be considered within current and medium-term budget constraints. Financing needs, debt accumulation, and fiscal policy should be considered when devising a policy on key investment priorities. Key sectoral ministries (Education, Health, and Rural Development) prepared their strategies and three year rolling program budget. 3.74. The Commissariat chargé de Développement within the Ministry of Economy and Finance (MEF) prepares the Public Investment Program (Programme des Investissements de l’Etat). In parallel with the broad development programs monitored at the PRSP Secretariat, - 49 - the PIP is a three-year projection of expected investments expenditures based on disbursement commitments from the donors and the government. Typically the first year of the PIP constitutes the Public Investment Budget (Budget des Investissements de l’Etat). 3.75. A focused strategic framework around PIM seems to be lacking. This is evidenced by a low execution rate, cost overruns, donor dependency, uneven distribution of development projects across key sectors, weak coordination among government agencies (i.e., CCD and DEP) and poor participation of the private sector. Recommendations on Strategic Guidance and Initial Screening  Elaborate a comprehensive development strategy of PIM in Niger which will clearly articulate the country’s vision, objectives, operational guidelines, and procedures for enhancing the effectiveness and efficiency of public investments. For instance, some of the strategic objectives would be: (i) reduction of donor dependence and (ii) achievement of 35percent investment/GDP in 2020. It is also very important to emphasize in the strategy development the central role that the private sector should play in financing public investments through Public Private Partnerships (PPPs). So far, there is not a comprehensive legal framework for PPPs in Niger, and it is recommended that this be established in the short term.  Publish and disseminate a handbook on public investment management and procedure manual to clarify the definition issues around capital investments and provide guidance on initial screening, project appraisal, monitoring and evaluation and institutional arrangements.  A global MTEF could be established to guide and inform the establishment of sector MTEF, and thus the inclusion in sector MTEFs of projects that are likely to be funded either by the government or the donors. The establishment and costing of the PRPS Action Plan will also be more realistic as a result of the alignment between sector MTEFs and the national budget.  For a more effective oversight and strategic guidance on public investments, it may be useful to create a Public Investment Committee (PIC), which would be chaired by the Prime Minister. This typically allows for better coordination and optimization of public investments. A PPP unit to attract and facilitate private sector participation in public investments might also need to be created. Formal Project Appraisal 3.76. Project appraisal prior to selection is generally weak or non-existent in Niger. The evaluation of projects proposed by the government and in many cases by donors, do not follow a comprehensive assessment of cost and benefits, technical, procurement, monitoring, and institutional arrangements. Project appraisal is performed unevenly within line ministries. There are no proper guidelines and there is clearly a lack of analytical capabilities in the sector ministries. 3.77. Ex ante analysis should consider both the financial and economic costs and benefits of potential projects. The Office of the Evaluation of Projects, Ministry of Environment, is charged with the responsibility of reviewing all ex ante environmental impact studies and participating in public reviews, but its resources are limited. The office relies on the financial - 50 - support of project financiers to coordinate and participate in review meetings and to conduct site missions. This relationship may undermine the impartiality of the process and findings. 3.78. Because of the lack of analytical capabilities in the sector ministries, projects included in the PIP may not be the most productive investment needed. This situation affects the efficiency of public spending. Technically, the CCD of the Ministry of Finance should in the current situation play the role of quality reviewer to guide decisions from sector ministries. Unfortunately, it has very limited capacities and capabilities. The CCD, which used to be the Ministry of Planning, is responsible for the investment budget. It includes three directorates, one for planning, one for disbursements and one for monitoring and evaluation. 3.79. The first directorate in CCD reviews the project sheets submitted by the line ministries to ensure that they are aligned with the PRSP and that financing is available. Project analysis is perfunctory, however. The second directorate monitors disbursements under foreign assistance and prepares a report on the execution of the investment budget. The main problem encountered by this directorate is the late submission of information on disbursements by several donors. The report on the implementation of the 2007 budget, for instance, is based on estimates of disbursement rates for a large number of projects. The third directorate has established a data bank to monitor physical implementation of activities financed by the investment budget. As information gathered from project units is less than adequate, it organizes field trips to collect data. In early 2009, it issued a report on public investments over the period 2001-04 which can be of only limited value after such a long delay. Recommendations for Improving Project Appraisal  Clear operational guidelines and procedures on project appraisal must be disseminated across the various agencies of the government. The Public Investment Committee should be in charge of the dissemination and execution of these guidelines and procedures. It may also be necessary to build capacity on using various project appraisal tools and methodologies.  Looking at the project appraisal rules established in Rwanda for different levels of different sizes of proposed projects, the following review steps may be considered in Niger : (a) “large project� (above US$5 million) : (i) Project Concept Note prepared by line ministry/DEP; (ii) Assessment by MEF/CCD on the basis of ex ante project analysis; (iii) Pre-appraisal (by line ministry) in case of positive review, project rejection in the opposite case; (iv) Assessment by MEF/CCD (if positive, inclusion in MTEF/PIP; if negative, rejection, reformulation, or delay); (v) Appraisal by line ministry/DEP; (vi) Assessment by MEF/CCD (if positive, enter into budget; negative: rejection, reformulation, or delay); (vii) Implementation; and (viii) Evaluation. (b) “small project� (below US$5 million): (i) Project Concept Note prepared by line ministry/DEP; (ii) Assessment by MEF/CCD (if positive, enter into MTEF/PIP; negative: rejection, reformulation, or delay; (iii) Appraisal prepared by line ministry/DEP; (iv) Assessment by MEF/CCD (if positive, enter into budget; negative: rejection, reformulation, or delay; (v) Implementation; and (vi) Evaluation. - 51 - 3.80. These rules mostly apply for domestically funded investments. However, it is crucial to put externally funded projects through the same rigorous tests. Project Implementation 3.81. Niger has problems with project completion, delays, and cost overruns. As indicated above, the execution rate in 2007 was just 63.6 percent. Management and internal controls at line ministries are weak for project oversight, and adequate monitoring by CCD is lacking. There are also issues related to procurement management and information systems which hinder project management and implementation. 3.82. Donor-funded projects sometimes have ring-fenced arrangements. Those arrangements are through “independent� Project Implementation Units which by-pass the country’s procurement and financial management systems. Still their execution rate is below 70 percent and they have substantial delays. Recommendations for Improving Project Implementation  Clear guidelines and procedures for project implementation must be established by CCD and strictly adhered to by government agencies.  Ensure that an implementation unit or cell is formally created for each project and properly resourced with skilled staff and adequate tools.  These critical functions must be properly carried out by the implementation unit: project coordination, procurement, financial management, external audit, monitoring and evaluation.  The project implementation unit will develop annual work program activities, update the costing, procure goods and services in the most competitive way, maintain the accounting, publish reports, monitor and evaluate projects. Adjustments for Changes in Project Circumstances 3.83. Social and economic factors quickly change and bring constant changes in the design and implementation of projects. The current world economy downturn, the recent food crisis, and political uncertainties are clear reminders of how things can turn around rapidly and make obsolete development programs. It is thus critical in this kind of environment to put in place flexible mechanisms that could offset these shocks. 3.84. Externally-funded projects are particularly vulnerable to changes in donors’ assistance programs. During difficult economic times, donors typically reduce their contributions which have a negative impact on project execution. This is the case for the moment in Niger where disbursements and pledges have slowed significantly. Also, as indicated above, certain donors have preference for certain types of programs and projects which may not be suitable to the government. - 52 - 3.85. Another example of investment inefficiencies are continued funding of projects which no longer add sufficient economic value to justify their costs. They are just a drain on scarce capital resources which could be more economically used in other areas. Recommendations for Ensuring Project Adjustment 3.86. A rapid monitoring and evaluation system must be put in place to stop implementation of inefficient projects which do not economically justify their costs. These funds could then be redistributed to projects which need more resources and present higher economic prospects. A strong early warning system and good forecasts could be built to optimize the allocation and execution of investment budget. Capital Asset Condition and Maintenance (Facility Operation) 3.87. Niger has no central registry of current assets. The CCD does not have an exhaustive inventory of the existing capital assets and their condition. A limited number of assets are documented in a database which is not up-to-date. The problems of valuation, tracking and accountability of service delivery, which are the results of a very weak inventory management system, are worrisome. 3.88. The lack of proper asset registry leads to thefts and acquisition of assets which are not needed. Hence, more capital goods are acquired but the impact on service delivery remains low. A stricter control on the quantity and quality of capital should lead to better capital budget decisions and sustainable programs. Recommendations to Improve Capital Assets Inventory  Establish a modern and effective assets accounting to accurately record the volume and cost of physical assets.  Mobilize technical assistance to build capacity in inventory management system.  Conduct frequent audits and controls to prevent undue thefts and misuse of assets. Evaluation of Public Investments 3.89. The Direction of Program Evaluation in the Ministry of Finance is charged with monitoring the performance of projects implemented in the country. It maintains a database that tracks financial inputs (both allocated and executed), outputs, including capital expenditures, wages, and services, and outcome indicators. The maintenance of this database is laborious since staff personally visits each project management unit in the country to obtain the necessary information. The projects may envisage similar outcomes but if their indicators are not phrased uniformly, it is difficult for the data team to harmonize performance indicators for comparability purposes. Ideally, the financial data collected from projects could be compared with that reported from the sectoral ministries or the Direction of the Budget to monitor the chain of expenditures. Monitoring expenditure activity is the first step to ensuring that projects have been implemented appropriately. Project sustainability may also depend on whether recurrent expenditures are incorporated into the general budget after the projects have closed. However, financial tracking is difficult because the Commissariat does not deploy a project idenfication - 53 - numbering system from which to uniquely identify projects across databases, even within the Commissariat. 3.90. The evaluation team recently released a review of public investment performance based on information obtained from the monitoring and evaluation database. The review covered the period 2001–2004 and the team plans to conduct an investment review over the more recent period of 2005-2008 pending the update of its data base. This review will be an important tool for monitoring the efficiency of its investment portfolio and it is a key ingredient of ex-post project evaluation. 3.91. Niger does not conduct in-depth ex-post evaluation of public investments to capture lessons learned which could be incorporated into future project design or into scaling up existing projects. More than indicating whether the project was simply successful, evaluations can be designed to inform the direction of existing projects and fine-tune innovative interventions to improve upon project effectiveness. Robust impact evaluations are relatively expensive and require large data collection activities at onset and periodically throughout the time span of the project. They also depend on a comprehensive evaluation strategy being integrated into project implementation itself. Thus a selection rule must be developed to determine when it is feasible to launch a thorough evaluation. CCD does not appear to be currently equipped in manpower and systems to do this task. Donors occasionally launch ex-post project evaluations, but they may be driven by other criteria which may necessary intersect with Niger’s investment objectives. Donor-led evaluations should be conducted in collaboration with the government to improve upon learning outcomes for all parties. 3.92. In case recommendations of ex-post program evaluations are available, they may not necessarily be taken into account in the project design due to misalignment of incentives among stakeholders. For instance, MEF may push for more transparency, controls, better procurement, and cost efficiency in project design, but the line ministries may resist these requirements because of opposite interests and incentives. Recommendations for improving ex-post evaluation of public investments  Establish formal institutional arrangements for ex-post project/program evaluation with feedback into future project design.  Determine criteria for targeting of program evaluation and select a small number of programs for evaluation annually. Ensure that project design of new projects incorporate lessons learned from project evaluations. 3.93. The credibility of the annual budget and a sound public investment management system are essential for developing an effective medium term expenditure framework. The following section will assess progress in developing strategic budget tools at the central and sectoral levels. It will identify persistent weaknesses in that area and will provide recommendations to streamline use of MTEF and program budget going forward. - 54 - E. DEVELOPING STRATEGIC BUDGET TOOLS 3.94. PEMFAR I recommended developing sector strategies, MTEFs and program budgets, as a way to link budget expenditures to sector and macroeconomic strategic priorities. Budgets should be based on better estimates of domestic and external resources, and absorptive capacity constraints. They should also support unified multi-annual investment and recurrent expenditure programs reflecting the priorities of the country’s poverty reduction and sectoral strategies. Recommendations for improving budget preparation included:  Prepare annually global MTEFs with sectoral allocations in line with the priorities of the country’s poverty reduction strategy.  Prepare sectoral MTEFs and program-budgets for primary education. Prepare a strategy for post-primary education and a series of program-budgets for the education sector as a whole.  Deepen the analysis of sectoral priorities, in consultation with stakeholders and the main donors financing the sector, as a basis for eventual preparation of program-budgets.  Improve the presentation of draft budget laws submitted to the National Assembly. Justify main budget choices in the context of sectoral programs and the poverty reduction strategy. As they become available, program-budgets could be attached to the draft budget laws. Progress in Implementing PEMFAR I Recommendations Box 3.1: PEMFAR I Priority Action Plan Recommendations related to new budget tools 1. Starting with the 2005 exercise, base the Budget Law on global MTEF’s defining multi-annual sectoral allocations consistent with the priorities of the poverty reduction strategy. 2. Continue and intensify ongoing efforts to develop sectoral MTEFs and gradually extend the process to all ministries. 3. Submit documents accompanying the Budget Law to the National Assembly highlighting the consistency of budget proposals with the poverty reduction strategy. 4. Prepare (in consultation with stakeholders, including donors), approve and implement sectoral strategies and action plans as a basis for future program-budgets:  For primary education  For the education sector as a whole  For the health sector  For rural development  For the transport sector 5. Prepare program-budgets:  For primary education (2005 Budget)  For the education sector as a whole (2008 Budget)  For the health sector (2006 Budget)  For the transport sector (2006 Budget)  For the rural development sector (2007 Budget) - 55 - Implementation of PEMFAR I Action Plan 3.95. Strategies and medium-term strategic plans were adopted for education, health and the rural sector. A decennial program for the development of education was adopted for 2003- 2012. Rolling three-year MTEFs have been prepared for basic education, starting with the 2005- 2007 MTEF. Yearly “program budgets� based on those MTEFs have been used in budget preparation. Similar developments occurred in health with the adoption of a Health Development Plan for 2006-2011, action plans, MTEFs and program budgets. A Rural Development Strategy was adopted in 2003. It covers the activities of four ministries covering the sector, and a few additional projects from the Prime Minister Office. An Executive Secretary for the Rural Development Strategy was put in place. It is assisted by a planning/budget cell coordinating the Planning and Budget Directorates of the four departments. In 2006 an action plan for 2006-2015 was adopted and rolling MTEFs for the rural sector were put in place, starting with the 2007-2009 MTEF. 3.96. Although MTEFs are being prepared for education, health and rural development, the government has no overall MTEF available at the moment. In the wake of the annual budget preparation, a macroeconomic framework is prepared, disseminated to ministries, and used to establish budget ceilings for ministries. The Ministry of Economy and Finance has put together a working group to prepare a methodology for an overall MTEF. It is supported by the IMF. A first IMF technical assistance mission took place in March 2009; follow-up missions are planned. Key Issues with MTEFs and Program Budgeting in Niger 3.97. Sector MTEFs should be aligned to the budget (and the overall MTEF). Sector MTEF should reconcile sector priorities with budget discipline. However, as they are conceived now, they tend to determine budget levels based on strategic objectives with insufficient consideration for what is financially feasible. “Desirable� outputs are determined, for which expenditure programs are calculated. Since there is a discrepancy with budgetary envelopes, “financing needs� are derived, corresponding or not to projected donor financing. This methodology does not help develop budgets that are operational. The MEF should develop capacity to determine projections of expenditure and revenue on an unchanged policy basis; for instance, rough estimates of medium term civil services costs are not available (based on a simple model incorporating assumptions about retirements, wage movements, promotions etc). Hence the need for an overall MTEF which provides coherence to the various sector MTEFs, and makes them consistent with the overall macroeconomic constraints. 3.98. The right sequence for MTEF preparation is starting with a top-down phase. The state of the art sequence is: i) preparing macro projections; ii) preparing a medium term budget framework, projecting budget aggregates over three years; iii) establishing an overall MTEF, including sector allocations; and iv) deriving sector MTEFs, based on multi-year sector ceilings. However, the success of this process depends on the quality of annual budget preparation, which must follow the same top-down approach. The dissemination of hard budget ceilings between ministries forces them to prepare realistic budget requests, and realistic MTEFs where the first year is identical to the proposed budget. The process can then be pursued within the ministries: budget managers at the line ministry level could allocate the ministry’s budget ceiling between programs in order to get realistic requests that can be aggregated. Until the whole process is - 56 - correctly in place, sectoral MTEFs will have only a limited impact on public expenditures outcomes. 3.99. MTEFs should be prepared by ministry, not by sector. The operational approach described above involves political decisions (on budgetary allocations) which can only be made within an organic framework with an authority to decide. For example, the Secretariat for rural development can prepare strategies and medium-term plans. But it can hardly substitute itself for the relevant ministry for taking budgetary decisions. Furthermore, in Niger, ministries lack enough autonomy of decision for program budgeting to work effectively. 3.100. The existing budget rigidities have to be taken into account into the MTEF methodology. The traditional MTEF methodology, as developed in OECD countries, is geared toward allocating the available budgetary resources between government priorities. In Niger, as in other developing countries, a large proportion of expenditure is predetermined, but this should be challenged in order to improve both expenditure prioritization and control of aggregate expenditure. It is the case for a large part of personnel expenditure, which is practically reconducted from one budget to the next. It is also the case for investment expenditure, the majority of which is composed of existing projects. There is a need to develop good procedures in order to distinguish between ongoing expenditure and new, additional expenditure (new projects, policies and programs). Even if a large share of expenditures is predetermined, they should of course be part of an MTEF which should cover all public expenditures and provide incentives to sectors to decide on their intra-sectoral tradeoffs in terms of spending. 3.101. Program budgeting relies on a solid definition of programs within ministries. Several notions of programs or program budgets coexist in Niger, while there is a need to agree on a common definition. The rural development strategy comprises 10 structural (transversal) programs and 4 priority sector programs. For an operational program budgeting system, a “program� should correspond simultaneously to a major function of a ministry and a major division thereof. In standard practice a ministry is composed of - and identical to the sum of - a small number of programs (between 3 and 7). Every resource of the ministry should be allocated to one program and only that program. For every program, clear strategies, objectives, sub- programs, and performance indicators must be selected, for a completely operational program budgeting system. 3.102. Adopting program budgeting implies a major change from the existing administrative culture and can only be envisaged in the longer term. In order to be accountable for results, the ministries need to be fully responsible for operational, budgetary and human resources decisions within each program. Even when there is a Director in charge of a sub-sector, he/she rarely enjoys wide responsibilities compatible with program management. The prerequisite is of course that ministries themselves are fully in charge of their budget decisions, including human resources and investment. There is also a difficult balance to maintain between the necessary devolution of responsibilities to regional offices, and the ministry’s authority on the program (including its decentralized execution). 3.103. Meaningful performance indicators are essential for program budgeting. There is a need to select for each program a small numbers of indicators, preferably outcome indicators. It is essential that they are well defined and well monitored, and that the results of indicators have consequences on program management and decisions. It takes a long time to put in place the - 57 - right components of program budgeting and to train personnel properly. It would be unrealistic to plan for the implementation of program budgeting, even for a few pilot ministries, before several years of preparation and training. The health development program stands out in that respect with a thorough monitoring of performance indicators disaggregated by region. This will provide an excellent base for effective program budgeting management. The hundreds of indicators in the Rural Development Strategy Action Plan may be adequate for monitoring and evaluation, but need to be adjusted to provide an adequate set of indicators for program budgeting. Similarly, progress is necessary in education. 3.104. Prerequisites for successful implementation of MTEFs/program budgeting are not all met in Niger. Among others, the following are still missing:  Predictability of revenue. External financing is particularly difficult to forecast. The authorities indicate that they cannot fully anticipate the amount of budget support that will be disbursed during the fiscal year, but there are issues with timely compliance with triggers for disbursement, which is an obstacle to MTEF implementation.  Strong technical capacity of government agencies. It is felt that the capacity for management needs to be improved, even before training on MTEF/program budgets techniques.  Robust administrative accountability mechanisms. This is being improved with development of IT systems and enhancement of control bodies, as detailed in Chapter IV.  High degree of flexibility given to line ministers for budget and human resources management. As seen before, much remains to be done in that respect. 3.105. The implementation of MTEFs/program budgets should be very gradual. It is suggested to concentrate on the IMF technical assistance recommendations, setting the overall MTEF mechanism, and moving progressively to ministerial MTEFs aligned on the overall MTEF, in the context of a much improved budget preparation mechanism. In parallel, key ministers can be trained in the effective use of indicators and program management. 3.106. The implementation of effective program budgeting implies in-depth reforms of budget management in line ministries. Firstly, ministries need to be in charge of the preparation and implementation of their budget. In particular, ministries should be in the driver seat regarding their capital budget: a number of responsibilities on the selection of projects, their inclusion in the MTEF and the budget, and their monitoring should be transferred to line ministries. Similarly, in the case of the rural sector, the ministries that are part of the sector should be in charge of planning and budgetary decisions. Secondly, budget management should be more decentralized within ministries, especially in those where most of the provision of public services takes place at the local level. Program budgeting, and in particular performance budgeting can only be effective if it takes its roots in the local activity of the ministry. It is thus recommended that the reforms already started in that direction be intensified and extended. For many aspects of budget execution, too many decisions are left with the central administration. The PETS study of 2008 has shown that the longer the circuit of procuring supplies, the greater - 58 - the risk of leakage. For those reforms to take place, a significant program of capacity building will be needed. 3.107. Niger’s public financial management system and practices should be upgraded with a view to increasing transparency and effectiveness of public spending. Chapter 4 will assess Niger’s PFM system and practices based on the findings of the recently completed PEFA assessment and provide recommendations for improving public financial management in Niger. F. SUMMARY OF RECOMMENDATIONS 3.108. The table below summarizes the recommendations in the form of short and medium-term actions that are required to strengthen public expenditure efficiency and effectiveness in Niger. Table 3.29: Table of Recommendations Shortcomings Actions Responsible Priority (Low, Recommended Party Medium, Timeframe High) Public Expenditure Lack of a global MTEF Prepare overall MTEFs, MEF H 2010 allocating the budget constraints between ministries, following the proposed IMF procedure of distinguishing on-going policies and new initiatives. Sector MTEF are not Prepare ministerial MTEFs Line M 2011 consistent with the consistent with the overall ministries global macroeconomic MTEF. Start with the ministries framework in the priority sectors. Make the first MTEF an ex-post exercise focusing on consistency of the MTEF with the agreed budget and include performance indicators. Staff lack skills on Develop manuals and start MEF – Line M 2010 MTEF/Program budget training on basic program ministries budgeting and performance monitoring. Budget credibility is Increase budget credibility by MEF M 2011 weak due to important reducing deviation between voted deviations between and executed budget. actual and voted budget Ensure that an increasing share of recurrent budget is allocated to the key PRSP priority sectors. Provide timely release of budget resources to the priority sectors protecting them from expenditures cuts. Limited autonomy of Devolve budgetary MEF/line M 2012 line ministries in budget responsibilities such as ministries process commitment and payment order to officials in line ministries. - 59 - Shortcomings Actions Responsible Priority (Low, Recommended Party Medium, Timeframe High) Insufficient allocations Increase resources allocated to MEN/MEF L 2011 of resources devoted to improve quality of basic basic education quality education. Lack of sustainable Adopt a strategy for ensuring MEN Medium 2010 recruitment policy sustainable education employment, salaries and benefits. Lack of qualified Adopt measures for improving MSP Medium 2011 health staff in rural incentives to attract qualified areas health workers in rural areas. Low productivity in Adopt a strategy for promoting MDA High 2010 the rural sector rural savings and financial intermediation with the aim of increasing crops culture productivity. Investment guidance and preliminary screening Lack of a Elaborate a comprehensive CCD/PIC H 2011 comprehensive public strategy to improve PIM in investment policy Niger which will clearly articulate the country’s vision, objectives, operational guidelines, and procedures for enhancing the effectiveness and efficiency of public investments Weak institutional, Strengthen and re-position CCD PMO/MEF M 2011 organizational, and in its key role of central public individual capacities investment planning institution 2011 (PIP, BIE). Initial screening, concept note, DEP H 2011 appraisal, implementation, and evaluation should be done by line ministries through their respective DEPs. Training of CCD and DEP staff in public investment policy, CCD H strategy, planning, MTEF, and project cycle management. Formal Project Appraisal Weak assessment of Establish CCD as quality MEF/CCD M 2011 technical, procurement, reviewer of the investment cost-benefits, and projects submitted by sector institutional ministries. 2011 arrangements Provide adequate training and MEF M manpower to CCD to effectively carry out its quality control and appraisal function. Project Implementation Weak internal controls Elaborate a procedure manual for CCD/PIC H 2011 in line ministries and government agencies about inadequate monitoring guidelines and procedures for capacity at CCD. project implementation. - 60 - Shortcomings Actions Responsible Priority (Low, Recommended Party Medium, Timeframe High) Adjustments for changes in project circumstances Continuous funding of Introduce more flexibility in DEP M 2011 projects which are no project implementation and a longer economically rapid monitoring system so as to justified. get rid of inefficient projects. Capital Asset Condition and Maintenance (Facility Operation) Lack of a central Establish a modern and effective MEF M 2011 registry of capital assets asset accounting system. which may lead to Provide or mobilize technical 2011 thefts or acquisition of assistance to build capacity in MEF M assets that are not inventory management. needed. Evaluation of Public Investments Lack of in-depth ex- Establish formal institutional CCD L 2012 post evaluation of arrangements for ex-post public investments to project/program evaluation. capture lessons learned - 61 - 4. REVIEW OF PUBLIC FINANCIAL MANAGEMENT SYSTEM A. CONTEXT 4.1. In December 2004, the World Bank conducted a Public Expenditure Management and Financial Accountability Review (PEMFAR I) jointly with the Government and other donors. This review not only identified progress made in reforming the public financial management system, but also presented recommendations to further strengthen it, based on a priority action program (PAP). Building on the late 2008 PEFA assessment, the aim of the PEMFAR II is to review progress made since 2004 and identify the next steps for improving public financial management. As the following analysis will indicate, and is shown in Annex 1 of this review, the status of implementation of PEMFAR I recommendations is mixed. The PAP identified 24 measures to improve the PFM system performance of which 10 were fully or substantially implemented, another 7 have registered initial progress and the final 7 were not implemented. 4.2. Weaknesses identified by the PEMFAR II constitute major challenges which to be addressed will require greater efforts and sustained political will by the Government in the coming years. The public financial management system review component of PEMFAR II is a follow up to the PEFA review conducted in December 2008. Consequently, the current analysis builds on the latter review which it enriches in several areas. This chapter covers the following aspects:  Legal and institutional framework;  Budget credibility, comprehensiveness and transparency and policy-based budgeting;  Accounting, recording and reporting;  Predictability and internal and external control in budget execution;  Donor practices. 4.3. PEMFAR II recommendations are expected to be used for the design and preparation of the Government’s action plan to improve the public financial management system. Progress made in the coming years will be assessed by taking into account the baseline established by the present review. To enable the formulation of the Government’s action plan, after an overview, this chapter presents the current situation of the public financial management system, its strengths and weaknesses, indicates in an aggregated manner risks associated with the shortcomings identified and recommends corrective measures. Two Annexes are attached at the end of this report, comprising: Annex 5 - Normative Budget Preparation Timetable, and Annex 6 - Normal Expenditure Procedures. - 62 - Table 4.1 : Summary of PEFA scores Public Financial Management Performance Indicators Aggregate Scoring Component Scores Score Method i Ii iii iv A. Public Financial Management System Out-Turns: Credibility of the Budget PI-1 Aggregate expenditure out-turn compared to original approved budget M1 C PI-2 Composition of expenditure out-turn compared to original approved budget M1 A PI-3 Aggregate revenue out-turn compared to original approved budget M1 D PI-4 Stock and monitoring of expenditure payment arrears M1 (1) D D B + B. Cross-Cutting Features (Comprehensiveness And Transparency) PI-5 Classification of the budget M1 C PI-6 Comprehensiveness of information included in budget documentation M1 D PI-7 Extent of unreported Central Government operations M1 A B B+ PI-8 Transparency of inter-governmental fiscal relations M2 D n/a C D+ PI-9 Oversight of aggregate fiscal risk from other public sector entities M1 C A C+ PI-10 Public access to key fiscal information M1 C C. Budget Cycle C(i) Policy-Based Budgeting PI-11 Orderliness and participation in the annual budget process M2 D C A C+ PI-12 Multi-year perspective in fiscal planning, expenditure policy and budgeting M2 C B C D C C(ii) Predictability and Control in Budget Execution PI-13 Transparency of taxpayer obligations and liabilities M2 B C C C+ PI-14 Effectiveness of measures for taxpayer registration and tax assessment M2 C C C C PI-15 Effectiveness in collection of tax payment M1 ns B D D+ PI-16 Predictability in the availability of funds for commitment of expenditures M1 A C C C+ PI-17 Recording and management of cash balances, debts and guarantees M2 D B D D+ PI-18 Effectiveness of payroll controls M1 B C A D D+ PI-19 Competition, value for money and controls in procurement M2 B B B B PI-20 Effectiveness of internal controls for non-salary expenditure M1 B C C C+ PI-21 Effectiveness of internal audit M1 C C C C C(iii) Accounting, Recording and Reporting PI-22 Timeliness and regulatory of accounts reconciliation M2 D D D PI-23 Availability of information on resources received by service delivery unit M1 D PI-24 Quality and timeliness of in-year budget reports M1 B D C D+ PI-25 Quality and timeliness of annual financial statements M1 C C A C+ C(iv) External Scrutiny and Audit PI-26 Scope, nature and follow-up of external audit M1 D D D D PI-27 Legislative scrutiny of the annual budget law M1 C B B C C+ PI-28 Legislative scrutiny of external audit reports M1 A C C C+ D. Donor Practices D-1 Predictability of direct budget support M1 C D D+ D-2 Financial information provided by donors for budgeting and reporting on M1 B C C+ project and program aid D-3 Proportion of aid that is managed by use of national procedures M1 D Source: Assessment of Public Finances according to the PEFA methodology, Final Report, December 2008. Notes: n/a: not applicable; ns: no source; M1 – The grade is determined based on the lowest grade of all sub-components. M2 –The grade is determined based on the average of the grades of the subcomponents. Grade A indicates the highest while grade D indicates the lowest performance. On a scale from 1to 20, the grade A corresponds to 16 to 20, the grade B to 11 to 15, the grade C to 6 to 10, and the grade D to 1-5. - 63 - B. OVERVIEW 4.4. The PEFA review results are mixed. Scores for some indicators are good. But those for others indicate the need for significant improvement in the coming years through actions that will enhance budget formulation, adoption, execution and reporting as well as internal and external controls. Table 4.1 above provides a summary of the scores assigned to the 31 indicators of the PEFA assessment system. 4.5. Despite the fact that Niger has made progress in recent years, its public financial management system is still fraught with weaknesses. In this regard, the detailed analysis presented in the next sections of this chapter illustrates the importance of five key challenges which are:  to eliminate the excessive use of exceptional spending procedures which poses serious issues of governance and hinders effectiveness of public expenditure;  to ensure timely, comprehensive and accurate fiscal accounting and reporting;  to improve budget comprehensiveness and transparency;  to make operational the new treasury structures and improve cash management; and  to strengthen internal control and increase external oversight of budget outcomes, including by making operational the Court of Accounts.17 4.6. Niger’s public financial management performance is lagging compared to some peer countries (Table 4.2). In a sample of four WAEMU member-countries and two other African countries, Niger’s performance (11 scores of C+ or more) is lagging when compared to Tanzania (18 scores), Burkina Faso (17 scores), Ghana (15 scores) and Mali (12 scores). A more detailed analysis by performance indicator shows some areas that account for this situation: Tanzania and Burkina Faso (comprehensiveness of information included in the budget documentation; recording and management of Treasury balances, the debt and guarantees; quality and timeliness of in-year budget reporting; quality and timeliness of annual financial statements); Burkina Faso (budget classification; transparency of inter-governmental fiscal relations); and Ghana (public access to key fiscal information; scope, nature and follow-up of external audit; legislative scrutiny of external audit reports). 4.7. The review noted significant training needs and high expectations in this area in all of the administrations. These needs were expressed by general managers as well as executive staff and workers. With the exception of the General Directorate of Financial Inspectorate (DGIF), the General Directorate of Financial Control (DGCF) and the Chamber of Accounts, the lack of training is aggravated by a lack of manuals of procedure. Moreover, there is a lack of computer equipment and half of the staff in the various departments has never used such tools. Meeting these training needs should be backed by a recruitment policy based on the WAEMU provisions on the harmonized wage bill, and bear in mind that the age profile of the current workforce is high and this will pose serious problems of renewal in the coming years. 17 See the update No. 2 in Annex 8 regarding the recent establishment of the Court of Accounts.. - 64 - Table 4.2 : Comparison by country – Summary of PEFA scores Number of Mali Burkina Benin Niger Ghana Tanzania Performance (October 2007) Faso (September (Dec. 2008) (June 2006) (June Indicators (April 2007) 2007) 2006) A. PUBLIC 1A 2A 1A 1A 3A FINANCIAL 4 MANAGEMENT 2B 2B 1 B+, 1 B OUT-TURNS: 1C 1 C+, 1 C 1C Credibility of budget 1 D+ 1D 1D+, 1D 1D 1D B. KEY CROSS- 3A 1A 1A CUTTING ISSUES: 6 Comprehensiveness 2B+ 1B+ 2B 2B and Transparency 1 C+, 2 C▲, 3 C 1C 3C 1C+,2C, 3C 3C 3 D+ 1D+, 1D C. BUDGET CYCLE C (i) Policy-based 2 2B 1B+, 1B 1 B+ 1B 2B budgeting 1 C+ 1C+, 1C 1C C (ii) 1 B+ 1B 1B 1B 2B 1 B+, 2 B 9 3 C+, 2 C Predictability and 3 C+, 4 C 3C+, 1C 3 C+, 2 C 3 D+ 1 C+, 4 C 3 C+, 2 C control of budget execution 1 D+ 4D+ 2D+, 1 D 1 D+, 1 NS 1D C (iii) Accounting, 2B+ 3B recording and 4 1 C+ reporting 1 C+, 1 C 1C 2C 1 D+, 2 2 C+, 1 C 1C 2 D+ 1D 1 D+, 1 D D 1D C (iv) External 1 B+ 1B+ scrutiny and audit 3 1C+ 1 C+ 2C+ 3 C+ 1 C+, 1 C 2D 1D+ 2D 1D 1 D+ 1A 5A 1A 2A 4A 1B+, 1B 28 2B+, 4B 6B+, 2B 1B+, 3B 8C+, 6C 1B+, 6B 1B+, 9B TOTAL 5C+, 2C▲, 8C 4C+, 4C 6C+, 8C 6D+, 5D 6C+, 9C 4C+, 7C 4D+, 2D 5D+, 2D 6D+, 4D 1D+, 2D 1D+, 2D 1NS Number of scores 12 17 10 11 15 18 at C+ or above D. Donor Practices 1A 1A 3 1C+ 1C+, 1C 1C 1 D+, 1 D 1 C+, 1 C 2C 1 D+, 2 D 1 D+, 1 D 1D Source: Reports published on the website www.PEFA.org, except for Niger. - 65 - C. LEGAL AND INSTITUTIONAL FRAMEWORK Description and Assessment of Current Situation Legal Framework 4.8. The legal framework of the Public Financial Management System of Niger consists of: (i) the July 18, 1999 Constitution, (ii) the organic law on the budget laws No. 2033-11 of April 1, 2003 establishing rules for the preparation and passing of budget laws, their execution as well as control and setting out provisions on the presentation of the budget execution review laws, (iii) Decree No. 2002-196 of July 26, 2002 on public accounting regulations, and (iv) Decree No. 2002-197 of July 26, 2002 on the Government budget classification. 4.9. Except for the Constitution, these major legislative texts constitute a transposition of the Directives of the harmonized public financial framework of the West African Economic and Monetary Union and therefore their integration into the internal law of Niger. Institutional Framework 4.10. The budgetary management system is based on a fundamental principle of separation of duties between credit managers and the accountants. 4.11. The Minister of Economy and Finance is the sole credit manager (ordonnateur principal unique) of Government budget expenditures and revenues, supplementary budget and special Treasury accounts. This reduces the autonomy of sectoral ministers and affects the quality of expenditures. With the exception of the public debt and salaries, ministers have the initiative for the expenditures of their departments and are, in this regard, managers of credits assigned to them by the budget laws. The Government is represented at regional levels by secondary credit managers (ordonnateurs secondaires). They order the execution of expenditures on delegated appropriations. It must be noted that these rules have been revised in June 2009 at the WAEMU level and the Directive provides more autonomy to line ministries by abolishing the Ordonnateur Unique. However, strong political commitment is needed for implementing this Directive in Niger. . 4.12. Only public accountants are empowered to undertake (i) the reception and cashing in of revenues, (ii) recording and payment of expenditures, (iii) keeping of Government accounts, and (iv) establishment of end-year management accounts. 4.13. The MEF coordinates the various stages of budget preparation. It conducts budgetary conferences and makes arbitrations. Where necessary, it resorts to the Prime Minister for arbitration. It approves budgetary documents and consolidates them in budget estimates that are subsequently submitted to the Council of Ministers. Following the passing of the budget law by the Government, it finalizes and edits the various documents to be tabled before the National Assembly. 4.14. Depending on the regulations, expenditure execution is in the form of a four-phase procedure: commitment, liquidation, order to pay and payment or a simplified procedure called - 66 - “without prior payment order� in which the commitment and order to pay phases are executed concomitantly. 4.15. The legislation provides that: (i) the DGCF is responsible for ex-ante control of budget expenditures for the Government and national public establishments (EPN), as well as the public accountants; and (ii) Government financial and fiscal operations undergo ex-post controls by the internal entities, the DGIF, the General Inspectorate of the Treasury, the General Public Inspectorate (IGE) and the control structures of ministries and by an external entity namely the Chamber of Accounts of the Supreme Court. Lastly, the National Assembly exercises control through the scrutiny and passing of the budget law and budget execution review laws. 4.16. Responsibility for the management of the Government assets lies with (i) the Treasury in matters concerning the Treasury, (ii) the General Directorate of the Public Assets (Direction Générale du Patrimoine de l’État - DGPE) for fixed assets (buildings, material and furniture), (iii) spending entities and the directorate of public portfolio in their respective areas covering some specific items (fuel, supplies, etc.) and shares as well as other Government investments in public enterprises (EPIC), and semi-public enterprises. Strengths 4.17. Niger has a comprehensive and sufficient body of regulations to ensure sound public financial management. The core legislative instruments are now in line with the 1997-2000 WAEMU Directives. Only few instruments needed for the normal operation of the services are lacking. This is the case of the instrument defining the functions of the Payroll Directorate (DS). Furthermore, instruments relating to material accounting must be updated in order to create an efficient framework for the use of resources. It must be noted that the WAEMU Directives have been revised in June 2009 and WAEMU member countries are given several years before the new directives will be fully implemented. Table 4.3 : Status of implementation of the WAEMU Financial Directives WAEMU Financial Directives Transposition in the Nigerien Legal Framework Directive 05/97 on budget laws Yes Directive 06/97 on General Public Accounting Regulation Yes Directive 04/98 on budget classification Yes Directive 05/98 on Government Accounting Plan Yes Directive 06/98 on the Government’s Table of Financial Operations (TOFE) No Directive 02/2000 on the Code of Transparency in public financial management Yes Source: Nigerien Authorities. 4.18. The institutional framework has been reformed significantly since 2004. This relates to the organizational reform of the MEF as well as the transformation of the Chamber of Accounts into a Court of Accounts. The organizational reform of the MEF had been recommended in the PEMFAR I report in order to improve the overall consistency of its action and the effectiveness of budget preparation and execution, to enable the timely production of accounting data and to optimize the use of human resources. The transformation of the Chamber of Accounts has been recommended by the WAEMU to its Member-States to enable them have an independent and therefore more effective structure. - 67 - 4.19. The institutional framework contains structures required for an efficient management of public finances. As defined in the regulations, the institutional framework now addresses needs in relation to budget preparation and execution as well as control. The following analysis shows that, subject to a few improvements, the managerial problems identified relate more to the lack of capacities and inadequate practices than poor organization. Weaknesses 4.20. The Public Treasury Reform has not been implemented. The new structure of Treasury services was established by a decree in 2006. The reform entailed the separation of normative from accounting functions. A General Directorate of Treasury and Public Accounting (DGTCP) was created to conduct normative functions. In replacement of the General Treasury of Niger (TGN) and to cater for the accounting function, the deputy general director of DGTCP and the managers of the Central Accounts Agency of the Treasury (ACCT), the Treasury General Pay Office (PGT) and the Treasury General Revenue (RGT) department were appointed but their structures have yet to be operationalized. This reform, whose implementation is much awaited by its executives and workers, will provide an opportunity to strengthen this administration which, as will be discussed later, currently does not fully play its role.18 4.21. Although the Court of Accounts has been established by law, it has not been made operational. As will be reported below, the Chamber of Accounts was transformed into a Court of Accounts following the amendment of the Constitution and by a law in 2007. But, despite this, the structure has not yet been put in place.19 4.22. The new functions of the Payroll Directorate (DS) have not been formalized. The Payroll Directorate which was previously dependent on the Payment Order Directorate (DO) is now attached to the DGB. Its positioning at the DO appeared to be unduly restrictive. Indeed, the DS operates not only at the budget execution stage, but also, at least in theory, at that of forecasting. In practice, it was only in the preparation of the 2009 budget that its services were requested. Moreover, it has to deal with increasing legal problems related to personnel management. Although a direct product of the recent MEF reform, this Directorate has not yet been formally established since the legal instrument defining its powers has not been passed. Hence, it is still operating on the basis of the old regulations and with staff inadequately trained in performing its new functions. 4.23. The institutional anchor of the Public Portfolio Directorate has not yet been defined. The organizational chart emerging from the most recent restructuring of the MEF did not highlight this Directorate which was previously located at the DGPE.20 4.24. Some practices restrain the impact of regulatory instruments. The new regulatory instruments put in place in 2002 and 2003 helped bolster principles of fiscal legislation which are shared and recognized internationally. However, some practices are restraining their impact. This is the case for example of the excessive use of public expenditure exemptions, violations of 18 See the update No. 1 in Annex 8 regarding Treasury reform. 19 See the update No. 2 in Annex 8 regarding the establishment of the Court of Accounts. 20 See the update No. 11 in Annex 8 regarding the recent determination of the organizational location of the Public Portfolio Directorate. - 68 - the principle of fair representation of the government accounting, as well as the disregarding of the multi-year nature of some expenditure. 4.25. Ministers are not sufficiently autonomous. As indicated above, the General Public Accounting Regulations (RGCP) of 2002 stipulates that the MEF is the sole credit manager for the Government’s fiscal revenue and expenditure, supplementary budgets and special accounts of the Treasury. Thus, Ministers do not enjoy any autonomy enabling them to commit their expenditures and in fact it is the DGB, through the DO, and when the pilot computer room is operational, through the Financial Controllers, who legally commit the Government. This situation disempowers and demotivates the ministers, thereby adversely affecting the quality of the expenditure. Moreover, it is all the more constraining as the Government has the intention of developing the medium term expenditure frameworks (MTEFs), which will imply greater autonomy of the sectoral Ministries. Financial Risks 4.26. The delayed establishment of new structures of the Treasury could prevent the latter from fully playing its role within the MEF, namely keeping the accounts and managing the Government’s finances. This institutional weakness seriously contributes to maintaining a high financial risk related to the management of Government funds. This has resulted in the poor performances, namely D, D, D+ and C+ that have been assigned to the PEFA PI-22, PI-23, PI-24 indicators respectively, and to a lesser extent PI-25. In contrast, it has little impact on Government financial management (score B for PI-17 / component ii). 4.27. Maintaining the Chamber of Accounts in its current legal status could adversely affect the increased powers of the Court of Accounts, notably because of inadequate staffing and insufficient independence.21 This institutional situation results in the persistence of a high level detection risk. The PEFA score D of PI-26 is a reflection of this. The risks relate to financial and accounting information and the use of Government resources. 4.28. The level of financial risk, which is a fiscal risk attributable to public enterprises, is modest given that the score for the PEFA PI-9/component (i) is C. This risk could be reduced if the institutional anchor of the Public Portfolio Directorate was identified to ensure an adequate supervision. Recommendations In the short term - Put in place the new structures of the Treasury (DGTCP, ACCT, PGT and RGT). - Establish the Court of Accounts by ensuring its independence from the Supreme Court and operationalize it by appointing judges and assigning adequate human, material and financial resources. - Formalize, through a regulatory instrument, the new powers of the Payroll Directorate. 21 See the update No. 2 in Annex 8 regarding the recent establishment of the Court of Accounts. - 69 - - Restore and define the institutional anchor of the Public Portfolio Directorate in the Government’s organization chart. In the medium term - Give line Ministries and other spending entities the status of payment authorization bodies to empower them to improve the quality of expenditure. - Adopt an action plan to integrate the provisions of the WAEMU revised guidelines into the country’s regulations on public finance. D. BUDGET CREDIBILITY, COMPREHENSIVENESS AND TRANSPARENCY AND POLICY-BASED BUDGETING Description and Assessment of Current Situation Budget Credibility 4.29. The analysis of budget credibility consists in determining whether the budget is realistic, both in terms of revenues and expenditures, and if it is executed as planned. Hence, it is based on a comparative study of revenue estimates and corresponding out-turns, as well as expenditure estimates and out-turns,22 captured in aggregate and by ministry. It also determines the existence of payment arrears and their evolution over time. Strengths 4.30. The composition of expenditure out-turns is close to that of the originally approved budget. This indicator assesses the extent to which, over the last three years, the variance in primary expenditure (the sum of the absolute values of variances) at the ministry level exceeded the total variance of primary expenditures at the aggregate level. This variation was only 1.51 percent in 2004, 0.86 percent in 2005 and 0.34 percent in 2006. In 2007 and 2008, it was also only 0.35 percent and 0.09 percent, respectively. This means that reallocations between budgetary items at ministry level contributed to the variation in the composition of expenditures in a scale comparable to the variations associated to modifications in the aggregate level of expenditures. 4.31. The accounting system monitors the outstanding payments and therefore debts owed to Government suppliers. The Government accounting plan is based on the principle accrual basis of accounting, which establishes that expenditures should be recorded as soon as rights have been certified. In practice, recording is made when the payment order is issued by the DO, meaning that there is a time-lag in relation to the moment when the rights have been certified. This means that the outstanding payments are reflected at any time in the Treasury accounts, specifically in Account 40 “in-year ordinary claims�. Hence, this account provides comprehensive information on the debts owed to Government suppliers, provided that for the entire committed expenditures, of which execution has been completed, a payment order has 22 The amounts of expenditure out-turns used in this report are all on a payment order basis. - 70 - been authorized. Indeed, the accounting system can only trace elements introduced into it and the existence of expenditures awaiting orders to pay would affect its comprehensiveness. Weaknesses 4.32. The level of aggregate expenditure out-turns differs considerably from the originally approved budget. During the fiscal years 2004-2006, actual expenditures fell short of voted allocations by 12.34 percent in 2004, 12.71 percent in 2005 and 20.84 percent in 2006.23 It is worth noting that the rate of expenditure execution deteriorated over the 2004-2006 period. Expenditure out-turns in 2007 and 2008 were 22.9 and 17.5 percent lower, respectively, than the budget originally approved.24 This is due to important revenue shortfalls in the period 2004-2006 and considerable under spending on subsidies (food security) and investment in priority sectors during 2007-2008. 4.33. The level of domestic revenues collected in relation to the budget estimates is low and the mobilization of tax revenues is well below the WAEMU convergence criteria. 25 In 2004, revenues collected represented only 84.62 percent of the projections, in 2005 83.46 percent and in 2006 86.92 percent. In recent years, performance has improved. In 2007 and 2008, domestic revenues collected represented 103.0 percent and 93.3 percent of the voted projections. The level of actual tax revenue, in absolute terms, has grown in recent years with its ratio to GDP increasing from 9.9 percent in 2003 to 11.7 percent in 2008. It must be noted that the low tax ratio to GDP in 2008 is well below the WAEMU convergence criteria which calls for a ratio equal or higher than 17 percent of GDP. As indicated in chapter 2, the main factors contributing to this weak revenue performance are defiscalization of the primary sector in the seventies, adverse fiscal impact of trade liberalization in the eighties, economic recession in the eighties and nineties, and limited success of the VAT. The DGI is stepping up efforts to register tax payers, notably during the informal sector business tax registration exercise. 4.34. The stock of arrears is very high. According to the WAEMU criteria, arrears are constituted by expenditures received by the Treasury and not paid within 90 days after the date of the order to pay. Niger has benefited from the Heavily Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI) and currently has no external arrears. The domestic debt covers two periods, namely pre and post 1999.  The pre-1999 domestic debt amounted to CFAF 295 billion as of 12/31/1999. Its administration has been entrusted to the Center Autonome d’Apurement de la Dette Intérieure de l’Etat (CAADIE), an organization created in 2000 and an offshoot of the MEF. Following an audit conducted by a committee, as of 12/31/2005 the CAADIE debt stock stood at CFAF 172 billion. As of 07/31/2008, it stood at CFAF 159 billion, about 6.6 percent of the 2008 GDP and 27.3 percent of voted total budgetary expenditures. The bulk of the arrears concerns claims by the BCEAO, the National Social Security Fund, commercial banks and suppliers. Wage arrears have been cleared. 23 Based on the budget execution review laws passed by Parliament. 24 Based on the 2007 and 2008 credit statements and the execution of the 2007 and 2008 capital budget. 25 See the update No. 3 in Annex 8 regarding the recent evolution of revenue. - 71 -  With regard to the post-1999 period, the Treasury indicated that outstanding payments amounted to CFAF 10.8 billion for the 2004 – 2007 period, excluding expenditures possibly committed but not yet authorized that would have to be added to this debt. As for 2008, the provisional balance as of December 31, 2008 indicates outstanding orders of CFAF 12.7 billion yet to be paid under Account 40 « in-year ordinary claims ». However, the amount of these outstanding payments undoubtedly does not only correspond to arrears since some debts were apparently recorded by the Treasury less than 3 months ago. In total, post-1999 arrears represent approximately 1 percent of the 2008 GDP and 4.0 percent of voted total budgetary expenditures. Budget Comprehensiveness Strengths 4.35. The budget classification is in line with WAEMU standards. The Government’s budget classification was revised in 2002 to adapt it to the WAEMU Directive. It is now complete and has all the characteristics of a modern budget classification. Indeed, it contains 5 types of classification: economic (nature of revenues and expenditures), administrative (Ministries, internal structures or investment programs26), geographic, by type of financing and by sector. While the classification by sector is still not compliant with the COFOG functional classification, it can be matched through a bridge table. Lastly, it is worth noting that the budget classification also allows monitoring investment projects and programs, through the use of the administrative and functional classifications which make possible mainly the monitoring of sectoral programs in terms of activities but is not used for budget preparation and execution. However as highlighted below, a new Directive is in force since June 2009. 4.36. Overall, the budget classification system is consistent with the Government accounting plan. The system in place in Niger is based on a double classification: budgetary classification and the accounting plan. The two classifications were designed simultaneously and are totally consistent, with the classification by nature or economic aspect of the budgetary classification being identical to that of the accounting plan. This feature facilitates an easy comparison between budgetary and accounting operations. Weaknesses 4.37. The presentation of budget documentation needs to be improved. The 2008 budget documentation comprises the draft law, the Minister of Finance presentation report, the annexes as well as the last available budget execution review law. Macroeconomic assumptions are presented and the explanatory statement contains a summary of the economic situation of Niger and the expected trend. However, the following elements are lacking: presentation of the budget deficit, sufficiently detailed presentation of the financing of the deficit, amount of the debt stock, amount of financial assets, status of execution of the previous budget, detailed status of execution of the previous year budget presented in the same format as the budget estimate, summary tables and lastly, impact analysis of fiscal measures. 26 Inclusion in the administrative category of both administrative structures and investment programs is not logical due to the difference in the nature of these two types of classification. - 72 - 4.38. The budget lacks comprehensiveness. With regard to domestic resources, some revenues are not paid into the Treasury’s account. These include revenues collected by some EPNs (such as hospitals, national radio). Also, the budget does not reflect all the externally- funded operations. For projects whose agreements have been signed, the Commissioner in charge of Development (CCD) prepares on an annual basis disbursement projections in consultation with donors represented locally and technical Ministries. Financing which is not accounted for relates to projects whose agreements were signed after the tabling of the draft budget law, small projects financed by embassies, decentralized aid and emergency aid. The CCD estimates that 80 percent of the revenues and expenditures of projects are included in the budget reports (budget law, periodic reports and budget execution review law). This amount covers all loans and more than half of grants. 4.39. The rule of recording transactions in the fiscal year they belong in is not always respected. In this regard, an amount of CFAF 115 billion was received in June 2008, corresponding to a payment by China related to a mining permit. The corresponding amount was partially used in 2008, but this exceptional income was captured only in the 2009 budget. Budget Transparency Strengths 4.40. Territorial communities have tax resources whose allocation rules are known. Territorial communities comprise 265 communes and 4 urban communities. They receive a refund on the proceeds of three local taxes namely the business tax, licenses and property tax. 4.41. Territorial communities cannot make commitments resulting in liabilities for the central administration. The General Inspectorate of Territorial Administration is responsible for controlling the management of territorial communities. In practice, this control is limited. However, the territorial communities do not represent a financial risk to the central administration. Since the closure of the Fund to provide loans to local governments, these no longer have access to credit. Weaknesses 4.42. In the absence of an allocation mechanism, the territorial communities do not benefit from transfers from the central government. Concerning the financial regime of territorial communities, the decentralization law defines subsidies to territorial communities through a decentralization support fund (operation) and an equalization fund. However, it does not define the allocation criteria. The 2007, 2008 and 2009 budget laws contained a line item for those subsidies to the tune of CFAF 1 billion, which were not paid due to the lack of an allocation mechanism. Similarly, Article 95 of the 1993 mining law provides that 15 percent of mining revenues should be paid to territorial communities of the concerned region. The allocation modalities have been defined by the Decree No.2006-265 of August 18, 2006 and the funds, for the first time, were released to the northern territorial communities in 2009. 4.43. The consolidation at the central level of fiscal data of territorial communities is only partial. The revenues and expenditures of the communes are centralized by the Ministry of - 73 - Interior which consolidates them in accordance with the accounting plan of the local authorities. In 2005 the Directorate of Local Finance of the Ministry of Interior received 137 municipal accounts. For each commune, the budget execution data is presented in the form of detailed and aggregated formats complemented with various ratios (self financing, net savings, investment capacity, financing capacity, etc). For 2007, the Ministry recorded the budget estimates of 265 territorial communities of which only 153 presented their accounts to the central authorities, corresponding to 57 percent of the total and representing 67.9 percent of total financial flow. According to the regulations, the management accounts of the accountants of the local communities must be sent to the Chamber of Accounts for review. This legal requirement has not yet been met. 4.44. Most autonomous public agencies and public enterprises present annual accounts but there is no consolidated statement of fiscal risks. The central administration conducts controls of public establishments and enterprises. This primarily entails an ex-ante control by the DGCF of their expenditures. Equally, top officials of the various ministries serve on the boards of directors. All public enterprises close their end-of-year accounts albeit sometimes belatedly. The management accounts of public administrative establishments, for which the TGN is accountable, are submitted to the Chamber of Accounts for decision. However, neither the MEF, nor the Ministry of Promotion of Young Entrepreneurs and Reform of Public Enterprises has recent data on the number and accounts of public establishments and enterprises. Information concerning these structures is therefore not consolidated. 4.45. Public Access to fiscal information is limited. Access by the public to budget information is limited and there is no written information in local languages. Radio broadcast on the subject is limited. The website of the Office of the President of the Republic of Niger does not contain information on the budget and the MEF does not have a website. Although the awards of public tenders based on competitive bidding in excess of the ceilings set (CFAF 25 to 50 million, according to the nature of the contracts) are published in the Journal of the Public Procurement Regulatory Agency (ARMP), the following fiscal information is not published: (i) annual budget documentation, (ii) in-year budget execution report, (iii) end-year financial statements, (iv) control reports by entities responsible for external auditing and (v) information on the release of budget credits to basic service delivery units. Policy-Based Budgeting Strengths 4.46. Budget preparation is clearly formalized. Decree No. 2003 – 243/PRN/MEF of September 30, 2003 defines the process to prepare the annual budget. Notably, it sets a timetable, which is given in Annex 5. A circular letter is issued for each period. This helps to fine-tune the timetable and propose resource envelopes to the various spending units. However, significant delays have taken place in the implementation of the timetable during the last two years. 4.47. The budget law is passed prior to the beginning of the fiscal year. In the last four exercises, the dates for approval of the budget by the National Assembly were November 15, 2005 for the 2006 period, November 21, 2006 for the 2007 period, December 10, 2007 for the 2008 period and November 28, 2008 for the 2009 period. - 74 - 4.48. The Debt Directorate conducts domestic and external debt sustainability analyses. Since 2007, the Debt Directorate has been preparing a debt sustainability analysis twice a year. The analysis is based on the DEBT-PRO software, with the debt itself being monitored through the CDSRMS software. These analyses are considered to be pertinent and are used by the decision-makers. Weaknesses 4.49. Time given to Ministries, Departments and Agencies (MDAs) to prepare the budget is not sufficient. The Decree fixes a period of one month. The period fixed in the circular letter which sets ceilings was only 8 days in 2007 and 2008. For the 2009 budget, the circular letter dated August 1, 2008 sets the initial budget discussions for August 8. As a result, the time allowed to ministries does not enable them to undertake an in-depth analysis of their budgets. 4.50. Preparation of the current and investment budgets are still distinct processes. The DGB was entrusted with the preparation of the entire budget on the basis of new regulations, but the investment and operating budgets are still prepared in a non-integrated manner, reflecting the traditional separation of the Ministries of Finance and Planning. 4.51. Involvement of ministries in budget preparation is insufficient. Current budget proposals tabled by ministries do not sufficiently take into account budgetary constraints. With regard to investments, the consequence of the lack of a medium term outlook and of a macroeconomic framework at the sectoral level leads to choices that reflect mostly the objectives of donors. It should be noted that a national inventory of investment projects is not available. Priority sectors (health, education and rural sectors), which correspond to nearly 40 percent of primary expenditures, prepare quantified sectoral strategies and MTEFs, but the latter presents significant financing discrepancies with the budget data. Financial Risks 4.52. The building up of new payment arrears affects the credibility of the system and delays Niger’s return to a sound public financial situation. The level of financial risk is substantial. The score D for the PEFA PI-4 component (i) is a reflection of this. 4.53. The lack of budgeting of part of the Government resources has a direct impact on the total amount of resources allocated to the various sectors. The level of the financial risk is relatively low as the score A of PEFA PI-7/component (i) indicates. 4.54. The lack of an allocation mechanism for Government transfers to territorial communities represents a major risk for their development. The level of the financial risk is high and is reflected by the D score of PEFA PI-8/component (i). 4.55. The lack of supervision of autonomous public agencies and public enterprises could make this sector vulnerable to embezzlement and misappropriation. The level of financial risk is average. This accounts for the C score of PEFA PI-9/component (i). - 75 - 4.56. The low public access to fiscal information does not enable it to monitor the use of public resources. The level of financial risk of insufficient citizen control is modest. This can be seen with the C score of PI-10. Recommendations In the short term - Reduce the gap between voted and actual domestic revenues to less than six percent and improve the ratio of tax revenues to GDP by implementing the DGD and DGI action plan to make progress towards meeting the WAEMU criteria. Reduce the stock of domestic payment arrears to between 2-10 percent of total primary expenditures. - Improve the presentation of the budget document as per PEFA guidelines. - Make an inventory of revenues received by ministries and not paid into the Treasury account, include them in the budget and take steps to ensure their payment into public accounts. Adopt measures to expand integration of external financing (revenues and expenditures) into the budget. - Comply with the rule of recording operations into their relevant fiscal year. - Improve public access to fiscal information, as per PEFA guidelines, namely by posting it in the planned MEF website. In the medium term - Strengthen human resources in DGD and DGI in order to improve revenue collection and compliance with tax and customs rules. - Define the allocation mechanism for Government transfers to territorial communities. - Improve to 75 percent (in value) the centralization of information on the execution of territorial communities’ budgets and ensure its consolidation into an annual report to be publicly disclosed within 18 months after the end of the fiscal year. - Strengthen the supervision of autonomous public agencies and public enterprises by conducting an audit of EPAs and EPICs regarding collection and use of fees and adopting financial reporting norms to government as condition to grant them public subsidies. - Facilitate budget preparation by ministries by extending the timeline (to at least 4 weeks after budget ceilings are defined) to prepare their proposals and involving them in the process of simultaneous preparation of current and investment budget estimates. E. ACCOUNTING, RECORDING AND REPORTING Description and Assessment of Current Situation 4.57. In addition to relevant regulatory instruments (Decree No. 2002-196 of July 26, 2002 regulating public accounting and Decree No 2002-197 of July 26, 2002 on Government budget classification), the Nigerien accounting system is based on modern tools: the Government budget classification and accounting plan, as well as the “Budget� computer application for managing the expenditure chain and the “Treasury� application for keeping - 76 - Treasury accounts. The system of budget classification is coherent, since it was designed to ensure consistency with the accounting plan with regard to the classification by nature. Strengths 4.58. MEF has a Financial IT Directorate (DIF). The purpose of the DIF is to manage all the MEF systems and applications. However, the DGI and the DGD have their own IT structures for which the DIF only plays a supportive role. The DIF has 8 staff, including 5 engineers and 1 programmer. The sharp rise in IT demand makes this number insufficient. The Director recently estimated the ideal number to be 20 workers. Despite this constraint, the DIF represents a vital asset in the process of maintenance of equipment and IT applications. 4.59. The “Budget� application is well designed. The former information system for managing the expenditure chain was based on an application dating from the 1970s. The new application was developed in 2000, with Oracle, by a local developer, who also designed the Government payroll and accounting applications. The DIF is responsible for the maintenance of the software. The “Budget� application prevents overspending, by blocking credit utilization. In addition, it helps to ascertain whether the Government creditors are registered with tax identification numbers (NIF). It also helps prevent double payments. Timelines are managed and it is possible to retrieve data on specific dates. The application allows preparing, among others, the monthly report on budget execution. It is worth noting that a fiber optic network has been installed in the entire city of Niamey. When this network becomes operational, it should be protected since it constitutes a highly valuable asset for linking the various applications. 4.60. The “Treasury� application is also well designed. With regard to the Treasury, the Government accounting system has been computerized both for the general accounting and auxiliary accounting. This application is well designed and sufficiently known by the relevant TGN units. Regional Treasuries have been equipped since 2004, but exchanges with the TGN are still conducted by diskettes. Revenue collection at local level has not been computerized. 4.61. The revenue administrations have their own computer tools. The DGD uses the SYDONIA++ application at both central and regional levels. The computer network linking regional services and the capital is undergoing installation. The DGI on the other hand uses several applications. These are: NIF for monitoring Government creditors, Large Enterprises Directorate (DGE) and Small and Medium Scale Enterprises Directorate (DPME) for the monitoring of taxes. A network is being put in place in Niamey. A project, which aims at merging all these applications into a single application, is undergoing a study. 4.62. A computer application for monitoring external financing is under study. There is also a project for the design and development of an application to monitor projects and therefore externally financed expenditures which will be eventually linked to the “Budget� application. 4.63. A computer master plan has been formulated. This plan defines the major guidelines of the information system and provides an overview of the various information sources. It has reviewed the current systems and defined the normative framework and architecture of sub- systems (Budget, Customs, Treasury and Taxes) as part of an integrated information system as - 77 - well as infrastructure (networks, servers, security and projects). It also provides for an email system and web infrastructure at the MEF. This master plan could be usefully updated. 4.64. The IT system in place makes it possible to prepare regular reports on the budget execution and accounting. Information on budget expenditure execution is provided in real time, at the commitment and payment order stages. The level of provisional imputation accounts at the Treasury, such as the one for expenditures paid from non-regularized advances, is available in real time on the TGNs computer system. Information on revenues collected is available at the end of the month following their collection. The treasury balance is prepared monthly, on the 15 of the following month. The IT system in place therefore appears to be a comprehensive tool. 4.65. The procedure for establishing and executing delegated appropriations is clear. Delegated appropriations apply to expenditures in the regions. They concern current expenditures as well as domestically funded investment expenditures. The procedure is as follows: (i) following the initiative of the Commitment Directorate, a commitment order is established. The effect of this action is to freeze credits; (ii) subsequently, an authorization is established through delegation of credits and by nature of expenditure and sent to the sub- payment authorization center; (iii) upon reception of this document, a copy is sent to the spending unit, and another one to the Treasury Accountant and one remains at the center; (iv) then the beneficiary department presents a commitment proposal to the Treasury, which in this regard plays the role of Financial Controller; (v) after the execution of the order, the spending department carries out an inspection of the service rendered, addresses the service rendered attestation to the sub-payment authorization center which then issues the payment order; and (vi) the payment order is sent to the Regional Treasurer or to the local Tax Collector who conducts the relevant controls and payments. Execution of expenditures with delegated appropriations is done locally, which helps support the local economy. Public procurement is also handled at the regional level. 4.66. The pilot computer room is operational since January 2009. The Ministries of Education and Public Health have fully executed their 2009 budgets from that room. In a second phase, use of the pilot computer room was rolled out to several more ministries (Ministry of Economy and Finance, Ministry of Interior, ...). A third wave covered ministries of the rural sector (Ministry of Agricultural Development, Ministry of Livestock and Animal Industries, Ministry of Water Resources, Ministry of Planning and Community Development) who have started using the pilot room for the computerized execution of expenses. Finally, the last wave that included all other ministries and institutions, was rolled out in late 2009. The mission was given a demonstration of the “budget� computer application, which can be used in the pilot room. This demonstration clearly showed that the commitment process will now completely bypass the DO and therefore put an end to its controls which were redundant with those of financial control, since the payment order system is centralized. Pending the installation of computer equipment linked to the central server in each spending entity, which is scheduled for January 2010, the temporary use of the pilot room should last only one year. - 78 - Weaknesses 4.67. The Treasury services do not fully play their role. The weakness of this administration is evidenced namely by keeping incomplete accounts: i. The Treasury balance does not contain balances brought forward from the previous periods. The problem of opening balances of the Treasury dates from 1996, a period of great political instability. A clearance agreement was signed in 2002 between the Prime Minister, the President of the National Assembly and the President of the Supreme Court, under the auspices of the President of the Republic. A committee responsible for making the operational proposals was created by decree to clear the accounts. This committee established the situation at end 1996 to be used as the opening balance for January 1, 1997 and prepared an Amnesty Bill which has not been passed. As a result, the TGN prepared opening balances for the 1998 to 2006 management exercises, but in view of the doubt about their content, it has been presenting annual balance without opening balances for the previous years, which renders third party and financial accounts irrelevant. The inconvenience of this situation is that the absence of reporting concerns not only opening balances from the controversial period, but also more recent opening balances, that are supposed to contain certified operations.27 ii. The patrimonial situation is not monitored. Budget revenue and expenditure operations are recorded on a day-to-day basis in the class 9 Account, which, in theory must be balanced at the end of the management period by allocations in patrimonial accounts class 1 (permanent accounts) and class 2 (fixed assets), as well as accounts for classes 6 (costs) and 7 (proceeds). In practice, this complex operation also referred to “reflection� operation, is not undertaken by the Treasury. Similarly, the debt is only tracked for annual capital and interest payments. It is worth noting that, the TGN does not have data on the debt stock, since its IT system is not interfaced with the Debt Directorate. iii. The Treasury balance is used to feed some items of the TOFE in what concerns the budget execution. But it is not used to monitor cash flows for lack of credibility. 4.68. The Government accounting system follows regional standards, but not all the accounting principles are observed. The accounting system is based on accounting standards established in the WAEMU Directive on the government accounting plan. However, not all the accounting principles are observed and a new directive was also approved in June 2009. In this regard, a review of monthly balances shows that some suspense accounts contain sizeable balances which have not been systematically cleared. 4.69. Weekly cash flow forecast does not cover all the available financing. As indicated above, although cash flow monitoring is based on a proven method, not all available resources are taken into account. Thus, the table shown to the review team did not include the balance of comptes de chèques postaux (CCP). No explanation was provided for this practice. 27 See the update No. 3 in Annex 8 regarding the recent progress with regard to opening balances. - 79 - 4.70. The TGN accounting units undertake complete bank reconciliations only once, at the end of the year. Reconciliations between accounting entries and the balance of the Treasury accounts is conducted on a monthly basis in the regional pay offices. On the other hand, at the central level, complete reconciliation is undertaken only at the end of the year, as part of the preparation of the management accounts or drafting of the budget execution review law. This delay leads to considerable discrepancies that have accumulated since the beginning of the period. Accounts that are not managed by the Treasury and opened in the name of projects are reconciled by the Directorate of Investment Financing (DFI) at each request for replenishment, that is to say, on average, each quarter. 4.71. Some non-tax revenues are not entered into the accounts. The Nigerien Government has fixed assets that it rents. An effective monitoring of the proceeds from the rentals helps to identify at any time the list and the total sums owed and not received. However, lack of issuance of revenue collection orders does not make it possible to record sums that are owed and to monitor the amounts not received. 4.72. Monitoring of suspense and advance accounts is inadequate. On a monthly basis, the TGN regularizes suspense transactions for which it holds supporting documents without prior reconciliation or adjustment with the departments concerned: DO, DGI and DGD. The reconciliation and clearance of suspense and advance account balances are conducted not on a monthly basis, but annually as part of the preparation of management accounts with delays exceeding six months. Some accounts show balances brought forward from several years and which may contain expenditures paid in advance without available credit. For example, in the balance of December 31, 2007, the 470 accounts “expenditures paid without prior payment authorization – to be regularized� show a balance of CFAF 100.6 billion and the 474 accounts “provisional allocation of delegated credits� a balance of CFAF 9.2 billion. 4.73. The delegated credit procedure does not guarantee that local services have sufficient budgetary credits. The budget contains specific delegated credit lines only for some ministries (Education, Health, Justice, Interior, Mines and Culture). The others prefer to maintain aggregated lines, thereby ensuring some latitude in their distribution. It is not certain that local services of this second category of ministries receive sufficient budgetary credits to meet their needs. 4.74. The centralization of accounting entries and supporting documents of expenditures on operations at the decentralized level takes place with significant delays. The Governor is the Government representative at the regional level and, in this regard, is the credit manager of the Government budget at that level. Also, there is a Regional office of the Treasury and a sub- payment order center for the DGB at that level. Accounting information on the operations of regional tax collectors and Treasurers should be centralized every 10 days and monthly within 5 days after the end of the period. In practice centralization generally takes at least two months. The most frequent reason given is that of the distance of tax offices from their regional treasuries and the regional treasuries from the capital. Supporting documents of expenditures follow the same process and are therefore centralized belatedly. To the extent that information from the sub-payment centers pass through the Treasury, these centralization delays hamper not only the overall view of the in-year general accounting, but also that of the execution of the Government budget at the level of the DGB. - 80 - 4.75. The interfacing between the “Treasury� application and the “Budget� application is not fully operational. The interfacing of the Budget application with the Treasury is operational. In contrast, currently, it is not possible for the “Budget� application to explore information relative to payments contained in the “Treasury� application. Consequently, it is possible to obtain an execution report containing budget estimates, commitments and payment orders but without the payments. According to the DIF, the problem is related to the lack of data on a large number of payments made in the regions what makes this type of editing irrelevant. Accounting data from regional pay offices take a long time to be centralized. But according to the Treasury IT Manager, the key problem is the security of transfer of data between the two applications. 4.76. The interface between other computer applications of the MEF is incomplete. With regard to the other information systems of the MEF, the review noted that despite the significant quality of the applications, their effectiveness is constrained by incomplete interfacing. These relate to: (i) the interface between the DGD and the DGI on the one hand and the Treasury on the other, and, (ii) the condition to first computerize the secondary credit officers, and build the network of the MEF regional systems among themselves and with the central systems. The technical feasibility of a computer link between the regions and the capital has been demonstrated and the cost of the operation would be relatively low. 4.77. The computerized application for the administrative management of assets and monitoring of fixed assets does not exist. The DPE approached the DFI to develop and implement it in view of the absence of accounting of non-financial assets and the weak control of service rendered. 4.78. The budget IT application is underutilized in terms of information on budget execution. The DGB produces notes on the execution of the Government budget supported by reports published from the “Budget� application, albeit not regularly. A copy of these notes was not obtained during the review. This situation shows that, even though the system in place is potentially efficient, it is under-utilized. The main reason is that the demand for information by the various stakeholders is unduly low. 4.79. MEF does not produce a General Account of the Financial Administration. The General Public Accounting Regulations (RGCP) stipulate that the end of year accounts must be captured in a document called the General Account of the Financial Administration (CGAF). This document is not produced and the end-year accounts consist of the TGNs management accounts and a budget execution statement issued by the DGB that serves as an administrative account. The management account contains a general balance of accounts, the breakdown of revenues and expenditures, the breakdown of the Treasury special accounts’ operations and supplementary budgets, as well as the results accounts. 4.80. The closure of the financial year takes place late, which in turn delays the preparation of the draft Budget Execution Review Law. At the time of the field work, February 2009, the year 2007 had not been fully closed and the regularization of accounting operations were still ongoing. The length of the supplementary period, defined as 2-months, is - 81 - therefore not observed.28 The effects of this is to delay the preparation of the draft budget execution law which, according to the organic law on budget laws should be submitted to the Chamber of Accounts within six months following the end of the fiscal year. The Chamber of Accounts has a period of three months, the respect of which would allow the National Assembly to receive the draft budget execution law and accompanying documents at the same time as the draft budget law of the year N+1. In practice, the budget execution bill for 2006 was submitted to the National Assembly 15 months after the end of the period. 4.81. Externally-financed projects are only partially reflected in the public accounts. Externally-funded projects operations are captured after their execution for the purposes of regularization, in the expenditure chain and the accounting system. The DGB issues income and expenditure regularization certificates, payment orders and revenue certificates. Expenditures are treated as expenditures for immediate settlement. Financial Risks 4.82. The absence of opening balances from previous years in the Treasury’s current balance, and the slowness in the centralization of accounting entries could prolong the weak situation of the Treasury, by not enabling it to present complete accounts. The level of financial risk of incomplete information is medium. This can be seen in score C of PEFA PI-25 / component (i). 4.83. The lack of monthly reconciliation between the accounting entries and bank statements could seriously hamper or even prevent end-year reconciliation. The fiduciary risk is substantial and this accounts for D of PEFA PI-22. 4.84. The lack of regular monitoring of suspense accounts and regularization of the Government’s general accounting risk to lead to accumulated amounts that would be difficult to regularize, skew the results of the budget execution and cover dubious operations. The fiduciary risk is the same as the previous one. 4.85. The lack of precision in the budget amounts allocated to the credits delegated by some ministries and the lack of control in the release of resources to primary service delivery units cast doubt on the fulfillment of the needs of deconcentrated services. The level of financial risk is high, accounting for score D of PEFA PI-23. 4.86. The fact that in-year reports on budget execution are not systematically prepared, and therefore not used as decision-making and budget execution management tool, could adversely affect the efficient allocation of resources. The lack of information on the monitoring of budget execution could also lead to unjustified modifications in expenditure allocations. The level of financial risk is high and this is reflected in the D score of PEFA PI-24 / component (ii). 4.87. The practice of a long supplementary period for the entry of new operations related to the period about to be concluded could delay the closure of the period and preparation of 28 The supplementary period established in the Government’s accounting plan is exclusively for accounting and not budgetary purposes. It allows to record orders to pay of expenditures which took place at the end of the fiscal year. - 82 - the draft budget execution review law. The level of financial risk is medium as reflected by the C score of PEFA PI-25 / component (ii). Recommendations In the short term - Adopt the Amnesty Law on the opening balances of the old accounting entries. - Undertake, at least on a monthly basis, within four weeks after the end of the month, the reconciliation of accounting entries and bank statements. - Systematically (quarterly) clear the suspense accounts and regularize them in the general accounting of the Government. - Publish, within a month after the end of each quarter, on a quarterly basis, the budget execution situation using the “Budget� application, and submit the analytical report to Cabinet for budget execution decision-making. - Update the financial management information system master plan, which should include timelines to (i) finalize the interface between the “Treasury� and the “Budget� applications, (ii) develop interfaces between the DGD and the DGI and the Treasury, and (iii) establish the interface between the MEF regional systems among themselves and with the central systems, subject to the prior computerization of the sub-payment order services. In the medium term - Systematically issue revenue collection orders corresponding to Government revenues whose amount are known in advance. - Extend to all ministries, the inclusion of delegated credits in specific budget lines and ensure sufficient control over the release of resources to primary service delivery units. - Ensure that centralization of accounting operations of decentralized Treasury offices takes place every 15 days. - At end-of-year, establish the General Account of the Financial Administration based on the system used in the other countries in the sub-region (Côte d’Ivoire, for example). - Ensure timely closure of the budget supplementary period (période complémentaire) and gradually reduce it. - Submit the draft budget execution review law to the Chamber of Accounts within 6 months following the end of the fiscal year. - Develop the computerized application for the management of goods and the monitoring of fixed assets. - 83 - F. PREDICTABILITY AND INTERNAL AND EXTERNAL CONTROL OF BUDGET EXECUTION Description and Assessment of Current Situation 4.88. This section analyses if the budget is executed in a systematic and predictable manner and if regulations are in place to ensure the control and monitoring of the utilization of public resources. Relations between Revenue Administrations and Taxpayers Strengths 4.89. Customs legislation and procedures are comprehensive. The Customs duty legislation is based on:  The Customs Code and on regulatory implementing instruments. These instruments are complemented by various arrangements that give tax and customs advantages to the beneficiaries such as the Investment Code, the Mining Code, the Petroleum Code and diplomatic privileges.  The community duty (Regulation No. 09/2001/CM/UEMOA of November 26, 2001), the WAEMU Common External Tariff that entered into force on January 1, 2000 and the WAEMU and ECOWAS trade liberalization plans.  WTO International Law and International Treaties. 4.90. The ratio of Customs duties collection to budgetary forecast is high. The situation of Customs revenues as presented by the DGD indicates collection ratios, compared to budgetary forecasts of 95.75 percent for 2005, 95.72 percent for 2006, 97.37 percent for 2007 and 107.37 percent for 2008. These results are therefore acceptable, on condition that the forecasts made in the budget are not underestimated. 4.91. Tax and customs revenues are regularly transferred into the Treasury accounts. DGI payments are made daily and those of the DGD twice to three times per week in Niamey and in the main offices, every 10 days by the smaller border Customs offices that represent less than 5 percent of the tax and Customs revenues. Weaknesses 4.92. Tax legislation and procedures lack clarity. The taxpayers’ obligations are found not in the General Tax Code, but in the 1999 “Government Estates and Tax Regime� (Régime fiscal et domanial) amended by successive budget laws. A General Tax Code is expected to be published in 2009. Businessmen consider that their tax obligations are indicated in various instruments in a complex and non-transparent manner. To remedy these difficulties, the DGI seconded one of its staffs to the Chamber of Commerce. Similarly, the reorganization of the DGI services according to the categories of taxpayers and no longer according to taxes and levies is intended to improve the relationships with users. - 84 - 4.93. Users have access to information but information on taxes is fragmented. Customs regulations are easily accessible to transit operators who are the most interested parties. However, there is no functional website. With regard to taxes, the fragmentation of tax regulations makes their access by tax payers difficult, particularly those who make their declarations individually. There is not possibility for tele-declaration, no Internet site and there is very little communication. 4.94. There is an appeal mechanism against decisions of the administration but it is not transparent on penalties. An appeal mechanism against decisions of the customs administration is foreseen both at the national (Customs code) and international level (International Convention for the Simplification and Harmonization of Customs Regimes). The current practice follows Article 127 of the Customs Code which states that “the Customs Service is authorized to negotiate with people prosecuted for customs violations. The negotiation may occur before or after the final sentence; in this second case the negotiation leaves corporal punishment intact.� The negotiation has thus the character of a right which the law assigns to the customs administration. Negotiations in customs matters are governed by common law. They have, between the parties, the authority of res judicata and the subject of the negotiation is irrevocably decided. But this arrangement is provisional until it has been approved by the competent authority. If the negotiation is not ratified, the provisional act is void and each party reasserts itself to other instances. According to Article 78 of Decree No. 61-211 of 14 October 1961, the negotiation is exercised (i) by the Regional Directors of Customs, the Director for the fight against fraud and the Director General of Customs in cases listed in the Decree and (ii) by the Minister of Economy and Finance in all other cases. 4.95. Tax procedures provide an appeal mechanism through administrative channels that can be followed by judicial or administrative lawsuits. In practice, in terms of tax administration the number of appeals before the courts increased from 2 in 2005 to 25 in 2007. With regard to Customs administration, there were only two litigation cases before the courts, one in 1998 and the other in 2006. This low number of appeals is explained by the highly dissuasive nature of fines stipulated in the Code and by the judicial cost for the two parties, namely the government and the offending user. Administrative procedures concerning penalties are not transparent and give a wide margin to various levels of the administration for negotiations on the amounts of the penalties. 4.96. Taxpayer registration is recorded in a database but its usefulness is reduced by the lack of interfacing with other systems. The system of taxpayer registration (Tax Registration Number or NIF) is managed by the DGI which assigns the numbers. The NIF file is linked to that of Customs, Budget, TGN and the Currency Directorate, but is not linked to the database of the Statistics Department or affiliates of the National Social Security Fund. The NIF is neither mandatory in the banks nor for business registration. 4.97. Penalties for non-registration are not systematically enforced. Major penalties for the lack of NIF registration have been defined in the regulations. But the inadequate civil status registration and the existence of numerous identical names render their enforcement difficult and lead to fraud at the NIF. - 85 - 4.98. Tax controls are not systematic and their effectiveness is hampered by the lack of human resources. Tax controls are conducted and backed by reports prepared according to a tax audit plan. The DGI draws up an annual control plan based on risk mapping. The program is approved by the General Director of Taxes and transmitted to the MEF for information. The implementation of the program leads to quarterly and annual reports. With regard to the DGD, its 2006-2008 action plan contains annual anti-fraud actions. The DGD focuses on targeted controls such as those relating to exempted goods. It prepares an annual report, but Customs investigations are not systematic and the lack of human resources hampers their effectiveness.29 4.99. Comprehensive reconciliation of the operations of the revenue administration and those of the Treasury is conducted only annually at the end of the year. With regard to Niamey revenues, partial reconciliation is carried out monthly. But the absence of a computer interface between the revenue administrations and the Treasury does not make it possible to carry out full reconciliation. For the other offices, feedback on revenue at departmental level (revenue collection by the Treasury) is delayed by two months, which does not allow for a comprehensive reconciliation other than that conducted at the end of the period. 4.100. It is difficult to assess the effectiveness of the collection of tax contributions. The DGI has been entrusted with the recovery of all taxes starting with the 2001 budget law. Taxes are paid on the basis of the declarative method and no longer based on a tax list. The consequence is that it is not possible to enter amounts to be collected into the accounting system since the amount to be received is not known in advance. Data on collection rate can only be appreciated in relation to budget forecasts. Cash Management and Expenditure Regulation Strengths 4.101. Cash flow monitoring is based on a proven method. The method used for cash management was put in place in 2000, when the country was in a critical situation and considerable payment arrears had accumulated. There was a need to use a mechanism that would prevent the build-up of new arrears and clear the previous arrears. A Treasury monitoring committee was put in place to plan the mobilization of resources needed to cover expenditures. The committee consists of the DGB, the DGI, the DGD, the TGN, the Economy Commissioner (CE), the Development Commissioner, the Internal Resources Commissioner and a BCEAO representative. It is chaired by the MEF Secretary General. It meets at the beginning of the year to consider the cash flow forecast for the year based on revenues and expenditures contained in the budget law. Subsequently, it meets every Monday to examine the cash flow forecast for the coming week based on prioritized expenditures. The monitoring of the rate of commitments soon appeared as a necessity and a system of budgetary regulation was put in place. 4.102. Budgetary adjustments are significant but are based on relatively transparent rules. Budgetary allocations are rarely adjusted formally during the fiscal year and the case of the supplemental 2008 budget law was exceptional. Amendments, which are usually significant, are 29 See the update No. 7 in Annex 8 regarding the recent recruitment of staff for DGI. - 86 - typically regularized by the budget execution review laws. The Chamber of Accounts regularly sends out reminders that such amendments must be covered by a supplemental budget law. 4.103. Data on the external debt are broadly complete and an annual report is produced. The external debt is monitored by the Debt Directorate. Data on the external debt are reconciled and reflected in a report produced annually, three months after the end of the year. The data presented are complete. 4.104. With the exception of directly-managed projects special bank accounts, all the Treasury balances are consolidated weekly. Treasury cash funds available to cover the central administration expenditures consist of the balances of the following accounts: (i) cash available at the main TGN desk; (ii) balance of the ordinary current account of the Treasury at the BCEAO; (iii) the balance of the TGN’s postal current account; (iv) balances of all bank accounts opened at the BCEAO on behalf of the TGN and related to budgetary support and (v) checks presented for collection. The composition of this available treasury funds can vary with the inclusion of cash inflows from accountants’ upcountry, mobilization of external resources and exceptional incomes such as the privatization proceeds. These accounts are consolidated on a weekly basis to prepare weekly cash flow projections. Directly managed projects special bank accounts are not included in this consolidation. Weaknesses 4.105. Budget credits are not released timely. In practice, the current budget credits are made available to the ministries and other spending entities on a quarterly basis. The execution of the budget of year N starts in March of the same year with the release of budgetary credits. The execution of the budget for the year N is halted in September of the same year with an automatic freeze of ¼ of the non-wage budgetary credits of certain ministries. The decree on the allocation of budget credits should be adopted immediately after the Budget Law is voted and budget credits opened as of January 1st. Also, the mechanism of releasing in-year budget credits could be revised aiming at, for example, providing for more than 25 percent in some quarters and limiting the freeze period at the end of the year. 4.106. Data on the domestic debt is unreliable. Data on the domestic debt is managed by 2 different units: the Autonomous Domestic Debt Clearing Center (CADDIE) for pre-1999 domestic debts and the TGN for RAP since that date. The domestic debt situation is not subjected to periodic reporting and although the treasury balance is, in principle, a valuable source of information, there is permanent doubt about the trend of the domestic debts that has accumulated since 1999. Loans contracted and guarantees issued by the central administration are approved by two different ministries. Multilateral financing agreements are signed by the Minister of Economy and Finance and bilateral financing by the Minister of Foreign Affairs and Cooperation. Hence there is no unified monitoring mechanism. Internal Controls and Wage Expenditures Strengths 4.107. The growth of the wage bill is based on a comprehensive list of budgeted employment. During budget preparation, each ministry establishes a list of budgeted - 87 - employment as well as predictable changes in its workforce. The DGB monitors the situation of budgeted employment using a computer tool. New recruitments follow a well established procedure. Recruitment projections are proposed by the ministers and discussed at budgetary conferences. Following arbitration, a total envelope is determined and a quota is assigned to each ministry. Subsequently, during the year, the Ministry of Civil Service organizes recruitment competitions with the participation of the relevant ministries. The subject of the competition is proposed by the ministries. Once the exercise is over, the Civil Service releases the results. Lastly, based on details provided by the ministry, the Civil Service issues recruitment decisions to enable the recruits to assume duty. 4.108. Modifications to the database of the payroll are well controlled. Modifications to the computer payroll file made by the Pay Unit are first entered into a file approved by the Head of the Payroll Unit prior to being recorded into the system by a separate unit. Access to the system to make changes is restricted and is traceable thereby facilitating controls. 4.109. A general census of the civil service staff was conducted in 2006. Operations aimed at identifying ghost workers with or without a “billetage� operation that confirms the effective ownership of the salary by the claimant have been rare in recent years. The last controls date from 1983, 1992, 1994 and 1997. Reconciliation between the Payroll Directorate (DS) and the Administration and Finance Directorates of Ministries is conducted annually during annual budget preparation. However, a comprehensive census of the workforce was conducted in 2006. It helped identify a number of ghost employees, representing less than 1 percent of the total workforce. Weaknesses 4.110. There is no single database for the Civil Service. The database of the DS, which is managed by the DIF, is different from that of the Ministry of Civil Service used for the administrative management of public employees and Ministries’ database. The DS database is updated to reflect situation changes based on elements transmitted by the Ministry of Civil Service, which are themselves, for those not concerning career, issued by the ministries. But the transmission of information between the technical ministries and the Ministry of Civil Service is not systematic. As a result, some salaries are not paid to the real beneficiary or adjustments are made with several months of delay. Many complaints have been presented by the employees in recent years, notably with regard to unpaid benefits. To the extent that neither staff movement nor changes of situation are made known to the DS in a regular manner, the two databases show inconsistencies between themselves and with the data at the ministries’ level. The Government has attempted to improve this situation by bringing the two structures closer and by trying to address the difficulties. The objective would be to design a single database based on a precise content.30 4.111. The human resource management function is not sufficiently developed. Many reforms have been planned for the coming years, including the formulation of new regulations that include the notions of merit-based personnel management and modification of retirement age. The implementation of these reforms will require an effective human resource management 30 See the update No. 8 in Annex 8 regarding the consistency of the personnel and salary databases. - 88 - and better monitoring of employees. This is currently not the case. For example, with regard to administrative management, it is not rare to see employees go on training for several months without the corresponding decision being taken. To the extent that the human resource management function is one of the least developed of the administration, wide ranging changes are necessary. Some actions are already being taken in this direction. A Human Resource Directorate has been created in each Ministry but the staff assigned to it is not sufficiently trained. 4.112. Payroll control by the Treasury Department is insufficient. Personnel expenditure credits are evaluative credits, except for personnel expenditures that are subject to the issuance of a commitment. An observation of the payroll payment procedure indicates that the controls are inadequate. Indeed, the treasury accountant does not conduct any control at the payment stage. While it appears logical that she/he does not systematically control fixed pay elements, she/he should however pay particular attention to variable elements: the initial salary of a new recruit, payment of the first bonus, etc. It is worth noting that payment of salaries may be in cash, irrespective of the amount. 4.113. The computerized payroll application only helps to manage its fixed elements. As a result, back pays and payment of incidentals are calculated monthly and settled by cash certificates. They are difficult to track. 4.114. The Pension Management Unit is not computerized. A computer application has been developed for pension management, but it has not been used. It appears that the reform of the legal management structure, namely the creation of an autonomous fund, is a prerequisite for the establishment of this new tool. Internal Controls of Non-Salary Expenditures 4.115. According to regulations, expenditure execution is of a four-phase procedure: commitment, liquidation, order to pay and payment. The first three phases represent the administrative phase and are conducted by the credit managers. The accounting or payment phase is the responsibility of the Treasury public accountant. 4.116. Some expenditure follow a simplified procedure called “without prior payment order� in which the commitment and order to pay phases are executed concomitantly. These entail emergency expenditures that are initiated through a letter sent by the Minister of Economy and Finance to the Treasury Accountant or expenditures that do not have service delivery or provision counterpart fund. They are classified as immediate payment expenditures. This is the case for example of transfers, payment of discounts, and reimbursement of amounts wrongly received, debt service, constitution and replenishment of petty cash. This waiver was established by a directive on public expenditure accounting dated September 30, 1976. It is also covered by Article 61 of the General Public Accounting Regulations. The expenditure is settled immediately and charged to a provisional account. Regularization must follow on the basis of the issuance, (i) either solely of a payment order, (ii) or by a payment order and a commitment order if the expenditure had not been committed. - 89 - 4.117. The Government ex-ante expenditure control is conducted by the General Directorate of Financial Control. The role of the Financial Controllers is to verify expenditure commitments (regularity and existence of sufficient budgetary appropriation) and to clear all acts that have a financial impact. They are also involved in the validation of expenditure, prior to the payment order phase to verify that (i) the order is indeed related to a commitment that they have already approved; (ii) the invoice has been correctly drawn up and that supporting documents are attached; and (iii) the service was adequately provided, that is to say the service or supply delivery was well executed. The financial control function was previously attached to the DGB. Nowadays, the functions reports directly to the MEF. Only Financial Controllers operating at the central level of the MEF currently use the computer system. With regard to the use of the pilot room, all the financial controllers are allowed to use the computer system while they wait for the acquisition of similar systems by the line ministries. At regional and local level, their role is played by the Treasury Accountants. Strengths 4.118. Financial control, which was attached to the General Directorate of the Budget (DGB), has been transformed into a General Directorate (DGCF). This reform was formalized by the Decree 2007-307/PRN/ME/F of August 16, 2007. It was designed to put an end to the direct dependency from the General Directorate of Budget, and ensure greater independence through their direct attachment to the Office of the MEF. 4.119. The expenditure procedure is clearly defined by the regulations: normal procedure and payment without prior payment order. The General Public Accounting Regulations clearly outline expenditure procedures based on four phases and it also includes a payment “without prior payment order� procedure. 4.120. The Financial Controllers have a price reference list. The problems generated by financial constraints, as well as the redundancy of some controls, which caused delays in payments, have led Government suppliers and service providers to increase the cost of Government procured supplies, by including a risk bonus into their prices. The use of a price list by the Financial Controllers will therefore enable the latter to monitor this phenomenon to ensure that it does not get out of hand. 4.121. The government acknowledges the need to eliminate the redundancy of some controls. As Annex 2 on the various phases of the expenditure procedure indicates, the work of the DO at the commitment level is in many respects comparable to that of the Financial Controller and therefore redundant. Similarly, the Treasury Accountant is obliged to ascertain the existence of credits on payment orders, a task which is accomplished upstream by the Financial Controller at the commitment stage. In practice and to some extent quite justifiably, the Treasury Accountant merely ensures that the Financial Controller has indeed made the necessary approval at the commitment stage. 4.122. According to officials, there are few “régies d’avances� and, except for defense wages, their use is restricted to minor expenditures. According to MEF officials, controllers have been mandated to specifically audit these advances. They undertake provisional operations - 90 - and the amounts assigned to them in the form of advances must be returned if they have not been spent. Weaknesses 4.123. The control of the services provided is weak. The Chamber of Accounts, IGE and the DGIF have highlighted the inadequate control of services provided. The Chamber of Accounts regularly reports many cases of expenditures for which supporting documents are lacking and undertakes by itself control of services delivered. The reservations made in this regard by these important structures cast doubt on the use of public funds according to the relevant budgetary authorization. 4.124. Control of the release of resources to primary service delivery units is not adequate. The computer system allows listing the data on resources allocated through delegated credits to the deconcentrated units. But these budgetary situations do not make it possible to isolate the distribution of bulk orders made at the central level and distributed by nature to the basic units. With regard to on-site control, the operations conducted by the ministries are few. The General Inspectorate of Education Services conducts only one control mission annually, at the beginning of the academic year, based on a sample of schools, to verify the effectiveness of the supply system. The recently completed public expenditure tracking survey (PETS) has also provided evidence of weaknesses that need to be addressed. A summary of the PETS key recommendations is presented in chapter 3 (paras. 3.45 to 3.47). 4.125. The Treasury operates upstream of the payment order stage. An “approval� division of the Treasury operates at the DO level, prior to the expenditure payment order. The function of this division is to regulate the flow of payment orders in accordance with available funds. But the objectives that justify the involvement of the accountant in the administrative phase of the expenditure execution are not achieved, since RAPs appear at the end of the period. Moreover, this practice is likely to affect the comprehensiveness of the accounting system. One of the unfortunate consequences of the reported approach is the risk of accumulation of validated expenditures without payment orders, which are not recorded in the system. 4.126. There is no accounting of non-financial assets. The meeting with the General Directorate of Public Assets (DGPE) enabled the review to note the adverse consequences of the absence of accounting of non-financial assets at the service level. A 1974 Regulatory Instrument defines the conditions for keeping such an accounting, which is obsolete. Staff does not have adequate training and many of them ignore the existence of this instrument. The DGCF, in collaboration with DGPE, took the initiative to review the instrument and to work towards its application, through the training of staff and the creation of a unit within DGPE to coordinate activities.31 4.127. The General Directorate of Public Assets has limited resources. It is made up of two Directorates: 31 See the update No. 2 in Annex 9 regarding the accounting of physical assets. - 91 -  The Buildings Directorate with very limited responsibilities. These are as follows: management of the accommodation of personalities and other officials, provision of accommodation to foreign technical assistants and maintenance of buildings. The rents from rented accommodation are managed by the Directorate of the Government Estate of the DGI although those by civil servants are deducted from their salaries. It is also worth noting that responsibility for housing allocation lies with the Ministry of Economy and Finance (DGPE/DBAT).  The Directorate of National Vehicle Fleet and Administrative Garages manages the reserve car fleet. This Directorate consists of central services of: the administrative garage and administrative and financial supply. Its functions have diminished over time. Until 2003, the ministries requested its services to maintain their vehicles. The system was based on a Treasury special account. Revenues were directly allocated for the operation of the central garage. Subsequently, to ensure better control over expenditure, the Government decided to open an inter-ministerial line of credit managed by the DGB. Henceforth, each Ministry has credit for this type of expenditure and manages its own vehicle maintenance problem. The Directorate is not involved in the procurement of vehicles and its main function is to manage the reserve fleet of ministries: establishment of the fleet, its maintenance and provision of vehicles to the ministries. When the vehicles are written off, the Directorate contacts the Estate Directorate of the DGI that puts them on auction. Lastly, this structure supervises the release of vehicles of completed projects. 4.128. “Régies d’avances� operations fall outside the public accounting control. The managers of the “régies d’avances� are not under the control of the Public Accountant, they are directly attached to the DGB. This makes them autonomous and they practically function as full- fledged public accountants (de facto accountants), although they do not have the status and, notably, are not personally and financially responsible for their acts. The régies d’avances regulations should be enforced, namely their strict control by the public accountant. Regisseurs d'avances should not receive any new treasury advances until they have provided all the “piéces justificatives� explaining how they spent the money from the previous advance. 4.129. Control by the Financial Controllers is not hierarchical. Ex-ante control of commitments by Financial Controllers is conducted in the same manner, irrespective of the amount of the expenditure, in all the cases. The reason given is that in order to be effective, this control must constitute a threat for potential offenders, including low expenditures. In reality, this practice has resulted in extra workload for the Financial Controllers, which can be lightened and optimized if controls were conducted in a selective manner and by samples based on risk criteria. Also, excessive controls are counterproductive as they lead to abuse in use of emergency procedures. 4.130. Payments “without prior payment order� are excessive. The balance on Account 470 was CFAF 57.7 billion at the end of 2006, 100.7 billion at the end of 2007 and 67.5 billion at the end of 2008. For each of these financial years, this represents 25.4 percent of the total budgetary expenditures in 2006, 51.2 percent in 2007 and 26.1 percent in 2008. The composition of the payments “without prior payment order�, as of end-2007, is presented in the following table and two key conclusions can be drawn: (i) a considerable share of these payments, about 46 percent, does not seem to fall within the types of emergency expenditures listed in paragraph 4.113; and - 92 - (ii) tax refunds (fiscalité compensée) represent an unusually high share of these payments. In addition, these payments are not timely regularized as mandated in the General Public Accounting Regulations. Spending administrations do not always provide evidence of expenses to allow accountants to regularize the exceptional spending (and this causes a real accountability issue, especially for the contractual salaries and tax reimbursement). The provisional account charged to deal with these payments should be cleared at the end of the fiscal year, with the issuance of payment orders and the budgetary imputation of the corresponding expenditures. The size of this balance and the fact that it is not timely cleared shows a disturbing lack of rigor in this area and considerably affects transparency of public spending and good governance. An analysis of the government departments contributing to this situation was not possible to be conducted because the details were not provided to the PEMFAR team. Table 4.4 : Composition of payments “without prior payment order� as of end-2007 Types of Expenditures Percent Personnel, goods and services, investments 25.8 Transfers 17.4 Tax refunds 41.5 Debt 12.1 Other 3.2 Total 100 Source: Nigerien Authorities. 4.131. The financial control function is not attractive enough. Financial Controllers are former employees from various financial administrations. When they are assigned, they must be trained in order to deal with their new tasks. Frequently after training, they abandon the job which generally, is not attractive enough. This problem can also be found in other control structures, notably the DGIF. Internal and External Audit Strengths 4.132. There are several entities involved in the internal and external auditing. Internal auditing is conducted by the General Directorate of the Financial Inspectorate (DGIF), the General Public Inspectorate (IGE) and internal control structures of the Ministry. Additionally, there is a service inspectorate within the Treasury, Taxes and Customs administrations. External auditing is carried out by the Chamber of Accounts of the Supreme Court and the National Assembly. Thus, the mechanism in place, in terms of structures, is sufficient. 4.133. Despite persisting delays, the backlog of the preparation and passing of the budget execution review laws has been cleared. There has been a significant effort to clear the backlog of budget execution review laws from 1999 to 2006. However, reports on budget execution review bills are submitted to Parliament more than 15 months after the end of the period, which is a long delay. The most recent budget execution law is that of 2006 (see below). The draft law for 2007 has been submitted to the National Assembly in March 2009. - 93 - Table 4.5 : Dates of presentation and passing of Budget Execution Review Law Tabling Before Passing by Promulgation Fiscal National National Year Assembly Assembly 2005 May 2007 November 2007 December 2007 2006 September 2008 November 2008 November 2008 2007 March 2009 n.a. n.a. Source: Directorate of Budget, Ministry of Economy and Finance. 4.134. The General Public Inspectorate (IGE) is an effective control entity. The regulatory framework of the IGE was established by the Decree No. 97-272 of July 18, 1997. This structure, which is placed in the Office of the President to which it reports directly, has a general oversight function on all Government services, local government and public enterprises. It has a workforce of 9 Inspectors. The origin and training of these Inspectors are diverse: Principal Treasury Inspectors, Economists, Administrators, Public Works Engineers and Customs Officers. In departments where they conduct spot checks, they check the legislation as well as current management procedures. They operate wherever the financial interest of the Government is at stake and follow the standards of AFROSAI, an organization in whose meetings they participate. The IGE has identified a large number of embezzlements in recent years.32 Its reports are submitted to the President of the Republic, the Directorate of Government Legal Affairs, to the audited departments as well as the Ministry of Justice when they involve cases of misappropriation. The main observations made by this structure essentially relate to the weak control of the service provided, resulting from a lack of involvement of the beneficiary populations in the process, and non-compliance with the public procurement procedure. The inspectors proposed that (i) severe sanctions be imposed to the perpetrators of embezzlement, both civil servants and economic operators, (ii) the Anti Corruption Unit be strengthened, (iii) Government expenditure be in line with the Government’s needs, (iv) information units be established in each ministry and users be informed so that they help improve the auditing of the service provided, (v) time taken to execute expenditures be monitored, and (vi) information sessions be organized for the media. 4.135. The DGIF undertook a major inventory of the public assets in 2008. The General Directorate of Public Assets (DGPE) participated in this process. The exercise revealed problems relating to the allocation of housing and vehicles that violated the regulations as well as the lack of transfer of project vehicles that should have been returned to the Government. With regard to projects, the main reason appeared to be the fact that the Government was not involved in the procurement of project vehicles. This underscored the problem of lack of monitoring by the DGPE. Weaknesses 4.136. The IGE and the DGIF formulate annual programs, but their actions essentially entail selective missions ordered by the Head of State and the Minister of Economy and Finance, respectively. The mission orders given to them generally relate to issues that have 32 Following IGE inspections, several mayors of “communes�, including of Niamey, were indicted. - 94 - received recent public attention. The main consequence is that this structure hardly addresses systemic operational problems such as the quality and monitoring of procedures. 4.137. Follow up of the DGIF audits needs to be stepped up. The DGIF reports are submitted to the Minister of Economy and Finance, the Prime Minister, the President of the Republic and the Public Dispute Settlement Directorate (Direction du Contentieux de l’État-DCE). They are also sent to the control instances in accordance with the audit procedure and to the supervising minister. This structure has powers that make it a key player in the ex-post control system. However, many Inspectors are assigned to key posts of other MEF departments. These Inspectors may indeed be recalled for specific missions, but, generally, the effectiveness of the DGIF is hampered by absenteeism. Recently seven appointed Inspectors did not undergo any specific training.33 The DGIF on average undertakes 25 audits annually, and in view of the lack of adequate human resources, it does not audit public enterprises. In 2008, it conducted audits in the Treasury department, the DGCF, the DGB, the Payroll Directorate, the DGD and two projects. The DGIF does not have adequate control over its calendar, which is largely affected by staff transfers. 4.138. The Chamber of Accounts was transformed into a Court of Accounts by law in 2007. But the structure has not been formally put in place.34 The implementation of this reform would entail the recruitment of new judges and auditors. Currently it has three judges, although the law provides for 4 as well as 12 advisors and 12 auditors. Also, the change in status will result in defining a budget appropriation for this body. These new conditions are indispensable to ensure that the Court of Accounts fulfils its role, namely (i) jurisdictional, through the timely judgment of the accounts of the public accountants, (ii) auditing of public entities, and (iii) preparation of the budget execution review report. It is worth noting that the Chamber of Accounts currently has only 3 advisors. 4.139. The activity of the Chamber of Accounts is insufficient. Despite a recent catch up operation, the activity of Chamber of Accounts regarding the review of Public Accounts has suffered considerable delay. The 2002 Government management accounts and those of State enterprises and mixed companies of 2004 are undergoing review. The Chamber of Accounts does not perform its auditing functions. 4.140. The DGIF and the IGE reports are not published. The reports of these two structures are not made public neither are they transmitted to the Chamber of Accounts. (Transmission of these reports is not the responsibility of the DGIF). 4.141. Parliamentary review of the draft budget law focuses only on the details of revenues and expenditures. The review procedures of the National Assembly are simple and are generally complied with. The given deadline of one month is sufficient. But parliamentary control focuses only on the details of revenues and expenditures. The practice of debating the budget orientation guidelines does not exist in Niger. 4.142. Follow up of recommendations made by the National Assembly to the Executive is not assured. The budget execution review bill is generally received by the National Assembly 33 See the update No. 2 in Annex 10 regarding the training of new inspectors. 34 See the update No. 2 in Annex 8 regarding the recent establishment of the Cour de Comptes. - 95 - during the budget session and examined during an extraordinary session organized following the closure of the ordinary session, hence 3 months after its reception. MEF officials appear before the Finance Committee. In its report to the National Assembly the Finance Committee makes recommendations to the Executive but the implementation is not assured. Financial Risks 4.143. The absence of a comprehensive and periodic reconciliation of the operations of revenue entities and the Treasury during the year hampers the smooth operation of the tax collection system and monitoring of tax arrears. The financial risk is substantial, which is reflected by the D score of PEFA PI-15/component (iii). 4.144. The lack of timely information on the availability of credits, due to the budget credit release mechanism, hampers the quality of expenditure and can foster the emergence of irregular practices among the managers, for fear of a risk of a credit freeze. The financial risk is moderate. This accounts for the C score of PEFA PI-16/(ii). 4.145. The existence of redundant expenditure controls could unduly extend the duration of expenditure procedure and cause Government suppliers to raise their prices. The financial risk is medium, which accounts for the C score of PEFA PI-20/component (ii). 4.146. The involvement of the Treasury prior to the expenditure payment order could result in accumulated execution of expenditures without payment orders, hence not recorded in the system. This will skew the assessment of ongoing operations. The financial risk is the same as the previous one. 4.147. The weak external control can prolong the situation characterized by the lack of sanctions, and contribute to the inadequate detection of public financial management weaknesses. The financial risk is high and accounts for the D score of PEFA PI-26. 4.148. The lack of reliable data on the domestic debt hampers the management and control of fiscal risks. The financial risk is substantial, as indicated by the D score of PEFA PI- 17/component (i). Recommendations In the short term - Finalize and disseminate the General Tax Code. - Provide taxpayers with better information on possible avenues for administrative and judicial appeal. - Undertake (within four weeks after the end of the month) a comprehensive monthly reconciliation of the operations of revenue administrations (DGI and DGD) and the Treasury. - Make budget credits available effective on January 1st and revise mechanism for in-year release of budget credits. - 96 - - Have the payroll checked by the Treasury, every month, prior to its payment at least with regard to variable elements. - Improve the quality of control of service provided, notably by involving the beneficiary populations in the process, where the nature of the expenditure allows it. - Abolish the Treasury’s intervention just before the expenditure payment order phase. - Put in place accounting of non-financial assets in the credit managers services. - Enforce the regulations on “régies d’avances�, namely their strict control by the Public Accountant. - Abolish the redundant controls by the Direction de L’Ordonnancement and the DGCF. - Strengthen the financial resources of the IGE and the DGIF. - Disseminate the IGE and DGIF reports, within six months after they are completed. - Limit the use of simplified expenditure procedures only to cases allowed by the regulations and clear, on a monthly basis, operations charged to provisional and non- regularized accounts. - Set the maximum deadline for the expenditure procedure and ensure its observance by departments. In the medium term - Link the NIF to the Statistics Department database and that of the affiliates of the National Social Security Fund. Make the use of the NIF mandatory in the banks and for business registration. - Build the human capacities of the DGI and the DGD to improve the level of revenues collected and develop tax control measures. - Include in the updated financial management system master plan timelines to (i) finalize the interface of the “Treasury� computer application of the TGN with the DGI and the Sydonia application of the DGD; (ii) create a single Government personnel database to be used by the Payroll Directorate and by the Ministry of Civil Service, (iii) enable the “payroll� application to manage not only fixed pay elements, but also its incidental cost and variable elements, and (iv) operationalize the pension management computer application. - Increase the number of financial controllers to reduce their workload. - Issue a report on domestic debt, at least quarterly. - Put in place a hierarchical control system at the DGCF based on risk criteria. - Ensure a follow-up by the National Assembly of its recommendations to the Executive. G. DONOR PRACTICES 4.149. Donor practices are mixed as reviewed in the PEFA report. They have the following characteristics: - 97 - - With regard to the predictability of budgetary support, the annual discrepancy between the amounts actually paid and estimates communicated by the donors, at least six weeks prior to the presentation of the budget proposal to Parliament, is relatively weak. For the years 2004, 2005 and 2006, the gap fell short of the estimates by over 15 percent only in one year. Due to Government delays in complying with prior actions agreed with some key donors for the release of their budgetary assistance, the predictability of budgetary support has worsened in recent years. For the years 2007 and 2008, the gap reached an estimated 27.3 and 46.6 percent, respectively. - Compliance with in-year disbursement of donor funds (in accordance with overall quarterly estimates) cannot be assessed, to the extent that the donors do not provide quarterly budgetary support disbursement projections. - With regard to financial information provided by the donors for the budgeting of project aid and program aid and the establishment of relevant reports, it is worth noting that the major project donors are the World Bank, EC, UNICEF, France and the African Development Bank. They account for 60 percent of disbursement estimates and 66 percent of disbursement out-turns. At least 50 percent of the donors (including the five key ones) provide disbursement projections in accordance with the budgetary calendar. The donors provide quarterly reports on disbursements for at least 50 percent of the financing estimates contained in the budget, with less than 50 percent of the funds paid to the public administration as aid being managed in line with the national procedures. 4.150. Public procurement is a key step of the public spending process and its soundness is a prerequisite for transparent and cost-effective public expenditure. The following chapter will assess Niger’s public procurement system and its compliance with the baseline indicators of the OCDE/DAC procurement benchmarks and WAEMU Directives. Recommendations - Provide estimates of budget support disbursements at least twice a year. - Provide estimates of project disbursements in line with the budget calendar. - Adopt gradually an aid management system that follows the national procedures. H. SUMMARY OF RECOMMENDATIONS 4.151. The recommendations of the review are presented in the following table of recommendations (Table 4.6). - 98 - Table 4.6 : Table of Recommendations – Public Financial Management Technical Responsible Assistance Problems Encountered Measures To Be Taken Party Timeframe: Required (Low, Med, High) A. Legal and Institutional Framework Treasury reforms not yet effective. Put in place the new structures of the MEF L 2010 Treasury (DGTCP, ACCT, PGT, and RGT). The Court of Accounts is not operational. Operationalize the Court of Accounts Prime L 2010 (recruit staff in accordance with the law Minister and approve the budget). The role of the Payroll Department has Define the powers of the Payroll MEF L 2010 not yet been formalized. Department through a legal instrument. Ministries do not have sufficient Assign to ministries the status of credit MEF L 2011 autonomy to commit their expenditures. managers, as per the 06/2009 WAEMU directive. WAEMU PFM Directives recently Integrate the provisions of the WAEMU MEF H reviewed. revised guidelines into the country’s PFM 2015 regulations. The role and anchor of former Public Restore and define the institutional MEF L 2010 Portfolio Directorate is unclear. anchor of the Public Portfolio Directorate. B. Credibility, comprehensiveness and transparency of the budget and policy-based budgeting Tax revenue deviates considerably from Reduce the gap between voted and DGI/DGD H 2012 projections and is well below the actual domestic revenues to less than six WAEMU convergence criteria. percent. Improve the ratio of tax revenues to GDP by implementing DGD and DGI revenue collection action plan. Continued build up of payment arrears. Enforce fiscal discipline, including by DGB L 2012 reducing the stock of payment arrears to DGCF between 2-10 percent of total primary expenditures. Incomplete budgetary document. Improve the budget document DGB M 2011 presentation using the PEFA standards. Budget is not comprehensive. Make an inventory of revenues received DGB F 2012 by ministries and not paid into the Treasury account, include them in the budget and take steps to ensure their payment into public accounts. Pursue efforts to fully integrate DGTCP F externally-funded financing into the budget. Some operations are not recorded in the Comply with the rule of recording DGB L 2010 correct fiscal year. operations in the fiscal year they take place. Lack of criteria to allocate Government Define transparent criteria to allocate DGB H 2011 transfers to territorial communities. Government transfers to territorial DGTCP communities. Incomplete centralization of information Improve to at least 75 percent (in value) DGTCP H 2012 - 99 - Technical Responsible Assistance Problems Encountered Measures To Be Taken Party Timeframe: Required (Low, Med, High) on the execution of the budgets of the centralization of information on the territorial communities and production of execution of the territorial communities’ their management. budgets and ensure its consolidation into a annual report to be published within 18 months after end of the fiscal year. Inadequate control of autonomous public Conduct an audit of EPA and EPIC DGB H 2012 agencies and public enterprises. regarding collection and use of fees. DGTCP Adopt financial reporting norms to government as pre-requisite to grant subsidies to EPA and EPIC. Inadequate public access to fiscal Disseminate widely and timely (PEFA DGB L 2011 information. guidelines) the Government’s budget and in-year and end-year fiscal reports (e.g. planned MEF website). Ministries do not have sufficient time to Increase to at least 4 weeks (after budget DGB L 2010 prepare their budgets and are not ceilings are defined) the time given to sufficiently involved in formulation of ministries to prepare their budgets and their budgets. involve them in the simultaneous preparation of the current and capital estimates. C. Accounting, Recording and Reporting The budget IT application is not fully Enforce guidelines issued in late February DGB L 2010 used by credit managers and financial 2009. controllers. Incomplete Treasury balances. Ensure the passing of the amnesty act on MEF H 2010 opening balances. Parliament Treasury and banking reconciliation is Undertake at least monthly (within 4 DGTCP M 2010 conducted only once a year. weeks after the end of the month) reconciliation of accounting entries and bank statements. Suspense accounts are not cleared Systematically (quarterly) clear, within a DGTCP H 2010 regularly. month after the end of each quarter, the suspense accounts and regularize them in the Government’s general accounting. Quarterly publish the list of 2010 administrative units which exceptional expenses have not been regularized and reject demands for new exceptional expenses from non complying administrative units. Analytical budgetary execution is not Publish, within a month after the end of DGB L 2011 published regularly and transmitted to each quarter, quarterly analytical budget the Cabinet. execution reports, and submit to Cabinet budget execution for decision-making. The integrated system of administrative, Update the financial management DIF H 2010 financial and accounting management is information system master plan which not optimized. should include timelines to: - Finalize the interface between the “Treasury� and the “ Budget;� - Develop the interface between DGI - 100 - Technical Responsible Assistance Problems Encountered Measures To Be Taken Party Timeframe: Required (Low, Med, High) and DGD (Sydonia) and the Treasury ; - Create a single database of government employees to be used by the payroll directorate and the ministry of civil service; - Enable the payroll application to manage not only the fixed wage element but also its incidental cost and variable elements. - Computerize the decentralized budget office’s operation. - Operationalize the pension management computer application. - Develop the computerized application for the management of goods and the monitoring of fixed assets. Government non-tax revenues are not Systematically issue revenue collection DGB M 2011 subject to revenue collection orders. orders for Government revenues whose DGTCP amount is known in advance. Delegated credits are not identified under Extend to all ministries, the inclusion of DGB M 2011 a specific budget heading for all the delegated credits under a specific budget Ministries ministries and the release of resources to heading and ensure adequate control primary service delivery unit is not over the release of resources to primary sufficiently controlled. service delivery units. Late centralization of the operations of Reduce to every 15 days the timeline to DGTCP H 2012 treasury accountants from the interior. centralize the operations of treasury accountants from remote areas. The General Financial Administration Establish at the end of each period the DGTCP M 2012 Account is not produced. General Financial Administration Account based on the model found in other countries in the sub-region (Côte d’Ivoire for example). Late closure of the fiscal year and Comply with the regulations on the DGB M 2011 preparation of the draft budget execution “période complémentaire� and reduce it DGTCP review law. gradually from the current timeline (end February) to one month, as per the 07/2009 WAEMU directive Submit to the Chamber of Accounts the draft budget execution review law within 6 months after the end of the fiscal year. D. Predictability and internal and external control of budget execution Tax regulations are fragmented. Finalize and disseminate the General Tax DGI H 2011 Code. Information to taxpayer’s on appeals is Provide taxpayers with better information DGI/DGD M 2011 inadequate. on avenues for administrative and judicial appeal. Complete reconciliation of the operations Undertake (within four weeks after the DGTCP M 2010 of revenue administrations (DGI and end of the month) a comprehensive DGI DGD) and the Treasury is conducted monthly reconciliation of the operations DGD only once a year. of revenue administrations (DGI and - 101 - Technical Responsible Assistance Problems Encountered Measures To Be Taken Party Timeframe: Required (Low, Med, High) DGD) and the Treasury. Late release of budget credits. Make budget credits effective starting DGB L 2011 January 1st. Revise mechanism for in-year release of budget credits. Inadequate information on domestic Issue a report, at least quarterly, on CAADIE M 2011 debt. domestic debt. Inadequate verification of the payroll Implement monthly Treasury check of DGTCP M 2010 prior to payment by the Treasury. the payroll prior to its payment, at least with regard to variable elements. Control of service provided is Improve control of service delivery at Ministries L 2012 inadequate. local level by implementing PETS 2009 DGCF recommendations. There are no non-financial assets Finalize the regulations and put in place Ministries M 2012 accounting. a system of non-financial assets DGCF accounting in the credit managers units. The Treasury conducts a check before Eliminate the intervention by the DGTCP L 2010 the payment order phase to ascertain the Treasury before the payment order availability of sufficient funds. phase. The régies d’avances is not operating Enforce the régies d’avances DGB M 2010 according to regulations. regulations, namely their strict control DGTCP by the public accountant. Regisseurs d' avances (who are not public accountants) should not get any new treasury advances until they have provided all “piéces justificatives� explaining how they spent the money from the previous advance. Controls by the Direction de Abolish the redundant controls by the DGB L 2010 l’Ordonnancement on commitments are Direction de l’Ordonnancement and the a duplication of those of the DGCF. DGCF. Increase the number of financial controllers to reduce their workload. Inadequate funding of the IGE and the Increase the financial resources of the DGB 2011 DGIF. IGE and the DGIF. L IGE and DGIF audits are not Disseminate the IGE and DGIF reports, Prime 2012 disseminated. six months after they are completed. Minister L Abuse of the simplified expenditure Limit the use of simplified expenditure DGB 2010 procedures and operations charged to procedures only to cases allowed by the L provisional accounts are not settled on a regulations and clear, on a monthly regular basis. basis, operations charged to provisional and non-regularized accounts. Time taken to execute expenditures is Set the maximum deadline for the DGB 2011 unduly long. expenditure procedure and ensure its DGCF L observance by departments. Ministries DGTCP The NIF directory is not adequately Link the NIF to the Statistics DIF 2011 interfaced or sufficiently used. Department database and that of the DGI M affiliates of the National Social Security Fund. Make the use of the NIF by banks and - 102 - Technical Responsible Assistance Problems Encountered Measures To Be Taken Party Timeframe: Required (Low, Med, High) for business registration mandatory. The human capacities of the DGI and the Implement capacity building initiatives DGD are insufficient. of the DGI and the DGD to improve the DGB L 2012 level of revenues collected and develop tax control measures. There is no system of hierarchical Put in place a control system at the DGCF 2011 control at the DGCF. DGCF which is based on risk criteria. H There is no follow up of Ensure a follow-up by the National recommendations by the National Assembly of its recommendations to the ANle M 2011 Assembly to the Executive. Executive. E. Donors Practices Budget support deviates from projections Donors provide estimates of budget support disbursements at least twice a Donors L 2010 year. MEF 2010 Government complies timely with prior M actions agreed for disbursement. Budgeting of project aid and program aid Donors provide estimates of project only covers 60-66 percent of donor disbursements in line with budget Donors L 2010 assistance calendar. Less than 50 percent of donor assistance Adopt an aid management system that is managed in line with national follows national procedures as the Donors L 2012 procedures. country PFM systems move to internationally agreed standards (WAEMU). - 103 - 5. PROCUREMENT ASSESSMENT A. CONTEXT 5.1. The 2004 Country Procurement Assessment Report (CPAR) was completed by the World Bank and the Government in June 2004. The objectives of this procurement review are to: (i) assess the implementation of the recommendations of the 2004 CPAR, (ii) identify the success factors and the constraints in the implementation of the planned reform, (iii) assess the public procurement system and its compliance with the baseline indicators of the OCDE/DAC procurement methodology35 and WAEMU Directives36, and (iv) propose appropriate recommendations to accelerate its modernization in an efficient manner. 5.2. To assess compliance of the system with quality indicators specified in the OECD/DAC methodology and the WAEMU Directives Nos. 004/2005 and 005/2005, the PEMFAR II relied on the results of the assessment of the national procurement system using the Organization for Economic Cooperation and Development /Development Assistance Committee (OECD/DAC) methodology conducted by the Government in April 2008. The review therefore proceeded to the external validation of the conclusions and scores proposed in the OECD/DAC assessment prepared by the Government with the assistance of a consultancy firm (2AC). This validation involved examination of evidence underpinning the proposed scores. 5.3. The results of the review cover the four pillars identified in the OECD/DAC methodology, which are:  Pillar I: Legislative and Regulatory Framework,  Pillar II: Institutional Framework and Management Capacity,  Pillar III: Procurement Operations and Market Practices,  Pillar IV: Integrity and Transparency of the Procurement System. 5.4. The review was conducted in close collaboration with the Public Procurement Regulatory Agency (Agence de Régulation des Marchés Publics - ARMP). This institution was set up by Ordinance No. 2002-007 of September 18, 2002 under the Public Procurement Code, and one of its main responsibilities is to define national policy on public procurement. The mission of the ARMP, the composition of its Executive Secretariat, and the National Regulation Council (Conseil National de Régulation - CNR), its steering and decision-making body comprising 7 representatives from the Administration, 4 from the civil society and 4 from the private sector, naturally made it the appropriate technical and participatory framework to implement the reform put in place to carry out the recommendations of the 2004 CPAR. 35 Document titled “Methodology for assessment of national procurement systems�, version 4, www.oecd.org/dac/effectiveness. 36 The WAEMu Directives were adopted in December 2005 and focus on (i) public procurement procedures for launching, execution and adjudication of tenders as well as delegation of public services (004/2005), and (ii) control and regulation of public procurement and the delegation of public services (005/2005). - 104 - 5.5. The conclusions and recommendations of this review will help the Government to update its short and medium-term action plan, while emphasizing the actions that would be desirable to receive priority attention from the Government. Recommendations of the current review take into account lessons drawn from the implementation of the 2004 CPAR recommendations. B. OVERVIEW 5.6. Remarkable improvements have been made to the Public Procurement System in Niger since the 2004 CPAR. The Government has carried out most of the key actions proposed in the last CPAR. The Public Procurement Regulatory Agency (ARMP) was set up and made operational in 2007 and is responsible, among other tasks, for defining the national policy on public procurement and to handle bidders’ appeals. The ARPM is administered in a participatory manner by representatives of the Administration, the civil society and the private sector, and has been a success factor in the implementation of the action plan. This institutional framework allows for a certain level of independence in decision-making and made possible the completion of key activities of the 2004 action plan (see section C below). 5.7. Satisfactory progress in the implementation of the 2004 CPAR action plan confirms the Government’s willingness to move towards a system that complies with international standards. The creation and establishment of the ARMP has contributed to bringing more transparency into the public procurement system. The institution of a public procurement fee for the system and also to ensure the financial autonomy of the ARMP, has been a success element in the implementation of reform activities. In the same way, the setting up by the Government of a framework for consultation with donors involved in procurement has been a success factor in determining the progress made, especially in facilitating the mobilisation of resources (EU, CIDA,etc.) and the coordination of reform activities in Niger. Finally, the Government has initiated a process to transpose the WAEMU Directives into the national legislation, thereby contributing to harmonize procurement processes and practices with those of other member States of the Union. 5.8. Significant challenges, however, still remain to be addressed as revealed by the results of the joint public procurement system assessment. The conclusions presented in the following paragraph indicate that significant weaknesses persist in the system, in the legal and institutional framework as well as in practices and the effectiveness of internal and external controls, and these could jeopardize the progress made by the Government to improve transparency and the efficient management of public procurement. According to data collected during the review, procurement hardly represents 3 percent of GDP and is equivalent to 28 percent of public capital expenditure in 2008.37 Even though this data is not comprehensive, this is a low ratio given that public procurement generally constitutes an important element of public expenditure whose transparent and efficient execution is key to achieve acceptable standards of financial governance and ensure adequate value for money of public expenditure.38 It is therefore necessary for the Government to take measures to maintain the pace of reforms, 37 Information obtained from the Government (DGCF) establishes the total value of contracts signed in 2008 at CFAF 60.2 billion. Capital expenditure in 2008 was CFAF 217 billion Source: Official Gazette. 38 Procurement generally constitutes 60 to 80 percent of the investment budget depending on the country. - 105 - reinforce transparency in the legal framework, and render internal controls and public procurement audits effective and efficient. In the same way, there is still some work to do to finalize the transposition of the WAEMU Directives into the domestic law and align the public procurement legislation and regulation to recognized international good practices. 5.9. Overall, the quality of the public procurement system in Niger is just above average.39 In spite of improvements in the structure and content of the legal framework to conform to international and regional standards (Pillar I, average score of 2.3 over 3), some weaknesses still persist adversely affecting the principles of transparency and efficiency. The persistent problems affecting the establishment of a functional institutional framework for control, the relative weakness in capacity and of measures to ensure integrity of the system are reflected in the about average scores obtained in pillar II (1.7 over 3), pillar III (1.5 over 3) and pillar IV (l.6 over 3). Figures 5.1 and 5.2 below show the results of the joint assessment, which have been aggregated respectively by pillar and by indicator, in conformity with the OECD/DAC methodology and by using a calculation formula based on the simple average of the scores. Figure 5.1: Niger – Public procurement – Aggregate score by OECD/DAC pillar Pillar I – Legislative and regulatory framework; Pillar II- Institutional framework and management capacity; Pillar III- Procurement operations and market practices; and Pillar IV – Integrity and transparency of the procurement system. 39 The review arrived at a global score of 1.8 for the quality of the current public procurement system, a score just above 1.5 corresponding to the average of scores adopted by the OECD. - 106 - 5.10. An analysis of the indicators confirms the existence of important risks in the institutional framework as well as in the areas of operations and control. In addition to the revision that necessarily has to be made to the current Code, to bring it into conformity with good practices and the WAEMU Directives, the implementing regulations related to the delegation of responsibility to contracting authorities do not take into account the risks associated with their management capacity (Baseline Indicator (IB) 5 scores well below average: 1 out of 3, and IB 6 is also below average with 1.3 out of 3). This problem is heightened by weaknesses in the control of services provided and alternative mechanisms for the settlement of disputes (IB 7 is scored below average). The weakness of internal and external control and the lack of procurement audits negatively affected the score for IB 9 (0.8 out of 3). Finally, the lack of measures to implement the principles of integrity and avoid conflict of interest on the part of government officials as well as the lack of operational mechanisms to combat corruption in public procurement also led to an average score of 1.6 for IB 12. Figure 5.2: Niger – Public procurement – Aggregated score by indicator 1 - Legislative and regulatory framework 2–Application rules 3 –Integration to the system 4– Normative/Regulatory Body 5– Development capacity 6– Operations and practices 7– Procurement contracts 8– Arrangements for management of Tenders and Settlement of Disputes 9– Control and audit mechanism 10-Appeal mechanisms 11– Access to information 12– Ethics and fight against corruption. 5.11. Overall, some differences are noted between this joint review assessment and that of the Government in April 2008 (Figure 5.3). Assessment results of the review place the overall level of quality of the system at an average of 1.8 / 3, as against 2.2 / 3 for the Government evaluation. Figure 5.3 below provides a graphic representation of the differences noted under each pillar. Details justifying these differences are given in the assessment table in accordance with the OECD/DAC methodology, but the main factors explaining these differences can be summarized by pillar as follows: For pillar 1, the systematic authorization to resort to restricted tender, the discriminatory character of the national invitation to bid reserved exclusively to nationals, and the inconsistencies found between the Code and its implementing regulations; For pillar 2, the conflicts of interest arising from authorizations for directly negotiated contracts granted by the ARMP, the participation of the private sector in the activities of the contract awards commissions, the fact that the information - 107 - collection system is non-operational and the lack of a training strategy adequated to the needs of the existing institutional framework; For pillar 3, the lack of consideration of risks associated with the management capacity of contracting authorities in conjunction with the responsibilities delegated to them, and the lack of managerial staff and regulation of delivery and supervision of civil engineering works; For pillar 4, the ineffectiveness of the audit system and the attendant risks, the lack of reliable procurement statistics, the incomplete treatment of conflict of interest in the legal and regulatory texts and the lack of an ethics mechanism. Figure 5.3: Niger – Public procurement –Comparative scores of the 2008 and 2009 Reviews 5.12. The quality of the public procurement system in Niger is similar to that of other WAEMU countries. Figure 5.4 indicates that Niger’s score is broadly in line with the average of 3 other WAEMU countries (which is about 1.8). Table 5.1 below shows that while the country ranks below Senegal, it compares well with Benin. 5.13. The detailed results of the current review are presented in section D, on the basis of the 4 pillars defined in the OECD/DAC methodology, namely (i) Legislative and Regulatory Framework, (ii) Institutional Framework and Management Capacity, (iii) Procurement Operations and Market Practices, and (iv) Integrity and Transparency of the Procurement System. For each pillar, a description of the current situation is presented, the strengths and weaknesses of the current system are analyzed, and recommendations to improve transparency - 108 - and efficiency of the system are formulated. However, before presenting the assessment results, the next section (C) summarizes the Government’s reform program and progress made since the 2004 CPAR, and analyzes the success factors and constraints. Table 5.1 : WAEMU – Public procurement: Average score by the OECD/DAC40 pillar Pillar Niger (March 09) Côte d’Ivoire Senegal Benin Legislative and regulatory 2.3 2.2 2.5 1.1 framework Institutional framework and 1.7 1.7 2.6 1.5 management capacity Procurement operations and 1.5 1.8 2.4 1.2 market practices Integrity and transparency in 1.6 1 2.4 1.6 public procurement system General Average 1.8 1.7 2.5 1.4 Source: Niger (March 2009 assessment); Cote d’Ivoire and Senegal – www.worldbank.org; Benin – scores from the external evaluation. Figure 5.4: Public procurement system Average score by OECD/DAC pillar: comparison with other countriesa/ b/ a/ Average score by pillar, corresponding to the simple average of the scores of the indicators under each pillar. b/ Average score for the following three WAEMU countries: Benin, Côte d’Ivoire and Senegal. Source: See Table 5.1 above. 40 Simple average of each pillar’s indicators. - 109 - C. THE GOVERNMENT’S REFORM PROGRAM 5.14. The 2004 CPAR emphasized the need to improve the public procurement system. The conclusions of the 2004 CPAR were approved by the Government and the main recommendations of the action plan aimed mainly to (i) making the institutional framework effective for the implementation of the reform, (ii) putting in place a functional legal and operational framework in accordance with regional and international standards, (iii) ensuring an efficient enforcement of the law and a better management of procurement operations, (iv) effectively managing public procurement reforms and control the public procurement process, (v) integrating the procurement process into the public expenditure chain, (vi) putting in place an institutional development capacity, (vii) ensuring an efficient and satisfactory management of public procurement by the contracting entities, (viii) ensuring competitiveness of the private sector, (ix) providing an efficient control and audit system to ensure compliance with good practices and respect for legal provisions, and (x) eliminating fraudulent and corrupt practices. 5.15. Remarkable progres has been made in the implementation of the 2004 CPAR recommendations. The institutional framework to implement reforms has been put in place by creating the ARMP and making it operational and also by setting up the Dispute Settlement Committee (Comité de Règlement des Différents - CRD) to handle complaints. The revised Public Procurement Code has been adopted by the Government with a view to adapting it to the WAEMU Directives. It plans to create the General Directorate of Public Procurement (Direction Générale de Controle des Marchés Publics –DGCMP), an entity responsible for the ex-ante and ex-post control of contracts signed by the contracting authorities. The implementing regulations for the Code have already been promulgated and standard procurement documents for the provision of intellectual services, goods and services, and works have been adopted by law and circulated. A public procurement journal, providing pertinent information relating to public procurement, has been started and it is published regularly. Public awareness and information programs have been organized for the benefit of all stakeholders. Actions that have not yet been carried out have been taken up by the ARMP within the framework of an updated action plan, notably the following: (i) the development of a training strategy and of training for specific qualifications, (ii) integration of public procurement into the public finance management chain through the use of an appropriate computer application, (iii) implementation of audits and a framework to ensure their follow-up and of an anti-corruption campaign. 5.16. The main success factors lie in the commitment of the Government and the existence of a regional legal framework for public procurement. The Government’s political willingness, as evidenced by the creation and operationalization of the ARMP, was a key success factor in the implementation of the action plan. In addition, the implementation of the public procurement fee and appropriate consultation between donors and the Government were also an element of success. Finally, the existence of WAEMU Directives aimed at harmonizing public procurement among member states of the Union provided the reference framework for procurement legislation as it is binding on all member states. 5.17. Institutional, social and financial constraints have affected the implementation of the 2004 CPAR plan of action, making its take-off difficult. The ARMP was effectively operationalized three years after the adoption of the 2004 CPAR conclusions due to constraints such as the lack of the necessary resources to make the institution function, and the regulatory - 110 - provision that obliges members of the Regulatory Council (CNR) to swear the oath before taking office. Also, the hierarchic level at which the code was adopted, especially at the legislative level, has created and continues to create difficulties for updating provisions which should normally be of a regulatory nature. Typically, it is recommended to involve the legislator in the formulation of fundamental41 principles that should regulate the procurement process and leave the implementation of these principles to the regulatory level. Finally, the constraints linked to the redeployment or the recruitment of state employees into newly created institutional entities constitute an impediment which the reform strategy will have to take into account. D. ASSESSMENT OF THE PUBLIC PROCUREMENT SYSTEM PILLAR I – THE LEGISLATIVE AND REGULATORY FRAMEWORK 5.18. This pillar analyzes the judicial and regulatory instruments at the highest level (legal norms, laws, regulations, national decrees, etc.) and the detailed rules, procedures and tender documents used officially. It checks in particular that the higher level legislation provides an appropriate framework of principles and policies regulating public procurement and that regulations of a lower rank and the more detailed instruments complement the law, making it operational and specifying the way in which the law should be applied in specific circumstances. It verifies the existence, availability and the quality of implementing rules, operational procedures, manuals, models of tender documents and standard contract conditions. Description and Assessment of the Current Situation 5.19. Public procurement is governed by Ordinance No. 2008-06 of February 21, 2008, modifying Ordinance No. 2002-007 of September 18, 2002, on the Public Procurement Code. Even though it has not yet been adopted by the National Assembly, the Government has implemented it and has adopted the expected implementing regulations. The same applies to the decree on the organization and operation of the DGCMP, and orders respectively for organization of the bid opening session, standard composition and responsibilities of the ad hoc assessment and adjudication commissions, procurement ceilings and the deadline for the submission of bids. The Government has also adopted by decree standard procurement documents for intellectual services, works, and goods and services. Strengths 5.20. The scope of the Public Procurement Code covers all the public contracting authorities. By this law, under normal circumstances, no dispensation from the compulsory use of the legal procedures in procurement is allowed for any public institution, management or any sub-national entity when the funds used come from the national budget. It specifies also that the Code is applicable to any private persons benefitting from public funding or acting on behalf of public entities. In addition, the legal framework applies to all types of procurement (goods, works and services, including consultancy services) for which the funds used come from the national budget, including public expenditure on the army, on defense or other similar expenditure as long as they are not described as “state secret.� 41 These principles focus on competition, equity, transparency, independent recourse to justice granted to bidders, internal control and regular audits, etc. - 111 - 5.21. Standard tender documents have been adopted. To apply the provisions of the Procurement Code, the Government has adopted by decree standard procurement documents for intellectual services, goods and services, and works. These documents should help to improve the efficiency of procurement operations. Weaknesses 5.22. Certain provisions of the current code do not follow good practices in procurement. Under these non-compliant provisions, the following are the most important: (i) the use, above the fixed ceiling for procurement, of 2 methods that are non-competitive and are not in compliance with international good practices. These 2 methods are: systematically use of restricted invitations to tender between CFAF 20 and 55 million for works, between 20 and 40 million for supplies and between CFAF 10 and 25 million for intellectual services, and direct consultation for supplies between CFAF 10 and 20 million; these procurement methods contribute to removing a substantial part of the procurement from the open bidding process; (ii) the lack of supervision of the validation of award proposals by the contracting authorities, which leaves the latter free to immediately agree to the proposal; (iii) the lack of rules defining the participation of public enterprises in competitive bidding; and (iv) the definition of a national tender reserved exclusively for a person or corporate entity having a registered office or headquarters in Niger. 5.23. There is no manual of procedures to facilitate the application of the Procurement Code. There is no manual of procedures to inform contracting entities or guides for bidders to enable them to correctly interpret the law and its implementing regulations. 5.24. Inconsistencies persist between the code and its implementing regulations. The standard procurement documents for goods and works offer the possibility of using a grading system to assess bids, and to open the bids in two stages in the case of goods. The composition of the bids opening commission is clearly defined in the code. However, the implementing regulations include an order that enlarges the bids opening commission to include members for which no provision is made in the code. Risks 5.25. The regulatory risk remains high. The fact that this Code has been designed to be passed into a law has become an obstacle in the context of Niger, in the sense that its adoption engenders political divergences between Parliament and the Government on aspects which could have been dealt with by the regulatory framework. It would be more appropriate that Niger, following the example of other countries in the sub-region, could review the legal framework by resorting to a more general public procurement law that would reflect the guiding principles of the WAEMU Directives and adopt a regulatory Code specifying the practical and dynamic provisions for the application of the law. This provision has also the advantage of making it easier to review the Code in the future. In addition, the fact that certain provisions of the current Law do not comply with good procurement practices constitutes a great risk to observing the principles of transparency and equity, bringing down costs and keeping corruption in check. The use of restricted bids linked to a specific amount contributes to excluding a substantial part of procurement from the open bidding process, and consequently limits access to public - 112 - procurement by a large number of suppliers. The lack of supervision of the validation of the award proposals by the contracting authorities, which immediately leaves the latter free to accept proposals, can lead to awarding contracts that are not in compliance with the criteria as defined in the specifications. Finally, the definition of a national competitive bidding reserved exclusively for persons or institutions having their headquaters or registered office in Niger, can, contrary to the spirit of the WAEMU Directives, result into limiting access by contractors of the regional community to a large part of public procurement in Niger and rising public procurement costs. Recommendations In the short-term - Review the draft Ordinance on Public Procurement Code to bring it entirely in compliance with the WAEMU Directives and make all aspects of the implementing regulations consistent with the Code; - Review the standard bidding documents to ensure compliance with WAEMU Directives; - Promulgate implementing regulations to pave the way for the creation of a Bid Opening and Contract Award Commission (COA) and a Technical Bid Evaluation Commission (CTEO)42 within the Contracting Authorities; - Refrain from the use of the provision that authorizes the use of restricted bidding linked to a specific amount, and institute a ceiling for national competition consistent with the capacity of local industry; - Establish a ceiling for national competitive bidding taking into account local industry as well as practices in force in the WAEMU countries. In the medium-term - Promulgate a more general law on public procurement, encapsulating the guiding principles of the WAEMU Directives and prepare a regulatory Code specifying the practical and dynamic provisions for the application of the law; - Publish manuals of procedures for the use of government entities. PILLAR II – INSTITUTIONAL FRAMEWORK AND MANGEMENT CAPACITY 5.26. The analysis of the institutional framework and management capacity comprises an assessment of the way in which public procurement arrangements work as set out in the legal and regulatory framework, through the management organizations and systems which form the public sector’s general governance. In particular, it is necessary to ensure that public procurement arrangements are well integrated and incorporated into the system of public finance management, and that the essential functions of definition of policy on procurement, training and collection of statistics are well in place and function under conditions that will adequately guarantee the principles of transparency and efficiency. 42 The draft decree setting up these commissions has been prepared by the ARMP and it is recommended that it be submitted to the Prime Minister for signature. - 113 - Description and Assessment of the Current Situation 5.27. The definition of policies on public procurement is the responsibility of the ARMP. The ARMP was planned for in Ordinance No. 2002-007 of September 18, 2002 under the Public Procurement Code. However, Order No. 190/PRN/MEF of July 6, 2004, defined the composition, organization and functions of the ARMP, an organization jointly administered by the State, the private sector and the civil society. The ARMP became operational in 2007 when it was fully staffed. The agency is governed by internal regulations and its responsibilities cover the definition of national policy on public procurement, handling complaints and the conduct of audits. It has also the responsibility of defining the national strategy for capacity building of different stakeholders, of information, and of following-up and assessing the system. The regulatory texts on public accounting mandate to take into account contracts already committed in the budget. Strengths 5.28. The Government has set up a functional regulatory organisation (the ARMP) which has an autonomous source of finance. The Public Procurement Regulation system instituted by article 122 of the Public Procurement Code, through the setting up of the ARMP, confers to the latter the necessary powers to carry out its regulatory responsibilities under appropriate conditions with autonomous financing guaranteed by a regulation fee amounting to 1 (one) percent of all procurement transactions. Weaknesses 5.29. There is no arrangement to ensure the successful integration of public procurement into public finance management. Public procurement planning is ensured by the preparation and publication, by the contracting authorities, of procurement plans which make it possible to identify information on the procurement to be undertaken in the annual budget. However, current mechanisms for the management of public finances do not formally guarantee the assurance of credit when tenders are launched. Besides, the current constraints on cash management do not make it possible to ensure the effective availability of resources at the time when procurement commitments are made. It is important that the design of the IT application to manage public procurement, which is being considered by the ARMP, takes into account the possibility of an appropriate interface with the budget IT application following the example of the procurement management system (SIGMAP)43 that exists in certain WAEMU countries. 5.30. The involvement of the ARMP in prior reviewing any directly negotiated contract does not ensure the requisite independence of its Disputes Settlement Committee (CRD). Article 43 of the Public Procurement Code establishes that the “opportunity to use the directly negotiated contract should be approved by the ARMP�. This authorization of procurement transactions through directly negotiated contracts delivered beforehand by the ARMP, is a source of conflict of interest. This involvement of the ARMP in the procurement process substantially affects the independence of the regulatory system and its separation from the internal control 43 These systems are functional in Côte d’Ivoire and are nearing completion in Senegal and ensure good management of the procurement process as well as reliability of the public procurement statistics. - 114 - system and procurement transactions. As a matter of fact, the CRD, which is part of the ARMP (members of the CRD come from the Regulatory Council), is responsible for dealing with bidders’ complaints during the procurement process. This double role finds some of the members in a conflict situation role. This responsibility of the ARMP, being entrusted with the prior review of directly negotiated contracts, is not in compliance with the WAEMU Directives which require a separation of control and regulation functions. 5.31. Public procurement information and capacity development systems are very weak. National statistics on public procurement are neither comprehensive nor published in view of the lack of a centralised information system with regulated procedures and mechanisms to collect and do a follow-up of public procurement data. The ARMP, the entity responsible for information on public procurement, is considering the design of an electronic system, following the example of SIGMAP in Côte d’Ivoire and Senegal, to centralise, collect and disseminate statistics. There is no national strategy for building the capacity of actors in the public procurement chain to ensure that rules and regulations in force are well assimilated. This is an extremely urgent activity as it is indispensable to ensure the efficiency of the procurement system. Risks 5.32. The institutional risk is equally high. The direct intervention of ARMP in procurement by directly negotiated contracts is a risk to the effective independence of its Dispute Settlement Committee in handling of appeals. This situation in which the CRD finds itself is a source of conflict of interest because article 116 of the Code specifies the modality of procurement among the reasons for appeal. This responsibility of the ARMP to authorize directly negotiated contracts is not in compliance with good international practices, including those specified in the WAEMU Directives. Also, the lack of provisions that make it possible to ensure an effective integration of procurement in the current public finance management system constitutes a risk to the competitiveness of the private sector as the current constraints on cash management do not make it possible to ensure the availability of resources when procurement commitments are made, and also to guarantee an effective execution of procurement. It is important that the process that has been started to integrate the management tool for procurement (SIGMAP) in the budget financial management system proceeds without delay to assist in the centralisation, collection and dissemination of statistics using an application that exists in certain WAEMU countries. Finally, the lack of a reliable system for the management of the procurement process does not make it possible to obtain comprehensive data in this area and consequently appreciate the level of effective compliance in the application of procurement regulations and bring corrective measures into the system. Recommendations In the short-term - Entrust compliance control and decisions on directly negotiated contracts to the DGCMP and give the ARMP, particularly the CRD, the right to take to court any decisions that are inconsistent with the regulation; - 115 - - Specify the responsibilities exclusive to the ARMP on any decisions that seek dispensation from the regulatory provisions in force; - Adopt regulations mandating to ensure the availability of credit before the launch of bids; - Define a provisional training programme for all stakeholders of the procurement chain until a national capacity building strategy is in place. In the medium-term - Promote the development of a data and statistics management system, ensuring that its configuration enables it to follow the various stages of the procurement process and its execution and link it automatically to the Website in order to make it an integrated information and public procurement management system (SIGMAP); - Develop a comprehensive strategy for the development of public procurement capacity, taking into account the roles and responsibilities of stakeholders of the procurement process and execution chain and defining training needs, appropriate modules and the training of trainers. PILLAR III – PROCUREMENT OPERATIONS AND MARKET PRACTICES 5.33. This pillar emphasizes operations and examines the efficiency and the operational usefulness of the procurement provisions at the level of contracting authorities and the operationality of current procurement. It is interested in procurement as one of the means of appreciating the quality and efficiency of the system during execution of operations necessary for the procurement of goods and services on a contractual basis. Description and Assessment of the Current Situation 5.34. The technical departments of contracting authorities are responsible for procurement operations and the follow-up of awarded contracts. Within the framework of the reorganisation of Public services, the Government has created within the contracting authorities Divisions responsible for public procurement (DMP), which are part of the Material and Financial Resources Department (DRFM) to help improve the efficiency of the system. These divisions are currently involved in procurement operations until the institutional framework for internal control within the contracting authorities is permanently set up. Strengths 5.35. The effective functioning of the ARMP provides a framework and an efficient mechanism for partnership between the private and public sectors. The collective and responsible management of public procurement regulation creates an effective and positive partnership between the administration and the private sector, and gives the latter the opportunity to express its views on practices of the Government that could undermine the competitiveness of the private sector. However, the legal framework for the development of a public-private partnership such as concession contracts or the setting up of contractors with mixed shareholding for the supply of goods and services is yet to be developed. - 116 - Weaknesses 5.36. The delegation of responsibilities to contracting authorities does not take into account the risks associated with their management capacity. The ex-ante control of procurement below 300 million CFAF is enforced provisionally by the financial control department in anticipation of the DGCMP becoming fully operational. Consequently, the weak capacity of the contracting authorities, coupled with the difficulties encountered by the financial control department to ensure the effective and efficient ex-ante control of procurement, and the weakness of the quality of services reception (see pillar IV), constitute a risk factor in the system. 5.37. Contracting authorities stated that the role of procurement divisions is not uniform and does not ensure consistency and efficiency of the public procurement institutional framework. Each contracting authority has within its structure a division responsible for public procurement (the DMP). However, the tasks assigned to these divisions vary from one contracting authority to the other. Some are responsible for quality control of procurement documents in the technical departments, while others are directly involved in the procurement process, notably bid evaluation, for the entire procurement in their department. The lack of established standards with regards to how long files and documents related to transactions and procurement management should be compulsorily held, weakens the filing and storage process at the DMP level even though the responsibilities given to the contracting authorities are very important in the system. 5.38. The capacity of contracting authorities and private sector operators is very weak with respect to the procurement process. Some limited training aimed at giving information or creating awareness was organized but training for capacity building in the procurement process for the personnel of the contracting authorities, control organizations in the administration as well as contractors and research departments is not yet efficient. Neither are there any training modules on public procurement which could be quickly adapted to implement any in-house training activities. Canada is helping the Government to organize some modules, but this initiative should be complemented by a more comprehensive training strategy which makes it possible to provide specialized modules aimed at different targets (see pillar II). This training should also take into account the need to define mechanisms and responsibilities for classification, storage and the handling of information on procurement. 5.39. There are no procedures for international tender which support a good evaluation of what is at stake from a commercial and developmental point of view. The legal framework does not set out clear rules on international competitive bidding. Article 11a of the Procurement Code provides that “invitation to bid is international when it is addressed to natural persons and institutions without any particular reference to their place of residence or their registered office�. International procurement rules as well as the ceilings and relevant advertisement rules are not specified in the Code to enable an effective competitive pricing when the domestic market does not make it possible to have an adequate number of qualified bidders. Exemptions to the application of certain provisions of the code such as producing qualification certificates for works are not indicated. - 117 - 5.40. The lack of regulation on the principle of acceptance and supervision of civil engineering works constitutes a major obstacle to the viability and quality of procurement. The Procurement Code does not make any reference to the procedures of acceptance of procurement, nor to the obligation of control of delivery by qualified persons. In the domain of civil engineering works, the code does not regulate the supervision of civil engineering works, by making them compulsory, for example, under very precise conditions. These breaches constitute a very important constraint, detrimental not only to the reliability of the procurement but to its quality and security. It would be desirable for provisions to be quickly prepared to introduce into the code the appropriate clauses that will help to address these limitations. Risks 5.41. The operational risk is high. The lack of strategies for capacity building constitutes a real risk for the effectiveness and efficiency of the disbursement of a part of the public expenditure, executed through the procurement process. A good procurement system functions through a performing public sector which is capable of carrying out procurement operations without bias, observing all the requisite rules of transparency, equity and cost savings, and a private sector capable of accessing procurement, and providing quality supplies. Such objectives can only be attained through a system of continuing training, regularly adapted to respond to an ongoing assessment of performance. The authorities should also make available a comprehensive and reliable procurement information system which will enable the private sector to be kept informed about business opportunities and, more generally, all the aspects of procurement, including the regulations. Recommendations In the short-term - Revise the ceiling of approval by the contracting authorities, from CFAF 300 million to CFAF 100 million, in recognition of existing capacity and the effectiveness of internal controls; - Focus the responsibility of the DMP on quality control, training, coordination of information, and filing and storage of procurement documentation, and ensure their independence from the DRFMs which are institutions involved in the procurement process; - Include in the Code the provision of of international competitive bidding when the local market cannot offer adequate competition; - Implement the provisional training program. In the medium-term - Ensure training of the various stakeholders among the public sector, the private sector, and the civil society (citizen oversight), based on a comprehensive strategy; - Develop clear regulations and coercive measures to guarantee appropriate acceptance of services rendered. - 118 - PILLAR IV– INTEGRITY AND TRANSPARENCY OF THE PROCUREMENT SYSTEM 5.42. This Pillar looks into aspects of the procurement mechanism and the framework for governance which are considered necessary to offer the guarantee for a system that works with integrity; to ensure the appropriate controls to help it work in compliance with the legal and regulatory framework; and to define appropriate measures to face the risk of corruption in the system. This pillar seeks to ensure that those aspects are precise and structured in a way to contribute to the integrity and transparency of the system. Description and Assessment of the Current Situation 5.43. Current implementing regulations confer the main responsibility of ex-ante internal control to the DCGMP. The Directorate General of Financial Control (DGCF) carries out, beyond its normal responsibility of control of the legality of expenditure, the ex-ante control of procurement until the DGCMP becomes completely operational. Other governmental institutions for external control, notably the General Finance Inspectorate (IGF) and the General Public Inspectorate (IGE), should ensure the control of public procurement. Finally, the Chamber of Accounts and the ARMP are responsible for the jurisdictional and non-jurisdictional audits of public procurement, respectively. Strengths 5.44. The Dispute Settlement Committee of the ARMP is functioning well. The Dispute Settlement Committee is functional and has full powers to settle complaints from bidders within the framework of the procurement process. This framework for the settlement of complaints is tripartite and its decisions are delivered within the deadlines fixed in the regulations and have the force of law. 5.45. The Procurement Journal disseminates information on procurement. Key information on public procurement is now published in the Public Procurement Journal (JMP) started by the ARMP. The JMP contains general invitations to tender prepared by the contracting authorities at the beginning of the year and updated when necessary. Moreover, specific procurement notices are published in the JMP, with the wide circulation media used to complement when necessary. Finally, all procurement awards are published in it to enable bidders to confirm or question the award by the contracting authorities. Weaknesses 5.46. Internal and external controls are not effective and procurement audits are not done. The public procurement system currently functions without any real internal control of all the contracts awarded, especially by the contracting authorities. The DGCMP is in place but does not have adequate capacity to carry out its mission of control. The new divisions responsible for public procurement that have been set up within the contracting authorities (AC) conduct procurement operations for the most part, and cannot correctly exercise internal control. The DGCF does not have adequate capacity to effectively ensure internal control of tenders signed within the AC. The internal control system is therefore often implemented under conditions that are not in compliance with the responsibility of control involved in procurement operations. - 119 - Procurement audits are not yet carried out in a regular and systematic manner, neither by the ARMP nor by the Chamber of Accounts. 5.47. The ARMP has not yet put in place an electronic system for circulation of information and mechanisms for follow-up on decisions on sanctions. The completion of the website on public procurement could be accelerated to ensure the effective dissemination of all information (opportunities, results, audits, complaints and anonym denunciations). There are no provisions in the implementing regulations to ensure that its decisions, especially on sanctions pronounced by the CRD, are effectively enforced. In addition, information on decisions taken on complaints are not yet publicly disclosed. 5.48. There are no provisions on ethics to effectively prevent conflict of interest. The system does not have clear provisions on ethics with an appropriate and exhaustive definition of situations of conflict of interest, and containing specific provisions on the roles, mission and responsibilities that are incompatible for persons and institutions involved in the procurement process, execution and management of procurement. Such provisions would define responsibilities relative to decision making and subject decision makers to specific obligations with respect to transparency and equity. The persistence of the participation of the private sector in the activities of the tender assessment commission is an illustration of the conflict of interest existing in the current system, which considerably affects transparency in the system. Risks 5.49. The “integrity� risk is equally very high in view of the ineffectiveness of internal and external controls. Control constitutes the milestone of the system in that it guarantees the effective application of the “rules of the game�. The provisions on procurement are characterized by a lack of effective internal control in most public procurement transactions. This situation is the result of the combined effects of the important responsibilities given to the contracting authorities while the institutions responsible for control within these authorities (DGCF and DMP) are generally involved in the procurement process. It is also the result of the weak human resources of the DGCMP and generally of the control institutions. Added to this is the lack of a secure mechanism for certification of services rendered, which does not make it possible to ensure the effectiveness of procurement. External controls are also not carried out because of the weak financial resources of the DGCMP and the inadequate human resources of the Chamber of Accounts. This constitutes a drawback for the integrity and transparency of the system which is important to correct. Finally the system does not have a code of ethics that will make it possible to prevent situations of conflict of interest and to ensure the effectiveness of sanctions, which considerably affects transparency. It is necessary that such a mechanism be put in place through an independent, efficient and coordinated campaign to combat corruption in the public procurement management system. The mechanism should be assessed periodically to ensure its effectiveness. - 120 - Recommendations In the short-term - Strengthen the capacity of the DGCMP to enable it to fulfill its control functions; - Publish the decisions of the CRD on complaints in the Procurement Journal (JMP); - Review the duties of the divisions responsible for procurement in order to harmonize them and to entrust them with ex-ante quality control of tenders signed by the AC; - Review the composition of the respective bid evaluation and award commissions in order to halt the direct involvement of the private sector; - Launch procurement audits for the 2008 and 2009 fiscal year and post the results on the website; In the medium-term - Ensure that ARMP conducts regular public procurement audits, namely those of 2008 and 2009, and publishes the findings in the JMP and on the Website; - Review the current regulations in order to define reliable mechanisms for the management of conflict of interest and enforce respect for ethical principles in the public procurement process; - Adopt and disseminate an Ethics Code on public procurement. E. SUMMARY OF THE RECOMMENDATIONS 5.50. The table below summarizes the recommendations in the paragraphs above, relating to the analysis of the system by pillar. These recommendations, presented in the form of short and medium-term actions, ensue from the weaknesses identified under each pillar. The policy recommendations have been presented in the executive summary to give prominence to them. They are critical actions whose cross-cutting nature affects the entire system. - 121 - Table 5.2 : Table of Recommendations – Public Procurement Problems Actions to be taken ResponsibleTechnical Proposed implementation date encountered Party Assistance ST MT required (Low, Medium, High) PILLAR I: Legislative and regulatory framework I. 1 The Public 1. Review the draft ARMP High 2010 procurement Code Ordinance on Public does not entirely Procurement Code reflect the WAEMU to bring it entirely in Directives. compliance with the WAEMU Directives and make all aspects of the implementing regulations consistent with the Code. I.2 The standard 2. Review the ARMP Medium 2010 procurement standard bidding documents contain documents to ensure clauses that do not compliance with comply with the WAEMU Code and/or the Directives. WAEMU Directives. I.3 The lack of 3. Promulgate ARMP Low 2010 supervision of the implementing validation of award regulations to pave proposals by the the way for the contracting creation of a Bid authorities, which Opening and leaves the latter free Contract Award to immediately Commission (COA) agree to the and a Technical Bid proposal. Evaluation Commission (CTEO) within the Contracting Authorities. I.4 The Code 4. Refrain from the ARMP Medium 2010 authorizes a use of the provision restricted tender that authorizes the which inadequately use of restricted substitutes the bidding linked to a National specific amount, and competitive bidding institute a ceiling for (NCB) and is not national competition consistent with consistent with the WAEMU capacity of local directives. industry. 5. Establish a ARMP Medium 2010 ceiling for national competitive bidding - 122 - Problems Actions to be taken Responsible Technical Proposed implementation date encountered Party Assistance ST MT required (Low, Medium, High) taking into account local industry as well as practices in force in the WAEMU countries. I.5 The detailed 6. Promulgate a ARMP High 2012 Procurement Code more general public is placed too high in procurement law the legal hierarchy which reflects the (law). guiding principles of the WAEMU Directives and prepare a regulatory Code specifying the practical and dynamic provisions for the application of the law. I.6 There are no 7. Publish Manuals ARMP High 2011 manuals of of procurement procedure for the procedures for use of contracting government entities. authorities nor guides for bidders. PILLAR II: Institutional framework and capacity management II.1 The ARMP 8. Entrust the ARMP Medium 2010 issues control of authorizations for compliance and directly negotiated decisions on directly tenders. negotiated contracts to the DGCMP and give the ARMP, notably the CRD, the right to take to court any decisions that are inconsistent with the regulation. II.2 Lack of clarity 9. Specify the Government Low 2010 of ARMP responsibilities responsibilities exclusive to the regarding ARMP on any dispensations. decisions that seek dispensation from the regulatory provisions in force. II.3 The current 10. Adopt MEF Low 2010 system of public regulations that finance make it obligatory management does to ensure the - 123 - Problems Actions to be taken Responsible Technical Proposed implementation date encountered Party Assistance ST MT required (Low, Medium, High) not sufficiently availability of credit integrate public before the launch of procurement. bids. II.4 Lack of a 11. Define a ARMP/MCA High 2010 training program provisional training for contracting programme for all authorities. stakeholders of the procurement chain until a national capacity building strategy is in place. II.5 Lack of reliable 12. Promote the ARMP/MEF High 2011 and exhaustive development of a statistical data on data and statistics public procurement. management system, ensuring that its configuration enables it to follow the various stages of the procurement process and its execution and link it automatically to the Website in order to make it an integrated information and public procurement management system (SIGMAP). II.6 There is no real 13. Develop a ARMP/MEF High 2011 national strategy to comprehensive build the capacity of strategy for the actors in the public development of procurement chain. public procurement capacity, taking into account the roles and responsibilities of stakeholders of the procurement process and execution chain and defining training needs, appropriate modules and the training of trainers. . PILLAR III: Procurement Operations and Market Practices - 124 - Problems Actions to be taken Responsible Technical Proposed implementation date encountered Party Assistance ST MT required (Low, Medium, High) III.1 The 14. Revise the ARMP Medium 2010 contracting ceiling of approval authorities can by the contracting approve tenders up authorities, from to 300 million CFAF 300 million CFAF without prior to CFAF 100 control of the million, in DCMP. recognition of existing capacity and the effectiveness of internal controls. III.2 The DMP 15. Focus the ARMP Medium 2010 participates in most responsability of the of the activities of DMP on quality the tender control, training, commissions. coordination of information, and filing and storage of procurement documentation, and ensure their independence from the DRFMs which are institutions involved in the procurement process. III.3 There are no 16. Include in the ARMP Medium 2010 procedures for Code the provision international tenders of international based on an competitive tender appropriate when the local evaluation of market does not commercial and offer adequate development stakes. competition. III.4 The 17. Implement the ARMP Medium 2010 Contracting provisional training. Authorities are not sufficiently trained. III.5. The lack of a 18. Ensure training ARMP High 2011 capacity for various development stakeholders among strategy constitutes the public sector, a real risk to the private sector effectiveness and and the civil society efficiency of (citizenry execution. oversight), based on a comprehensive strategy. - 125 - Problems Actions to be taken Responsible Technical Proposed implementation date encountered Party Assistance ST MT required (Low, Medium, High) III.6. Lack of 19. Develop clear ARMP Low 2011 regulation on regulations and reception and coercive measures supervision of civil to guarantee engineering works. appropriate acceptance of services rendered. PILLAR IV: Integrity and Transparency of the Procurement System IV.1 The DGCMP, 20. Strengthen the ARMP Medium 2010 is not operational capacity of the for lack of DGCMP to enable it resources. to carry out its control functions. IV.2 The ARMP 21. Publish the ARMP Low 2010 has not yet put in decisions of the place a system to CRD on complaints disseminate and in the Procurement effectively follow Journal (JMP). up decisions on sanctions. IV. 3 The 22. Review the ARMP Low 2010 institutions duties of the responsible for divisions control within these responsible for authorities (DGCF procurement in and DMP) are order to harmonize generally involved them and to entrust in the procurement them with ex-ante process. quality control of tenders signed by the AC. IV.4 The private 23. Review the ARMP Low 2010 sector participates composition of the directly in the bids respective bid evaluation and evaluation and award award commissions commissions. in order to halt the direct involvement of the private sector. IV.5 There is no 24. Launch public ARMP High 2011 audit report on procurement audits public procurement. for the 2008 and 2009 fiscal years and post the results on the website 25. Ensure that ARMP High ARMP conducts 2011 regular public - 126 - Problems Actions to be taken Responsible Technical Proposed implementation date encountered Party Assistance ST MT required (Low, Medium, High) procurement audits and publishes the findings in the JMP and on the Website. IV.6 There is no 26. Review the ARMP High 2011 code of ethics to current regulations help effectively to define reliable avoid conflict of mechanisms for the interest. management of conflict of interest and enforce respect for ethical principles in the public procurement process. 27. Adopt and ARMP High 2012 disseminate an Ethics Code on public procurement. - 127 - Annex 1: PEMFAR I – Status of Implementation of the Priority Action Plan Objectives Actions Status of Implementation 1. Strengthen links 1. Starting with the 2005 exercise, base Budget Law on Not Achieved between budget global MTEFs defining multi-annual sectoral allocations allocations and consistent with priorities of the poverty reduction strategy. Government priorities 2. Continue and intensify ongoing efforts to develop Substantially defined in PSRP and sectoral MTEFs and gradually extend the process to all Achieved sectoral strategies ministries. 3. Submit documents accompanying Budget Law to the Substantially National Assembly highlighting the consistency of budget Achieved proposals with the poverty reduction strategy. 4. Prepare (in consultation with stakeholders, including Substantially donors), approve and implement sectoral strategies and Achieved action plans as a basis for future program-budgets:  For primary education  For the education sector as a whole  For the health sector  For rural development  For the transport sector 5. Prepare program-budgets: Substantially achieved  For primary education (2005 Budget)  For the education sector as a whole (2008 Budget)  For the health sector (2006 Budget)  For the transport sector (2006 Budget)  For the rural development sector (2007 Budget) 6. Allocate HIPC funds to finance recurrent expenditures Achieved in priority sectors consistent with the PRSP. 7. Adopt and implement a program to broaden the tax base Achieved (especially extension to the informal sectors). 8. Gradually increase funds allocated to road maintenance Achieved in accordance to the national transport plan to be adopted. Introduce a financing mechanism aimed at securing long term availability of these funds. 2. Identify alternative 9. Design and implement a plan to tap domestic and Achieved mechanisms for regional market savings (notably to deal with short-term financing the Treasury cash management problems). and the Government budget. - 128 - Objectives Actions Status of Implementation 3. Improve budget 10. Define in each key sector and rank vital expenditures Achieved execution, reduce that need special protection. Define and implement budget disparities between regulations and cash management plans that will voted and executed effectively protect these priority expenditures, taking into budgets, and protect account the seasonality of specific activities. priority expenditures. 4. Simplify and 11. Strengthen the role of financial controllers and simplify Initial Progress rationalize the chain of budget execution by eliminating redundant controls and expenditures. relocating Treasury controls to the accounting phase. 5. Prepare for decentralization process through deconcentration 12. Initiate the delegation of the spending authority to Not Achieved selected central ministries on a pilot basis. 13. Improve the management of crédits délégués by Initial Progress extending the computerized financial management system for both authorizing officers and accountants. Reduce delays for the settlement of these credits. 6. Improve 14. Complete the computerized integrated financial Substantially transparency and management system taking into account the certification achieved information systems. phase and extend this system gradually as follows: Prepare for delegation of commitment authority to line ministries.  DGB, Treasury with an accounting interface  Substantially Achieved  Directorate of financial control  Substantially achieved  Access to a salle d’informatique within MEF on a  Achieved pilot basis  Substantially  Customs, tax administration and debt Achieved  Prepare a plan in 2005 for extending access to all line  Initial ministries in 2006 and following years Progress  Extend the system to DGF and the investment  Initial program. Progress  Computerize operations of the Pairies and Centers de  Initial Sous-ordonnancement. Progress - 129 - Objectives Actions Status of Implementation 7. Gradually integrate 15. Collect and transmit to the DGB on a timely basis Initial Progress externally-financed comprehensive data on externally-financed expenditures. expenditures into the Donors should ensure that their financial information is chain of expenditures. provided to DGF. 8. Modernize and 16. Modify the structure of the Treasury in accordance Achieved restructure the with the Organic Law on budget laws. Separate normative Treasury and accounting functions44. 9. Improve accounting 17. Reactivate the work of the committee to establish Achieved practices to provide an opening balances. accurate picture of 18. Integrate opening accounts into Treasury balances. Not achieved Government financial and non- financial 19. Integrate transactions that are not handled by public Initial Progress assets. accountants, notably externally-financed investment expenditures into Treasury operations. 20. Gradually reduce the use of suspense accounts for Initial Progress future regularization of budget transactions. 21. Use class 1 and 2 accounts for debt and investment Not Achieved goods. 22. Implement WAEMU directives concerning the journée Not achieved complémentaire. 23. Implement article 104 of Public Accounting Achieved Regulations providing for an arrêté or directive concerning modalities for preparing “comptes de gestion.� 24. Anchor the preparation of budget laws in the DGB. Achieved Prepare a manual of procedures for the preparation of budget laws. 10. Strengthen and 25. Carry out a study of the organizational structure of the Initial Progress improve procedures MEF with a view to improving the overall coordination for closing accounts and effectiveness of public expenditure planning and and preparing final management, producing accounts on a timely basis, and Government accounts. optimizing the use of human resources. 11. Strengthen internal 26. Implement the action plan for control by TG, DGB Initial Progress and external audits. bodies, stipulated in December 22, 2003 decision 096 of the Prime Minister. 27. Strengthen the capacity of the Chamber of Accounts by Initial Progress recruiting and training of judges/auditors, and providing manuals of procedures and audit guidelines. 12. Strengthen 28. Integrate all external debt transactions into Not Achieved monitoring and Government accounts. payment of external 29. Organize an external audit of domestic debt which Achieved debt and improve would include sound criteria for verifying, validating, or settlement of domestic rejecting claims. Reactivate on that basis the domestic debt. debt settlement process. 13. Continue efforts to 30. Reconcile payroll and wages/salary payments: Substantially control civil service achieved 44 Legal texts adopted, key managers appointed but the new structure not yet operational - 130 - Objectives Actions Status of Implementation size and cost of  Adopt a coherent nomenclature and appropriate Substantially salaries and wages. software; achieved  Conduct a thorough inventory of Government Achieved employees. 14. Develop and 31. Adapt laws to ensure that regulations concerning the Not Achieved introduce accounting management of Government non-financial assets are instruments for non- consistent with WAEMU directives. financial assets to obtain an accurate picture of Government real estate and other assets. 15. Monitor and 32. Organize public expenditure reviews by MEF and key Substantially evaluate budget sectoral ministries by the end of each fiscal year. achieved outcomes. - 131 - Annex 2: MEF and Public Procurement Institutions Organigrams Organigram of Procurement Institutions National Regulation Council Dispute Settlement Committee Executive Secretariat (SE) SE Secretariat Informatics and Internet center Assistant to the Executive Administrative and financial Secretary department Accounting Department Technical Support Directorate Information and monitoring & evaluation Legal Directorate Directorate Regulatory service Quality, prices and Documentation and information non financial assets service control division Monitoring and evaluation service Reform and transparency Litigation service control service Prices and service provided control unit Training service Non financial asset control service - 132 - Organigram of the Ministry of Economy and Finance MINISTER OF ECONOMY AND FINANCE MEF Cabinet National Statistics General Secretary Office (INS) General Directorate of Budget (DGB) General Directorate of Financial General Directorate of General Directorate of Public Inspection IGF Financial Control (DGCF) Procurement DGCMP Administrative and Financial Affairs Directorate General Directorate of Public Accounting and Treasury DGTCP Commissariat in Charge of Internal Commissariat in Charge of Economy Commissariat in Charge of Development Revenue General General General General Directorate of Directorate of Directorate of General General Financing Internal Revenue General Directorate Sectoral Development Directorate Directorate of Directorate Directorate of of Savings, Programs Programs of Studies and Customs Credit and Evaluation Economy Forecasting Insurance - 133 - Annex 3: Revenue Projections 1. In this annex, a calculation is made of the projected main contributions of the extractive industries to government revenues from 2009 to 2018 through royalties, profit taxes, profit sharing, and dividends taxes. To these figures are added very rough estimates of the contributions of the artisanal mining sector (gold) and the various fees and relatively small taxes that the mining companies pay. The estimates are based on incomplete information regarding the indirect contribution via taxes on employees or sub-contractors or the revenues generated through multiplier type expenditures. Key Assumptions under All Scenarios 2. Production projections: volume estimates are based on past production, company estimates, and MME and IFM projections. 3. Uranium Prices: In 2007, when uranium prices were hovering around US$100/lb, the Niger government pushed for a renegotiation of contracted prices, which were well below spot prices. Following the review, the market fell victim to the financial crisis and prices dropped to around US$50/lb in August 2009. Strong demand for nuclear energy from China and India is expected to bring prices to an average of US$65/lb by 2010. The supply deficit could push the prices further to about US$70 to US$80/lb by 2013. It is assumed that Niger will achieve price stability through its negotiated agreements and benefit from any upside swings by selling its share of the output on the spot market. 4. Gold Prices: For the Samira Hill mine, the price is maintained at the long term export price of US$560/lb. Gold prices have risen dramatically in recent years, and will continue to grow in response to higher demand driven by economic uncertainty. Gold prices were about US$900/lb a year ago and dipped briefly to about US$709/lb only to recover progressively to edge the US$1,000/lb mark in February 2009. In recent months, prices have stabilized around the US$900 to US$950 range. For new gold discoveries in Niger, it is assumed that output will be sold at the spot price varying between US$850 and US$900/lb. 5. Oil prices: in view of a tightening market, oil prices are assumed to increase throughout the forecast period. In real terms, oil prices fell from July 2006 until January 2007, but rose from January 2007 until June 2008 when they experienced the sharpest drop in history. Prices fell from US$124 in June 2008 to US$33 by January 2009. As a result of a market correction, which occurred in March 2009, prices have been steadily rising, and they hold currently at the US$60- US$70 range. For the coming years, it is assumed that this trend will continue, and that oil prices will settle in the US$70 to US$85 range. 6. Operating costs for uranium: these are from IMF data. The operating cost is in the range of US$35/lb for 2007, which was a high oil price year. This level was kept across the board as the lower oil prices are likely to be increasingly offset by higher production costs due to the lower grade of the remaining deposit. In the last three years, operating costs are allowed to increase due to higher oil and sulfuric acid prices and lower grade. - 134 - 7. Amortization: accelerated amortization is assumed for capital investments of US$450 million being realized for upgrading the Somair and Cominak operations during the 2006-2010 period. The US$1.5 billion investment for the Imouraren mine is also assumed to be amortized over 5 years. 8. Profit tax: The rate is maintained at the current level of 35 percent. 9. Dividend payout: AREVA does not have a dividend policy and its dividend rate fluctuates greatly from year to year. It is assumed that it is 40 percent here, which is the average of the years 2003, 2005, 2006 and 2007. The dividend rate of 80 percent in 2004 is treated as an outlier. 10. Dividend tax: It is assumed that the tax on dividends is 10 percent. This rate was deduced this rate by the data on the IMF table. 11. Market trends: It is also assumed that renewed demand from China will offset the negative impact of the global economic crisis on commodity prices. The increases projected are rather modest so may underestimate the contribution in the latter half of the upcoming decade. Base Case Scenario 12. The base case scenario assumes that the country situation does not deteriorate and the project agreements already concluded move forward as planned and current production and price trends are maintained, but no new projects move forward. In view of the uncertainty surrounding the economic viability and the marketing arrangements of the Zinder refinery, oil revenues are not factored in this scenario. Under these assumptions, mineral revenues are expected to grow significantly in 2014 when the Imouraren mine ramps up production. Annual revenues are projected to increase rapidly to a peak of US$298.7 million by 2018. Base case scenario: estimated mining revenues and their sources (excluding oil) (in US dollars) Year Cominak Somair Imouraren Teguida Samira Total 2009 9,438,000 63,876,236 - - 2,464,000 75,778,236 2010 9,438,000 79,035,825 - - 2,710,400 91,184,225 2011 23,385,759 69,660,425 - - 9,222,682 102,268,866 2012 23,385,759 69,660,425 - (4,045,548) 9,222,682 98,223,318 2013 30,312,934 76,792,646 (89,033,712) 12,346,757 9,222,682 39,641,307 2014 30,312,934 76,792,646 (6,915,984) 12,346,757 9,222,682 121,759,035 2015 30,312,934 76,792,646 15,310,880 17,098,150 - 139,514,610 2016 30,959,946 70,523,233 50,017,332 37,883,245 - 189,383,756 2017 37,591,946 70,523,233 152,737,332 37,883,245 - 298,735,756 2018 37,591,946 70,523,233 152,737,332 37,883,245 - 298,735,756 Total 262,730,158 724,180,547 274,853,180 151,395,851 42,065,126 1,455,224,863 - 135 - Optimistic Scenario 13. This scenario assumes that the country political situation improves, the government embarks in bold reforms to implement its stated policy of diversifying the sources of mineral revenues, the UMEOA Mining Code is adapted to the Niger situation, the fiscal provisions of the Convention Miniere Type are brought in line with internal standards, and the institutional framework is strengthened. It is assumed that these measures encourage the development of a new uranium deposit and a new gold deposit. 14. This is also the scenario where Niger begins oil production. It is assumed that the government will resolve the marketing issue of the Zinder refinery by signing offtake agreements for the exportable portion of the output with CNOGDC or a third party or by ensuring the level of operational efficiency needed to remain competitive in the Nigeria export route. The following assumptions are made about oil revenues and are consistent with IMF projections: Annual production at 20,000 barrels/day: 7.2 million barrels Price: US$70/barrel in 2012 growing to US$80/barrel by 2018 Royalty rate: 12.5 percent Profit oil: 70 percent Tax oil: 40 percent Revenues under the optimistic scenario (in US dollars) Total Year New uranium New gold New oïl Total additions revenues 2009 - - - - 75,778,236 2010 - - - - 91,184,225 2011 - - - 102,268,866 2012 - - 27,972,000 27,972,000 126,195,318 2013 - 12,152,240 29,970,000 42,122,240 81,763,547 2014 - 12,152,240 31,968,000 44,120,240 165,879,275 2015 (6,658,814) 14,104,160 33,966,000 41,411,346 180,925,955 2016 (5,337,816) 14,104,160 33,966,000 42,732,344 232,116,100 2017 21,721,645 13,508,960 33,966,000 69,196,605 367,932,361 2018 21,721,645 13,508,960 33,966,000 69,196,605 367,932,361 Tota l 31,446,661 79,530,720 225,774,000 336,751,381 1,791,976,244 - 136 - Pessimistic Scenario 15. This scenario assumes that the current constitutional crisis worsens and leads to political turmoil and civil disturbance. New projects are postponed, while existing ones scale down production due to safety concerns and difficulty of getting critical inputs into the country. Non- state investors retreat and shelve plans for new exploration and development until stability returns. 16. Existing operations face internal problems as critical import routes are affected. Cominak production falls to 1,000 tons in 2011-18 and prices stay at US$50/lb; Somair also reduces production to 1,800 tons in view of reduced demand and prices (at US$50/lb); Imouraren experiences start-up problems and scales down to 4,000 tons due to security problems; Teguida maintains production, but at higher operating costs to US$35/lb; Samira maintains its current rate of production and sells at the contracted prices. Revenues under the pessimistic scenario (in US dollars) Year Cominak Somair Imouraren Tegida Samira Total revenues 2009 9,438,000 63,876,236 - - 2,464,000 75,778,236 2010 9,438,000 79,035,825 - - 2,710,400 91,184,225 2011 8,354,620 40,054,422 - - 9,222,682 57,631,723 2012 8,354,620 40,054,422 - (10,652,187) 9,222,682 46,979,536 2013 8,354,620 40,054,422 (93,197,960) (3,198,276) 9,222,682 (38,764,513) 2014 8,354,620 40,054,422 (36,065,720) (3,198,276) 9,222,682 18,367,727 2015 8,354,620 40,054,422 (41,609,280) (1,037,722) - 5,762,040 2016 4,707,020 33,089,574 (41,609,280) 15,123,878 - 11,311,192 2017 11,339,020 33,089,574 61,110,720 15,123,878 - 120,663,192 2018 11,339,020 33,089,574 61,110,720 15,123,878 - 120,663,192 Total 88,034,160 442,452,890 (90,260,800) 27,285,173 42,065,126 509,576,549 - 137 - Annex 4: Assessment of Diagnostic Questions for Evaluating Public Investment Efficiency Question 1: Is there well-publicized strategic guidance for public investment decisions at central/ministerial/provincial levels? A second Poverty Reduction Strategy Paper (PRSP) has been approved by the Government in October 2007 for the period 2018-12. The PRSP provides a thorough poverty diagnosis2 and presents sectoral plans, reform policy measures, costing, and a policy matrix for 2008–2012, which is linked to achievement of the MDGs. The PRSP recognizes the significant challenges to achieve the MDGs, however. The base case scenario proposes an average annual GDP growth rate of 5.7 percent and a high growth scenario of 7 percent. Question 2: Is there an established process for screening of project proposals for basic consistency with government policy and strategic guidance? Is this process effective? What proportions of projects are rejected in this screening process? In the sectors with a medium-term strategy and a Medium-Term Expenditure Framework (MTEF) – primary education, health and rural development - the planning units in the relevant ministries ensure that projects are part of the MTEF. The Ministry of Public Works has also formulated a medium-term investment program in association with donors. In any event, the investment budget is driven by donors. Its share in total budget is over 50 percent. The screening of projects done by the Program Directorate in the Ministry of Finance is limited to ensuring that projects are supported by a financing agreement before including them in the budget. Question 3: Is there a formal appraisal process for more detailed evaluation of public investment project proposals for costs and benefits? No Question 4: Are project appraisals formally undertaken by the sponsoring department or by an external agency? What is the quality of such appraisals? As indicated above the investment budget is driven by donors. They state their intention to align their projects with the PRSP and they prepare their own appraisals. Question 5: What proportion of the public investment program is donor financed? Are donor financed projects subject to the same or different rules for appraisal and inclusion in the budget as government financed projects? If different, describe the difference. Does the government review project appraisals undertaken by donors? Over the period 2004-07, donors financed 68 percent of the investment program. Projects financed by donors tend to be more thoroughly appraised than projects financed by the government. There is a perfunctory review by government of appraisals carried out by donors. Question 6: Are appraisals screened by an external agency or department for quality and objectivity of appraisal? - 138 - No Question 7: Is final project selection undertaken as part of the budget process or prior to the budget process? Does the government maintain an inventory of appraised projects for budgetary consideration? All projects supported by donors are included in the budget during the budget process Question 8: Is there an effective process to control the gates to the budgeted public investment program, i.e. the collection of projects that are formally approved for budget allocation and implementation? Are the number of oversight agencies limited, and their key roles clearly specified? Do delegation levels exist that make clear the level of materiality for bringing projects to the center? Is there an established but limited process for including projects for emergency or politically imperative reasons? Is it possible to identify when the investment decision is made, by whom, and the criteria that were applied in making it? a. What proportion of projects enter the PIP by “climbing the fence� i.e. by avoiding the gate-keeping process? b. What proportion of projects that “climb the fence� is donor financed? c. Is there a clear system for making decisions on major changes to projects, and are these changes effectively tracked? The public investment program is financed from three main sources, with different decision making processes. The largest source is the donor community. Donors claim to align themselves with the PRSP and finance “their projects� according to their own procedures. Generally, negotiations of project agreements with donors do not involve extensive discussions on the justification of the project. Once a financing agreement is approved, the project is part of the public investment program. In the execution report for 2007, 29 donors are listed for 144 projects, a small minority of them being financed by several donors. This is the case, for instance of the basic education program or the health development program. A number of activities are fully financed by the Treasury. This is mostly the case of sovereignty ministries and institutions which do not get support from the donors. The activities financed concern mostly buildings and office equipment. The third source of financing is HIPC funds. They finance the Special program of the President. The program includes small irrigation and rural water supply projects, construction of schools and nutrition centers and a number of discrete activities. These projects are approved by a small committee in the Presidency but their funding is registered in the relevant ministry’s budget. Implementation of these projects is the responsibility of regional authorities using local contractors. Question 9: What is the typical proportion of the value of new project starts relative to the ongoing public investment program? (use three year moving average) Data not available. - 139 - Question 10. What is the completion rate of the public investment program (annual average over the past 5 years), defined as the annual public investment budget divided by the estimated cost to complete the current public investment program?45 How does this differ across key sectors – education, health, water supply and sanitation, roads and power, for ex.? Data not available. Question 11. Do ministries undertake procurement plans in line with good practice and do they implement procurement plans effectively? No. Question 12. Has the government undertaken a rationalization of its public investment program in the recent past? Did the rationalization improve the prioritization of the public investment program? Did it result in the cancellation or closure of ongoing projects? If yes, what is the percent of the PIP that was cancelled or closed? Indicate if projects were merely “deferred� rather than cancelled. No. Question 13. Are project implementing agencies required to prepare periodic progress reports on projects? Does this include an update on the cost benefit analysis? Are the sponsoring departments accountable for changes recorded in either costs or benefits and for the delivery of net benefits? What mechanisms exist to ensure that this occurs; is there a link to funding controls? Is this record of investment management used in subsequent budget discussions with the MOF or Ministry of Planning? Project units are required to prepare periodic progress reports, but in practice this requirement is not adequately adhered to. There is no update on cost-benefit analysis. Question 14: For a representative subset of the public investment program (including Bank- supported projects), what is the average percentage cost over-run (in inflation-adjusted terms) on major projects in key sectors – relative to the originally approved total estimated cost and any formally amended total estimated cost approval? No data available Question 15: Are projects commissioned to private contractors and if so are contracts awarded on the basis of competitive bidding? Are international firms permitted to bid on contracts? If 45 To illustrate, if the residual investment to complete the current program is $1000 and the annual investment budget is typically $100, the completion rate is 10 percent, implying 10 years to complete. A low completion rate may confirm a poor gate-keeping process that allows too many projects into the budget or it may reflect cost- escalation that causes the cost of completing projects to exceed initial estimates. - 140 - other methods are used, describe the methods. Is there any evidence from CPARs or other reviews of procurement contributing to cost escalation or fraud? No Question 16: For a representative subset of the public investment program, what is the delay in project completion relative to initial estimated time on major projects in key sectors? No data available. Question 17: Is the actual NPV of completed projects measured, and is a project end evaluation undertaken to review the nature of differences relative to the estimated NPV at appraisal? What alternative methods, if any, does it use to undertake ex post evaluation of completed projects? No data available Question 18: Does the government maintain an asset register or inventory of public sector property, equipment, vehicles, etc.? Is legal title to assets maintained? Are assets valued according to sound accounting principles, such that the accounting definition of an asset is met, depreciation is deducted from the asset value and where feasible, asset values are updated to reflect changed prices? No. - 141 - Annex 5: Normative Budget Preparation Timetable Effective Responsible Estimated Budget formulation phases Period Structures Period (year??) Setting up of committees responsible for economic DGB, CE, January January forecasting, as well as fiscal revenue and expenditure DGTCP, projections. DGI, DGD Collection of economic and financial data February January Formulation of macroeconomic and budgetary framework DGB, CE March April note. Formulation of budget outline. Preparation of economic and financial guidelines. Preparation and issuance of budgetary circular to spending DGB April 17 June institutions and ministries. Preparation and issuance of ceilings letters to spending CAB/PM 29 July units. Spending Submission of draft budgets of spending institutions and units June August ministries. Formulation and issuance of timetable of budgetary DGB 29 July conferences. Budgetary conferences MEF July 11 August spending units Budgetary arbitrations CAB/PM 1st October Final closure of incomes and expenditures MEF August 1st October Formulation of the budget bill MEF 1st October Production of budget booklets MEF August Review of budget bill Council of September 2 October Ministers Finalization of budget documents MEF Transmission of budget bill to National Assembly. SGG 2 October October and National November Review and passing of budget law by National Assembly. Assembly 28 November Promulgation of budget law by the President of the Office of the December 24 November Republic. President of the Republic Publication in official gazette. 31 December SGG - 142 - Annex 6: Normal Expenditure Procedure Phase Description Commitment  Credit manager requests for pro-forma invoices or estimates from 3 suppliers (generally selects the lowest bidder). Preparation  The credit manager forwards a commitment proposal and a purchase order to the financial controller. Commitment  Any expenditure act gives origin to a commitment document established by the credit administrator based on modalities set by the Ministry of Finance  The financial controller checks and approves the commitment, and sends it to the Payment Order Directorate.  The Payment Order Directorate checks, records the commitment in the computer system and prepares a credit title which it forwards to the credit manager.  The credit manager forwards the credit title to the supplier to notify him of the order. Liquidation  Following delivery or service the supplier issues an invoice  Attestation by credit manager and financial controller of service provided who prepare a works acceptance report or delivery slip for supplies and signs the credit title.  Submission of the credit title by the credit manager to liquidation section of the Payment Order Directorate where the calculations are checked.  Forwarding of file to the treasury approval section at the Payment Order Directorate, for payment order authorization, following verification of the cash position.  Forwarding to the accounts center of Payment Order Directorate, for order to pay. Order to Pay  Reception of file by the accounts center of the Payment Order Directorate which issues the order.  Transmission of file (orders with supporting documents and order slip) to the treasury accountant. Payment  Verification by the treasury accountant (except control of (i) the availability of credits allocated at the commitment stage by the financial controller and (ii) funds allocated by the Treasury at the liquidation stage).  Payment by the Treasury accountant. - 143 - Annex 7: List of Documents Consulted Constitution of July 18, 1999 of the Republic of Niger Niger Poverty Reduction Strategy, February 2002; Niger PEMFAR, December 2004; Program document PRSCR, May 2006; Niger PRSP 2005 status report, June 2006; Health PER 2005, January 2007; Program document, RSRC 2, April 2007; Education PER 2003-2005, May 2007; Niger Accelerated Development and Poverty reduction Strategy, August 2007; Rural sector PER, September 2007; Rapport de mise en oeuvre du PRSP 2007, November 2008; Public Expenditure Tracking Survey, education and Health, World Bank November 2008 Niger PEMFAR II concept note, December 2008; Education PER 2006-2007, December 2008; Program document GPRG 1, February 2009; IMF Technical assistance report MTEF, April 2009. Poverty reduction strategy implementation report 2007 MINISTRY OF ECONOMY AND FINANCE Decree No. 2006 – 322/PRN/ME/F of December 13, 2006 on organization of MEF Public expenditure review of the MEF for 2007 Budget Law 2009 2009 Budget (Excel file) GENERAL DIRECTORATE FOR FINANCIAL INSPECTION Decree No. 85 – 120 of September 12, 1985 on the responsibilities of the DGIF GENERAL DIRECTORATE OF ECONOMY Note on the macroeconomic framework of the 2009 budget law Note on implementation of PEMFAR I priority actions – February 2009 GENERAL DIRECTORATE OF BUDGET Law No.2003 – 11 of April 1, 2003 on the organic law establishing budget laws Decree No. 2002-196/PRN/MF/E of July 26, 2002 on public accounting general regulations Law No. 2008 – 43 of November 24, 2008 on the 2006 budget execution review law Synthesis of budget review bill for 2007 Decree No. 2003 – 243 /PRN/MF/E of September 30, 2003 determining the annual preparation of the national budget Circular No. 001222 of July 29, 2008 on budgetary discussions for the preparation of the 2009 budget bill and Government 2009 – 2011 investment program Order No.186 of June 16, 2003 defining the list of supporting documents of expenditures of government, territorial communities and their public administrative establishments Decree No. 66-133 of August 11, 1966 amending Decree No. 61-174 of August 24, 1961 on implementation of the national budget management system of Niger. - 144 - Decree No. 68-75 of June 21, 1968 establishing modalities of execution of Government expenditures Instruction on public expenditure accounting dated September 30, 1976 Decree No. 2002 – 197/PRN/MF/E of July 26, 2002 on Government budgetary classification Circular No. 000943/ME/F/DGB/DB of June 17, 2008 setting the fiscal calendar Order No. 0347 of October 10, 2003 determining powers terms of reference of Government budget expenditures. Report of the validation workshop of the Government’s new budget classification of June 19 and 20, 2002. GENERAL PUBLIC INSPECTORATE Decree No. 97 – 272 of July 18, 1997 on the responsibilities and functioning of the IGE PUBLIC DEBT DIRECTORATE Note on the assessment of the domestic debt and arrears as of 12-31-2007 and a clearance plan proposal GENERAL DIRECTORATE OF FINANCIAL CONTROL Decree No. 2007 – 308 /PRN/ME/F of August 16, 2007 on responsibilities of the Financial Controller GENERAL DIRECTORATE OF TREASURY AND PUBLIC ACCOUNTING Decree No. 2006 – 323/PRN/ME/F of December 13, 2006 on the organization and responsibilities of the General Directorate of Treasury and Public Accounting Provisional balance of the Treasury accounts for 2008 as of 02-16-2009 Final balance of the 2007 accounts Government’s table of annual financial forecasts and estimated and actual weekly revenues and expenditures used by the public revenue monitoring committee. GENERAL DIRECTORATE OF CUSTOMS Note dated January 14, 2009 on revenues collected from 2005 to 2008 and 2009 perspectives. Detailed table on the trend of revenues per budgetary item for 2007 and 2008 MINSTRY OF EDUCATION Public expenditure review fiscal exercise 2006-2007 CHAMBER OF ACCOUNTS AND FISCAL DISCIPLINE Organic Law No. 2007 – 22 of July 2, 2007 determining the composition, organization, responsibilities and functioning of the Court of Accounts DIRECTORATE FOR FINANCIAL INFORMATION TECHNOLOGY Information and telecommunications systems master plan of the MEF (2008 final report). - 145 - Annex 8: Update on recent developments (October 2009 to November 2010) N° Update/Observation 1 The Treasury has been reorganized through the Ordinance No. 2010-15 of 15 April 2010, which set out the establishment, organization and functions of the Directorate General of Treasury and Public Accounting, of the Treasury Central Accounting Agency, of the Paymaster General of the Treasury and the of the Treasury's Receivables Office. Officials of the Directorate General as well as different accounting structures were appointed and started their work. DGTCP is currently implementing other aspects of the reform program. 2 The observation regarding the transformation of the Chamber of Accounts into the Court of Auditors is no longer relevant because, since May 18, 2010, that Court has actually been established through the Ordinance No. 2010-17 of 15 April 2010 of the President of the Supreme Council for the Restoration of Democracy. It has been staffed and effectively began its activities. The Court of Auditors is operational, but needs to be strengthened, in terms of equipment, processes, and capacity building of its members. 3 On average, revenues have increased by 13, 3% per year between 2000 and 2006. During this period, revenue outturn was below the budgeted amounts. However, since 2007, revenue growth was much higher - 24.4% in 2008 and 35.7% in 2009. During these years, the ratio between actual and budgeted revenue was 107% in 2007, 113% in 2008, and 121% in 2009. 4 The accounts for up to 2008 were consolidated in 2008. However, the most recent accounts of July 31, 2010, do not include an opening balance. 5 As part of the implementation of the reform of the Treasury, issues raised in the analysis will be addressed and measures applied at all accounting positions DGTCP. Also, monthly meetings with other departments of the Ministry of Economy and Finance in particular, the DGB, the DGI, DGD, etc.., are being held to address issues related to the consistency of data and the regularization of operations in order to are settled and facilitate the monthly closing of accounts. 6 It should be noted that in terms of computer interfaces between the DGB and the Treasury: - Interface "go" Budget / Treasury is fully functional; - Interface "return" exists in terms of computer programs but the information as it is in the Treasury database does not allow an exact matching of payments and commitments. 7 To improve tax compliance, the action plan for the DGI includes the the recruitment of additional staff in 2010. 8 The creation of a unique pay data base is difficult because (i) some agents are not managed by the civil service administration but are paid by the government, and (ii) there are also employees of public establishments of an administrative nature which are known by the civil service administration but not by the MEF (thus missing from the database MEF). The Directorate of Public Service can access the database of the MEF, which suggests that there is some consistency between the two databases, but there is no single database. However, the direction of the Public Service plans to develop an application designed to synchronize changes in both databases. Such a framework could be considered as establishing, in fact, a single database. 9 The Government recognizes that the design and implementation of asset accounting is indispensable, and that the law of 1974 has become obsolete. DGCF and DGIF are currently working to establish a new modern and effective for asset management. At the community level (WAEMU), work is underway to develop a guideline on this topic. WAEMU staff in charge of this have visisted the member countries. If the directive is adopted, its implementation will be from 2011. 10 A training program for new inspectors was developed and submitted for funding under the Programme for Capacity Building of the MEF. 11 The Central Treasury Accountant is now in charge of the responsibilities of the former Directorate of the portfolio. - 146 - paula joachim white C:\Users\wb21847\Documents\NIGER\PEMFAR\PEMFAR II\NG PEMFAR Vol.E. PW\Niger PEMFAR II_Main Report_Vol I_Eng 1.27.PW.docx 1/28/2011 12:37:00 AM - 147 -