Report No. 62548-GA Gabon Public Expenditure Review Better management of public finance to achieve Millennium Development Goals. March 2012 Department for Poverty Reduction and Economic Management 3 Africa Region Document de la Banque mondiale GABON Currency Equivalents Effective exchange rate as at January 31, 2012 Currency unit CFA Franc USD 1.00 CFAF 500 State Financial Year January 1- December31 Weights and measures Metric System Abbreviations and Acronyms AGROGABON Agriculture and Livestock Development Corporation ANGT National Agency for Major Projects BEAC Bank of Central African States CAN African Cup of Nations CEMAC Central African Economic and Monetary Community CGAE General State Administrative Account CGCE General Account of State Accounting Officers CHU University Teaching Hospital CNLEI National Commission Against illicit Enrichment CPAF Classification of Public Administration Functions CRH Residential Loan Refinancing Fund DCAF Central Directorate of Administrative and Financial Affairs DGB Directorate-General for Budget DGCRCP Directorate-General for the Control of Public Resources and Offices DGFC Directorate-General for Financial Control DGMP Directorate-General for Public Procurements EDSG Gabon Population and Health Census EGEP Gabonese survey on poverty evaluation and monitoring EITI Extractive Industries Transparency Initiative FINEX External financing FNH National Housing Fund GDP Gross Domestic Product GPRSP Growth and Poverty Reduction Strategy Paper GSS Government Secondary School ii HEVEGAB Rubber Production Company of Gabon IMF International Monetary Fund LOLFEB Organic law governing finance laws and budgetary implementation LOSDES Law containing guidelines of the economic and social development strategy MDG Millennium Development Goals MTEF Medium-term Expenditure Framework MW Megawatt ONE National Employment Board PASAC Agricultural Program for Food Security and Growth PNDS National Health Development Program PNLP National Malaria Control Program PNSA National Food Security Program PSGE “Gabon Emergent� strategic plan SEEG Gabonese Energy and Water Corporation SOGARA Gabonese Oil Refining Company SUCAF African Sugar Company of Gabon UNDP United Nations Development Program WHO World Health Organization Vice President : Obiageli Katryn Ezekwesili Director of Operations : Gregor Binkert Sector Director : Marcelo Giugale Sectoral Department Officer : Jan Walliser Chief Economist of the sub region : Raju Singh Team leader : Rick Emery Tsouck Ibounde iii Gabon Review of Public Expenditure TABLE OF CONTENTS ACKNOWLEDGEMENTS ............................................................................................................................................................................. VI EXECUTIVE SUMMARY ............................................................................................................................................................................ VIII CHAPTER1. ECONOMIC SITUATION ................................................................................................................................................ 1 A. A COUNTRY THAT IS STILL LARGELY DEPENDENT ON OIL ................................................................................................................. 1 B. ACHIEVING THE MILLENNIUM DEVELOPMENT GOALS REMAINS A CHALLENGE ........................................................................... 4 CHAPTER2. ANALYSIS OF THE 2005 TO 2009 BUDGET IMPLEMENTATION .............................................................. 7 A. 2005 TO 2009 BUDGETARY POLICY: GENERAL CONSIDERATIONS ................................................................................................. 7 B. A SIGNIFICANT SHARE OF THE STATE BUDGET WAS ABSORBED BY GENERAL SERVICES .............................................................. 9 C. THE SHARE OF THE BUDGETS ALLOCATED TO THE SOCIAL SECTORS WAS BELOW THAT OF OTHER AFRICAN COUNTRIES AND OTHER MIDDLE-INCOME COUNTRIES ..................................................................................................................................................11 D. CAPITAL BUDGETS ALLOCATED FOR PRIORITY PROGRAMS OF THE 2006 TO 2008 GPRSP WERE FAR BELOW EXPECTATIONS. ......................................................................................................................................................................................13 CHAPTER3. MEDIUM TERM BUDGET SUSTAINABILITY AND ACCUMULATION OF FINANCIAL RESOURCES ...............................................................................................................................................................................................25 CHAPTER4. PUBLIC FINANCE MANAGEMENT REFORM FOR IMPROVED PUBLIC SPENDING EFFICIENCY ...............................................................................................................................................................................................29 List of Figures FIGURE ES 1: BUDGETARY REVENUES AND EXPENDITURES (BILLIONS OF FCFA) ........................................................................... VIII FIGURE ES 2: USE OF BUDGETARY SURPLUSES FROM 2005 TO 2009 (BILLIONS OF FCFA) .............................................................. IX FIGURE ES 3: RATIO OF SECTORAL BUDGETARY EXPENDITURE IN RELATION TO GDP, 2005 TO 2009 AVERAGE ..................................... X FIGURE ES 4: AVERAGE BUDGETED AND AUTHORIZED EXPENDITURE FROM 2005 TO 2009 (AS A % OF THE TOTAL) .............................. XI FIGURE ES 5: 2006-2008 GPRSP PRIORITY PROGRAMS AND CAPITAL BUDGETS ........................................................................XIII FIGURE 1-1: DISTRIBUTION OF GDP (%) PER SECTOR, AVERAGE FOR 2005 TO 2009 .....................................................................1 FIGURE 1-2: GABON: PROGRESS TOWARDS THE MILLENNIUM DEVELOPMENT GOALS .....................................................................6 FIGURE 2-1: FISCAL BALANCE AS A % OF NON-OIL GDP, 2005 TO 2011 .....................................................................................7 FIGURE 2-2: WAGE BILL AND TRANSFERS AS A % OF GDP, 2005 TO 2010 ....................................................................................8 FIGURE 2-3: CURRENT EXPENDITURE AND CAPITAL SPENDING, AS A % OF GDP, 2005 TO 2010 ........................................................8 FIGURE 2-4: ALLOCATION OF EXPENDITURE (BASED ON PAYMENT AUTHORIZATIONS), AVERAGE FOR THE 2005 TO 2009 FINANCIAL YEARS ....................................................................................................................................................................10 FIGURE 2-5: RATE OF BUDGET EXECUTION 2005-2009 (PAYMENT AUTHORIZATIONS AS A % OF BUDGET ALLOCATIONS) ......................10 FIGURE 2-6: PUBLIC EDUCATION EXPENSES OF AFRICAN COUNTRIES IN 2008 ...............................................................................11 FIGURE 2-7: PRIORITY PROGRAMS OF THE 2006-2008 GPRSP AND CAPITAL BUDGETS .................................................................13 FIGURE 2-8: PRIORITY CAPITAL EXPENDITURE AS A % OF GPRSP, 2006-2008 ............................................................................13 FIGURE 2-9 : CAPITAL EXPENDITURE FOR THE AGRICULTURAL, LIVESTOCK AND RURAL DEVELOPMENT SECTOR, 2006-2009, ANNUAL AVERAGE, CFAF BILLIONS ................................................................................................................................. 22 FIGURE 3-1: OIL PRODUCTION, MILLIONS OF BARRELS PER YEAR, FORECASTS ................................................................................25 FIGURE 3-2: ADJUSTMENT SCENARIO OF NON-OIL PRIMARY DEFICIT ...........................................................................................26 FIGURE 3-3: ADJUSTMENT SCENARIO, EXPENDITURE AND REVENUE AS A % OF TOTAL GDP .............................................................27 FIGURE 3-4: ACCUMULATION OF FINANCIAL RESOURCES AND ANNUAL INCOME, 2010-2060 .........................................................27 iv FIGURE A 1 : 3: GDP GROWTH RATE, 2004-2020 ...............................................................................................................40 FIGURE A 2 : PUBLIC INVESTMENT EXPENDITURE, 2008-2020, IN CFAF BILLIONS ........................................................................41 FIGURE A 3 : MAP OF GABON .............................................................................................................................................44 List of Tables TABLE ES 1: BUDGETARY EXPENDITURES PER SECTOR AS A PERCENTAGE OF NOMINAL GDP (BASIS OF PAYMENT AUTHORIZATION) ........... IX TABLE ES 2: COST OF PROGRAMS IN THE PRIORITY SECTORS IN THE 2006-2008 GPRSP AND ALLOCATIONS (BILLIONS OF CFAF) .......... XII TABLE 1-1: MAIN ECONOMIC INDICATORS OF GABON FROM 2005 TO 2010 .................................................................................2 TABLE 2-1: BUDGETARY ALLOCATIONS AS A % OF TOTAL, AVERAGE FOR 2005-2009 ......................................................................9 TABLE 2-2: PUBLIC EXPENDITURE ON EDUCATION FOR MIDDLE-INCOME COUNTRIES IN 2009 ..........................................................12 TABLE 2-3: PUBLIC SPENDING ON HEALTH, AFRICAN COUNTRIES AND MIDDLE INCOME COUNTRIES 2009 ..........................................12 TABLE 2-4 : STATUS OF ACHIEVEMENT OF THE GPRSP PROGRAMS IN THE EDUCATION SECTOR ........................................................14 TABLE 2-5: STATUS OF IMPLEMENTATION OF THE GPRSP PROGRAMS IN THE HEALTH SECTOR .........................................................16 TABLE 2-6:PRIORITY PROGRAMS OF THE 2006-2008 GPRSP IN THE HOUSING SECTOR ................................................................17 TABLE 2-7 : EXECUTION OF GPRSP ROAD AND WORK PROGRAMS (ON-GOING PROJECTS) ..............................................................19 TABLE 2-8 : 2006-2008 GPRSP: PRIORITY ACTIONS IN THE ELECTRICITY SECTOR.........................................................................20 TABLE 2-9 : 2006-2008 GPRSP. PRIORITY ACTIONS IN THE WATER SECTOR ...............................................................................21 TABLE 2-10: PASAC: DISTRIBUTION OF COSTS PER COMPONENT IN 2010 (BILLIONS CFAF)...........................................................23 TABLE A 1 : OIL PRODUCTION AND REVENUES ........................................................................................................................40 TABLE A 2 : GDP GROWTH RATE, ANNUAL AVERAGE ...............................................................................................................40 TABLE A 3 : MEDIUM AND LONG TERM ADJUSTMENT SCENARIO: KEY INDICATORS .........................................................................42 TABLE A 4 : CONSOLIDATION OF MINISTRIES, VARIOUS PUBLIC INSTITUTIONS AND AGENCIES ACCORDING TO MAJOR FUNCTIONS OF THE STATE............................................................................................................................................................43 v Acknowledgements T his report was prepared by a team led by Mr. Rick Emery Tsouck Ibounde (Economist, Department of Poverty Reduction and Economic Management 3), under the technical supervision of Mr. Raju Singh (Chief Economist of the Central African sub-region of the World Bank). The team also included Mr. Emilio Sacerdoti (Expert in macroeconomics, Consultant), Kolie Ousmane Maurice Megnan (Senior Financial Management Specialist), Ms Hannah Sybille Nielsen (Economist, Department of Poverty Reduction and Macroeconomic Management 3) and Ms Sonia Vanecia Boga (Administrative Assistant at the Gabon Office). Mr. Evrard Engozogo (Consultant) assisted the team in collecting the data needed to conduct the study. Mrs Sidonie Jocktane (Executive Assistant at the Gabon Office) and Mrs Paula Joachim White (Program Assistant, Department of Poverty Reduction and Economic Management 3) contributed to the finalization of the report. Mrs Dorsati Madani (Senior Economist at the Department of Poverty Reduction and Economic Management 3), Mrs Louise Davidson (Senior Operations Officer for Gabon) and Mrs Meikevan Ginneken (Sub-regional Coordinator of the Department of Sustainable Development) reviewed the report and offered their comments. The team would like to thank Mr. Ngambia Magloire, Minister of Economy, Trade, Industry and Tourism for allowing this review to be conducted and for making arrangements for the field trips. The team also wishes to thank Mr. Emmanuel Issoze Ngondet, Minister of Budget, Public Accounts and Civil Service, in charge of State Reform, for kindly discussing the findings of the study during the audience he granted to the mission on June 3, 2011. The team received support and advice from Mr. Jan Walliser (Head of the Department of Poverty Alleviation and Macroeconomic Management 3), Ms Zouera Youssoufou (Resident Representative in Gabon), Daniel Murphy (Senior Operations Specialist at the Directorate of Operations for Gabon), Ms Kathryn Hollifield (former Acting Director of Operations) and Mr. Gregor Binkert (Director of Operations for Gabon). The report is based on the results of documentary research conducted by a World Bank mission to Libreville, from May 25 to June 3, 2011. The mission held very fruitful working sessions with the Directorate-General of Government Procurement, the Directorate-General for Budget, the National Agency for Major Projects, the Court of Auditors, the Cabinet of the Minister of Energy and Water Resources, the Directorate-General for Debt, the Public Treasury, the Committee for Monitoring Economic Reforms, the Directorate for Investment Planning and the Central Directorate for Financial Affairs of the Ministries of Health, National Education, Infrastructure, and Agriculture. A preliminary report was discussed with the Administration during a workshop organized by the Ministry of Economy, Trade, Industry and Tourism on May 30, 2011. The validation workshop of the final report, chaired by Mr. Jean Philippe Ndong Biyogho, Economic Adviser to the Minister of Economy, was held on November 22, 2011. This workshop was attended by the network of Central Directors of Administrative and Financial Affairs (DCAF) of the DGB, the Court of Auditors, the Treasury, the DGMP, the ANGT, representatives of donor community (AFD, ADB, EU, IMF/AFRITAC, UNDP) and the Press. The team is particularly grateful to Mr Paul Mapessi, DCAF of the Ministry in charge of the Budget for his detailed and relevant comments on the final report. vi This version of the report contains four chapters. The first is a summary of the report, which contains a matrix summarizing the main recommendations. The second chapter presents the economic setting of Gabon and the recent economic and fiscal reforms. In the third chapter, an analysis of the budget execution is presented (economic and functional) for the period 2005-2010, with particular emphasis on the implementation status of the GPRSP between 2006 and 2008. Chapter 4 discusses the ongoing reforms to improve the public finance management system in Gabon, the challenges to be addressed and the recommendations to enhance the system’s efficiency. vii Executive summary 1. Although Gabon has witnessed a significant decline in oil production over the last fifteen years1, it still generates significant oil revenue which, due to its small population (1.5 million inhabitants in 2003), enables the country to have a per capita gross national income that is among the highest in Africa (8643 USD in 2010) and to be classified as an upper-middle income country. Despite this high level of wealth, the country is ranked 106th out of 187 countries in the Human Development Index of the United Nations (0.674 in 2011). Consequently, the major challenge for Gabon remains the effective use of its oil resources to diversify its economy, improve its basic social services and infrastructure, while accumulating financial savings that will enable the country to avoid sudden and sharp cuts in public spending once the oil resources have been used up. 2. Thanks to the sharp increase in oil income since 2004 due to the increase in international prices, the country was able to generate substantial budget surpluses between 2005 and 2009 (with an average of 8.8 percent GDP), corresponding to 46 percent of oil revenues (Figure S.1). The budget surplus, however, witnessed a drastic drop in 2009 following the fall in the prices of the country's main raw materials (petroleum, manganese, timber). In 2010, the non-oil primary deficit increased dramatically, due to the drop in non-oil resources and a strong increase in investment expenditure. Figure ES 1: Budgetary revenues and expenditures (Billions of FCFA) Source: Ministry of the Economy and the IMF 3. Almost half the surpluses recorded between 2005 and 2009 were used to reduce external debt (1.37 trillion on a cumulative budget surplus of 2.4 trillion). Reducing domestic arrears and debt owed to the non-banking system absorbed CFAF 690 billion. The remainder, amounting to 283 billion, was used to create a Fund for Future Generations (190 billion) and to repay advances granted by the Central 1 Gabon’s oil production dropped from 18 mega tons in 1997 to 12 mega tons in 2010. viii Bank. Figure S.2 below recapitulates the use of surpluses accumulated from oil revenues from 2005 to 2009. Figure ES 2: Use of budgetary surpluses from 2005 to 2009 (Billions of FCFA) Source: Ministry of the Economy and the IMF 4. Nevertheless, spending levels remained high (44.5 percent of the non-oil GDP on average over 2005-09), but the priority areas received a relatively small portion of the total budget. General services continue to absorb a significant fraction of the budget, that is, more than a quarter (Table S.1) while the social sectors receive an allocation well below the average in sub-Saharan countries, about 22 percent of the budget (Figure S.4), as against more than 25 percent on average in sub-Saharan Africa (Figure 2.6 and Table 2.3 in Chapter 2). Table ES 1: Budgetary expenditures per sector as a percentage of nominal GDP (basis of payment authorization) Average from As a % of GDP 2005 2006 2007 2008 2009 2005 to 2009 Education 2.9 3.0 3.2 3.1 3.8 3.2 Health 1.0 1.2 1.2 1.0 1.4 1.2 General services (including sovereignty expenditure) 6.7 6.0 6.1 5.9 7.5 6.4 Public works 1.4 1.5 1.4 1.4 1.6 1.5 Social security safety net 0.4 0.4 0.5 0.4 0.6 0.5 Source: Calculation made by the authors based on the General Reports of the Court of Auditors, 2005 to 2009 financial years 5. Overall, the analysis of the budget composition between 2005 and 2009 shows that general services, including sovereign expenses, absorb a very large proportion (30 percent) of the total budget, with frequent overshooting of the amount authorized under the budget approved (Figure ix ES.4). Meanwhile, expenditure on infrastructure and the productive sectors is generally below the budgeted amounts. For health and education, the gap between actual expenditure (based on payment authorizations) and budgeted amounts, was relatively small during the period under review. 6. Public expenditure on education from 2005 to 2009 accounted for 15 percent of the State budget (Figure S.4). As a percentage of GDP, they accounted for 3.2 percent (Figure SE.3), a percentage which falls short of the average for sub-Saharan Africa (4 percent) and for countries with income levels similar to that of Gabon (5.8 percent of GDP). Figure ES 3: Ratio of sectoral budgetary expenditure in relation to GDP, 2005 to 2009 average As a % Source: Calculations by the authors based on the General Reports of the State Audit Office, 2005 to 2009 financial years 7. Public spending on health from 2005 to 2009 accounted for 5.6 percent of the State budget on average. This is also much lower than the average for sub-Saharan Africa, where this average was 8.3 percent in 2009. For Gabon, health expenses represented 1.4 percent of GDP in 2009 (Table S.1 and Figure S.3), compared to an average of 2.1 percent GDP in 2009 for sub-Saharan Africa (Table 2.3 in Chapter 2). x Figure ES 4: Average budgeted and authorized expenditure from 2005 to 2009 (as a % of the total) % of the budget Source: Calculations by the authors based on the General Reports of the State Audit Office, 2005 to 2009 financial years 8. Since the early 2000s, the Government began a process aimed at accelerating growth and alleviating poverty. It is against this background that the “Gabon 2025� was formulated in 1995, the “Orientation Law of the Economic and Social Development Strategy� (LOSDES) and the Growth and Poverty Reduction Strategy Paper (GPRSP), finalized in 2006, which incorporates in its core areas the guidelines outlined in the LOSDES. 9. The GPRSP that covered the period from 2006 to 2008 targeted the reversal of the downward trend of the main development indicators and a significant improvement in the living conditions of the population. It was prepared using a consultative approach, based on the broad participation of civil society, and results-oriented, with the ultimate goal of achieving the Millennium Development Goals (MDGs). It was structured around four strategy areas: (i) promoting strong, sustainable, high quality and pro-poor economic growth, (ii) significantly improving access of the entire population to basic social services, (iii) improving infrastructure, and (iv) promoting good governance. 10. The implementation of the 2006-08 GPRSP has not yet been assessed. However, a comparative analysis of the capital budgets for this period with the priority programs of the GPRSP, shows a considerable gap between achievements and ambitions, both for the social sectors and the infrastructure and productive sectors, such as agriculture. 11. The analysis of budgetary expenditure in the priority sectors during the period 2006-08, shows that this expenditure was far below the envisaged envelopes provided in the GPRSP as shown in Table S.2 and Figure S.5. Based on the authorized expenditure, achievements in health and education were between 55 and 70 percent of the amounts earmarked for the priority programs. The achievement rates for road programs fluctuate between 0 percent and 55 percent. This may partly explain the slow progress towards achieving the MDGs. xi 12. The low rates of implementation of priority programs, particularly in the social, economic and public works sectors are largely due to the persistence of several weaknesses in the public finance management system, which continue to affect the quality and efficiency of government spending. The main shortcomings include: (i) budgetary programming that does not really rely on the priorities defined by the GPRSP and the absence of multi-year programming, (ii) the absence of prior project studies indicating the actual cost, technical specifications, schedule and delivery deadlines, (iii) late disbursement of budgetary allocations, (iv) late introduction (in 2010 only) of procurement plans and commitment plans in the sectoral ministries, (v) the low capacity of sectoral ministries to draw up and monitor procurement plans2, (v) the modification of the sectoral ministries’ budgets without earlier consultation and without the prior authorization of Parliament, (vi) shortcomings in the auditing of services rendered leading to discrepancies between budget execution and physical performance, and (vi) the length of the expenditure chain, particularly in the payment phase due to the low quality of supporting documents, but also to cash shortages (the 60-day payment period may be reduced once the texts on the nomenclature of supporting documents have been adopted). Table ES 2: Cost of programs in the priority sectors in the 2006-2008 GPRSP and allocations (Billions of CFAF) Sectors GPRSP 2006-2008 capital budgets Education 128.9 90.1 a Health 204.3 118.6 Housing 73.4 21.4 Road construction 302.7 52.5 b Electricity 569.0 210.7 Agriculture* 40.8 9.6 a Source: GPRSP 2006-2008, General Reports of the State Audit Office, 2005 to 2009 financial years As regards health, the priority programs concern the period 2007-2009 and the achievements include operating expenditures b (excluding wages); Including SEEG investments. 13. With UNDP support, Gabon produced three monitoring reports in 2003, 2006, and 2010, as part of the MDG monitoring,. A Ten-Year MDG Plan for the period 2005-15 was developed following the 2006 report. The third MDG monitoring report, published in 2010, shows that a significant number of MDGs may not be achieved by 2015, especially those relating to the prevalence of poverty and unemployment, the reduction of infant and maternal mortality, the repetition rate in primary education, and the improvement of housing. The achievement of these goals requires strengthening poverty alleviation strategies through the diversification of the economy and the acceleration of growth on the one hand, and the improvement of basic social services, on the other. 2 At the level of the Ministries of Health, National Education and Infrastructure, the 2010 government procurement plan was executed respectively up to the level of 40% for the first two ministries, and 70% for the third. xii Figure ES 5: 2006-2008 GPRSP Priority Programs and capital budgets Source: GPRSP 2006-2008, General Reports of the Court of Auditors, 2005 to 2009 14. To meet the challenge of economic diversification, the new President of the Republic, in office since late 2009, has defined a new economic policy aimed at making Gabon an emerging country within one generation. This policy vision has been defined in the “Gabon Emergent� strategic plan (PSGE) whose sectoral operational plans are being finalized. To meet the objective set by the new President of the Republic, the Gabonese government decided to raise its capital budget to CFAF 900 billion in 2010, as against an annual average of CFAF 300 billion observed between 2005 and 2009. Only an amount of CFAF 600 billion was effectively executed by the end of December 2010, which nonetheless represented a doubling of the capital budget compared to previous years. This leap in capital spending is consistent with the need to provide the country with the infrastructure necessary for economic diversification and to catch up on the delay in achieving the MDGs. 15. Given that oil revenues are time-bound and that the current estimated duration for tapping the oil is 40-50 years, depending on the production rate, an excessive increase in the capital budget, especially in the absence of an efficient public finance management system, would absorb resources that could be used to accumulate savings to cushion any sudden budgetary cut resulting from a fall in the level of oil revenues. It is therefore necessary for investments to contribute effectively to building human capital and infrastructure in order to generate additional resources comparable to current oil revenues. This requires increased control over the quality of public investment and a reduction in unit costs. The National Agency for Major Projects created in 2010, with technical assistance from the Bechtel international firm, can play an important role in this respect. 16. The analysis of budgetary balances over the medium and long terms shows that, in order to accumulate a fund able to provide resources comparable to current oil revenues before the end of the oil production period, the non-oil budget deficit will need to be reduced to 8 percent of non-oil GDP by 2020 and to 4 percent by 2030, and to zero by 2040. xiii 17. The new organic law governing finance laws and budgetary implementation (LOLFEB) adopted in November 2010 is aimed at reforming the public management framework to make it result based and efficiency oriented , as well as to strengthen the transparency of budgetary and accounting information. Henceforth, the budget will be formulated in the form of program objectives whose performance will be assessed on the basis of outcomes. This will better align the budget with national priorities, unlike the practice during the period 2006-2008. 18. After the adoption of the LOLFEB, authorities acknowledged that the transition to a new budget structure, by program objectives, will require a transitional period of approximately three years, although some ministries have already made progress in preparing medium-term expenditure frameworks structured in the form of programs. This is particularly the case of the Ministry of Health (which finalized a National Health Development Plan during the second half of 2010 under preparation since 2006), the Ministry of Agriculture and Rural Development and the Ministry of Energy. The Ministry of National and Higher Education is planning to make available a medium-term expenditure framework based on programs by mid-2012 following an assessment of the performance status of ongoing projects. The Ministry of Equipment has strengthened its planning and monitoring structures and may also prepare an MTEF in 2012. Furthermore, within the purview of the 2011 budgetary conference for the preparation of the 2012 budget law, each Ministry has, with the assistance of a consultant who developed an information system to that effect, drafted a sector-specific MTEF foreshadowing the multi-year programming (a three-year rolling program) of operating and capital expenditure to support the implementationof the “Gabon Emergent� strategic plan. 19. The Directorate-General for Budget should consolidate this sectoral planning into a central MTEF. Regarding the Budget by Program Objectives (BOP), a pilot project is being implemented. It covers four ministries: economy, national education, energy and budget. The project has structured the missions and programs of each ministry. The next phase will target the definition of objectives, strategies and indicators. The current schedule aimsat presenting the 2014 budget in two formats, a traditional format for ministries which have not yet completed their sectoral MTEFs, and a second format by program objectives for those who’s MTEFs will be ready. The new format for all ministries/sectors is planned for the 2015 budget. 20. During the transitional period up to 2015, it seems important that ministries that are currently finalizing their medium-term expenditure frameworks, broken down into programs that are consistent with the country’s new development strategy, present these MTEFs at the budgetary conference and establish a solid structure of evaluation that allows for the monitoring, at least on an annual basis, of the physical and financial implementation of programs. This will make it possible to take prompt corrective measures when preparing the budgets of subsequent years. The MTEFs could be presented in the appendix of the budget acts, to provide for better visibility of the overall framework within which the finance laws fall. xiv RECOMMENDATIONS MATRIX Budget preparation and follow-up within a medium-term framework Problems Recommendations Administration in charge Deadline Absence of a medium-term x Finalizing the “Gabon Emergent� strategic plan (PSGE) in Government/DGB Short term expenditure framework consultation with all stakeholders (sectoral ministries, private sector, civil society). x Pursuing ongoing initiatives intended to align the sector- specific MTEFs with the “Gabon Emergent� strategic plan. DGB Medium term Implementing the work program of the BOP (Budget by Program Objectives) project team aimed at preparing the 2014 Budget Law in the form of a budget by program DGB Short term objectives. x Ensuring that, before the 2014 Budget Lawl, ministries that have already finalized their MTEFs that are consistent with the PSGE, submit these systematically in budgetary Short term conferences. In the same way, the MTEFs may be Sectoral ministries /DGB presented to Parliament as an appendix to the Budget Lawl. x Ministries that have finalized their MTEFs should present an annual report on the physical and financial Short term implementation of their MTEFs of the previous year at the Sectoral ministries /DGB budgetary conference. Poor involvement of sectoral administrations in steering x Putting in place a communication plan, as well as a the implementation of strategy to popularize the LOLFEB and train all the Ministry of Budget and Short term budgeting by program stakeholders, using communication tools and explicit Public Accounts objectives training material. Improving budget execution xv Problems Recommendations Administration in charge Deadline Low execution rates of the x Preparing reviews of public expenditure in the key sectors DGB Short term social sectors and productive of education, health, agriculture, housing and sector budgets infrastructure in order to analyze the efficiency of the intra sectoral allocations and step up the impact of these sectors on the achievement of MDGs Long delays in payment x Setting up a program for strengthening the capacity of the DGB and the main sectoral ministries (health, education, DGMP, DCAF, sectoral Short term public works, energy, housing) in the programming, ministries follow-up and assessment of public investments x Preparing, at the beginning of the financial year, contract Prime Minister’s Office award plans as soon as the Budget Law is approved, and /DGB/ Sectoral Short term rapidly preparing the associated commitment and cash- ministries flow plans, to facilitate the implementation of the budget at the beginning of the year. xvi Improving the programming and monitoring of multi-year commitments Problems Recommendations Administration in charge Deadline Absence of reports on the x Setting up a program to build the capacity of the DGB and ANGT/DGB/DGMP/DGCF Short term physical and financial sectoral ministries in budgetary monitoring and sectoral Ministries implementation of the assessment. budgets and the GPRSP Short term x Accelerating the development of the guide on the DGB formulation and the follow-up and monitoring of the Public Administration projects being prepared by the DGB. x Carrying out mid-term reviews of budgetary execution DGB/DGMP/DGCF/DGST/ANGT before the finalization of the Budget Law for the following Short term year, to determine the amount of credits that will not be used before the end of the year-to-date and to reinstate the unused credits of approved activities . x In keeping with agreed procedures, executing the unused ANGT/DGB/DGMP/DGCF/DGST 2010 budgetary allocations that were transferredto the Medium term Economic Recovery Fund in 2011 and 2012. Avoid transferring new unused credits to the Economic Recovery Fund by the end of 2012 to avoid increasing the management burden of the treasury that would be faced with the parallel management of several financial years. x Considering the institution of Commitment ANGT/DGB/DGFC/DGST Authorizations/Payment Credit. Long term x Optimizing the use of the National Agency for Major Very high unit costs and Projects by: insufficient follow-up of the progress of activities - Providing for the transfer of expertise of the ANGT towards sectors that are not covered by the agency (non- core but essential projects). - Promoting a culture of monitoring within the ministries – cost assessment and analysis using ANGT procedures. xvii Accelerating the reform of the public procurement code Problems Recommendations Administration in charge Deadline Recourse to direct award of x Strengthening the capacity of the stakeholders in DGMP Medium term public contracts and awarding public contracts (sectoral ministries, DGMP). insufficient control on the progress made in the work x Decentralizing the DGMP by setting up correspondents in and services rendered the ministries, possibly within the central directorates of DGMP Medium term financial affairs (DCAF). x Improving the computerized system of follow-up of DGMP Short term public procurements (including the terms of computerized security locks during validation). Short term x Stepping up the verification of initial advances and DGMP payments for public contracts x Separating the regulation function from the control Medium term function (creation of a regulation agency). DGCRCP xviii Improve the production of public accounts Problems Recommendations Administration in charge Deadline The State Audit Office was x Accelerating the adoption of the draft decree organizing DGST/Council of Short term not able to produce the the budgetary and accounting framework for State/Prime Minister’s declaration of conformity administrations endowed with management autonomy. Office between the General State Administrative account x Ensuring that the Trial Balance of the Treasury Accounts Short term (CGAE) and the General provides information on the accounts of autonomous Account of State Accounting accounting offices with the necessary details. DGST/Administrations Officers (CGCE) for the 2008 with autonomous and 2009 budget years. x Carrying out a systematic regularization of advances to the management budget before closing the accounts at year end. Short term x Strengthening the capacity of DCAFs in drawing up the administrative accounts of ministries. Medium term Public Treasury/Administrations with autonomous management /DGB Public Treasury/DGB xix Chapter1. ECONOMIC SITUATION A. A country that is still largely dependent on oil 1.1 A country rich in natural resources with a small population (1,500,000 inhabitants in 2003), Gabon extends across a surface area of 267,667 km2 and is one of the few upper middle-income countries of Sub-Saharan Africa. It’s per capita income was estimated at 8,643 USD in 2010. The country’s population is relatively young, with half under the age of 20 years. 1.2 Although oil production has dropped since 1998 and despite attempts to diversify the economy, Gabon has, for more than forty years after oil production started in this country, remained heavily dependent on this commodity. The oil sector has contributed 81 percent of exports, 48 percent of GDP and 60 percent of budgetary revenues on average over the past 5 years. 1.3 The non-oil sector is characterized by the predominance of tertiary activities. Services, which were boosted in the last ten years by the boom in mobile telephony, contributed an average of up to 28 percent of nominal GDP between 2005 and 2009, while the agricultural sector, over the same period and despite the enormous potential of this sector in Gabon, represented only 4 percent of national wealth. Meanwhile during the same period, the share of the secondary sector in the GDP that has essentially been oriented towards the domestic market, has remained stable, showing an average annual growth rate of 9 percent of GDP. The other major raw materials of the country including timber (logging and wood industry) and manganese, accounted for 2 percent and 3 percent respectively of nominal GDP over the period under review. Figure 1-1: Distribution of GDP (%) per sector, average for 2005 to 2009 Oil; 48% Source: Ministry of the Economy 1 1 1.4 Following a long period of poor performance, Gabon’s economic and financial situation improved considerably between 2004 and 2010. The boom in oil prices between 2004 and 2008 and a slower than expected decline in oil production, coupled with government's commitment to implement structural reforms, produced good economic and financial results for the country. GDP increased at an average annual rate of 2.7 percent between 2003 and 2007 as against -1 percent between 1999 and 2002. The overall fiscal surplus increased from 3.4 percent in 2002 to 7.8 percent of GDP in 2007. The public external debt dropped from 82.8 percent to 34.5 percent of GDP over the same period. The current balance of payments also improved with surplus increasing from 6.8 percent in 2002 to 12.9 percent of GDP in 2007. Inflation remained below 1 percent between 2004 and 2006, thanks to the cautious monetary policy of the regional Central Bank (BEAC). However, inflationary pressures were observed in 2008 following sharp increases in food and oil prices. Table 1-1: Main economic indicators of Gabon from 2005 to 2010 2005 2006 2007 2008 2009 2010 Est. Est. Real GDP (annual growth rate) 3.0 1.2 5.6 2.3 -1.4 5.7 Oil GDP -0.4 -8.9 3.4 -1.4 -4.5 4.1 Non-oil GDP 4.3 4.9 6.2 3.4 -0.5 6.1 Inflation 0 -1.4 5.0 5.3 2.1 1.5 Fiscal revenue (as a % of GDP) 31.4 31.7 29.5 31.9 32.6 30.7 of which oil revenue 19.8 20.3 18.4 20.9 16.2 17.9 Total expenses (as a % of GDP) 22.8 22.5 21 20.5 26.1 25.8 of which current expenses 17.3 16.6 15.1 14 17.7 15.6 Non-oil primary balance (as a % of non-oil GDP) -17.5 -18 13.3 -14.8 -13.9 -21.1 Overall balance (deficit (-)) 7.8 8.6 7.8 11.4 6.5 4.8 Terms of trade (deterioration -) 34.3 8.5 5.2 13.4 -22.6 11 Reserves (in months of imports) 3.0 3.9 3.4 6.6 5.9 7.0 Current account surplus (% GDP) 15.9 12.6 15.5 23.3 7.9 10.5 External public debt /GDP 39.1 32.5 34.9 15.6 18.8 15.7 Per capita gross national income (in constant USD) 5120 5300 6450 7320 7370 Nominal GDP (in billions of FCFA) 4,599 4,992 5,544 6,508 5,170 6,444 Source: Ministry of the Economy and IMF 1.5 In 2008 and 2009, the international financial crisis severely affected the Gabonese economy . The main export commodities (oil, timber and manganese) recorded a sharp drop in their prices, causing a decline in economic growth. In 2010, the economy witnessed an upturn achieving a growth rate of 5.7 percent and low inflation. The current account and overall fiscal balance remained significantly positive. However, due to the large increase in the capital budget decided by Government in 2010, the medium- term sustainability of public finances deteriorated with the non-oil primary deficit reaching 21 percent at the end of 2010. Inflation, however, remained moderate (1.5 percent). 1.6 The employment situation in Gabon is disquieting. The National Employment Board (ONE) estimates that the unemployment rate for youths below 30 years is 30 percent and the overall 2 unemployment rate stands at 16 percent. This is mainly due to the mismatch between the array of education services offered and the needs of the productive sector: 54 percent of job offers registered by ONE concern profiles of technicians and senior technicians, while 64 percent of registered applicants have no vocational training. This mismatch reflects the educational system of Gabon, where only 8 percent of students are enrolled in technical and vocational education, as against 92 percent in general education. The persistence of a high structural component of unemployment largely explains the low level of employment observed despite an improvement in economic activity between 2004 and 2008. The employment board estimates the level of modern structured employment at 130 000 (including 60 percent in the public sector) out of a global workforce estimated at 900 000 persons. 1.7 Improving governance is one of the biggest challenges facing Gabon. The international perception is that corruption is still widespread in Gabon. The country was ranked 100th out of 178 countries in 2011 on the Corruption Perceptions Index of the NGO, Transparency International. To demonstrate the country’s determination to improve transparency in managing oil and mining revenues, Gabon joined the Extractive Industries Transparency Initiative (EITI) in 2005 and has produced three reports (2005, 2006 and 2007) reconciling payments of oil and mining industries and those received by the State. Subsequently, the country was not able to publish another report. The Government also adopted an anti-corruption law, a code of conduct for civil servants and established a National Commission against Illicit Enrichment (CNLEI) in 2002. 1.8 Concerning economic governance, while the overall investment climate is liberal, a variety of administrative barriers hinder commercial activities in many economic sectors and economic operators complain about incidental taxation and high labor costs that compromise their competitiveness. Gabon was ranked 156th out of 183 countries in the World Bank’s 2012 Doing Business report on the business climate. To improve the business climate in Gabon, the Government established an inter-ministerial commission in 2009 and signed a technical assistance agreement with the International Finance Corporation (IFC) in November 2010. IFC assistance began in the second half of 2011. 1.9 To meet the challenge of economic diversification, the new President of the Republic, in office since 2009, defined a new economic policy "Emerging Gabon", whose ambition it is to make Gabon an emerging country in one generation. The main focuses of this program are: (i) the development of a light steel industry, the industrialization of the timber sector and self-sufficiency in clean and sustainable energy (Industrial Gabon), (ii) rational management of biodiversity and the revitalization of agriculture (Green Gabon) and (iii) the development of a regional pool of intellectual services and a digital economy (Services Gabon). 1.10 In order to implement this vast program, Government decided to raise the capital budget to CFAF 900 billion in 2010 (which represents three times the average annual budget allocated over the period 2006 to 2008) to curb the deficit in the country’s basic infrastructure and make the business climate more attractive to the private sector. The public investment rate, which stood at 5 percent in 2008, was raised to 14 percent of GDP in 2010. However, the absorption capacity of the country only allowed for the execution of the capital budget to the level of CFAF 600 billion. The 2011 budget 3 reduced the capital budget to CFAF 700 billion. Government intends to maintain this level of investment in the medium term. 1.11 Increasing the capital budget poses many challenges. These include: improving the public investment management mechanism (from the preparation to the verification of works through public procurement), a debt policy that ensures compatibility between the legitimate ambitions of the Gabonese government and the requirements of medium and long term sustainability of public finance and a control of current spending, especially the payroll and transfer of funds, to provide for a budget that can support the level of investment desired by Government in the medium-term. 1.12 Conscious of these challenges, Government has embarked on a wide range of public finance reforms. These include the revision of the institutional and legal organic framework in order to adapt it to a results-based system of public finance management (Chapter IV), the development of a management tool of the State liquid funds, improved reporting on public finance and modernization of the institutional framework of debt management. To ensure better visibility of its oil resources, Government launched an audit of the exploration, production, export and marketing operations of companies in the oil sector in 2011. This was done to determine the level of compliance of each oil company with its contractual obligations with respect to concessions or production sharing and to find out whether the terms of these contracts are advantageous or not to Gabon. This audit is being carried out by the consulting firm, Alex Stewart International. 1.13 In 2010, the Government of Gabon had already hired the international consulting firm, Bechtel, to assist in the management of major infrastructural projects through the creation of a National Agency for Major Works (Chapter IV), the preparation of a strategic plan for infrastructure development and the organization of the 2012 African Cup of Nations. Similarly, in 2010, a National Debt Directorate-General was created and was tasked with preparing the country's debt policy and with actively managing debt. These efforts to improve economic governance also included an audit of the number of government employees which revealed close to 7 000 ghost workers, that is, 10 percent of the total number of civil servants whose removal from the payroll should result in a significant reduction in the public wage bill.. In early June, at the end of a decentralized cabinet meeting, the President of the Republic reiterated his determination to maintain the course of reforms, for better economic and financial governance of the country. B. Achieving the Millennium Development Goals remains a challenge 1.14 The latest report on progress towards the MDGs was prepared by the Gabonese authorities with the assistance of the UNDP in August 2010. According to this report, a significant number of MDGs may not be reached by 2015, particularly those relating to the incidence of poverty and unemployment rates, repetition rates in primary schools, reducing infant and maternal mortality and improving housing (Figure 1.1). 4 1.15 As regards the impact of poverty, the goal of halving the population living in extreme poverty by 2015 compared to 1990 will be difficult to attain. Indeed, data from the latest survey on poverty for 2005 shows an increase in this segment of the population between 1990 and 2005 (from 25 percent to 33 percent), reflecting the low non-oil GDP growth, inadequate diversification of the economy and low job creation. 1.16 Reducing infant mortality by two-thirds and maternal mortality by three quarters are also goals that have proved difficult to achieve. For the first indicator, a significant reduction was achieved between 1990 and 2000 (from 155 per thousand to 91 per thousand), as of the date of the last Demographic and Health Survey (EDSG). Available estimates indicate a further drop to 52.7 per thousand in 2010, but the target of 31.5 per thousand for 2015 still remains out of reach. The maternal mortality rate remains high and the reduction between 1990 and 2005 (from 600 deaths per 100 000 births in 1990 to 420 in 2010) will make it difficult to attain the target of 150 deaths per 100 000 births in 2015. 1.17 In the education sector, although the enrollment rate in primary schools is among the highest in sub-Saharan Africa, the repetition rate remains high due to overcrowded classrooms and the lack of qualified teachers in rural areas. The school dropout rate is also very high. Despite an increase in the budgetary allocation to the education sector since 2004, needs in terms of classrooms in primary and secondary schools, educational support and new teachers, remain very high, as highlighted by the recent national forum on education. The goals of building classrooms in primary and secondary schools established in the GPRSP were not met. 1.18 Needs in the housing and social habitat sector are still very high, as noted in the 2006-2008 GPRSP and the Housing Forum held in August 2010. The GPRSP showed a housing deficit of 130,000 units. But this figure was reviewed in 2010 to almost 200,000 units. In 2010 the Government set a target of building 5 000 homes each year, primarily in Libreville and in large urban centers. In any case, the real needs, including the upgrading of existing substandard housing, are probably higher. 5 Figure 1-2 : Gabon: Progress towards the Millennium Development Goals Out of 1000 Out of 100,000 births Source: UNDP and the Gabonese Republic, Third National Monitoring Report of the MDGs 6 6 Chapter2. ANALYSIS OF THE 2005 TO 2009 BUDGET IMPLEMENTATION A. 2005 to 2009 budgetary policy: general considerations 2.1 Thanks to the favorable evolution of oil revenues since 2005, Gabon has recorded substantial budgetary surpluses (see Figure 2.1), reduced its external and domestic debt and accumulated reserves amounting to about CFAF 190 billion at the end of 2010. This accumulation of reserves occurred during the period 2006 to 2008; no increase has been reported since 2009. Between 2006 and 2008, the country also reimbursed about CFAF 200 billion francs of statutory advances to the Central Bank. New drawings were made in 2009. The country's external debt was reduced to reasonable limits (16.6 percent of GDP at the end of 2010) with prospects of medium-term reduction. 2.2 During the period 2005 to 2009, the non-oil primary deficit averaged 15.5 percent of non-oil GDP (Figure 2.1). By comparing this level with that of oil revenues (38 percent of non-oil GDP on average), it can be concluded that about three quarters of the oil revenue were used to cover the non- oil budget deficit, and one quarter was used to pay debts and accumulate reserves. The non-oil primary deficit widened considerably in 2010 owingto the sharp rise in capital spending. Figure 2-1: Fiscal balance as a % of non-oil GDP, 2005 to 2011 Source: Calculation of authors based on the General Report of the Court of Auditors, 2005-2009 financial years 2.3 A more cautious spending policy would have allowed for greater accumulation of reserves. The main point is that the needs of the priority sectors have only been partially satisfied and that the implementation rate of priority programs identified in the GPRSP was low. This leads to the conclusion that the main weakness of the 2005-2009 fiscal policy was an expenditure allocation in favor of general 7 7 services, including sovereignty expenditure, which was very high, to the detriment of priority sectors, such as infrastructure and social services. 2.4 The quality of spending also suffered from a significant rise in the wage bill and a high transfer of funds to the oil refinery company (SOGARA), to maintain prices of refined products at filling stations at levels that do not reflect the rising international prices (Figures 2.2 and 2.3). After having stabilized at 5 percent of GDP between 2005 and 2008, the value of the wage bill increased sharply both in 2009 and 2010, to reach 6.6 percent of GDP in 2010. This increase is largely attributable to wage adjustments owing to promotions and advancements, to the payment of various allowances to teachers, health and education staff, to the upgrading of the minimum guaranteed inter-occupational wage (SMIG) and to recruitment into the security forces. Subsidies to SOGARA reached 2 percent of GDP between 2005 and 2006. However, these subsidies were reduced to 0.4 percent of GDP between 2009 and 2010, thanks to efficiency gains of the company. In addition, sovereignty expenditure remained at about 1 percent of GDP between 2005 and 2009. Figure 2-2: Wage bill and transfers as a % of GDP, 2005 to 2010 Source: Ministry of Economy and the IMF Figure 2-3: Current expenditure and capital spending, as a % of GDP, 2005 to 2010 Source: Ministry of Economy and the IMF 8 B. A significant share of the State budget was absorbed by general services 2.5 Since the functional budgetary nomenclature is not yet being applied in Gabon, it was necessary for purposes of the analysis of sector-based allocations of public expenditure, to reprocess the data contained in the reports of the Court of Auditors that were used for the review. In the first place, the budgetary allocations, which are currently assigned per spending ministry rather than per function, were grouped per major function of government, in keeping with the Classification of Public Administration functions (CPAF) enshrined in the Public Finance Manual of the IMF. Thereafter, some adjustments were made: expenditure on scholarships and internships, which were centrally managed by the Ministry in charge of Budget, was allocated to the Education Function of Government. Sovereignty funds were included in the expenditure on general State services and expenditure on rotating holidays were broken down according to their intended use (health, education, infrastructure...). Similarly, the expenditure of the Military Training Hospital was added to health care costs because the hospital serves not only the military and security forces, but also offers its services to the general public. Appendix 2 presents the grouping of ministries, the different public institutions and agencies according to the major functions of the State. 2.6 From 2005 to 2009, the implementation of the State budget was characterized large allocationfor the general services funds, including sovereignty expenditure (an average of 30.8 percent of total expenditure on the basis of payment authorizations), and relatively low allocations for social sectors and housing (22 percent on average). The education sector received an average of 15 percent of the budget (on the basis of payment authorizations) and the health sector received 5.6 percent (Figure 2.4). Table 2-1: Budgetary allocations as a % of total, average for 2005-2009 Defense Publics General Social Economic and Education Health Housing Works Services Security Affairs Security Budget 14.4 6 0.9 7 28.2 2.1 9.6 9.3 Payment authorizations 15.1 5.6 0.9 7.1 30.8 1.5 8.6 7.7 Source: Calculation of authors based on the General Report of the Court of Auditors, 2005-2009 financial years 2.7 For all the years concerned, general service spending (including sovereignty expenses) exceededhe budgetary allocations . This over-expenditure was offset by a shortfall in outlays with respect to budgetary allocations for the public works and economic sectors (agriculture, forestry, mining, energy, transport) as shown in Table 2.1 and Figure 2.5. 9 Figure 2-4: Allocation of expenditure (based on payment authorizations), average for the 2005 to 2009 financial years Net Debt servicing, loans General interest 10% services 25% Sovereignty expenditure 5% Public order and Defense 7% security 4% Major feasts 4% Social security Economic affairs & 2% Education 15% public works Health 5% Public works outside of rotating holidays Culture and leisure 1% Environment 0% Housing 1% Source: Calculation of authors based on the General Report of the Courts of Audit, 2005-2009 financial years Figure 2-5: Rate of budget execution 2005-2009 (payment authorizations as a % of budget allocations) Source: Calculation of authors based on the General Report of the State Audit Office, 2005-2009 financial years 2.8 Spending on education has been increasing in absolute value since 2005 (from CFAF 131 billion in 2005 to CFAF 173 billion in 2010, including scholarships), whereas a drop in relative terms was recorded (from 16.5 percent of the budget in 2005 to 13.6 percent in 2009), on the basis of payment authorizations, and to 9.4 percent in 2010 (budgetary allocation). A recovery to 15 percent is expected in the 2011 budget, thanks to a doubling of the capital budget after a serious reduction in 2010. 2.9 For the health sector, both budgetary allocation and authorized expenditure between 2005 and 2009 as a percentage of the total budget remained broadly stable. A sharp increase was recorded in the 2010 and 2011 budgets, as their share in the total budget rose from 5.1 percent in 2009 to 6.4 percent on average for the two years. The growth concerned capital budgets in particular, which have 10 trebled. However, on the basis of payment authorizations, the figures for 2010 , not yet available during the review, are probably below the initial allocations. 2.10 In the housing sector, sanitation and construction of housing needs are still very high, and the progress in meeting the demand during the period 2005 to 2009 was relatively modest, as acknowledged in the 2010 report on the achievement of MDGs and by the Housing Forum held in August 2010. The housing deficit is estimated at about 200 000 units. C. The share of the budgets allocated to the social sectors was below that of other African countries and other middle-income countries 2.11 The budget allocated to health and education (on the basis of payment authorizations), stands respectively at 15.1 percent and 5.6 percent on average over the period. It is lower than the average for sub-Saharan Africa, where education receives on average 16 to 18 percent of the budget and the health sector, 8 percent (Figure 2.6 and Table 2.3). These ratios are also low when compared to those observed in other middle-income African countries (South Africa, Botswana, Mauritius, and Kenya). Figure 2-6: Public education expenses of African countries in 2008 Source: World Bank, World Development Indicators 2.12 A comparison with middle-income countries outside sub-Saharan Africa also shows that allocations for health and education as percentages of the total budget and GDP are lower in Gabon. For a representative group of middle-income countries, shown in Table 2.2 below, budget allocations for education in 2009 amounted on average to 20.5 percent of the total budget and 4.8 percent of GDP (Figure 2.6), significantly above the rate achieved by Gabon. As for health, budget allocations represent 11.6 percent of the total budget and 3.3 percent of GDP, that is, about twice as much for Gabon (Table 2.3). 11 Table 2-2: Public expenditure on education for middle-income countries in 2009 Public expenditure on education Public expenditure on education as as a % of GDP a % of the budget Middle-income countries Gabon 3.8 13.6 Morocco 5.6 25.7 2008 Tunisia 7.1 22.4 2007 Brazil 5.1 16.1 2007 Peru 2.7 20.7 2008 Mexico 4.8 Chile 4 18.2 2007 Ukraine 5.3 20.2 Thailand 4.1 20.3 average MIC (excluding Gabon) 4.8 20.5 Source: World Bank, World Development Indicators Table 2-3: Public spending on health, African countries and middle income countries 2009 Public expenditure on Public expenditure on Total expenditure on Public expenditure on health as a % of total health as a % of the health as a % of GDP health as a % of GDP expenditure on health budget Sub-Saharan countries Gabon 3.5 1.5 42.9 5.1 South Africa 8.5 3.4 40.1 10.1 Mauritius 5.7 2.1 36.9 8.9 Botswana 10.3 8.2 80 18.9 Uganda 8.2 1.6 19 10 Kenya 4.3 1.5 33.8 5 Ghana 6.9 2.5 36.5 6.8 Senegal 5.7 3.2 55.6 6.7 Cameroon 5.6 1.6 27.9 8.6 Sub-Saharan Africa 4.8 2.1 43.9 8.3 Middle-income countries Morocco 5.5 1.9 34.4 6.9 Tunisia 6.2 3.3 54 10.4 Brazil 9 4.1 45.7 6.1 Peru 4.6 2.7 58.6 15.3 Mexico 6.5 3.1 48.3 15.6 Chile 8.2 3.8 46.8 15.6 Ukraine 7 3.8 54.7 8.6 Average MIC 6.4 3.3 52.3 11.6 Sources: World Bank, World Development Indicators 12 D. Capital budgets allocated for priority programs of the 2006 to 2008 GPRSP were far below expectations. 2.13 The Gabonese authorities did not carry out an assessment of the implementation of the priority programs under the GPRSP. However, by comparing the budget allocations for priority programs in different sectors with the authorized expenditure under the capital budgets during the period 2006 to 2008, it was possible to have an idea about the level of implementation of the GPRSP. For health, the priority programs of the GPRSP covered the period 2007 to 2009 and the comparison was made with the outcome for this period. Moreover, since the priority health programs included both investments and recurrent costs, it seemed reasonable to use, for the outcome, both the capital expenditure and the operating expenses, excluding salaries. Concerning electricity, priority programs involved investments to be achieved by SEEG. Outcomes in the energy sector therefore include the capital budget of the State (on the basis of payment authorizations) and investments realized by SEEG (annual activity reports of the company). Figure 2-7: Priority programs of the 2006-2008 GPRSP and capital budgets Source: 2006-2008 GPRSP, General Report of the Court of Auditors, SEEG activity reports 1/For health, the figures relate to the 2007 to 2009 financial years For electricity, capital expenditure include those made by SEEG Figure 2-8: Priority capital expenditure as a % of GPRSP, 2006-2008 Source: 2006-2008 GPRSP, General Reports of the Court of Auditors, SEEG activity reports, 1/For health, the figures relate to the 2007 to 2009 financial years.For electricity, capital expenditure includes that made by SEEG 13 2.14 The analysis shows that, on the basis of authorized expenditure, outcomes for health and education were between 55 percent and 70 percent of the amounts envisaged for priority programs. For road programs, outcome rates fluctuate between 0 percent and 55 percent. With regard to electricity, water, housing, and agriculture, it was not possible to obtain detailed information on program implementation. The low levels of actual spending in relation to programare confirmed in Box 1, which presents the results of the DGMP survey on the execution of government procurement contracts a. Status of implementation of the GPRSP priority education programs 2.15 An evaluation of the implementation of the 2006-2008 GPRSP was not carried out in the education sector. An assessment of the investment outcome was underway in 2011 to establish a new medium-term expenditure framework. The main quantitative targets contained in the 2006-2008 GPRSP are presented in Table 2.4. Table 2-4 : Status of achievement of the GPRSP programs in the education sector Cost of GPRSP 2006 to 2008 capital budgets Achievement rate programs of GPRSP programs 2006 2007 2008 Total Pre-primary education 3.3 0.4 0.4 0.4 1.2 36.4% (Construction and equipment of 28 schools with 10 classrooms each) Primary education 5.2 0.8 0.8 0.8 2.3 43.1% (Construction of 15 schools with 18 classrooms each) Secondary education 2.8 0.4 0.4 0.4 1.3 44.9% (Construction of 2 High Schools with 42 and 36 classrooms respectively) Higher education 38 6.0 9.0 9.0 24 63% Construction of 4 faculties 10 3 6 6 150 150% Extension of university hostels (3 blocks per 1 0 0% institution) 34 Construction of a University Teaching 27 3 3 3 9 33.3% Hospital Total 49.4 7.6 10.6 10.6 28.7 58.2% Sources: 2006-2008 GPRSP, Summary statement of the capital budget, 2005-2009 2.16 The total cost of the three programs for the education sector indicated in the GPRSP was CFAF 129 billion for the years 2006 to 2008. Over the same period, capital expenditure amounted to CFAF 90 billion. It thus appears that 40 percent of the program considered in the GPRSP was not realized. This is confirmed by the analysis of a subset of priority actions (Table 2.4) amounting to CFAF 49 billion, which shows that only CFAF 29 billion was allocated to these programs over the same period. This represents an overall performance rate of 58.2 percent. 2.17 In spite of a significant increase in the education budget between 2005 and 2010, capacity building needs in the education sector are very high, as indicated in the report of the National Forum on Education, held in May 2010, and in the MDG monitoring report of August 2010. Though the 14 enrollment rate is high (the net primary enrollment rate was 95 percent in 2010), the repetition rate remains of concern. It increased from 30 percent in 2006 to 38 percent in 2008. Government has committed itself to reducing the repetition rate to 10 percent in 2015. This requires a reduction in the number of pupils per grade and therefore, more teachers and classrooms. Improved teacher training, increased supervision and greater availability of teaching materials are also needed. b. Status of implementation of the GPRSP priority health programs 2.18 The formulation of strategic health objectives in the 2006-2008 GPRSP was based on extensive consultations with civil society through 10 regional forums held during the first quarter of 2005 and which highlighted the inadequacies of the health system and the urgent request of the population for an improvement of the system at all levels. These forums were followed by the National Health Forum which recommended the formulation of a National Health Development Plan (PNDS) based on a series of strategic and specific objectives and operational programs. Although the formulation of the PNDS required a considerable amount of time and was only finalized in December 2010, an outline of the operational programs, alongside the costs involved to achieve the strategic objectives, was presented in the GPRSP for the period 2007 to 2009. 2.19 The regional forums made it possible to define fifteen goals that were subsequently retained in the GPRSP. These goals target both the improvement of key health indicators (reducing child and maternal mortality, reducing the prevalence of HIV/AIDS, malaria, tuberculosis and other diseases) and the improvement of the health environment and the training and monitoring system (health care support, access to medicines, quality of reception and care, reform of professional training programs, establishment of a national information and monitoring system, rendering health regions and divisions operational). 2.20 These fifteen objectives were grouped into four general objectives in the GPRSP : (i) improving mother and child health, (ii) strengthening the fight against major diseases, (iii) improving the availability of basic services and the supply and quality of health services to more vulnerable populations, and, (iv), improving the organization, functioning and management of the national health system. 2.21 From the budgetary standpoint, the GPRSP made provision for an overall cost of CFAF 204 billion for the four goals over a three-year period, from 2007 to 2009, as shown in Table 2.5. It is worth noting that the health sector is the only sector for which the GPRSP costing covers the period 2007 to 2009, rather than from 2006 to 2008. 15 Table 2-5: Status of implementation of the GPRSP programs in the health sector Cost of Capital budgets Achievement GPRSP rate of GPRSP 2007 2008 2009 Total programs programs Objective 1: Improving mother and child health 33.4 0.8 1.8 1.3 3.9 12 % Objective 2: Strengthening the fight against 31.0 0.5 1.3 1.5 3.3 11% major diseases including emerging diseases Objective 3: Improving the availability of basic 74.9 8.1 9.7 7.8 25.6 34 % services and the supply of health services Objective 4: Improving the organization, functioning and management of the national 65.1 2.3 3.1 1.4 6.8 10 % health system Operating expenditure, excluding wages - 24.5 25.5 28.6 78.6 - TOTAL 204.4 36.2 41.4 40.6 118.6 58 % Sources: 2006 to 2008 GPRSP, Summary statements of the capital budget, 2005 to 2009 2.22 The total amount indicated in the GPRSP has taken into account capital expenditure for various programs and certain operating expenses, exclusive of wages, for the sector (CFAF 80 billion over three years). It should therefore be compared with the figures of the capital budget for the three- year period from 2007 to 2009 (CFAF 39 billion), plus non-salary operating expenses (CFAF 78.6 billion). This represents a total of CFAF 118.6 billion. It therefore appears that the budgetary resources only covered 60 percent of the program envisaged in the GPRSP. 2.23 An accurate assessment of financial performance and of the improvement in key indicators over the period 2007 to 2009 was not carried out. The absence of a Demographic and Health Survey (DHS) since 2000 makes it difficult to assess changes in key indicators such as the under-5 infant and child mortality. According to WHO estimates, however, the objective of the GPRSP to reduce under-5 infant and child mortality by one third between 2005 and 2010 was not attained since the reduction was only 10 percent (from 50 per 1000 to 45 per 1000). 2.24 With regard to the key objective of reducing the maternal mortality rate by three quarters between 1990 and 2015, its evolution between 2005 and 2010 shows relatively poor progress. Indeed, in spite of a drop from 510 to 430 per 100 000 births between 2005 and 2010, the target of 150 deaths per 100 000 births for 2015 will be difficult to attain. Reducing maternal mortality requires the strengthening of basic emergency obstetric care, since according to WHO estimates, only 15 percent of emergency care needs are met. The midwives per 10 000 women ratio is critically below WHO standards (4 midwives per 10 000 women against the normal ratio of 15 midwives per 10 000 women). Outdated equipment also constitutes a major obstacle to achieving the MDGs. 2.25 As regards the fight against HIV/AIDS, according to available indicators, the goal of reversing the upward trend of the prevalence rate would have been achieved between 2007 and 2009. The 2009 survey estimated that the national prevalence rate was 5.4 percent against 5.9 percent in 2007. However, the incidence of HIV incidence among women attending prenatal clinics shows an increased prevalence in this population group. The 2010 MDG reports note that the reversal of the epidemic requires large scale action which must include (i) increasing human and financial resources; (ii) improving the national system of monitoring-evaluation; (iii) intensifying awareness and prevention campaigns and mobilizing civil society; (iv) decentralizing activities to cover the whole country and 16 upgrading the equipment of health centers, especially those located inland; (v) improving the management of affected people, particularly those in the rural areas and (vi) better monitoring of pregnant women, as well as mandatory HIV-testing. 2.26 As regards the fight against malaria, which is the leading cause of death in Gabon, resources and means of intervention must be strengthened. The evaluation survey of strategies for the fight against malaria, conducted in 2010 at the level of health facilities, indicates that a significant number of these facilities (40 percent) experienced medicine stock-outs from 3 to 16 months over a period of 5 years. In addition, the evaluation report of activities of the NMCP in 2007 estimated that only 25 percent of children under 5 are catered for properly within 24 hours after the onset of fever. The utilization rate of treated mosquito nets is 50 percent among pregnant women and 35 percent in children under 5 years. c. Status of implementation of the GPRSP priority housing programs 2.27 The new housing deficit was estimated at 130,000 homes over 20 years in the 2006 GPRSP and the need for the disposal of substandard dwellings, at 1,500 houses per year. GPRSP figures were updated in 2010, with the housing deficit having increased to 200,000. In 2010, the government set the goal of constructing 5,000 houses each year, primarily in Libreville and in the large urban centers. The real needs, including upgrading existing substandard housing, are probably higher and are estimated by the MDG report as being at 8,000 homes per year, or the upgrading of 1,500 substandard homes and 6,500 new housing applications 2.28 The cost of key priority programs presented in the GPRSP for the three years (2006-08) was 73.4 billion. The emphasis was laid on preparing master development plans, servicing new subdivisions, constructing socio-economic housing and restructuring slum areas. State intervention was aimed at making available to real estate development companies, developed plots on which to construct houses for the middle class with access to various forms of financing to cover the purchase. For low-income populations, plans were made by the State to build socio-economic housing for rental or sale under lenient conditions. Table 2-6:Priority Programs of the 2006-2008 GPRSP in the housing sector Programs Cost in CFAF billions Prevention of disasters, including relocation of populations in risk areas 2,300 Rehabilitation of the National School of Cadastral Studies 300 Urban planning, including preparation of master plan and construction of the building of 30,700 the Ministry of Housing Securing the living environment, including the development of cartography, restructuring 40,100 slum housing and building socio-economic housing Total programs 73,400 Capital budget of the housing sector, 2006-2008 23,076 Scheduling budget 21,439 Source: 2006-2008 GPRSP 17 2.29 Projects included in the 2006-2008 GPRSP were not successful. Capital budgets of the Ministry of Housing over the same period amounted to 23 billion, well below GPRSP estimates (73.4 billion). To revive the sector, the 2010 budget increased allocations dramatically by increasing the capital budget to 56 billion, as against 10.9 billion in 2009. This amount was however reduced to 29 billion in the 2011 budget. 2.30 A restructuring of government agencies involved in the sector was launched simultaneously in March 2010. This led to the transfer of activities and resources of the Gabon Housing Refinance Account (HRA), the National Housing Fund (FNH) and the Gabon Mortgage Guarantee Fund to the Housing Bank, which became independent from the Gabonese Development Bank (BGD). The results of this restructuring need to be evaluated. The experience of other countries, such as Mauritius, where the Mauritius Housing Corporation plays a vital role in financing housing in various forms (housing estates, buildings, purchases), shows that, if well managed, public structures can contribute greatly to facilitating access to housing. 2.31 The Ministry of Housing seems to be lagging behind in formulating a medium-term expenditure framework that can serve as basis for preparing a budget per program objectives. d. Status of implementation of GPRSP priority road programs 2.32 The capital budgets of the Ministry of Public Works, Equipment and Construction were 137 billion and 210 billion respectively in2006-2008 and 2006-2009. However, these amounts proved to be far lower when considering authorized expenditure, which were 78 billion in2006-2008 and 118 billion in2006-2009. On-going projects at the time of the preparation of the GPRSP involved 672 km at a cost of 302 billion (Table 2.7). By including 2010 expenditure, of which the amount is as yet not available, Table 2.7 suggests that it is likely that only less than half of on-going road projects were completed. Consequently, it is necessary to update the table of on-going 2006 projects and to show the achievements made by late 2010. 18 Table 2-7 : Execution of GPRSP road and work programs (on-going projects) 2006-2008 Capital budgets Achievement rate Commencement Costof GPRSP of GPRSP Road Project Linear 2006 2007 2008 Total Date programs programs Lalara- 84 km July-02 43.1 0.1 1.4 4.1 5.6 13.0% Medoumane Cape Esterias 26 km August 2003 13.9 0.55 0.5 0.5 1.55 11.2% Road Lambarene pk 55 towards 55km May-02 44.9 4.6 1.5 1.1 7.2 16.0% Fougamou Franceville - 185 Km 1996 58.6 0.5 1.9 10.5 12.9 22.0% Lastourville Koulamoutou- 59 km 1995 30.5 1.1 1 2.1 6.9% Lastorurville Franceville – 122km 2005 33.8 4.9 4.9 14.5% Leconi-Kabala Octra-Port 25 km 2005 15.0 1.75 2.3 4.2 8.25 55.0% Owendo Moanda- 55km 1996 35.8 4 3 7 19.6% Bakoumba Omboue’- 89 km 1997 8.6 0.1 0.05 0.15 1.7% Ndougou Gentil- 33km 2005 9.9 0.5 0.6 1.1 11.1% Monodrove’ Port Total Road 672 km 294.0 8 13.4 29.35 50.75 17.3% Projects Ogoulou Bridge 0.16 km 1997 3.7 1.5 1.5 41.1% Doubou and 0.15 Km 1997 5.0 0.0% Idigou Bridge OVERALL 672.4 km 302.7 9.5 13.4 29.35 52.25 17.3% TOTAL Sources: 2006-08 GPRSP, Summary of Capital Budget, 2005-2009 2.33 Moreover, a series of new road projects was selected in the GPRSP for an additional total of 1,506 km at an estimated cost of 419 billion. An evaluation would be necessary to ensure that these projects have started and to determine the extent of implementation to date. Given the general inadequate funding situation observed in the period under review (for on-going projects), there are fears that if new projects had been launched, achievements in terms of work progress have probably been very limited. e. Status of implementation of the GPRSP electrification programs 2.34 As regards the electricity sector, the GPRSP recommended the preparation of an Electricity Map. This should firstly review the most favorable sites for constructing hydroelectric facilities and 19 secondly, include an analysis of alternative strategies for energy supply (power stations, use of solar energy), based on population distribution and economic activities in the country. Investment efforts during the 2006-08 period were to be focused on the construction of a hydropower plant on the Ngounié (Empress falls), capacity building in the field of micro-electricity and long interconnection lines. A share of financing should come from the SEEG concessionary company which, on the basis of its 1997- 2017 concession contract, had to invest hundreds of billions for investment updating throughout the contract period. Table 2-8 : 2006-2008 GPRSP: Priority actions in the electricity sector Action Cost State of implementation Construction of a hydropower plant on the 63 billion Ngounié (Empress dam) Owendo North Post interconnection 9 billion Middle-Ngounié Ogooué-Estuary 243 billion (Partial financing by interconnection SEEG) Woleu-Ntem-Estuary interconnection (FE II 250 billion (Partial financing by Included in SEEG’s 2010-17 investment dam on the Okano) SEEG) plan Construction of the MT-Kango Bifoun line 2 billion Electrification of Cap Estérias 800 billion Pre-electrification of small centers 500 million Capacity building in micro-electricity (small 1.2 billion dams) TOTAL 569 billion Capital budget of the Ministry of Mines, 2006-08: 30.1 billion energy, oil and water resources. 2009: 20.6 billion 2010: 133 billion (for Water SEEG: 2006-08 achievements energy and resources only) 160 billion 2006-2008 GPRSP 2.35 There have been considerable delays in the execution of the investment program. It was only in 2010 that the capital budget of the Ministry of Energy and Hydraulic Resources (133 billion) appeared consistent with the ambitions expressed in the GPRSP. Moreover, in July 2010, SEEG announced its strategic investment plan for 2010-17 for electricity and water at a total cost of 337 billion. This comprises elements already included in the GPRSP. The Ministry of Energy also defined its investment program over the same period (see Chapter 5). f. Status of implementation of the GPRSP water production programs 2.36 The indicators of access to safe drinking water for Gabon are relatively good, with 94 percent of the population in urban areas and 45 percent in rural areas having access (MDG Report of August 2010). However, significant shortages in supply exist in major cities, particularly in Libreville. To respond immediately, the Government launched compliance audit with respect to the contractual obligations of SEEG defined in the concession agreement signed with the State. It furthermore prepared a priority action plan focusing on repairing water leaks on the network and increasing available capacity in order to increase drinkable water supply in Libreville from 20 to 40 percent. For its part, SEEG prepared a program in 2010 to improve the drinkable water network, to meet the increasing demand and to reduce the use of load shedding. The government is aiming at an access rate of 100 percent by 20 2016, which requires substantial investments both to supply the cities and to improve the rural water supply. 2.37 Investments in areas considered by the 2006-08 GPRSP stood at 23.2 billion, partly financed by SEEG and distributed as follows: Table 2-9 : 2006-2008 GPRSP. Priority actions in the water sector Cost State of Actions implementation Construction of a DN 1000 transfer pipe between Libreville and 2 billion, SEEG financing On-going Ntoum Construction of the water tower of the City of Democracy 3 billion, SEEG financing PK 12- City of Democracy link 3.9 billion, SEEG financing On-going KP 6- PK9 Angondjé network link establishment 11.6 billion Launched in 2010 Improving access of disadvantaged groups to water and 300 million electricity Establishing a balance sheet of hydraulic resources 300 million Construction of a national piezometric network 150 million Building potable water production and supply networks 600 million between villages Pre-supply of small centers 500 million Potable water supply of Cap Estérias 500 million Creation of an electrification and drinking water supply agency 1500 million for rural areas Monitoring and quality control of drinking water 192 million Upgrading the equipment of the water laboratory of the 100 million Ministry of Water Resources TOTAL 23.2 billion SEEG financing 8.9 billion Source: 2006-2008 GPRSP 2.38 The implementation of the components of this program -which is yet to be evaluated- is behind schedule according to available information. g. Status of implementation of the GPRSP agricultural programs 2.39 As outlined in the GPRSP, agriculture can play a vital role in the diversification of the Gabonese economy through job creation and poverty reduction. The GPRSP highlighted the fact that in previous decades, the agricultural sector suffered from rapid urbanization, the aging of the rural workforce, changing consumer patterns in favor of imported products and the concentration of state efforts in restructuring large agro-industrial concerns (HEVEGAB, AGROGABON, SUCAF), while small- scale agriculture suffered from inadequate transport facilities, difficulties in marketing and supply of inputs and a lack of access to credit and technical assistance. 2.40 For2006-08, the GPRSP envisaged a recovery strategy for the sector aimed at increasing productivity, diversifying production, developing productive capacity and improving marketing channels. Specific actions were to include the creation of pilot farms, developing agricultural areas, developing rice and garden crop projects, establishing cooperative structures for technical equipment, 21 creating small agricultural enterprises, facilitating the import of high-performance inputs, boosting agricultural research and extending and reviving training schools. 2.41 The total investment allocation for 2006- 2008 was 27.2 billion, in other words an average of 13.6 billion per annum. Investments actually carried out remained at a very low level. Budget allocations for investments in the 2006-09 budgets were 4.9 billion on average, but authorizations amounted to 3.2 billion on average per year, or 65 percent of the budgeted amount (Figure 2.10). 2.42 There were plans to boost investments in the sector in 2010, with an approved capital budget of 19.7 billion. Figure 2-9 : Capital expenditure for the agricultural, livestock and rural development sector, 2006-2009, annual average, CFAF billions Source: 2006-2008 GPRSP, Reports of the State Audit Office, 2005-2009 2.43 Given the low level of agricultural development, resulting in a sustained increase in food imports, the Government formulated an Agricultural Program for Food Security and Growth (PASAC) in 2009-10 that was based on three programs: x a national program for food security (NPFS) aimed at supporting peasant agriculture by intensifying and diversifying production, improving support structures and controlling water; x a program to support the rehabilitation of village farms, including the production of coffee, cocoa, rubber, palm oil and livestock by strengthening management structures, rehabilitating seed production centers and promoting seed availability; x a program to support intensive production to sustain growth, with the promotion of intensive production centers, the strengthening of research and the dissemination of technical progress. 22 2.44 The cost of this program per component is estimated at CFAF 200 billion over 5 years, of which 34 billion may be broken down as follows for 2010: Table 2-10 : PASAC: Distribution of costs per component in 2010 (billions CFAF) Food security 10.1 Support to rehabilitation 11.2 Support to intensive production 12.7 Guarantee fund 5 TOTAL 34 Source: Ministry of Agriculture 2.45 The 2010 capital budget, initially set at 19.7 billion was significantly reduced during the execution phase. There was, however, an increase in 2011, bringing the approved capital budget to CFAF 26.5 billion. The Ministry is preparing an MTEF and believes it can submit a budget per program objective by 2013. h. Main lessons drawn from the implementation of the 2006-2008 GPRSP 2.46 The low implementation rate of the GPRSP priority programs reflects weaknesses in the management system of public investments in terms of programming, implementation and the monitoring and evaluation of projects. Firstly, the weak link between the GPRSP and budget planning is worth noting. Priorities set in the GPRSP have not really been used for budgetary decisions. Secondly, monitoring of the execution of projects should take place annually and should be coordinated by the Ministry of Planning, but this has not been done. Thirdly, it was noted by the DGB that most projects that fall within the state budget are not supported by a preliminary feasibility study which specifies the actual cost, technical specifications and timelines. IThey are more project ideas than actual projects. This explains both the slow implementation of programmed projects and the great differences between planned projects and projects that actually materialize. This inadequacy also explains the cancellation of budgetary allocations of some projects though voted by Parliament. Cancellations arealso often due to budgetary restrictions like in 2010 and 2011 when there was need to generate margins for urgent projects like the 2012 African Cup of Nations (CAN) . 2.47 In order to strengthen governments’ capacity to prepare projects, the DGB initiated the development of a Formulation and Monitoring-Evaluation Guide for projects, whose publication and distribution to governments is scheduled for 2012. This should avoid excessive delays observed in launching projects during the implementation of the GPRSP. However, the publication of this guide is not sufficient in itself. It must be accompanied by a program for building capacity within the DGB and the sectoral administrations in programming, evaluating project costs and recurrent costs related thereto, as well as the monitoring and evaluation of projects. This comprehensive program should be preceded by a detailed diagnosis of the current system of public investment management in order to determine an action plan of specific measures to be implemented. 23 Box 2-1:Below highlights the seriousness of the inadequacies of the monitoring of the physical implementation of investment projects and confirms the need to establish a systematic monitoring of the l implementation of public investments. Physical implementation of the 2005-2009 capital budgets Due to unavailable data for some years or incomplete data for the years for which they are available, it is difficult to make a comprehensive assessment of the rate of physical implementation of investments in Gabon between 2005 and 2009. However, as part of its supervisory duties, the General Directorate of Public Procurement supervised nearly 200 contracts from their inception to December 2009. The main observations made on their implementation are: x no contract met the contractual deadline of the work; x 15 percent of the contracts awarded were never started, even though the companies involved were partially or fully paid; x 30 percent of contracts were partially executed even though the companies involved were fully paid. Investigations carried out subsequently revealed that some companies disappeared and others simply changed their names because of the legal difficulties they faced; x the execution of a large number of contracts did not meet the contractual provisions for additional works. Projects are systematically changed by the budget administrators without considering the provisions of the public procurement code. These changes sometimes resulted in overruns of the amount of the key contract amount to the order of 80 percent, or even 100 percent , thus violating the provisions of Articles 88 and 89 of the Public Procurement Code; x 20 percent of contracts executed have serious technical shortcomings requiring expertise (technical audits) to help bring together in an objective manner the amounts received by the company and the real value of services provided, on the one hand, and, to propose solutions for the repair of damages noted on the other hand. Premature deterioration of structures or parts of structures completed is consequential to the flawed implementation and the non-compliance with technical specifications; x Overbilling of works or services to be executed. Unit prices are speculative because they are not defined on technical and economic bases. No company provides a sub-detail of its prices. Moreover, prices may reflect payment delays. x The change of name by some companies due to legal problems bringing them into conflict with the administration; x The presence of fictitious contracts, i.e. contracts that do not exist; x The establishment of unjustified contract modifications. Source: Directorate-General of Public Contracts Key Recommendations To strengthen the link between budget allocations and national development priorities, the following actions appear to be necessary: x Developing a program of capacity building of the DGB and the sectoral ministries in programming and monitoring investments and evaluating project costs. x The projects included in the state budget or in the multi-annual programming documents should be supported by a preliminary feasibility study which specifies the actual cost, technical specifications and timeframes. x Conducting mid-term reviews of the budgetary implementation before finalizing the Budget Law forthe following year to better determine the amount of allocations that will not be used before the end of the current year and reregister as a priority unspent allocations of approved activities. x Accelerating the development of the formulation and monitoring-evaluation guide of Public Administration projects being prepared by the DGB 24 Chapter3. MEDIUM TERM BUDGET SUSTAINABILITY AND ACCUMULATION OF FINANCIAL RESOURCES 3.1 Medium-term budgetary programming and planned expansion of resources for priority investments should take into account the constraints linked to the inevitable decline of oil resources which, according to latest estimates, may be exhausted in about 40 years (Figure 3.1). Latest estimates indicate proven reserves of 3.7 billion barrels. Depending on the production rate, these reserves may be exhausted between 2050 and 2060. This suggests the need to accumulatef substantial financial reserves, that can produce financial returns to substitute for oil revenues, according to what is termed a permanent income approach. This policy of fiscal management is pursued by other African countries rich in exhaustible natural resources like Equatorial Guinea and Botswana, which have already accumulated substantial resources in sovereign funds and which continue to pursue a disciplined policy of accumulation of financial resources. Figure 3-1: Oil production, millions of barrels per year, forecasts Source: Ministry of Economy 3.2 IMF staff estimated that the sustainable non-oil primary fiscal deficit, as a percentage of non- oil GDP, should not exceed 7.5 percent (it was 14 percent on average in 2007-09 and 21 percent in 2010). A non-oil deficit of 7.5 percent of GDP would result in accumulating annual savings equal to about three quarters of oil revenues (which are about 30-35 percent of non-oil GDP), since only a quarter would be used to cover the non-oil deficit. In this way, the country could build up a sovereign fund (about CFAF 48,000 billion francs) that would be sufficient to eventually produce income comparable to current oil revenues (CFAF 2075 billion of financial revenue in 2040) which, after annual inflation correction of 2 percent, would be comparable to the 2010 oil revenues, estimated at 1.15 billion. These IMF estimates were made on the basis of proven reserves of 2.6 billion barrels. 25 3.3 Updated figureson proven oil reserves allow a more gradual adjustment of the non-oil deficit. However, if we maintain the goal of accumulating financial resources of approximately CFAF 45,000 billion francs by 2050-2060 to generate income corresponding to the current oil revenues, the non-oil deficit should not exceed the target of 8 percent of non-oil GDP by 2020. This should be reduced to 3 percent in 2030 and should be close to zero in 2040 (Figure 3.2). This scenario is based on a stabilization of current expenditure as a percentage of total GDP, at about 15 percent in 2015 (as against 14 percent expected in 2011, based on the LFR, and 14.2 percent for 2012, based on the budget), and the gradual reduction in capital expenditure from 11 percent of GDP in 2010, to 7 percent in 2015 and 6.4 percent in 2020. This level can be maintained after 2020. Concerning revenues, non-oil revenues, which in 2010 were 25 percent of non-oil GDP (25 percent in 2011 based on revised estimates of the LFR), should reach 27 percent of non-oil GDP in 2012, on the basis of the Budget Law and should stabilize at 26.3 percent of non-oil GDP from 2015 on. (Figure 3.3). Figure 3-2: Adjustment scenario of non-oil primary deficit Source: Authors' calculations based on data from the Ministry of Economy 26 Figure 3-3: Adjustment scenario, expenditure and revenue as a % of total GDP Source: Authors' calculations based on data from the Ministry of Economy 3.4 It should be noted that this adjustment scenario is consistent with maintaining a significant investment effort over the period 2011-2015, as desired by the authorities to implement the “Emerging Gabon� strategy. Investment spending would remain at CFAF 700 billion in 2012 and 2013 and would drop to 600 billion in 2015, a level which would be maintained until 2020. The savings effort from oil revenues would increase from 2020 only, when the effort to diversify the economy and improve productive and social infrastructure, would begin to produce significant results. 3.5. An increasing proportion of oil revenues would be saved and channeled to a financial fund (Figure 3.4). The targeted savings out of of these revenues would be 40 percent in 2014 and reach 60 percent in 2020, 77 percent in 2030 and 100 percent in 2040. The growth path of the sovereign fund is relatively narrow. Delaying the accumulation of financial reserves would make the replacement of oil revenues impossible in the long term. Figure 3-4: Accumulation of financial resources and annual income, 2010-2060 Source: Authors' elaboration based on data from the Ministry of Economy 27 3.6 An increase in non-oil revenue must support the investment effort. The performance of non-oil revenue since 2005 has been relatively good, but it is very sensitive to changes in non-oil mineral production (manganese) as well as trends in the forestry sector. From 2005-2010, non-oil revenues as a share of non-oil GDP, were 24.7 percent on average, reaching a maximum in 2009, reflecting the high profits of the manganese industry in 2008. From 2011-2020, we can aim at an increase in this ratio, of up to about 26.5 percent, provided the diversification of the economy is deepened. 3.7 In August 2011 the authorities adopted a decree (decree No. 008/PR/2011 of August 11, 2011) converting the Future Generations’ Fund established in 1998, to a new structure, the Sovereign Fund of the Gabonese Republic (FSRG), with a minimum capital of CFAF 500 billion. To reach this capital amount, the decree prescribes a 10 percent deduction on oil revenues as budgeted in the annual Budget Law. Once the minimum capital has been reached, the fund would be financed annually by the excess in oil revenues relative to the assumptions of the Budget Law of the previous year and by 25 percent of investment income, while the remaining income would be returned to the state budget. This plan would result in accumulating financial resources well below the level required to replace oil resources, unless successive Budget Laws were to allocate large amounts of oil resources to the FSRG. It is recommended that the Government provides guidelines on the medium- term goals for the resources it wishes to accumulate in the FSRG, in order to give a clear signal of its willingness to pursue a sustainable fiscal policy in preparation for the post-oil period The principal recommendations to improve medium and long term budget sustainability are: Setting medium-term goals concerning the anticipated accumulation of financial resources in the Gabonese Strategic Investment Fund; x Setting goals by 2020 for oil and non-oil revenue, current expenditure and capital expenditure; x Outlining a macroeconomic scenario for the period 2020-2060 with targeted budget surplus 28 Chapter4. PUBLIC FINANCE MANAGEMENT REFORM FOR IMPROVED PUBLIC SPENDING EFFICIENCY 4.1 Prior to starting the reform process of the public finance legal framework, the Gabonese public finance management system was based on traditional management of resources and was not results-based . In this type of system, expenditures are not presented according to state objectives and priorities, but per spending ministry. In such a context, it is difficult to clearly identify the link between budgetary allocations and national priorities. 4.2 In addition, this system was burdened by several shortcomings, some of which persist, although corrective efforts are underway. The main shortcomings are: (i) a poorly executed budget subjected in particular to the volatility of oil prices, (ii) a lack of control of the wage bill and of government employment, (iii) inadequacies in the spending chain, with the main ones being: x centralized budget management due to the principle of a single authorizing officer which requires that all expenditure is authorized by the DGB, the only spending authorized officer for the state budget; x the lack of a clearly defined plan of commitments and a procurement plan 3, which should help reduce delays in launching projects; x accumulation of payment arrears due to lack of a sound upstream budget regulatory system that takes into account both the commitment and liquidity plans; x a multiplicity of stages (twenty in total) and redundant controls between the DGB, the DGCF (now DGCRCP, general directorate of resource control and public costs, and the DGST; x deficiencies in auditing services that lead to discrepancies between budget execution and physical execution (see Box 1); x the length of the expenditure chain, particularly during the payment phase ,due to the low quality of documentary evidence as well as cash-flow problems (60 day period which could be reduced upon adoption of regulations on the nomenclature of documentary evidence); x the principle of equal consideration that must underlie any transaction with the State is severely undermined by the inefficiency of monitoring the effectiveness of the service rendered; x budget implementation also suffers from the excessive use of exceptional or derogatory procedures (budget advances, commitment-liquidation, statutory payments) that undermine fiscal discipline; x computerized procedures for budget execution have not been extended to budget administrators and do not yet provide a real-time status of the budget implementation at the decentralized level. 3 At the level of the health ministries, national education and infrastructure, the procurement plan for 2010 was executed respectively at the level of of 40 percent for the first two, and 70 percent for the third. 29 4.3 Convinced of the need to improve the efficiency of public finance management, mainly the alignment of the budget with national priorities, the Government has undertakena series of reforms. The most fundamental concern (i) revising the public finance legal framework in synergy with the CEMAC Guidelines for Public Finance through the LOLFEB and (ii) preparing the �Gabon Emergent� strategic plan and the resumption of the preparation of a medium-term expenditure framework. The reform package also includes, (iii) restructuring the DGB and DCAFs to strengthen and accelerate the budget implementation process and, for the same purpose, the preparation by each ministry of commitment and procurement plans, (iv) completing the on-going reform of the Public Procurement Code and strengthening the General Directorate of Procurement, (v) creating a National Agency for Major Projects4, (vi) establishing the Recovery Fund5 for the management of unspent budget appropriations, and (vii) improving treasury accounts and public accounts. a. Reform of the legal and operational framework of public finances 4.4 The Gabonese public finance legal framework underwent an in-depth reform with the adoption of the Organic Law on Budget Bills and Execution of State Budget (LOLFEB) (Law No. 31/2010 of October 21, 2010). The LOLFEB significantly changes the financial regime of the Gabonese government by (i) modernizing the legal framework of the multi-annual budget (authorizations of payment commitment/credit and deferrals), (ii) introducing a structure of programs covering the entire budget, (iii) providing these programs with a transparency, evaluation and performance system and (iv) defining the rules for program implementation, (v) strengthening the accountability of budget managers in the achievement of expected outcomes through decentralized authorizations; (vi) providing complete information to Parliament on the implementation of the budget; (vii) expanding the investigative powers of Parliament, and (viii) improving the quality of financial reporting by adopting accrual accounting. Given that its entry into force without transitional measures is unrealistic, many of its provisions were amended by Ordinance 007/PR2011 of August 1, 2011, which postpones the implementation of the budget per program objective to January 1, 2015. During the transitional period ending in 2015, the Government is considering (i) preparing the implementing texts before the end of 2013, (ii) developing the budget approach per program objective (BOP) for four ministries before June 2012, and (iii) extending the BOP approach to all ministries in 2013 so as to establish a 2014 complete budget per program objective parallel to resource budgets in the traditional format. The choice of four pilot ministries was made in mid-2011 (National Education, Energy, Economy and Budget) and the process of structuring budgets per program objectives was launched, with the assistance of AFRITAC and an independent firm. 4 Recently created, the ANGT embodies the will of authorities to ensure better monitoring of major projects from the preparation of studies, through the procurement, to monitoring-valuation of the implementation of contracts with the objective of ensuring efficiency, economy and effectiveness. Its management was entrusted to Bechtel, a global leader in engineering, construction and project management 5 To consider risks of delay in the execution of this ambitious investment plan, creating a cash stimulus was announced at the Council of Ministers of March 4, 2010. Not being the appropriate technical tool to mitigate the risks mentioned above, the Recovery Fund has been a management process to prevent abuse, that is to say, (i) notice of the General Directorate of Procurement, (ii) notice of the Standing Committee to monitor and control projects associated with the report on actual progress of work, (iii) issuing and signing a payment order by the Directorate-General of Budget, (iv) visa by the Directorate-General of Financial Controller and (v) transmission to the Accountant of the order of the Fund for payment. 31 May 2011, the appropriations entered in the cash recovery of CFAF 131 billion 30 4.5 The preliminary comparative analysis between the LOLFEB and the CEMAC draft Guidelines for Public Finance shows similarities, but also differences, between the points mentioned in Box 2 which should be taken into account during implementation. Box 4-1 : Major differences between the LOLFEB and the CEMAC draft Guidelines on Budget Bills The main differences relate to fiscal policy, the mission concept, the notion of Authorization of Commitment, the responsibility of authorizing officers and the management of donor funds. Fiscal policy: this element does not exist in the LOLFEB. It dwells on the notion of excessive budget deficits and recommends Member States to establish a budgetary framework through developing and implementing Medium Term Expenditure Frameworks (MTEFs). Mission: Contrary to the CEMAC Directive, the LOLFEB introduces the concept of mission before that of program. Commitment Authorizations: The CEMAC Directive includes this concept exclusively within capital expenditure, whereas the LOLFEB extends Commitment Authorizations to all expenditures. Management of donor funds: Unlike the LOLFEB, the Directive addresses the issue of traceability and transparency of donor funds. Budget control: Unlike the LOLFEB, the Directive is more realistic, by deferring the issue of certification of accounts by the Court of Auditors. Source: A comparison of the LOLFEB and the CEMAC Draft Guidelines on Budget Bills, Directorate-General of Budget 4.6 Many factors contributed to the weaknesses that emerged in the implementation of the 2006-2008 GPRSP. These include: (i) insufficient coordination between the GPRSP and budget preparation, (ii) delays in the preparation of sectoral MTEFs which began in 2006 and (iii) weaknesses in budget implementation. The last two factors are currently undergoing a major reform. 4.7 As regards MTEFs, the absence of sectoral MTEFs has been a major obstacle in the implementation of the 2006-08 GPRSP given that annual budgets for priority sectors were not included in a well-structured medium-term programming. Assisted by a consultant, in March 2011 the Government undertook to systematize the MTEF tool at both central and sectoral levels; this will facilitate the transition to budgeting per program objective by the end 2015. Moreover, some ministries have already made significant progress towards preparing their MTEFs, particularly the Ministries of Health, Education, Agriculture, Energy and Infrastructure. During the transitional period, it is important that these ministries finalize their sectoral MTEFs so that these may serve as the basis for their budget from the 2012 financial year or, at the latest in, 2013. 4.8 The weaknesses identified in 2006-09 budget implementation period result either from the late implementation of budgetary allocations or from organizational factors such as the absence of rigorous programming during the year of the commitments, procurement and an inter-annual monitoring of the budget implementation of the various ministries. Indeed, administrative and financial 31 directorates and the planning departments of the ministries could not adequately supervise budget admininstrators in these operations. Cash flow difficulties also contributed to hinder the budget implementation. 4.9 Based on the experience of recent years, in 2010-11, the authorities adopted a series of measures to strengthen budget implementation, particularly the restructuring of the Directorate- General for Budget (Decree No. 01229/PR/MBCPFPRE of October 13, 2011 on the reorganization of the DGB), that of the Central Departments of Financial Affairs, DCAF, (Decree No. 01230/PR/MBCPFPRE of October 13, 2011) and the modification of the responsibility of authorizing officers (Decree 0653 of April 13, 2011). The DCAFs in particular, are called upon to play a more specialized role in assisting budget managers in preparing and monitoring the implementation of annual budgets (particularly the implementation of sectoral operational plans from the “Gabon Emergent� strategic plan) and in preparing procurement and commitment plans. With the eventual introduction of the budget per program goal, it is envisaged to unify the functions of control and accounting with that of the authorizing officer . This unificationresults from the multiplicity of authorizing officers, each minister or head of constitutional institution becoming a budget manager of his administration. Budgeting per program objective introduces the fungibility and globalization of appropriations within a program. 4.10 As indicated in a DGB press release issued in November 2011, however, the 2011 experience shows that shortcomings were found in spending ministries in the development and implementation of commitment and spending plans for operating expenses and investment, making it difficult to execute budget allocations. Weaknesses concerned the lack of a precise schedule of execution of works and failure to take into account planning for initial advances , because of theabsence of a procurement contract, the use of monthly programming regardless of the level of budgetary credits and the real activity of the administrative units in charge of these credits, and inconsistencies between commitment plans and sectoral release and central plan developed by the DGB. 4.11 The DGB insisted that, for 2012, the ministries submit commitment and spending plans before the end of December 2011 in line with the voted budgets. The rigorous preparation by spending ministries of such plans appended to the 2012 procurement plan, would constitute an important innovation and would allow, for the first time, continuous monitoring of budget implementation during the year. This would make it possible for expenditure to reach the level indicated in the budget estimates. 4.12 In the past, treasury management was driven by shortcomings in the preparation and implementation of budget revenue and expenditure despite the establishment of the treasury committee. Following the recommendations of various IMF assistance missions in 2007, the Government established a treasury committee in charge of monitoring annual plan paid on a monthly basis, and a rolling quarterly plan. However, the implementation of the cash-flow plan was disrupted by (i) the difficulties in planning cash requirements arising from weaknesses in the procurement and commitment plans and (ii) the volatility of oil prices, as well as an overestimation of non-oil revenue. 32 Despite this context, payment of domestic debt arrears was gradually made through the successive Libreville clubs agreements and all outstanding arrears at the end of 2009 were consolidated in the Libreville Club 6 agreement. Thus, as at end of 2010, the outstanding amount of arrears at the treasury consisted only of the payment vouchers for the 2010 fiscal year, estimated at roughly CFAF 68 billion. 4.13 The accounts production process needs to be strengthened. Pursuant to the provisions of Law No. 5/85 laying down general rules on state public accounting, the General State Administrative Account and the General Account of State Accountants are transmitted by the Minister in charge of Finance to the State Audit Office by September 30 of the following fiscal year. However, as documented in the public reports of the State Audit Office, this provision is not respected. For the 2009 fiscal year, the accounts were produced in January 2011. Moreover, the Office noted that the overall balance of Treasury accounts which, until 2009, served as the Overall Account of State Accountants, does not provide all the necessary information on budget implementation, since the granting of management autonomy to constitutional institutions and to some public administrations who now have autonomous Treasury accounting offices. Consequently, since 2008, the State Audit Office has not been able to produce the statement of compliance of these accounts. According to the Treasury, this situation should be corrected in the coming months, by demanding more detailed bookkeeping and the presentation of adequate documentary evidence from autonomous accounting offices.. b. Preparing the �Gabon Emergent� strategic plan and sector plans 4.14 The decentralized Council of Ministers, held at Koula-Moutou on June 1 2011, announced the completion of the 2011-2016 “Gabon Emergent� strategic plan that would henceforth serve as the basis for budget planning. It relied on a number of sectoral works developed in recent years to facilitate budget alignment with national priorities, particularly in the areas of education, health, agriculture, energy and equipment. 4.15 In the education sector, the report of the Education Convention shows the need to build 4000 classrooms for primary schools over the 2010-20 period, 1300 pre-primary school classes, 600 secondary schools (CES) classes and 150 classes for emerging science high schools. The total cost over 10 years is estimated at CFAF 1.786 billion, or an average of CFAF 180 billion per annum and 270 billion per annum for the 2011-13 period. This cost does not cover the functioning of existing structures evaluated at 159 billion in the 2011 budget. Overall, the proposed budget for education should more than double compared to the appropriation for 2011 (CFAF 207 billion). Since an amount of this size is unlikely to be consistent with budgetary equilibrium, it will be necessary to reconsider targeted programs, in terms of specific goals and unit costs, especially those relating to the construction of classrooms. 4.16 The report of the Convention on Education and the goals envisaged therein should serve as a basis for establishing a medium-term expenditure framework and for drawing up budgets per program objective. However, the Ministry of National Education recognizes that the completion of the medium-term plan should be preceded by an overview of the performance of on-going programs and the development of a comprehensive database to integrate the unit costs of construction and 33 equipment. This process is in progress and will be completed by late 2011. On this basis, the Department plans to develop a medium-term expenditure framework in 2012. 4.17 As regards health, the development of the PNDS, begun in 2005, gained ground following the election of the new Head of State in 2009. It was completed in December 2010 when the new PNDS covering the 2011-15 period was officially adopted. The document contains detailed planning for the 2011-15 period with strategy goals for achieving the MDGs by 2015, specific programs and core priorities and an estimate of capital and operating costs over 5 years. The annual rate of planned investments (63 billion) is close to the levelbudgeted for 2010. Conversely, operating expenses, exclusive of wages, are expected to almost double (from 30 billion per annum to 66.8 billion per annum) to reflect both the recurrent costs of new construction and the cost of patients’ care and medicines in public facilities. The implementation of the PNDS will require a cut in the other components of the state budget. The finalization of the PNDS puts the ministry in a good position to move towards the implementation of budgeting per program objective. 4.18 Pending the generalization of the budget presentation per program objective for all ministries, it would be necessary for the Ministry of Health to: (i) establish an annual system for monitoring-evaluating the implementation of PNDS and (ii) present during the transitional period, its budget under both the traditional method and the budget per program objective method. 4.19 The Ministry of Energy has established a programming scheme for 2011-2020 with the main objective being that of increasing the current installed capacity from 374 MW to 1200 MW in 2020. The implementation of this plan will be based on projects carried out in partnership with the private sector. The latter will produce electricity, as part of a public-private partnership, through own equity, and will resell its product to the State, which will be responsible for the transmission and supply network. The huge dams of Poubara (South East), Empress (South West), Ngoulmedjim (Komo Valley) and FEII (Mitzic North) should increase capacity by 400 MW. The last two will be built by SEEG. The estimated cost of the energy program, including private sector investment, is CFAF 1.5 billion over 10 years. The execution of this plan will require that investments for which the State is responsible, especially the transportation system, are implemented as scheduled. 4.20 To accelerate rural electrification, the authorities are considering the creation of an autonomous body responsible for assessing needs, developing and implementing an ambitious program for electricity production and for the management of interconnected networks. 4.21 The formulation of the medium-term capital budget (2012-14) of the Ministry of Equipment and Public Works (road projects, regional planning) and of the ANGT interventions for 2012 and beyond, is underway. This will be carried out in the form of a program budget. The programming will be consistent with the medium-term fiscal balances outlined in Chapter 3 and will require trade-offs in the choice of priorities. 34 c. Challenges of implementing on-going reforms of the management system of public finance 4.22 An analysis of the reform objectives, compared to the current situation, leads to the following recommendations on the formulation of priorities during the transition period. (i) Alignment of the MTEF process with the “Gabon Emergent� strategic plan 4.23 The revival of the MTEF process is taking place at a time when the “Gabon Emergent� strategic plan is being finalized. Consequently, it would be necessary to reconcile targets, public policies and MTEF priority action plans with those of the “Gabon Emergent� strategic plan. The active involvement in the development of the MTEF and the implementation of the “Gabon Emergent� strategic plan is also recommended by all stakeholders (sectoral ministries, civil society, private sector). Establishing a medium-term fiscal framework should be accompanied by a rigorous monitoring-evaluation system, which was missing in the past, in orderto correct, on an annual basis, possible slippages and identify the corrections to be made in the multi-annual plan. 4.24 During the transitional period of implementation of the LOLFEB, up until 2015, it is important that ministries in the process of finalizing the preparation of medium-term expenditure frameworks per programs present these MTEFs in a budget conference and establish a solid structure for monitoring-evaluation, at least on an annual basis, of the physical and financial execution of programs. This will allow for the quick adoption of corrective measures during the preparation of budgets for subsequent years. MTEFs could be presented in the appendix to the Budget Laws, to ensure better visibility of the overall framework under which these laws are written. 4.25 It also appears necessary to conduct more detailed reviews, at least in key sectors such as education, health, housing, agriculture, energy and infrastructure, in order to analyze the intra- sectoral effectiveness of budget allocations. This analysis is particularly useful as it targets better resource allocation in these sectors in striving to achieve the MDGs. (ii) Control of the LOLFEB reform 4.26 Strengthening of the governance of the pilot process of the reform of the public finance legal framework, the synergy with the CEMAC Guidelines on Public Finance, as well as change management are key factors for the successful implementation of the LOLFEB. To this end, it is necessary to define and implement a communication plan, a strategy for disseminating the LOLFEB to all stakeholders and a training program, based on communication and adequate training tools. (iii) Reform of the public procurement system 4.27 In addition to the need to validate the new Public Procurement Code through a workshop involving all stakeholders, it would be necessary to (i) strengthen the procurement capacities of the Central Departments of Financial Affairs, (ii) decentralize the Directorate-General of Public Contracts in pilot sectoral ministries through correspondents with the authority to provide prior notice to bidders up 35 to a contract level to be defined, (iii) and to render operational the public contracts regulatory agency in charge of the a posteriori control of procurements. (iv) Optimizing the ANGT 4.28 The commissioning of the National Agency for Major Projects in November 2010, which is in charge of executing strategic infrastructure projects (roads, major housing projects, airports, stadiums for the CAN, energy projects, school projects ...) earmarked in the “Gabon Emergent� strategic plan, is a major step towards improving the quality and efficiency of expenses linked to large scale public works. 4.29 In addition to tbe in charge of roads and other major core infrastructure projects, the ANGT also plans to intervene in the supervision and auditing of smaller size construction contracts run by the various ministries, including health and education. This will help strengthen and disseminate the best methods and practices for controlling costs and implementation efficiency.. The supervisory methods and practices for contracts implemented by the ANGT (such as the obligation of companies to make partial use of local labor and inputs, advance payment to companies solely against a bank guarantee, strict control of work progress before any disbursement) are expected to reduce the unit costs of investment projects. 4.30 However, some non-core but essential investments may not benefit of the know-how being developed within ANGT. The transfer of skills to areas not covered by the Agency is necessary in the short term to optimize costs. This will have a multiplier effect on the promotion of a culture of monitoring-evaluation and cost analysis within the ministries (v) Rational management of the Recovery Fund and the return to public finance orthodoxy 4.31 The strict application of the provisions for operating the Recovery Fund and the upstream establishment of procedures for obtaining a realistic and credible budget will be decisive in closingthe Recovery Fund and returning to more orthodox practices as from the 2012 fiscal year. Thus, it should be possible to ensure a transition to the multi-annual management of projects using the Commitment/Credit Authorization of Payments technique, the appropriate tool for managing such operations. Alternatively, one could use the option of carrying over credit as provided for in the Budget Laws, or that of priority reinstatement in the budget of the N +1 year, of credit balances of unfinished activities in year N, thereby having the advantage of maintaining budget unity. As such, it would be necessary to carry out mid-term reviews of budget implementation of the on-going year prior to the finalization of the Budget Law for the following year, in order to detect in time credits and projects that will not be used or completed before the end of the year.. Recommendations for improving the public finance management system: x Developing a program for building capacity within the DGB and key sectoral ministries (health, education, public works, energy, housing) in programming and monitoring and evaluating public investments. 36 x Preparing procurement plans at the beginning of the fiscal year, once the Budget Law has been adopted, and rapidly prepare relevant commitment and Treasury plans to allow budget implementation to begin at the start of the year. x Developing a program for building capacity within the DGB and sectoral ministries in budget monitoring and evaluation. x Accelerating the development of the guide for formulating and monitoring/evaluating Government projects being prepared by DGB. x Conducting mid-term review of budget implementation before the finalization of the Budget Law for the following year, to better determine the amount of appropriations that will not be used before the end of the year, and to first re-register unspent allocations for approved activities. x Utilizing in accordance with agreed upon procedures the 2010 unspent credits that have been transferred to the Recovery Fund in 2011 and 2012. Avoid transferring new unused credits to the Recovery Fund in late 2012, to preventan increase in the cash management burden, as this would lead to the parallel management of several fiscal years. x Considering the establishment of Commitment/Credit Payment Authorizations system. x Accelerating the adoption of the draft decree organizing the budgetary and accounting framework of services endowed with independent management. x Ensuring that the Treasury Accounts Overall Balance contains information on the accounts of independent accounting officesagencies and the necessary details. x Conducting a systematic regularization of budget advances before the closure of management. x Strengthening the capacity of the DCAFs in developing the administrative accounts of ministries. x Optimizing the use of the National Agency for Major Projects by ensuring the transfer of expertise of the ANGT to areas not covered by it (non-core but essential projects). x Building the procurement capacity of stakeholders (sectoral ministries, DGMP). x Devolving the DGMP by establishing focal points in ministries, possibly within the Central Departments of Financial Affairs (DCAF). x Improving the public procurement information system (including the methods for computerized security locks during validation). x Strengthening controls on mobilization advances and settlement of detailed accounts. x Separating the regulatory function from the control function (creation of a regulatory agency). 37 BIBLIOGRAPHY Cour des Comptes du Gabon, 2005-2009, Rapports généraux de la Cour des Comptes sur l’Exécution des lois des Finances en vue du Règlement des Exercices 2005 à 2009. International Monetary Fund, 2011, Gabon: 2010 Article IV Consultation—Staff Report, International Monetary Fund, IMF Country Report No. 11/97, May 2011, Jean Luc Helis et al. 2010, République du Gabon, Mettre en Œuvre la loi Organique Relative aux Lois de Finances et à l’Exécution du Budget, Département des Finances Publiques. International Monetary Fund. Ministry of Budget, Public Accounts, Public Service, in chargé of State Reforms, Rapport sur de l’Etude sur la simplification du Circuit de la Dépense Publique, January 2010 Ministry of Economy, Commerce, Industry and Tourism, Republic of Gabon, 2008, Tableau de Bord Social (TBS), Situation 2000-2005. Ministry of National Education, Higher Education, Scientific Research and Innovation, Republic of Gabon, 2010. Etats Généraux de l’Education, de la Recherche et de l’Adéquation Formation-Emploi, les Actes Adoptés. Libreville, 17 and 18 May 2010. Ministry of Planning, Development Programming, Republic of Gabon, 2005, Document de Stratégie de Croissance et de Réduction de la Pauvreté. Final Document. Ministry of Health, Social Affairs, Solidarity and the Family, Republic of Gabon, 2010, Politique nationale de Santé. Ministry of Health, Social Affairs, Solidarity and the Family, Republic of Gabon, 2010, Plan National de Développement Sanitaire 2011-2015. Moataz El Said et al., 2009, Mesures pour Atténuer l’Impact Social et la Suppression du Support aux prix des Carburants. Aide Mémoire Oscar Melhado, Gabon: Assessing the quality of public Investment, IMF Country Report No. 06/232, June 2006 Republic of Gabon in collaboration with the United Nations Development Program, 2010, Troisième Rapport National de Suivi des Objectifs du Millénaire pour le Développement. Republic of Gabon, 2007, Stratégie de Coopération de l'OMS avec les pays, 2004-2007 World Bank, 1998, Public Expenditure Management Handbook World Bank, 2002, “Medium Term Expenditure Frameworks: From Concept to Practice. Preliminary lessons from Africa� Africa Region Working Paper Series No. 28 World Bank, 2006, Gabon, Diagnostique de la Pauvreté World Bank, 2011, “World Developments Indicators.� 38 Appendix 1: Medium-term projections for oil production and GDP and fiscal balances a. The projection scenario 1. The adjustment scenario presented in Chapter 3 is based on long-term projections of oil production obtained from the Ministry of Economy, which were recently increased, and non-oil GDP projections made by IMF services, in consultation with the Ministry of Economy. 2. Forecast of medium-term oil revenues derives from the production scenario, assuming a relatively stable ratio between production and taxation. 3. Projections on public investments by 2020 were discussed with the Ministry of Economy. These are consistent with the authorities' determination to strengthen investment in infrastructure and social services in the coming years to facilitate the achievement of the MDGs. 4. Based on oil and non-oil GDP revenue estimates, a medium-term budget profile was established. Projections of public investments up to 2020 reflect the goals of the authorities. Annual budget surpluses which resultin financial reserves depend on the annual level of non-oil revenues and operating costs. As the goal is to accumulate about CFAF 45,000 billion by 2050 to replace current oil revenues through equivalent financial income, a profile of non-oil revenues and expenses to attain this can be easily determined, within a a baseline scenario. This baseline scenario can be modified by different variants. b. II. Assumptions on oil production 5. As discussed in Chapter 3, the latest figures on proven reserves are about 3.7 billion barrels. The production profile presented in the Chapter is based on a simulation of the authors and is reported in Table A 1. For oil revenues, the assumption is that they will maintain a stable relationship with production; this assumption may not be fully realistic, since in the case of production sharing contracts, the State’s share depends on production levels. 39 Table A 1 : Oil Production and revenues Production Oil revenues (millions of barrels per annum) (CFAF billions) 2006-10 results 87.9 1068 2011-15 88.6 1280 2016-20 80.9 1252 2021-25 70.3 1234 2026-30 59.5 1190 2030-40 55 1140 2040-50 52 1079 2050-60 49 1019 Source: Ministry of Economy and authors’ calculations c. III. Non-oil GDP 6. Non-oil GDP Growth estimates stem from work by the Ministry of Economy with the IMF. For the period after 2020, the expected growth rate of non-oil GDP is 2.5 percent, which is relatively conservative. Figure A 1 : 1: GDP Growth rate, 2004-2020 Source: Ministry of Economy and authors’ elaboration Table A 2 : GDP growth rate, annual average 2006-2009 2010-2011 2012-2015 2016-2020 Non-oil GDP 3.5 5.9 4.5 3.1 Oil GDP -3.1 5.4 -1.4 -1 Total GDP 1.9 5.8 3.3 2.4 Source: Ministry of Economy and authors’ elaboration 40 d. IV. Medium-term budgetary projections 7. The starting element is the capital expenditure scenario in the 2011-2015 budgets. According to government guidelines, these expenses should reach an annual average of CFAF 750 billion in 2011- 13 to strengthen the “Gabon Emergent� strategic plan, with a peak of 857 billion in 2011 on the basis of the LFR, dropping to 600 billion in 2014 and stabilizing at this level between 2015 and 2020. This means dropping from 10.7 percent of GDP in 2011 to 7.1 percent in 2015 and stabilizing at 6.4 percent of GDP in 2020 and the following years. Figure A 2 : Public investment expenditure, 2008-2020, in CFAF billions Source: Estimates by the Ministry of Economy 8. The adjustment scenario requires a continuous effort to improve non-oil revenues in relation to non-oil GDP. This ratio was 25.9 percent in 2010 and should reach 24.6 percent in 2011. The projections target an increase in this ratio to 26.3 percent in 2013 and stabilization at that level for subsequent years. 9. Current expenditure as a percentage of total GDP amounted to 15.3 percent in 2010 and should drop to 14.2 percent in 2012. The projections show a slight increase as ratio to overall GDP by 2015 (15 percent), representing a slight decrease in non-oil GDP. The ratio over total GDP is expected to stabilize at this level, thereby showing a gradual decline with respect to non-oil GDP. 10. The main fiscal aggregates up to 2050 are presented in Table A.3. 41 Table A 3 : Medium and long term adjustment scenario: key indicators 2008 2009 2010 2011 2012 2013 2014 2015 2020 2030 2040 2050 2060 Achievements LFR LF projections Oil revenues in CFAF billions 990.4 1,307 1,328 1,250 1,253 1,262 1,188 1,080 1,047 952 Non-oil primary deficit, as a % of non-oil GDP 14.8% 13.9% 21.0% 28.6% 19.2% 16.5% 12.9% 12.1% 7.1% 2.4% -0.1% -1.8% Oil revenue as a % of non-oil GDP 43.2% 28.6% 29.2% 35.1% 31.5% 27.6% 26.2% 25.0% 18.4% 10.5% 6.3% 3.5% Non-oil revenue as a % of non-oil GDP 22.7% 29.0% 25.0% 24.8% 27.0% 26.2% 26.2% 26.0% 26.3% 26.3% 26.3% 26.3% Current expenditure as a % of non-oil GDP 28.8% 31.3% 29.0% 30.3% 28.4% 26.2% 25.4% 25.0% 22.6% 19.3% 17.6% 16.5% Capital expenditure, as a % of non-oil GDP 12.4% 14.5% 25.2% 22.4% 26.7% 20.9% 19.0% 15.6% 14.7% 13.8% 13.1% 12.9% Non-oil revenues as a % of total GDP 11.0% 16.4% 12.9% 13.1% 14.5% 15.2% 15.5% 15.8% 17.0% 19.8% 21.8% 23.4% Current expenditure, as a % of total GDP 13.9% 17.7% 15.0% 14.0% 14.2% 14.5% 14.7% 15.0% 15.0% 15.0% 15.0% 15.0% Capital expenditure, as a % of total GDP 6.0% 6.0% 11.2% 10.7% 8.6% 8.6% 7.3% 7.1% 6.4% 6.4% 6.4% 6.4% Accumulation of financial reserves (bill. CFAF) 188.0 189.0 189.0 489.2 489.2 746.97 1,134.30 1,618.31 3,865.51 9,974.81 17,862.87 28,910.97 45,189.63 Annual financial incomes, bill. CFAF 7.5 7.6 7.6 19.6 19.6 29.9 45.4 64.7 154.6 399.0 714.5 1156.4 1807.6 Share of economized oil revenues (%) 65.7% 51.5% 28.1% 36.7% 39.2% 40.2% 50.8% 51.7% 61.2% 77.4% 102.3% 42 Table A 4 : Consolidation of ministries, various public institutions and agencies according to major functions of the State General public services Public order and security Health Section 00: Common expenses Section 31: National defense Section 91: Public health Section 11: Presidency of the Republic Section 32: Republican guard Expenditure of the Army Hospital Section 12: Senate Section 22: Justice Section 56: Social and Craft Eco. Section 13: National Assembly Section 29: Human rights Section 83: Youth, sports and leisure Section 85: Popular Culture, Arts & Section 14: State Council Section 44: Public security Education Section 15: Prime Minister’s Office Section 45: penitentiary security Education Section 16: Constitutional Court Section 17: Stare Audit Office Section 81: National Education Section 82: Vocational° training & Section 18: Supreme Court reintegration° Economic activity Section 21: Relations with parliament Section 84: Higher Education., Sc. Research Section 23: State control Section 61: Agriculture Section 86: Research Section 24: Refoundation Section 62: Eco. Forestry Social protection Section 25: Foreign affairs Section 63: Tourism & Crafts Section 26: Economic & Social Council Section 64: Public works, Equipment Section 92: Work, employment & H. Ress. Section 27: Nat. Comm. Council Section 66: Mines, Energy, Oil & H. R. Section 93: Nat. Solidarity, S. Aff. & B E Section 28: Nat. Demo. Council Section 68: Regional development. Section 94: Family, Pro.of Women & Child. Section 41: Public Service Section 69: Environment Section 96: Fight against AIDS Section 42: Interior and decentralization Section 71: Transport & Civil Aviation. Section 43: Communication Section 74: Merchant navy Section 46: Post and telecommunications Housing and leisure Section 47: Prevent. & Manag. of cal Section 51: Finance and budget Section 65: Housing, Urban development Section 67: Town and Promotion of Section 52: PME & PMI community life Section 53: Planning Environment Section 55: Trade, Industrial development Environment Sovereign funds Source: Compiled by the authors based on data from the State Audit Office and the IMF Public Finance manual 43 IBRD 33408 GA B O N SELECTED CITIES AND TOWNS MAIN ROADS PROVINCE CAPITALS RAILROADS NATIONAL CAPITAL PROVINCE BOUNDARIES RIVERS INTERNATIONAL BOUNDARIES 10°E 12°E 14°E CA MERO O N Minvoul Bitam 2°N 2°N Ivindo EQU ATOR I AL Oyem ATLANTIC WOLEU-NTEM OCEAN GU I N EA Djo ua ng ou Mékambo Mékambo Mv Mitzic OGOOUÉ-IVINDO ang a Makokou Ekata Ab o LIBREVILLE in d To Iv Ovendo Makoua no Kango ka O C r y s t 0° ESTUAIRE Ogooué Booué Booué 0° Ndjolé Ndjolé CON GO MOYEN- a l OGOOUÉ OGOOUÉ Offoué Lambarene Okondja Port Gentil OGOOUÉ-LOLO Lac Onangué bé Sé M o Kaulomoutou u n OGOOUÉ- NGOUNI É NGOUNIÉ HAUT HAUT-OGOOU -OGOOUÉ HAUT-OGOOUÉÉ Chaillu t a MARITIME Ng Lagune Massif Masuku Lékoni Lékoni i n ou Omboué Nkomi nié s Mbigou O g o ou é Mouila Iguéla 2°S Mt. Birougou 2°S (1190 m) Lagune Ndendé Ndendé Ndogo To Zanaga Tchibanga Tchibanga To ya Kayes N ng a YA N G A N YA Mayumba 0 40 80 120 Kilometers To Loubomo GABON 0 20 40 60 80 100 Miles CO NGO 4°S 4°S This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. DA ) B IN OLA 10°E 12°E CA NG 14°E (A SEPTEMBER 2004