Republic of Congo Public Expenditure Management and Financial Accountability Review (PEMFAR) Implementing public financial management reforms to stimulate growth and achieve shared prosperity Republic of Congo Public Expenditure Management and Financial Accountability Review (PEMFAR) Implementing public financial management reforms to stimulate growth and achieve shared prosperity May 2015 Macro Fiscal Management-Global Practice Republic of Congo Government Fiscal Year January 1–December 31 Currency Equivalents Exchange Rate Effective as of May 15, 2015 Currency Unit = CFA Franc (XAF) US$1.00 = 573.34 XAF Weights and Measurements Metric System Vice President Makhtar Diop Sr. Practice Director Marcelo Guigale Country Director Eustache Ouayoro/Jan Walliser/ Ahmadou Moustapha Ndiaye Country Manager Sylvie Dossou/Djibrilla Adamou Issa Practice Manager Albert G. Zeufack Task Team Leader Fulbert Tchana Tchana Table of Contents Acknowledgements ........................................................................................................................................ xi Abbreviations and Acronyms ....................................................................................................................... xiii Executive Summary..................................................................................................................................... xvii Rationale and Objectives ...................................................................................................................................... xvii Main Findings on Key Policy Issues under Investigation ....................................................................................... xix Main Policy Recommendations ........................................................................................................................... xxv Matrix of Key Policy Recommendations.............................................................................................................. xxxi PART I: Macroeconomic and Fiscal Space ...................................................................................................... 1 CHAPTER 1: Macroeconomic and Fiscal Context.......................................................................................... 3 1.1 Structure of Congo’s Economy and Public Finance ............................................................................................3 1.1.1 Economic Structure ..............................................................................................................................3 1.1.2 Public Finance Structure .......................................................................................................................5 1.2 Economic Performance – 2008–2013................................................................................................................7 1.2.1 Economic Performance 2008–2013 ......................................................................................................7 1.2.2 Fiscal Performance in 2008–2012 .......................................................................................................12 1.2.3 Fiscal Sustainability Analysis ...............................................................................................................15 1.3 Macroeconomic Outlook and Financial Requirement – 2015–2020 ..............................................................16 CHAPTER 2: Fiscal Space in Congo............................................................................................................. 19 2.1 Recent Dynamic of Key Sources of Government Revenues ..............................................................................20 2.2 Medium and Long Term Natural Resources Outlook and its Impact on the Overall Resource Envelope..........25 2.3 Capacity of the Congolese Government to Manage Oil Revenues and to Adjust to Volatility ..........................27 2.4. Recommendations...........................................................................................................................................29 PART II: Public Expenditure Review ............................................................................................................ 31 CHAPTER 3: Composition of Public Expenditure and Key Source of Fiscal Pressure .................................. 33 3.1 Analysis of Public Expenditure ........................................................................................................................34 3.1.1 Allocation Trend: Shift in Budget Allocation toward Economic and Social Sectors..............................34 3.1.2 Analysis of Actual Expenditures ..........................................................................................................37 iii 3.1.3 Functional Distribution of Actual Total Expenditures, Payment Basis .................................................38 3.2 Structure of Public Investment ........................................................................................................................38 3.3 Issues in Budget Execution ..............................................................................................................................40 3.4 Public Expenditure Efficiency in Congo ..........................................................................................................43 3.4.1 General Government Efficiency in Congo ..........................................................................................43 3.4.2 Specific Issues in Recent Investment Project ........................................................................................46 3.4.3 Public Investment Equity....................................................................................................................51 3.5 Policy Recommendations ................................................................................................................................52 CHAPTER 4: Sector Expenditure Reviews ................................................................................................... 55 4.1 Public Expenditure Review in Agriculture .......................................................................................................56 4.1.1 Background of the Agriculture Sector .................................................................................................56 4.1.2 Budget Allocation in Agriculture ........................................................................................................59 4.1.3 Budget Execution in the Agriculture Sector ........................................................................................61 4.1.4 Overall Efficiency of the Investments in Agriculture ...........................................................................63 4.1.5 Government Spending Consistency of the NDP .................................................................................65 4.1.6 Recommendations ..............................................................................................................................65 4.2 Public Expenditures Review in Education........................................................................................................66 4.2.1 Background of the Education Sector ...................................................................................................68 4.2.2 Budget Allocation in the Education Sector..........................................................................................70 4.2.3 Budget Execution Rate in Education ..................................................................................................72 4.2.4 Overall Efficiency of the Investments in Education .............................................................................74 4.2.5 Spending in Education and Equity .....................................................................................................78 4.2.6 Recommendations ..............................................................................................................................81 4.3 Public Expenditures Review in Health .............................................................................................................81 4.3.1 Background of the Health Sector ........................................................................................................83 4.3.2 Budget Allocation and Spending in the Health Sector.........................................................................86 4.3.3 Public Expenditure Efficiency in the Health Sector .............................................................................91 4.3.4 Recommendations ..............................................................................................................................94 4.4 Public Expenditure Review in Energy ..............................................................................................................96 4.4.1 Background of the Energy Sector ........................................................................................................97 4.4.2 Budget Allocation in the Sector ..........................................................................................................98 4.4.3 Budget Execution Rate of Expenditures on Energy .............................................................................99 4.4.4 Efficiency of Investments in the Energy Sector ..................................................................................100 4.4.5 Recommendations ............................................................................................................................103 PART III: Assessment of Public Finance Management System .................................................................... 105 CHAPTER 5: Planning System and Budgetary Process .............................................................................. 107 5.1 Programming and Budget Cycle ....................................................................................................................108 5.1.1 Budget Preparation ...........................................................................................................................108 5.1.2 Drafting of Line Ministries’ Budgets .................................................................................................111 5.1.3 Preparation of the Overall Budget .....................................................................................................112 5.1.4 Adoption of the Budget by Parliament ..............................................................................................115 iv Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) 5.1.5 Overall Budget..................................................................................................................................115 5.2 Budget Execution ..........................................................................................................................................116 5.3 Disbursement System ....................................................................................................................................120 5.3.1 Public Accounts ................................................................................................................................120 5.3.2 Preparation of Treasury Accounts and Laws of Settlements Reports ..................................................122 5.3.3 Treasury System ................................................................................................................................123 5.3.4 Cash Management ............................................................................................................................124 5.3.5 Recommendations ............................................................................................................................125 CHAPTER 6: Review of Public Financial Management .............................................................................. 129 6.1 Context and Overview ..................................................................................................................................131 6.1.1 State of Recent PFM Reforms ...........................................................................................................131 6.1.2 Main Institutional Challenges Blocking Effective Implementation of PFM Reforms.........................132 6.2 Legal and Institutional Framework ................................................................................................................134 6.2.1 Legal Framework ..............................................................................................................................134 6.2.2 Institutional Framework with Focus on Public Investment ...............................................................135 6.2.3 Financial Risks ..................................................................................................................................136 6.2.4 Recommendations ............................................................................................................................136 6.3 Budget Credibility, Comprehensiveness and Transparency, and Policy-Based Budgeting ................................137 6.3.1 Budget Credibility ............................................................................................................................137 6.3.2 Budget Comprehensiveness and Transparency...................................................................................139 6.3.3 Policy-Based Budgeting.....................................................................................................................141 6.3.4 Financial Risks ..................................................................................................................................141 6.3.5 Recommendations ............................................................................................................................141 6.4 Accounting, Recording, and Reporting .........................................................................................................142 6.4.1 Quality of Budget Accounting, Recording, and Reporting ................................................................142 6.4.2 Financial Risks ..................................................................................................................................144 6.4.3 Recommendations ............................................................................................................................144 6.5 Predictability and Internal as well as External Control of Budget Execution ..................................................145 6.5.1 Relations between Revenue Administrations and Taxpayers ..............................................................145 6.5.2 Cash Management and Expenditure Regulation ...............................................................................147 6.5.3 Internal Controls of Non-Salary Expenditures ..................................................................................148 6.5.4 Internal and External Audit ..............................................................................................................148 6.5.5 Financial Risks ..................................................................................................................................149 6.5.6 Recommendations ............................................................................................................................150 6.6 Donor Practices .............................................................................................................................................151 CHAPTER 7: Public Procurement Issues ................................................................................................... 153 7.1 Context and Overview ..................................................................................................................................154 7.2 Government’s 2009-Reform ..........................................................................................................................155 7.2.1 Status of the Legislative and Regulatory Framework..........................................................................155 7.2.2 Status of the Institutional Framework and Capacity Management ....................................................155 7.2.3 Status of the Procurement Operations and Market Practices .............................................................155 7.2.4 Status of Integrity and Transparency of the System ...........................................................................156 Table of Contents v 7.3 Assessment of the Public Procurement System ...............................................................................................156 7.3.1 Legislative and Regulatory Framework (L&RF) ................................................................................160 7.3.2 Institutional Framework and Management Capacity.........................................................................162 7.3.3 Procurement operations and market practices ...................................................................................165 7.3.4 Integrity and Transparency of the Procurement System .....................................................................166 Matrix of Recommendations....................................................................................................................... 169 References ................................................................................................................................................... 187 Appendix .................................................................................................................................................... 189 List of Tables Table 1.1: Selected Countries – GDP Annual Growth Rate, in Percent......................................................................7 Table 1.2: Government Revenues, 2003–2013 .........................................................................................................13 Table 2.1: Government Revenues Composition .......................................................................................................21 Table 2.2: Government Revenues Share of Oil and Non-GDP.................................................................................24 Table 3.1: Budget Allocation as a Percentage of Total Budget ...................................................................................35 Table 3.2: Budget Allocations...................................................................................................................................36 Table 3.3: Selected Countries – Budget Allocation to Priority Sectors, Percentage of Total Budget 2008–2011 ........37 Table 3.4: Budget Execution Rate by Type of Spending, in Percent ..........................................................................41 Table 3.5: Government Spending Efficiency Indexes ................................................................................................45 Table 3.6: Economic Returns of Infrastructure Projects............................................................................................47 Table 3.7: Cost of Road Infrastructure .....................................................................................................................49 Table 3.8: International – Road Unit Cost, US$/km ................................................................................................50 Table 4.1: Selected Sub-Saharan African (SSA) Countries – Agricultural Potential, 2005–2010 ...............................57 Table 4.2: Yields of Cassava, Maize and Plantain, 2008–2012 (t/ha) ........................................................................58 Table 4.3: Selected Livestock Production, 2007–2012 .............................................................................................58 Table 4.4: Agricultural Sector Expenditure Execution Rate, 2008–2012 (percent) ...................................................61 Table 4.5: Weight of Actual Education Expenditure in Total Expenditure and in GDP Over the Period 2008–2013 ..............................................................................................................................................71 Table 4.6: IntraSectorial Allocation Over the Period 2008–2013 ............................................................................71 Table 4.7: Budget Execution Rates (percentage) by Ministry, 2008–2012 ................................................................73 Table 4.8: Selected SSA Countries – Infant, Child Mortality, and Neonatal Mortality Rates, 2011 ..........................85 Table 4.9: Republic of Congo – Sectorial Expenditures of MEH Over the Period 2008–2013 .................................98 Table 4.10: Evolution of Electrical Power .................................................................................................................102 Table 5.1: Differences between the Amounts of the Projects, the Annual Installment of the MTEF and strategic Shares of the Ministry of Health and Population in 2014.........................................................114 Table 6.1: Summary of PEFA Scores ......................................................................................................................133 Table 6.2: Selected Countries – Summary of PEFA Scores .....................................................................................134 Table 6.3: Transfers and Subsidies from the State Budget to Independent Organizations Outside the Devolved Administrations, (in billions of CFA francs)...........................................................................................139 Table 7.1: State of Completion of the Pillars of the Public Procurement System ....................................................157 Table 7.2: Selected Countries – Procurement System Assessment ...........................................................................160 Table A1.1: Republic of Congo – Selected Macroeconomic Indicators, 2010–2017 .................................................189 vi Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Table A2.1: Republic of Congo – Impact of Oil Price Decline on Government Revenue ..........................................190 Table A2.2: Republic of Congo – Mining Potential ..................................................................................................191 Table A2.3: Republic of Congo – Impact of Mining Price on Government Revenue ................................................192 Table A3.1: Functional Distribution of Actual Total Expenditures-Payment Basis 2008–2012 (2008 billion of CFA Franc) ..................................................................................................................193 Table A3.2: Republic of Congo – Budget of Lower Level of Government .................................................................193 Table A7.1: Selected Countries – Latest CPIR Assessment ........................................................................................196 Table A8.1: List of People Consulted During PEMFAR Missions .............................................................................197 List of Figures Figure 1.1: GDP Share, 2000–2013 ............................................................................................................................4 Figure 1.2: GDP Share of Key NonOil Sectors ..........................................................................................................4 Figure 1.3: GDP Share of Key Components ................................................................................................................5 Figure 1.4: Government Revenue Composition...........................................................................................................5 Figure 1.5: Share of Total Government Budget by Sector ............................................................................................6 Figure 1.6: Annual Growth of NonOil Sectors...........................................................................................................7 Figure 1.7: Sectors Contribution to GDP ............................................................................................................................8 Figure 1.8: GDP and GNI Per Capita Trends, 2002–2013 in USD.............................................................................8 Figure 1.9: Unemployment Rate .................................................................................................................................9 Figure 1.10: CPI, Inflation ..........................................................................................................................................10 Figure 1.11: Selected Countries – CPI, Inflation, Year Average ....................................................................................10 Figure 1.12: Trend of the BEAC’s Main Policy Rate ....................................................................................................11 Figure 1.13: TIAO on Annual Average Rate and Ratio of Domestic Credit to Private Sector to GDP .........................11 Figure 1.14: Selected Indicators of the Financial Sector ...............................................................................................11 Figure 1.15: Current Account Ratio of GDP...............................................................................................................11 Figure 1.16: Real and Nominal Effective Exchange Rates (2005=100).........................................................................12 Figure 1.17: Selected Countries – Ratio of Government Revenue to GDP ..................................................................13 Figure 1.18: Growth Rate of Government Revenues, 2003–2013................................................................................13 Figure 1.19: Trends of Government Revenue and Expenditure ....................................................................................14 Figure 1.20: Expenditure Composition .......................................................................................................................14 Figure 1.21: Selected Countries – Ratio of Expenditure to GDP .................................................................................14 Figure 1.22: Fiscal Surplus to GDP Ratio, 2003–2013 ................................................................................................15 Figure 1.23: West, Eastern and Central African Oil Production External Debt to GDP Ratio .....................................15 Figure 1.24: Infrastructure Sources of Funding ............................................................................................................16 Figure 1.25: GDP Annual Change, 2013–2020 ..........................................................................................................17 Figure 1.26: Oil, Mining and NonExtractive GDP Shares, 2008–2020 .....................................................................17 Figure 1.27: Congo Rep – Volatility of Oil and Mining (annual growth rates), 2000–2013.........................................18 Figure 2.1: Selected Countries – Government Revenues (excluding grants) Share of GDP2008–2011. .....................20 Figure 2.2: Growth Rate of Oil Revenues Items ........................................................................................................22 Figure 2.3: Growth Rate of Oil Revenues Items ........................................................................................................23 Figure 2.4: Execution of Budget Revenues ................................................................................................................25 Figure 2.5: Global – Oil Price Scenario .....................................................................................................................25 Figure 2.6: Oil Revenue as Share of Government Revenue ........................................................................................27 Table of Contents vii Figure 2.7: Mining Revenue as Share of Government Revenue ..................................................................................27 Figure 3.1: Broad Structure of Budget Allocations in Percentage of Total Budget 2008–2013....................................35 Figure 3.2: Budget Allocation, Share of Total Allocation, in Percent ..........................................................................35 Figure 3.3: Budget Spending, (share of total spending, in percent) ............................................................................37 Figure 3.4: Implementation of Expenditure Budget ..................................................................................................40 Figure 3.5: Selected Countries – Budget Execution Rate ...........................................................................................41 Figure 3.6: Public Spending Efficiency ......................................................................................................................43 Figure 3.7: Selected Countries – Government Spending Efficiency, IGSOR Index ....................................................44 Figure 3.8: Selected Countries – Public Investment Efficiency, IPCOR Index ...........................................................46 Figure 3.9: Selected Countries – Cost of a 7m Paved Road, Million US$/km ...........................................................50 Figure 3.10: Selected Countries – Cost of 9+m Paved Road, Million US$/km ...........................................................50 Figure 3.11: Selected Countries – Average Number of Firms Buying Bidding Documents, Bidders, and Bidders Accepted for Detailed Examination .........................................................................................................51 Figure 3.12: Ratio of Budget Allocation to Population. Millions of XAF Per 1000 Per Habitant .................................52 Figure 4.1: Growth Rate of Agriculture and Total Government Expenditures, 2008–2012 ........................................59 Figure 4.2: Ratio of Agriculture Expenditures to Total Expenditures and to Agricultural GDP..................................59 Figure 4.3: Selected Countries – Agriculture Share of Total Budget, Average 2008–2011 ..........................................60 Figure 4.4: Agricultural GDP as Percent of Total GDP..............................................................................................60 Figure 4.5: Agriculture Sector Execution Rate 2003–2007 ........................................................................................62 Figure 4.6: Selected Countries – Agriculture Sector Budget Execution Rate, 2008–2011 ..........................................62 Figure 4.7: Sector GDP Growth Rate 2000–2013 .....................................................................................................63 Figure 4.8: Enrollment Rates by Gender and by Level of Education, 2005 and 2011 ................................................69 Figure 4.9: SSA Countries – Net Primary Enrollment Rate and Higher Education Access Rate .................................69 Figure 4.10: Retention Rate by Level of Education......................................................................................................70 Figure 4.11: Budget Allocations for Selected Sectors, 2008–2010 as Percentage of Total Budget .................................71 Figure 4.12: Evolution of Public and Education Expenditure (recurrent and investment), 2008–2012 ........................72 Figure 4.13: Selected Countries – Education Share of Total Budget Allocation, 2008–2011........................................72 Figure 4.14: Budget Execution Rate of the Education Sector .......................................................................................74 Figure 4.15: Selected Countries – Budget Execution Rate of the Education Sector ......................................................74 Figure 4.16: SSA Countries – Percentage of Trained Teachers and PTR in Primary Schools in, Circa 2011 .................75 Figure 4.17: Educational Attainment of the Labor Force, 2005 and 2011 ...................................................................76 Figure 4.18: Efficiency Frontier in Education, 2008–2013 ..........................................................................................77 Figure 4.19: Unemployment Rate by Level of Education, 2005–2011.........................................................................77 Figure 4.20: Rates of Return by Level of Education, National and Female, 2005–2011 ..............................................78 Figure 4.21: Distribution of Enrolled Students and School Age Population by Quintile..............................................79 Figure 4.22: Benefit Incidence Analysis of Public Expenditure on Education, 2011 ....................................................79 Figure 4.23: Lorenz Curve for Household Consumption Expenditure and Public Spending on Education by Level....80 Figure 4.24: Education Benefits by Level .....................................................................................................................80 Figure 4.25: Structure of Public Health System ...........................................................................................................84 Figure 4.26: Government Budget Allocation, Size of MOHP ......................................................................................86 Figure 4.27: Selected SSA Countries – Government Health Spending as a Share of GDP and of Government Spending, 2011 (in percentage).......................................................................................87 viii Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Figure 4.28: Selected SSA Countries – Government health Spending as a Share of Government Spending, Average Rate, 2008–2011 (in percentage) ................................................................................................87 Figure 4.29: Structure of the Government’s Budgeting and Expenditures System in the Health Sector ........................88 Figure 4.30: Ministry of Health Budget and Budget Execution ...................................................................................88 Figure 4.31: Execution of Government Health Budget, 2007–2011 ............................................................................89 Figure 4.32: Execution of Government Health Budget, 2004–2007 ............................................................................89 Figure 4.33: Selected Countries – Execution of Government Health Budget, 2008–2011 ...........................................90 Figure 4.34: Health Expenditure Source, 2009–2010 ..................................................................................................90 Figure 4.35: Structure of Household Annual out-ofPocket Health Spending, Around 2010–2011 (percent)..............90 Figure 4.36: Structure of Government and Households Health Expenditures by Provider Category and Function, 2010 (millions of XAF of each year and percentage) ................................................................91 Figure 4.37: Efficiency Frontier in Health, 2008–2013 ...............................................................................................92 Figure 4.38: Expenditure in Health by Government and Households in Quintiles ......................................................92 Figure 4.39: Reporting of Illness and Visits to Health Provider ...................................................................................93 Figure 4.40: Visits to Health Facilities by Type of Provider and Expenditure Quintile .................................................93 Figure 4.41: Access to Malaria Treatment by Expenditure Quintile .............................................................................94 Figure 4.42: Reason Why Did Not Use Health Service when Needed, 2011–2012 .....................................................94 Figure 4.43: Budget Execution Rate in the Energy Sector ............................................................................................99 Figure 4.44: Sector GDP Growth Rate 2000–2013 ...................................................................................................100 Figure 4.45: Evolution Networks Losses and Capacity in the Energy Sector ..............................................................101 Figure 4.46: Selected SSA Countries – Hidden Costs ................................................................................................101 Figure 4.47: Selected SSA Countries – Effective Residential Tariff at 100 KWh.........................................................102 Figure 4.48: Household Budget Shares for Electricity, 2005 ......................................................................................103 Figure 5.1: Changes in Projected Budgets of Some Ministries, 2008–2014 .............................................................111 Figure 5.2: Forecast Budgets by the NDP Some Ministries, 2011–2014 ..................................................................112 Figure 5.3: Forecast of Budget Revenues, 2008–2014 .............................................................................................112 Figure 5.4: Forecast Expenditure 2008–2014 ..........................................................................................................112 Figure 5.5: Forecast Capital Expenditure, 2008–2014. ............................................................................................113 Figure 5.6: Amounts Remaining to be Paid in 2012 and 2013 (in billions of XAF) .................................................119 Figure 5.7: Evolution of Public Transfers to Local Governments .............................................................................120 Figure 6.1: Budget Credibility, PEFA Score .............................................................................................................137 Figure 6.2: Selected Countries – Budget Credibility, PEFA Score ...........................................................................137 Figure 6.3: Budget Comprehensiveness and Transparency, PEFA Score ...................................................................140 Figure 6.4: Selected Countries – Budget Comprehensiveness and Transparency, PEFA Score .................................140 Figure 6.5: Budget Accounting, Recording, and Reporting, PEFA Score .................................................................144 Figure 6.6: Selected Countries – Budget Accounting, Recording, and Reporting, PEFA Score ...............................144 Figure 6.7: PFM Predictability, PEFA Score ............................................................................................................145 Figure 6.8: Selected Countries – PFM Predictability, PEFA Score ...........................................................................145 Figure 6.9: Claims Against Tax Administrations ......................................................................................................146 Figure 6.10: PFM External Scrutinizing Audit, PEFA Score ......................................................................................150 Figure 6.11: Selected Countries – PFM External Scrutinizing Audit, PEFA Score ....................................................150 Figure 7.1: Republic of Congo – Public Procurement Aggregated Score by OECD/DAC Pillars .............................157 Table of Contents ix Figure 7.2: Selected Countries – Public Procurement Aggregated Score ...................................................................157 Figure 7.3: 2014 MAPS...........................................................................................................................................158 Figure 7.4: Selected Countries – Legislative and Regulatory Framework ..................................................................161 Figure 7.5: Selected Countries – Institutional Framework and Management Capacity .............................................163 Figure 7.6: Selected Countries – Procurement Operations and Market Practices .....................................................165 Figure 7.7: Selected Countries – Integrity and Transparency of the Procurement System .........................................167 List of Boxes Box 1.1: Implication of the New Fiscal Rule on Recurrent Expenditures ...............................................................16 Box 2.1: Model Used to Simulate Government Oil Revenues Dynamics ...............................................................26 Box 3.1: Public Spending Efficiency Indicators ......................................................................................................44 Box 3.2: Cost-Benefit Analysis and Benefit Cost Ratio Methodology .....................................................................47 Box 4. 1: Agricultural Programs ..............................................................................................................................64 Box 4.2: Internal and External Efficiency ...............................................................................................................74 Box 4. 3: Diagnosis of Budget Expenditures for 2008–2012 .................................................................................100 Box 5.1: Theoretical Project Selection Process ......................................................................................................110 Box 5.2: Revenue Collection Process ...................................................................................................................117 Box 5.3: Spending Execution Process ...................................................................................................................117 Box 5.4: Chain of Public Expenditure for Works Contract ..................................................................................125 Box 7.1: Procurement Process ..............................................................................................................................159 Box A2.1: Mining Prospect in Congo.....................................................................................................................191 Box A5.1: Summary of the Budget Preparation Normative Process ........................................................................194 Box A5.2: Republic of Congo – Examples of Lack of Detailed Documentations in CCDB Reports .......................195 x Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Acknowledgements T his is the final report of the Republic of Congo Public Expenditure Management and Financial Accountability Review (PEMFAR) undertaken by the World Bank in close part- nership with the Government of Congo, The African Development Bank (AfDB), The European Union Commission (EU), the International Monetary Fund (IMF), the United Nations Development Program (UNDP), French Cooperation, and the French Development Agency (AFD). The overall coordination was done by Mr. Jean-Christophe Okandza (General Director of Planning) and Mr. Nicolas Okandzi (General Director of Budget) from the government; Mr. Emmanuel Pinto Moreira (Lead Economist and Program Leader for the Republic of Congo) and Mr. Fulbert Tchana Tchana (Senior Country Economist for the republic of Congo) from the World Bank; Mr. Matteo Sirtori (Sector Manager of Governance, Economics and Social sec- tors) and Ms. Cristina Mosneaga (Program Leader of Economics area) from the EU; Mr. Pierre Toko (Financial Governance Specialist) and Mr. Nouridine Dia (Resident Economist) from the AfDB side; Ms. Dalia Hakura (Chief of Mission) and Mr. Jules Tchikaya-Gondhet (Resident Economist) from the IMF; Ms. Ginette Mondongou-Camara (Economist Adviser) from UNDP; Ms. Dominique Anouilh (Attaché of the French Cooperation), Ms. Khadidja Kadri (Technical Adviser from the French Cooperation) from the French Cooperation; and Mr. Achille Olloy (Officer of Human Development project) from the AFD. Finally, Mr. Emmanuel Pinto Moreira and Mr. Jean-Christophe Okandza co-chaired the PEMFAR committee, while Mr. Etaki Wa Dzon (Resident Economist of the World Bank) took care of monthly management of the committee. The report is based on a joint analytical work program conducted jointly by the World Bank, the government, the EU, and AfDB that encompassed the following elements: first, an analysis of trends in budget allocation and execution from 2008–2013, which was undertaken jointly by a World Bank team led by Fulbert Tchana Tchana and a government team from the Ministry in charge of Finance and Planning led by Jean Claude Iwanga (Director of Budget Forecasts). Second, an analysis of performance and financing needs of four main economic sectors (agricul- ture, education, health, and energy), which necessitated the preparation of a background study for each sector. The World Bank supported the drafting of the background paper for agricul- ture, education, and health; AfDB supported the background paper for the energy sector. Third, the assessment of public financial management was conducted in close collaboration with the General Directorates of Budget and Treasury, which are leading the implementation of financial xi management reforms. Two background papers were pre- Lockpe and Bella Diallo (Public Investment Report). pared: the PEFA supported by the EU and the public Chapter 7 was prepared by Fulbert Tchana Tchana, Sidy investment assessment financial management supported Diop, and Clement Tukeba Lessa Kimpuni based on a by the World Bank. Fourth, a procurement assessment background paper prepared by Jean-Claude Mabushi was conducted from a background paper supported by (MAPS Report). the World Bank. The team would like to also thank Amadou Oumar A preliminary draft of all chapters and matrix of Ba, Mahine Diop, Meskerem Mulatu, Hadia Nazem action plan of this document was discussed with gov- Samaha, Leopold Sedogo, Kirsten Lori Hund, Franck M. ernment counterparts in February 2015, and comments Adoho, Clarence Tsimpo Nkengne, Delphine Moretti received during these consultations were taken into (IMF), Maximilien Queyranne (IMF), Guy Jenkinson account in the finalization of the report. (IMF), and Cameron McLoughlin (IMF) for comments Mr. Fulbert Tchana Tchana, the Task-Team and suggestions on an earlier version of this document. Leader, led the drafting of the report. Specifically, the In addition, the report benefited from proofreading by executive summary was prepared by Fulbert Tchana Nathan Weatherdon. Tchana and Emmanuel Pinto Moreira. Chapter 1 The peer reviewers are: Blanca Moreno-Dodson was prepared by Fulbert Tchana Tchana and Etaki (Lead Economist, GMFDR), Joel A. Turkewitz (Lead Wa Dzon. Chapter 2 was prepared by Fulbert Tchana Public Sector Specialist, GGODR), and Hana Polackova Tchana. Chapter 3 was prepared by Fulbert Tchana Brixi (Program Leader, MNCO5). Tchana, with inputs from Ephraim Kebede, Christian The team benefited from the support and guidance Lambert Nguena, and Boubacar Diallo. Chapter 4 was from Yisgedullish Amde (Country Program Coordinator, prepared by Fulbert Tchana Tchana with inputs from AFCC2), Sylvie Dossou/Djibrilla Adamou Issa (Country Boubacar Diallo based on a background papers from Manager, AFMCG), Kevin Carey (Lead Economist, Gaston Gohou (Agriculture PER) and AfDB (Energy GMFDR), Albert G. Zeufack (Sector Manager, PER) as well as from the Human Development 2014 GMFDR), and Eustache Ouayoro/Jan Walliser/Ahmadou Public Expenditure Review (HD 2014 PER) led by Moustapha Ndiaye (Country Director, AFCC2). Karima Cristina Isabel Panasco Santos. Chapter 5 was prepared Laouali Ladjo (Program Assistant, GMFDR) and Josiane by Fulbert Tchana Tchana and Etaki Wa Dzon with Maloueki Louzolo (Team Assistant, AFMCG) provided inputs based on background papers PEFA 2014 led by assistance and various supports in the preparation of Cristina Mosneaga from EU and from Nicolas Lockpe the report. Finally, the team is very grateful to various and Bela Diallo (Public Investment Report). Chapter administrative supports received from Maude Valembrun 6 was prepared by Fulbert Tchana Tchana based on (Language Program Assistant, GMFDR) and Lydie background papers from PEFA 2014 and from Nicolas Ahodehou (Program Assistant, GMFDR). xii Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Abbreviations and Acronyms AFD Agence Française de Développement (French Development Agency) AfDB African Development Bank AICD Africa Infrastructure Country Diagnostic ARMP Autorité de Régulation des Marchés Publics (Public Procurement Regulatory Authority) ASYCUDA Automated System for Customs Data AWP Annual Work Plans BCR Benefit Cost Ratio BD Bidding documents BEAC Banque des Etats de l’Afrique Centrale (Bank of Central African States) BoP Balance of Payment BRICS Brazil, Russia, India, China, and South Africa CBA Cost-Benefit Analysis CCA Caisse Congolaise d’Amortissement (Congolese Debt Agency) CCDB Court of Auditors CEC Centrale Electrique du Congo (Turbine Gas Power Plant) CEMAC Communauté Economique et Monétaire d’Afrique Centrale (Economic and Monetary Community of Central Africa) CEPI Centre des études et d’évaluation des Projets d’Investissement (Centre for Study and Assessment Investment Projects) CFAA Country Financial Accountability Assessment CFA F/XAF Financial Cooperation Franc of the Central Africa CFL Compact Fluorescent Lamps CGAF Compte Général des Administrations Financières (General Account of the Financial Administration) CGMP Cellule de Gestion des Marchés Publics (Line Ministry Procurement Management Unit) CISPIP Commission for the Identification and Selection of Public Investment Projects CMR Child Mortality Rate CNLCCF Commission Nationale de Lutte contre la Corruption, la Concussion et la Fraude (National Commission against Corruption and Fraud) xiii COMEG La Congolaise des Médicaments DGID Direction Générale des Impôts et des Essentiels et Génériques (Congo Domaines (General Directorate of Taxes Essential Generic Drugs Agency) and Domains) CONFEMEN Conféderation des Ministres DGGT Délégation Générale des Grands Travaux de l’Éducation des États et (Large Public Works Agency) Gouvernments de la Francophonie DGPD Direction Générale du Plan et du (Confederation of the Ministers of Dévelopment (General Directorate of Education from States and Governments Planning and Development) of Francophone Countries) DMFAS Debt Management and Financial CORAF Congolaise de Raffinage (Congolese Analysis System Oil Refinery) DPI Directorate for Public Investment Planning CPAR Country Procurement Assessment DRC Democratic Republic of Congo Review DSA Debt Sustainability Analysis CPI Consumer Price Index DSM Demand Side Management CPIP Country Procurement Issue Paper ECOM Enquête Congolaise auprès des Ménages CREFIAF Conseil Régional de Formation des pour le suivi et l’évaluation de la pauvreté Institutions Supérieures de Contrôle (Poverty survey) des Finances Publiques de l’Afrique EDSC Demographic and Health Survey in Francophone Subsaharienne (Regional Congo Council of Training of Supreme Audit EESIC Enquête sur l’emploi et le secteur Institutions of Public Finance of French informel au Congo (Employment and Speaking Sub-Saharan Africa) Informal Sector Survey) CSEPPP Committee of monitoring and EITI Extractive Industries Transparency evaluation of public policies and Initiative programs ERC Economic Recovery Credit CSI Centre de Santé Intégré (Integrated EU European Union Health Center) GER Gross Enrollment Rate CSS Circonscriptions Socio- Sanitaire GFS Government Financial Statistics (Socio-Sanitary Circumscriptions) GDP Gross Domestic Product DAAFs Directorates of Financial and GNI Gross National Income Administrative Affairs HIPC Heavily Indebted Poor Countries DDS Directions Départementales de HIV/AIDS Human Immuno-deficiency Virus/ la Santé (Departmental Health Acquired Immuno Deficiency Syndrome Directorates) IBRD International Bank for Reconstruction DEP Directorates of Studies and Planification and Development DGCB General Directorate of Budgetary IDA International Development Association Control IFC International Finance Corporation DGB General Directorate of Budget IGCOR Incremental Government Spending DGDDI Direction Générale des Douanes et Output Ratio Droits Indirects (General Directorate of IGE Inspection Générale d’Etat (General Customs and Excise) Inspectorate of State) DGH Direction Générale des Hydrocarbures IGF Inspection Générale des Finances (General Directorate of Hydrocarbons) (General Inspectorate of Finance) xiv Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) IMF International Monetary Fund NHA National Health Accounts IMR Infant Mortality Rate NIU Numéro d’Identification Unique (Fiscal INTOSAI International Organization of Supreme Unique Identification Code) Audit Institutions OAC Observatoire Anti-Corruption (Anti- IPCOR Incremental Public Capital Output Ratio Corruption Observatory) IRR Internal Rate of Return OCAM Organisation commune africaine et L&RF Legislative and regulatory framework malgache (Afro-Malagasy Common LORFE Loi Organique relative au Régime Organization) Financier de l’Etat (Law of the Financial OECD/DAC Organization for Economic System of the State) Co-operation and Development/ MAE Ministère de l’Agriculture et de l’Elevage Development Assistance Committee (Ministry of Agriculture and Livestock) OHADA Organisation pour l’Harmonisation MAPS Methodology of Assessment of en Afrique du Droit des Affaires Procurement Systems (Organization for the Harmonization in MDG Millennium Development Goals Africa of Business Law) MEFPPPI Ministry of Finance OOPS Out-of-Pocket Spending MEH Ministère de l’Energie et de OPPA Ordre de paiement par anticipation l’Hydraulique (Power and Water Ministry) (Budget Exceptional Execution MEPSA Ministère de l’Enseignement Primaire et Procedures) Secondaire, chargé de l’Alphabétisation PAAGIP Plan d’Actions pour l’Amélioration de (Ministry of Primary & Secondary la Gestion des Investissements Publics Education, and Literacy) (Action Plan for Improving Public MES Ministère de l’Enseignement Supérieur Investment Management) (Ministry of Higher Education) PAGGFP Plan d’Action Gouvernementale de METPFQE Ministère de l’Enseignement Technique Gestion des Finances Publiques (Public et Professionnel, de la Formation Financial Management Government Qualifiante et de l’Emploi (Ministry of Action Plan) Technical and Professional Education, PAP Priority Action Plan Qualifying Training and Employment) PASEC Programme d’Analyse des Systèmes MFM Macro Fiscal Management Éducatifs de la CONFEMEM MH Ministry of Hydrocarbon (CONFEMEN Analysis of Educationnal MIC Middle Income Country Systems Programme) MIGA Multilateral Investment Guarantee PEFA Public Expenditure and Financial Agency Assessment MoHP Ministry of Health and Population PEMFAR Public Expenditure Management and MPA Ministère de la Pêche et de l’Aquaculture Financial Accountability Review (Ministry of Fisheries and Aquaculture) PER Public Expenditure Review MPC Magminerals Potasses Congo PFM Public Finance Management MPD Mining Project Development PIM Public Investment Management MTEF Medium Term Expenditure Framework PIMI Public Investment Management Index NDP National Development Plan PIMR Public Investment Management Review NER Net Enrollment Rate PIP Public Investment Program NGO Non-Governmental Organization PIT Personal Income Tax Abbreviations and Acronyms xv PNDS Programme National de Développement SME Small and Medium Enterprises Sanitaire (National Health Development SNE Société Nationale d’Electricité Plan) (National Electricity Company) PPP Public-Private Partnership SNPC Société Nationale des Pétroles du PRSP Poverty Reduction Strategy Paper Congo (Congolese National Oil PTR Pupil Teacher Ratio Company) PVNB Present Value of Net Benefits SSA Sub-Saharan Africa QUIBB Questionnaire Unique d’Indicateurs de SYSCOHADA OHADA accounting system Base de Bien-être (Core Welfare Indicators SYSTAF Système de Traitement Automatisé Questionnaire) Fiscal (Fiscal Automated Processing REER Real Effective Exchange Rate System) RGCP Règlement Général de Comptabilité TFP Total Factor of Productivity Publique (General Regulations on Public TIAO Taux d’intérêt des appels d’offres Accounting) (Interest rate for bids) SARIS Société Agricole de Raffinage Industriel de TVET Technical and vocational education Sucre (Sugar Company) and training SCMBF Standing Committee of Macroeconomic UDEAC Union douanière des Etats de and Budgetary Framework l’Afrique Centrale (Central African SIBEC Système Informatique du Budget et Customs Union) l’Economie du Congo (Computerized UNDP United Nations Development System of Budget and Congolese Economy) Programme SIDERE Système intégré des recettes et dépenses de USD/US$ Dollar of the United States l’Etat (Integrated System of the Government VAT Value Added Tax Revenue and Expenditure) WAEMU West Africa Economic and Monetary SIGMAP Integrated Management System of Public Union Procurement xvi Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Executive Summary Rationale and Objectives The Republic of Congo (Congo) boasts numerous assets that can be harnessed to build a strong and robust economy. These assets are oil, ore such as iron and potash, arable lands, and a young population. Congo is the fourth largest oil producer among West and Central African countries, both in total production (260,000 barrels per day) and production per capita terms. In addition, the country is endowed with substantial iron and potash that are yet to be exploited; it has a vast arable lands that could be useful for agricultural development; and the country boasts a young population, which, if well-educated, could be a dynamic labor force helping to spur economic growth. However, Congo is a fragile State that emerged from a period of turbulence a decade ago. The country is coming out of a period of conflict and instability, which affected the country from 1990 to 2002. Moreover, the country has been instable since its independence in 1960, with only one constitutional and peaceful transition of power from one president to another in 1992. In fact, changes of power in 1963, 1968, 1977, 1978, and 1997 were unconstitutional and at times marked by violence. In this context, the lack of a stable environment affected the management of economic and financial issues by the government of Congo. Financial institutions of the government are still underdeveloped, with a clear lack of human capital in some segments of its structure. The staffing of the financial institutions such as those in Treasury, Budgetary Administration, and other key areas lack a clear staffing and human resources management plan. In recent years, building on a favorable market price of oil and a low level of debt, the country enjoyed a stable macroeconomic environment. Congo reached the Enhanced com- pletion point of the HIPC in 2010 resulting in a sharp decline of its debt burden. In addition, international oil prices were high from 2010 to 2013. These favorable economic conditions led to average GDP growth of 4.4 percent from 2010 to 2013. The non-oil sector grew at an average rate of about 8 percent while inflation at 4.1 percent remained relatively moderate over the same period, although above the CEMAC’s convergence criteria of 3 percent. The current account balance was also positive, 1.3 percent of GDP. These favorable conditions freed fiscal space and the government tapped into its substantial oil revenues to begin closing the significant basic infrastructure gap. High oil xvii revenues and low payment of debt services have helped reforms. Three main reforms were adopted: i) the Action the government to achieve a high level of fiscal surpluses Plan of Government Public Financial Management (12.8 percent of GDP from 2004 to 2013). Since 2006, (PAGGFP) in 2006; ii) the Action Plan for Improving the government has used a substantial amount of these Public Investment Management (PAAGIP) in 2008; and revenues to increase the level of its investment in public iii) the public procurement code in 2009. infrastructure. The government capital expenditure (18.8 At the same time, major innovations have been percent of GDP) was higher than current expenditures introduced to strengthen the management of public (13.8 percent of GDP) between 2010 and 2013. finances. These include: i) the introduction of SYSTAF However, the benefits of growth, and invest- and a Unique Identification Number, which enabled the ments were not evenly distributed. The poverty rate tax administration to register all taxpayers on a single declined only slightly in recent years, and it is well above file; ii) the establishment at the customs administration that of countries with similar income level. Based on the of the ASYCUDA software for better control of the tax 2011 ECOM survey, the poverty rate declined from 50.7 base and secure customs revenue; iii) the improvement of percent in 2005 to just 46.5 percent in 2011. Poverty the transparency and governance in the oil sector by the is severe in rural areas, affecting 75.6 percent of the quarterly certification of oil revenues; iv) the creation of population, compared to 32.3 percent in urban areas. the department of the computerization of the Ministry The poverty rate decreases with the level of education; it in charge of Finance; and (v) the adoption of a decree stands at 53.2 percent among households whose heads clarifying and simplifying the expenditure circuit and have not received a formal education, compared to 15.4 the respective roles of the main actors. percent among those who have attended universities. However, many of these reforms have expe- In addition, in recent years the efficiency of rienced implementation issues, due in part to the public spending has been a great challenge for the lack of coordination between ministries. After the country, primarily due to weaknesses in the country achievement of the completion point of the Enhanced Public Financial Management (PFM) system. The HIPC initiative, the government disbanded the structure efficiency and the quality of public expenditures on infra- responsible for coordinating economic reforms. Many structure remain weak despite a significant scaling up of the above-mentioned reforms missed a key deadline of capital spending in recent years. This is evidenced by during the implementation phase. For the PAGGFP, frequent power outages and poor road conditions. Large the new organic law of September 2012 is still missing budgeted investments have not yet led to significant implementation regulations related to the government narrowing of the social and infrastructure gaps. From accounting and the budgetary nomenclature. Also, the 2000 to 2013, the country spent, on average, approxi- Court of Auditors has not yet started to audit perfor- mately US$600 million per annum for infrastructure, mance for the effectiveness of judicial and parliamentary representing about one third of its GDP per capita. The reviews. For the PAAGIP, resources were allocated in the issue of the efficiency of public investment is important 2010 budget to carry pre-feasibility studies, but these in Congo as highlighted by Dabla-Norris et al. (2011), studies have yet to begin; meanwhile the MTEF pro- which ranked the country second to last on efficiency of cess, which was completed in 2010 at central as well as public investment spending. This inefficiency was due at sector level, is still not used in the budgeting process. to poor selection, evaluation, and monitoring of invest- For the Public Procurement Code, the processing times ment projects as well as to previously non-regulated of the revised expenditure chain of 2011 is too long; the public procurement systems, highlighting the weak state system has yet to be fully implemented. of PFM in Congo. Therefore, the main objective of the PEMFAR In order to improve the efficiency of its spend- is to inform the ongoing national debate on a com- ing, the government adopted a number of PFM prehensive implementation of the budgetary, fiscal, xviii Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) procurement, and disbursement reform. The govern- of oil from 2002 to 2012. Additionally, in 2010, Congo ment has been implementing fiscal reforms, including reached the completion point of HIPC initiative. As a procurement and disbursement reform. However, Congo consequence, almost all its debt to debtor’s stakeholder is currently facing a situation of lower budget execution of the Enhanced HIPC process was canceled. Following in line ministries; also, there is worsening accountability this, the payment of debt services dropped from 20 for expenditures and persistent low quality of public ser- percent of total spending in 2008 to 8 percent in 2013. vice delivery. This PEMFAR constitutes an opportunity These two key economic developments led to to engage in a constructive dialogue with government fairly strong growth over this period. A higher oil counterparts on improving implementation and coor- price has increased the dominance of oil sector in the dination of these ongoing reforms. Congolese economy while increasing the demand of The PEMFAR format was chosen because it non-oil good and services as a result of higher disposable allows a combined assessment of budget results income by households. Moreover, a high oil price has through a Public Expenditure Review (PER), an led to high government oil revenues, which has allowed assessment of public financial accountability through the government to invest heavily to catch up on its basic a Country Financial Accountability Assessment public infrastructure. This investment in infrastructure (CFAA), and a Country Procurement Assessment has further strengthened the non-oil sector, which grew Review (CPAR). These parts of the report are comple- at an average rate of about 8 percent over this period, mented by an analysis of the macroeconomic and fiscal compared to 5.4 percent GDP growth. context. Each component of the report focuses on a key In addition, high oil prices and low debt service question: i) Part I (macroeconomic context): Are Congo’s generated fiscal space, which was used to finance fiscal policies sustainable in the context of the current emerging domestic demands by various constituen- and projected macroeconomic framework? ii) Part II cies. The high level of oil price increased government (PER): Are allocations of public expenditures and their oil revenues, while the debt cancellation reduced its execution in line with strategic objectives? and iii) Part recurrent spending. As a result, the government posted III (CFAA and CPAR): Are minimum fiduciary stan- strong fiscal surpluses from 2010 to 2013. However, dards met at different stages of the expenditure process? high oil prices were the primary driver of these surpluses And, are procurement processes properly implemented (given that the country started posting fiscal surplus during the budget execution process? in 2003 at the beginning of the oil price boom) with debt cancellation contributing to a lesser degree. More Key Policy Issues under Investigation importantly, the fiscal space is expected to close as a result of important government commitments to salary First issue: Understanding economic increases to civil servants, major multi-year infrastruc- fundamentals that led to large fiscal space ture investments, and a forecasted low level of oil prices from 2008 to 2013 and explaining the in coming years. prospect of a tight fiscal space in coming High dependency of the fiscal space to vola- years. tile oil revenues raises the issue of natural resources From 2008 to 2013, Congo benefited from high oil and overall revenue management. Oil prices are well prices and from substantial reduction of the payment known to be very volatile, and this has been the case of debt services consecutive to reaching the comple- during 2008–2013, with a higher drop in 2009, which tion point of the enhanced HIPC initiative. Over reduced government revenues significantly. Oil is also this period, the oil price has averaged about US$100 a non-renewable resource, which posits a threat on per barrel, compared to about US$20 per barrel from the long-term sustainability of government finances in 1990 to 2002, representing a quintupling of the price Congo. However, realistic forecasting of oil revenues for Executive Summary xix budget management remains a serious challenge and execution rate has been volatile, fluctuating between 88.4 transparency in the use of oil and mining revenues is percent and 104.4 percent, which overall is in line with still not fully applied. low-middle income country standard. The execution rate varies substantially by sector, line ministry, and institu- Second issue: Understanding difficulties tion. Both poor budget planning and limited absorption faced by budget allocation and execution capacity have been key in explaining this volatility of in general and in priorities sectors budget execution. Fast increase of overall budget spending in a context Insufficient level of budget planning led to overrun of volatility of budget execution or low execution rate in priorities sectors Total spending increased slightly in real terms by The budget in the agriculture sector faced two key about 6 percentage points (percentage points) of GDP issues: low budget allocation and a very low execu- on average over 2008–2013. It accounted for about 36.6 tion rate. Budget allocation in the agriculture sector percent of GDP on average over the 2008–2009 period is far below the recommended share of total budget and 42.9 percent over 2010–2013. This increasing trend by the African Union (AU). The agricultural sector’s of spending was driven mainly by capital expenditures, share of total expenditures increased from 0.9 percent where spending increased in real terms and on average at in 2008 to 1.6 percent in 2012, with a peak of 2.6 per- an annual rate of more than 30 percent during the period cent reached in 2011. This share of expenditures is far and to lesser extent by recurrent spending, which grew at below the 10 percent recommended by AU in Maputo an average annual rate of more than 13 percent during in 2003 as the target level that would allow agriculture the same period. In fact, the government has used most to fully play its role in poverty reduction. Moreover, of the available resources from debt reduction to increase between 2008 and 2012, agricultural expenditures in its domestic investment spending. Hence, during this Congo were smaller than its economic contribution to period the share of recurrent expenditure in the budget GDP. In addition, budget execution in the agricultural decreased, revealing the government’s efforts to imple- sector has been quite low, averaging only 66.8 percent ment its development priorities set forth in the National during the period. This execution rate was low com- Development Plan (NDP). pared to an execution rate of total public expenditures The infrastructure and economic sectors of 94.8 percent on average over the period 2008–2012. increased their share in total spending over this period. However, the average execution rate of the sector masks Total spending in infrastructure and economic sectors some discrepancies observed over time and across the increased in real terms on average at an annual rate of various components of the agricultural sector. Indeed, more than 30 percent in 2008–2013, mainly driven by for the agricultural sector, the lowest execution rate was spending of the Ministry of Public Works, the Ministry of reached in 2009, with an execution rate of 39.8 percent, Transport, and the Ministry of Energy and Water, which while the execution rate of the total expenditures was together account for about 90 percent of total spending 89.3 percent in that year. on infrastructure. The budget of each of these ministries Insufficient allocations to achieve the sector goal grew on average during the period at an annual rate of and poor budget planning which lead to overruns are greater than 20 percent. When infrastructure is embodied critical budget issues in the Education sector. Overall, in the economic sectors, these three ministries account the share of public spending allocation in the education for more than 40 percent of the budget of the economic sector decreased slightly as a result of greater investment development sector. in economic infrastructure; the country is still lagging The volatility of the budget execution rate has behind middle-income country standards. Between been an important challenge for Congo. The budget 2004 and 2007, the average share of budget allocation xx Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) to the education sector was 10.8 percent, higher than the country budget. In fact, the relative share of total the 10.2 percent from 2008 to 2012.1 In fact, over this spending in the Energy sector in the country remained four-year period, the share of budget to the education stable in 2008–2012 at about 8.3 percent, which is a sector fluctuates between 12.4 percent in 2004 to 9.8 substantial increase from the rate observed in 2004–2007. in 2007. The budget execution rate was higher than 90 Between 2004 and 2007, the share of the government percent, but varies among the three education ministries. budget devoted to the energy sector fluctuated between Ministère de l’enseignement supérieure (MES) faced over- 1.5 percent and 4.0 percent, averaging 2.4 percent dur- runs both in recurrent (5 percent in 2012) and invest- ing this period. This share jumped from 4.0 percent in ment expenditure (14 percent in 2011), although more 2007 to 10.7 percent in 2008 in order to account for the significantly in the latter. government ambition to build the Imboulou Dam, the Insufficient allocations to achieve the sector Pointe Noire thermal center power plan, and to build goal, and poor capacity to execute budget are criti- power transportation and distribution lines. cal issues in the Health sector. Congo’s total health budget allocation, both as a share of GDP and as a share Third issue: Government spending has of total government budget allocation are very low in been fairly equitable but the country suffers relation to the country’s per capita income. Whereas from significant investment inefficiency. Congo’s per capita income in international dollars is Overall government spending efficiency improved among the highest in SSA, the share of resources in after 2009 reforms, but investment spending effi- the economy that is devoted to the health sector is ciency deteriorated. Government spending was more among the lowest, and so is the share of government efficient over 2010–2013 than over 2003–2009, how- spending going to health. Besides, the Ministère de ever public investment spending efficiency deteriorated. la Santé Publique (MSP) budget execution rate has Poor investment planning has rendered important (and been volatile during the period 2008–2012, but with otherwise productive) investment in the energy sector an upward trend in recent years. In 2008 and 2010, completely inefficient, while poor selection of investment the execution rate of the health budget was under 80 projects have led to white elephants such as airports in percent. In 2009, only 42.7 percent of the budget was various rural localities. Moreover, the high cost of build- executed. The year 2011 saw the highest level of execu- ing infrastructure in Congo has reduced the efficiency of tion, at 90 percent. The MSP execution rate has been public investment, for example investments in roads and lower than the overall government’s budget execution bridges. In fact, the construction cost of roads in Congo rate, which averaged 93.4 percent in 2009–2012, with is among the highest among developing countries. a low of 83.9 percent in 2012. For example, a 7m paved road costs on average about In the Energy sector, the absence of budget cred- US$0.75 million per kilometer whereas it costs about ibility is the main issue. The energy sector has substan- US$0.4 million per kilometer in Kenya and in Nigeria. tially exceeded its allocated budget each year since 2006; The recent government investment program has with an average execution rate of about 140 percent over been in favor of the poor in some respects. The high- 2008–2012, a sharp increase from about 105 percent in est share of the investment program has been given to 2004–2007. The analysis of investment execution rates roads, ports, rail, and hospitals, while the second larg- shows that budgetary authorities have over-executed in est share was given to electricity development, and a recent years. Poor planning and cost overruns in the lower share to airports and buildings. Specifically, road construction of energy infrastructure are the main rea- sons for this very high rate of execution. This raises a flag 1 Despite the fact that the budget allocation to the sector grew at an about the robustness of the budgetary and disbursement average real growth rate of 24.2 percent from 2008 to 2013, a rate system in Congo to efficiently monitor the execution of higher than between 2004 and 2007 (22.1 percent). Executive Summary xxi investments have improved equity in the country by Although there is some evidence of a positive relation- easing the transportation of the rural population to city ship between public per capita spending and indica- centers; while rail as well as port investments have been tors of health system performance, (such as number equitable for all, by reducing transportation costs for of visits to public health facilities, the use of contra- international trade. In contrast, investments in electricity ceptives and the percentage of women that received that could have been equitable are not yet, and airports pre-natal care and that took anti-malarial drugs dur- and airplane investments, which account for about 10 ing pregnancy) this positive relationship does not hold percent of the overall government investment program, for all health outcomes. The limited resources avail- benefit mainly the rich. able in Congo are not distributed evenly across the In the agricultural sector government spend- country. This contributes to inequalities in access and ing has been fairly effective if measured by the sector outcomes across different populations. The excessive outcome. In fact, an average growth rate of government price of services seems to create a barrier to the poorest spending in agriculture of 20 percent from 2004 to 2007 households and the ones living in rural areas. In addi- resulted in an average growth rate in agriculture of 5.8 per- tion, given that government expenditures in health do cent over the period, while an average growth rate of 19.6 not vary too much across quintile, this expenditure percent of government spending in this sector resulted in is equitable. However, there is a real possibility that an average growth rate of production of 7.0 percent from households in the poorer quintiles are not accessing 2008 to 2012. The efficiency of government spending, all the services and medicines they may lack for want however, suffers from absorption capacity issues when the of financial resources. Indeed, when asked about their speed of government investment is too fast. level of satisfaction with the service received at health In the education sector, from 2005 to 2011, facilities, the most common problem identified by the the efficiency of government spending in education poor is that services are too expensive. This problem presented a mixed picture. On one hand it has been appears to have intensified for the bottom quintiles efficient because it led to the increase of the quality of from 2005 to 2011. education of the workforce as well as a reduction of The government spending in the energy sector unemployment for people with a greater level of educa- has been fairly inefficient if measured by the sector tion. On the other hand, it has been inefficient since the outcome. During this period, the growth rate in the rate of return to education decreased. Efficiency gains energy sector decelerated, moving from 7.7 percent on could be made on the quality of service delivery. These average in 2003–2007 to 5.1 percent in 2008–2012 need to focus on an overall improvement of quality of despite massive investments in the sector over the lat- service delivery that increases the number of quality ter period. The increase of government spending in teachers, decreases the ratio between administrative staff the sector clearly failed to stimulate the growth of the and teaching staff, that makes better use of teaching time, production of the sector. The efficiency of government and that is based on improved planning of distribution spending suffers from absorption capacity issues and of human resources. Further, quality of teaching needs from poor planning and coordination. The access to to be addressed and gains are required in retention and electricity improved between 2009 and 2012, from repetition rates, as well as in dropout rates. Data collec- 45 percent in 2009 to 58 percent in 2012. However, tion and analysis on inefficiency factors are also required these investments did not result in improving utiliza- in order to better identify other sources of inefficiency tion of production capacity between 2008 and 2011 and act upon them. because, despite the entry into production of Imboulou In the health sector, the low utilization rate and CEC power plants in 2010, Congo produced only of beds in hospitals and limited use of services in 25 percent of its capacity in 2011, against 31 percent general, suggests efficiency problems in the system. in 2008. xxii Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Fourth issue: The government experienced by the Directeur Général du Budget (DGB) and settled difficulties in fully complying with rules by the Treasury. and processes it adopted in the budget The Treasury, which centralized and managed planning and execution, in part due to revenues collected by various government agencies, lack of capacity improved many aspects of its management, how- A clear process of budget preparation has been ever the risk related to cash management remained adopted in Congo, however this process is not fully substantial. The Minister in charge of finance is the implemented. Specifically, the programming process main organizer of the State revenues and the Treasurer- of public investment has an official schedule, but the general-paymaster is the principal accountant of the administration has not fully complied with it in recent State budget. The Treasury account is comprised of years. This process is used to identify projects to be cash, short-term bank loans, and short-term financial included in the State budget on the basis of public policy assets, said to be centralized in a single treasury account. objectives and well-defined criteria. In addition, the Since 2008, the Treasury improved many aspects of its investment planning process is supposed to be clearly management, for example the collection and transfer planned in the budget preparation calendar, however of oil revenues by SNPC has significantly improved currently very few projects are subject to feasibility according to EITI reports. In addition, the realization of study prior to enrollment in the State budget and proj- budget surpluses over many years is a sign of good per- ect selection is no longer based on the mechanisms that formance of the Congolese treasury system. However, had been put in place. low cash management capacity actually hinders the During the period under review, the planning quality of data and limits the overview. The risk of the and budgeting of capital and recurrent spending cash system remains fairly substantial, mainly because was poor, given that they were under pressure of the Treasury management has not been able to system- non-programmatic or unprepared spending. Capital atically produce the required documents in support of allocations were drafted by the Direction Génerale du its cash operations. Plan et du Developpement (DGPD) using the central MTEF, but most investment projects were budgeted Fifth issue: The government reform of public without prior studies. Unlike for the capital spend- financial management (PFM) is not fully ing, the preparation of the recurrent budget was led implemented, which, coupled with a poor by the Standing Committee of Macroeconomic and computer system, is leading to issue with Budgetary Framework (SCMBF), through the central budget credibility MTEF. But in recent years, the use of this instrument The legal framework governing the management of has been limited, due to issues in updating the instru- public finances is being renovated; as a result, the ment and the tendency of the government to push medium-term predictability and quality of budget for spending not accounted for by its programmatic preparation has improved, however programming documents. and budgeting process for investments are still not Budget execution with normal procedures well coordinated. In fact, in recent years, the govern- was difficult to implement because it was marked ment adopted or updated new legislation to improve this by multiple and complex steps, leading to excessive legal framework. In this regard, the organic law of the use of exceptional procedures. The execution of the financial system of the State was adopted in September budget includes several actors, steps, and procedures. 2012; the general regulations on public accounting and Due to codification procedures, the budget is hardly several regulatory texts were also adopted. However, enforceable with normal procedures on January 1 of some critical implementation of regulations of these each year. Budget expenditures execution is scheduled laws is not yet in place. Executive Summary xxiii Payment deadlines are not met, thus under- rehabilitating and integrating of all current systems, mining budget credibility. Due to the lack of cash is experiencing significant delays. planning together with a budget control mechanism, the 90-day payment deadline set by the current regu- Sixth issue: Although the country lations to the General paymaster for the settlement of procurement system improved during expenses is not always respected. In addition, capital the period under review, it is seriously spending is not running smoothly and arrears accu- compromised by delays at various steps mulate by the end of the budget year. Hence, budget The quality of the public procurement system of credibility is undermined by this lack of mastery of Congo is evaluated as moderately satisfactory, a cash flow that leads to accumulation of arrears despite substantial improvement from 2006. In 2014, the budget surpluses. Congolese system was rated at 53 percent satisfac- The government created many institutions to tory using OECD/DAC rating scale, compared to 16 control public expenditures; however for capital percent in 2006. This improvement is in part due to expenditure the system is still weak since only a small the introduction of a new procurement code and its number of investment operations are controlled. implementation regulations. The Code is modern and Control and monitoring are done at two levels, internal state-of-the-art. It mainly provides for: i) broad coverage and external. The internal control is done in two phases: of ministries, organs of the State and public enterprises, i) a priori and ii) post spending. The a priori control local government authorities, and use of public funds of nonwage debt struggled following the devolution of by these procuring organizations; ii) decentralization of financial control function and assignment of auditors procurement responsibilities to the procuring organi- to credit managers. Regarding post-spending control, zations, which comprise Procurement Units (CGMP); control bodies exist, but their response capabilities are iii) the creation of a Public Procurement Regulatory very limited. External control has also two layers, the Authority (ARMP) with responsibilities over drafting Cours des Comptes et de Contrôle Budgétaire (CCDB) and regulations, monitoring and evaluation including post the Parliament. The CCDB has developed the capacity reviews, capacity building, review and adjudication to control the execution of the State budget, but has of complaints filed by bidders; and iv) the creation yet to strengthen its capacity to perform its other tasks. of a Public Procurement Directorate for Controls Also, control by the parliament has been improved by (DGCMP) which is given oversight responsibilities over the progress made in the preparation of budgets. procurement transactions carried out by the procuring The information system for accounting and organizations, including ex-ante approvals. monitoring has been dysfunctional; upgrades of Specifically, the Congolese legislative and the system have experienced significant impor- regulatory framework with regard to procurement is tant delays. The computer system of accounting and strong and is in accordance with international stan- recording of financial reports is dysfunctional. In fact, dards. Regulations and their documentations, includ- the system has been unable to meet either the updated ing standard bidding documents for different types of requirements of keeping accounts or the need for qual- contracts, are in place and are of excellent quality and ity data for budget management. In addition, financial made accessible to contracting entities and suppliers. monitoring of the execution of investment spending The institutional framework has improved substantially. is faltering because of the inadequacies of the budget The procurement system in place promotes the separa- accounts and the inability of the computer system tion of execution, regulation, and control responsibili- (SIDERE) to produce budget execution statements ties, which are well identified in the procurement code and complete accounts. Finally, the computerization and allocated to specific institutions. This reform also program of the Ministry of Finance, which aims at includes institutions helping to further transparency and xxiv Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) integrity. The Congolese framework compared favorably will disappear in coming years and treasury tension to many developing countries’ frameworks. will reappear, driven by lower oil prices and substantial Meanwhile, this improvement is not yet enough spending commitments by the government for salary to bring the country procurement system to the level increases to civil servants and for the construction of of many SSA countries. In fact, important shortcomings structural basic infrastructure such as the road between remain. Regarding the quality of operations and market Brazzaville and Dolisie. practices, there is a widespread weak management capacity Bold action is needed to increase revenue at contracting authorities and private sector levels, which collection. Specifically, the government should negatively affects the quality of procurement operations. consider: i) strengthening the collection of non-oil The Congolese public procurement system is poorly revenues by improving the functioning of Personal integrated and incorporated into the public sector gover- Income Tax (PIT), introducing a property tax, and nance system. The legislative and regulatory framework is strengthening the capacity of the Tax as well as Customs still incomplete. In addition, procurement plans remain administrations; ii) better managing oil revenue vola- seriously compromised by delays in budget preparation, tility by strengthening the capacity of the Ministry in launching tenders and evaluation, issuing no-objection charge of hydrocarbon to efficiently manage the oil by the DGCMP, and approval and signing of contracts. sector, improving the transparency in the sector, and Moreover, there are burdens and delays in the circuit of the establishing a stabilization fund to smooth interna- expenditures. tional prices fluctuations of oil resources; iii) capturing a greater share of forthcoming mining rents by mak- Main Messages and Policy ing sure that the process of negotiating oil contracts Recommendations appropriately takes into account technical advice in the decision-making process. The government is currently engaged in a new phase of PFM reforms. In February 2015, the minister in charge Second message: The government used the of Finance appointed a technical committee to draft the fiscal space to keep its commitment in terms budgetary and financial reform in order to move the of allocation to priorities sectors, but uneven country toward a program-based budgeting as well as execution by line ministries has hampered to reform the revenue chain. The messages and policy this commitment. The government should recommendations identified here could help the govern- therefore take action to improve budget ment in this exercise. execution in some line ministries. From 2008 to 2013, while increasing its spending, First message: The favorable economic the government allocated substantial budget to pri- conditions that led to large fiscal space ority sectors but low execution rate in some of line from 2008 to 2013 have lapsed and the ministries of these priority sectors has hampered government should take bold actions now this commitment. During this period, total spending to increase and diversify its sources of increased slightly in real terms by about 6 percentage revenues. points of GDP. The share of recurrent expenditures in The enviable fiscal space that the Congolese gov- the budget decreased, revealing the government’s efforts ernment enjoyed during the previous five years is to implement its development priorities set forth in coming to an end. From 2008 to 2013 the Congolese the NDP. In addition, the infrastructure and economic government enjoyed a large fiscal space as proven by sectors increased their share in total spending over the large fiscal surpluses of more than 10 percent of GDP period under review. Total spending in infrastructure on average over the period. However, this fiscal space and economic sectors increased in real terms on average Executive Summary xxv at an annual rate of more than 30 percent in the period Congo has reduced the efficiency of public investment, 2008–2013, mainly driven by spending of the Ministry for example investments in roads and bridges. In fact, of Building and Public Works, the Ministry of Transport, the construction cost of roads in Congo is among the and the Ministry of Energy and Water. However, the highest for developing countries. budget execution rate has been volatile, varying sub- Substantial reforms of the public investment stantially by sector, line ministry, and institution, with system including planning, budgeting, and imple- some line ministries in priority sectors such as agriculture mentation are needed. Specifically, the government executing less than 50 percent of their allocation. As a should consider the following: i) adopt and implement result, in terms of actual spending, not all priorities sec- a transparent and objective process of investment proj- tor have benefitted from the fiscal space. ect selection within public agencies, institutions, and The PEMFAR is recommending substantial line ministries, and do the same at the central level i.e., reforms of the public expenditure system including DGPD and DGB; ii) plan and coordinate investment planning, budgeting, and actual spending. Specifically, decisions with all relevant institutions for the investment. the government should consider it a priority to: For example, improve coordination between DGGT and i) strengthen the budget planning process and keep a link line ministries that benefit from the investment by setting between planning and budgeting; ii) improve its budget and fully implementing mandatory committees between presentation in order to ease analysis by enabling the dis- DGGT and each related line ministry; iii) decelerate the tinction between directly productive sectors and indirectly pace of public investment to allow the building up of the productive sectors; and iii) strengthen the human resources supply side of the construction industry in Congo, this of some line ministries on public finance issues and reduce will reduce inflationary pressure on public investment; the tendency to use special procedures in budget execution. and iv) in order to improve spending equity, target the allocations of public resources and provide a geographic Third message: Poor investment selection, coverage of the budget by division or rural vs. urban areas. lack of coordination, and weak absorptive capacity of the construction sector have Fourth message: Government spending led to significant inefficiency of public in the agricultural sector has been fairly investment in Congo. The government efficient however it has been lower than should improve the selection process, expected due to the combined effect of increase planning and coordination of its lower budget allocation and chronic low investment, and consider decelerating the execution rate in the Ministry of Fisheries pace of investment spending. and Aquaculture. The government should From 2008 to 2009, public investment spending improve budget allocation and execution efficiency deteriorated. Poor investment planning has rates to allow the budget to achieve its full rendered important (and otherwise productive) invest- potential in Congolese agriculture. ment in the energy sector completely inefficient; in fact, Over the period under review, government spend- more than US$2 billion have been invested on a dam and ing in agriculture has been fairly efficient, but the power plant, but electricity accessibility did not improve. sector experienced two issues important issues: low Additionally, poor selection of investment projects have government allocation and a very low execution rate. led to white elephants such as airports and a presidential First, the impact of government spending on outcome palace in various rural localities; there are at least five in agriculture improved during the period under review. airports in localities with a population less than 20,000 An average growth rate of government spending in agri- and where the poverty rate is higher than 60 percent. culture of 20 percent from 2004 to 2007 resulted in an Moreover, the high cost of building infrastructure in average growth rate in agricultural production of 5.8 xxvi Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) percent over the period, while an average growth rate education sector decreased slightly and the country is of 19.6 percent of government spending in this sector still lagging behind the middle-income country standard. resulted in an average growth rate of production of 7.0 Moreover, the budget execution rate was higher than 90 percent from 2008 to 2012. Second, budget alloca- percent and varies among the three education ministries. tions in the agricultural sector have been far below the The PEMFAR is recommending that the recommended share of total budget by the AU (that is, Congolese government: i) increase resources to improve are far below 10 percent of GDP). Third, budget execu- the quality of teaching, increase retention rates, and tion in the agricultural sector has been low, averaging decrease repetition rates, as well improve dropout rates; only 66.8 percent. The average execution performance ii) increase the allocation of resources to the education masks important discrepancies observed across various sector, with a focus on primary education; iii) keep components of the agricultural sector; with Fisheries and the programmatic aspect of budgeting in the sector by aquaculture systematically presenting the lowest execu- implementing the sector Medium-Term Expenditure tion rate, 55.2 percent during the period. Framework (MTEF); iv) reinforce technical capacity Findings of this study suggest that the govern- in public finance management in order to improve ment should, in the short term: i) strengthen capacity of public resource management; and v) take in account staff on PFM issues in these ministries with a special focus the specificity of the school year calendar in the budget on the Ministry of Fisheries and Aquaculture in order implementation of line ministries in these sectors, this to increase execution rate of budget in the sector; and could be done for example by allowing for multi-year ii) implement systematic project evaluations to improve budgeting for these lines ministries. the monitoring and evaluation (M&E) of agriculture projects in which it is involved. In the medium-term, Sixth message: Government spending in the government should increase budget allocation in the health sector has been more or less these ministries in order to help the modernization of equitable, but suffered from insufficient family farming and agri-business mainly by strengthen- budget allocation, poor execution, ing of the Agriculture Support Fund. and inefficiency in service delivery. The government should increase its allocation Fifth message: Efficiency of Government to the sector while improving the capacity spending in the education sector is poor of the system to deliver services. and the sector suffers from insufficient In the health sector, government spending has budget allocation and poor planning. The been more or less equitable, yet has suffered from government should keep a programmatic insufficient budget allocation, poor execution, and approach of its spending by implementing inefficiency in service delivery. From 2008 to 2013, a multi-year METF in the sector and focus government expenditures in the sector do not vary too more on the primary sector much across quintiles; hence this expenditure has been In the education sector, from 2005 to 2011, the equitable. However, the sector suffered from insufficient government spending presented a mixed picture on allocation to achieve its goal, and from poor budget efficiency and suffered from insufficient budget allo- execution. In fact, Congo’s total health budget alloca- cation and poor planning. Spending efficiency on one tion as a share of GDP and as a share of total govern- hand has led the increase of the quality of education of ment budget allocation are very low in relation to the the workforce as well as the reduction of unemployment country’s per capita income. Moreover, the MSP bud- for people with a greater level of education but on the get execution rate has been volatile during the period other hand the rate of return to education decreased. In 2008–2012. This execution volatility is a testimony addition, the share of public spending allocation in the that the government did not significantly improve its Executive Summary xxvii management of financing in the health sector since the deficit in Congo; ii) set an explicit and mandatory com- last PER. Finally, the low utilization rate of beds in basic mittee of coordination between DGGT and the ministry hospitals and limited use of services in general suggests in charge of energy in the planning, the budgeting, the efficiency problems in the system. implementation, and the operating of the energy infra- The PEMFAR is recommending that the structure; and iii) continue on its efforts to restructure Congolese government: i) increase allocations to the the SNE by tackling its operational challenges so that the health sector, with a focus on delivering basic health company will eventually achieve a healthy financial balance services; ii) improve the budget preparation process by sheet. In addition, the government could take measures to elaborating a clear timetable and defining responsibility increase the effectiveness of the institutional framework of each actor involved in the preparation of the budget; by operationalizing the regulatory agency and diversifying iii) set the basis for a programmatic budgeting approach actors to spread financial risk from the Congolese State. by reinforcing pre-requisites for an MTEF and rein- This objective could be achieved by attracting private force the links between the sector’s strategic objectives investment through balanced financial incentives. and spending targets and monitor progress closely; and iv) strengthen human resource management and reinforce Eighth message: The Congolese planning capacity in budget processes and spending management. and budgeting of spending was poor, in part because they were under pressure Seventh message: The government of non-programmatic or unprepared consistently overspent in the energy sector spending. In addition, planning issues during the period under review and this led to difficulties in budget execution spending has been completely inefficient. when normal procedures were used. Going forward the government should Going forward, the government should address coordination issues in investment strengthen its capacity to fully implement planning and programming in the sector. its budgeting process, and to reduce its From 2008 to 2013, the government consistently excessive use of exceptional procedures in overspent in the energy sector and this spending has budget execution. been completely inefficient. The energy sector has sub- During the period under review, the Congolese bud- stantially exceeded its allocated budget, with an average get suffered from poor planning and budgeting of its execution rate in the energy sector standing at about 140 spending and its budget execution with normal pro- percent over 2008–2012. Poor planning and cost over- cedures facing some challenges. From 2008 to 2013, runs of the construction of energy infrastructure are the the planning and budgeting of Capital and recurrent main reasons for this very high rate of execution. This spending have been poor as they have been under pres- raises a flag about the robustness of the budgetary and sure of non-programmatic or unprepared spending. In disbursement system in Congo to efficiently monitor the fact, in recent years, the use of MTEFs has been limited. execution of the country’s budget. This lack of planning Budget execution with normal procedures has been dif- and coordination ultimately led to government spending ficult to implement because the process is marked by inefficiency in the sector. During this period, the growth multiple and complex steps, leading to the excessive rate in the energy sector decelerated, moving from 7.7 used of exceptional procedures. In fact, the execution of percent on average in 2003–2007 to 5.1 percent in the budget includes several actors, steps, and procedures 2008–2012 despite massive investments in the sector. and due to codification procedure, the budget is hardly The PEMFAR is recommending that the enforceable with normal procedure on January 1 of each Congolese government: i) strengthen national planning year. Moreover, the risk related to cash management capacity to formulate a strategy for solving the energy remained substantial in the Congolese Treasury system xxviii Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) due to the fact that the Treasury management has not monitoring have led to issues of budget credibility. In been able to systematically produce the required docu- recent years, the government adopted or updated new ments in support of its cash operation. legislation to improve its legal framework. However, The PEMFAR is recommending that the some critical implementation regulations related to these Congolese government: i) fully implement its bud- laws are not yet in place. During the same period, the geting process by reviewing and making sure that information system for accounting and monitoring has the approved budget preparation calendar is realistic, been dysfunctional and upgrades have been subjected ii) update and use the MTEF effectively in budget to significant delays. Moreover, the country lacks both preparation; iii) systematize intra-sectoral trade-offs by cash planning and a budget control mechanisms. As a forming an ad-hoc committee in each sector to prepare result the 90-day payment deadline set by the current the “Budget d’Affectation Special” and to define the pro- regulations to the General paymaster for the settlement cedures for its inclusion in the national budget; iv) reduce of expenses is not always respected, resulting in the the use of exceptional procedures in budget execution, undermining of budget credibility. by: a) codifying the budget prior to January, b) enforc- The PEMFAR is recommending that the Congolese ing the deadline of budget execution to any approval government address these weaknesses by short-term as authority, for example by rendering non-mandatory an well as medium-term actions. In the short term: i) put approval when the maximum delay has expired without in place the new Treasury structure; ii) reduce the gap the authority formally acting on it; v) establish an effec- between adopted and actual domestic revenues to less tive cash management system by: a) applying relevant than five percent, include the stock of domestic payment procedures of the accounting instruction of 2001 on a arrears in public documentation, and make an inventory cash basis before the adoption of a new general regula- of revenues received by ministries and not paid into the tions on public accounting; and b) implementing strict Treasury account; iii) undertake at least on a monthly internal control mechanisms, which by periodic state- basis the reconciliation of accounting entries and bank ments of reconciliation will eliminate the risk of accu- statements and systematically clear suspense accounts mulation of arrears of revenue collection. and regularize them in the general accounting of the gov- ernment; and iv) undertake a comprehensive monthly Ninth message: The legal framework reconciliation of the operations of revenue administra- governing the management of public tions (DGI and DGD) and the treasury. In the medium- finances is being renovated, however lack term: i) strengthen human resources in DGCB, DGD, of coordination of the programming and and DGI in revenue collection and compliance with tax budgeting process and a dysfunctional and customs rules, develop a program-based allocation information system for accounting and mechanism for government transfers to territorial com- monitoring have led to issues of budget munities, strengthen the supervision of autonomous credibility. Going forward the government public agencies and public enterprises, and by extending should address these weaknesses with the timeline of line ministries to prepare their budget short-term actions such as putting in place proposals and involving them in the process of simul- the new Treasury structure and medium- taneous preparation of current and investment budget term actions such as strengthening human estimates; and ii) in order to improve budget accounting, resources in PFM in government agencies. recording, and reporting, issue revenue collection orders The government has been renovating the country corresponding to government revenues whose amount legal framework governing the management of public are known in advance and bring back to a semi-annual finances, however lack of budget coordination and a frequency output from the point of execution of public dysfunctional information system for accounting and investment projects realized by DGPD. Executive Summary xxix Tenth message: The public procurement incorporated into the public sector governance system, system improved substantially to as a result of weak capacity and inadequate human moderately satisfactory up from resources management in Congolese PFM in general. unsatisfactory in 2006. However, this In addition, procurement plans are undermined by system is poorly integrated into the public delays in budget preparation, launching tenders and sector governance system and remains evaluation, issuing no objection by the DGCMP, and seriously compromised by delays. Hence, approval and signing of contracts. the government should consider full The PEMFAR is recommending that the implementation and compliance with Congolese government: i) adopt all implementing procurement code regulations. provisions currently missing in the public procurement The public procurement system improved substan- code and extend the scope of the legal framework for tially from completely unsatisfactory in 2006 to public procurement to Public-Private Partnerships moderately satisfactory in 2014; but it is poorly (PPPs) and to defense and national security procure- integrated into the public sector governance system ments; ii) explore ways and means to support the and seriously undermined by noncompliance with ARMP to facilitate the implementation of the strategic deadlines. In 2014, the country procurement system plan for capacity building; iii) adopt legislation impos- was rated at 53 percent of OECD/DAC rating scale, ing specific requirements to ensure the availability of compared to 16 percent in 2006. This improvement budget before the launch of the tender and to enforce was in part due to the introduction of a new procure- respect of delay by approving authorities; and iv) pro- ment code. The Code is modern and state-of-the-art. vide financial and technical support to the Agence de Specifically, the Congolese procurement legislative Régulation des Marchés Publics (ARMP) in order to and regulatory framework is strong and is in accor- enable it to carry out regular and exhaustive annual dance with international standards. Meanwhile, this audits of public procurement. public procurement system is poorly integrated and xxx Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Matrix of Key Policy Recommendations Overall recommendations Operational objectives Actions Expected outcomes Achieve a consistent budget Set an entity with the relevant convenient power to oversee budget execution Greater consistency of budget planning execution with strategic objective and execution Establish a framework where relevant stakeholders meet to investigate the Greater consistency of budget planning state of PFM reform and take action to fix identified issues and execution Make sure that all procurement contracts (done by Chinese companies, Greater transparency and consistency of managed by DGTT, etc.) go through the normal procurement and budget planning and execution disbursement procedures Establish and implement coordinating entities of budget preparation, Greater consistency of budget planning execution, and PFM issue in line ministries and execution Improve the strategic management Complete the computerization of all budget and PFM operation at the central of the State level as well as in line ministries Strengthen staff capacity on PFM Conduct a civil servants department reform to ensure that experts of PFM and issues Budgeting issues are the only staff dealing with PFM issues. Develop and implement continue trainings and on the work training program for staff already working in the Budgeting and PFM Generalize to every ministry a permanent civil servant structure headed by a Improve evidence-based decisions and “Secretaire General” to which a Director General of Budgetary and Financial reduce rent-seeking behavior affair will report. Move toward program-based Complete the draft of the new program-based budgeting framework currently budgeting under development Fiscal space Strengthen the collection of non-oil Implement the newly introduced property tax Collection of property tax revenues Develop a toolkit and a protocol to fight corruption and fraud in the tax and Reduction of corruption and fraud in this custom administrations administration Set a single window policy for tax payers Improve the management of oil Provide to staff of relevant ministries the technology to oversee extractive Reliable forecast of oil production revenue volatility industries operations Publish accounts of public enterprises on the website of the ministry of oil and Greater transparency of oil sector energy Publish oil contracts on the société nationale des pétroles du Congo (SNPC) Greater transparency of oil sector website Undertake periodic reliable independent audits of financial flows in the oil Greater transparency of oil sector sector and publish and disseminate audit reports to all stakeholders (public administration, private sector, NGOs, etc.) Undertake a study on the type of taxation that the government should adopt Higher non-oil tax collection and implement (continued on next page) Executive Summary xxxi Matrix of Key Policy Recommendations (continued) Composition of public expenditure and key source of fiscal pressure Operational objectives Actions Expected outcomes Strengthen the budget planning Plan all investments for a typical time frame; a period of five years or three Improve public investment planning process and keep a link between years could be set planning and budgeting Adopt a public investment plan with many layers Improve public investment planning Involve and empower the team working on budget planning in the entire Improve public investment planning budgeting process Improve budget presentation Draft the budget to enable the distinction between directly productive Facilitate budget analysis sectors and indirectly productive sectors Resume the budget presentation by function classification Facilitation of spending analysis Achieve a sustainable budget Build the capacity of staff involved in budget execution by on-the-job Strengthen human resource of some line execution (in-service) training ministries on public finance issues Reorganize the administration such that staff involved in budget execution are those who have the required expertise Set a condition to limit the ratio of OPPA and ORPA to total expenditure Low use of special procedure in budget execution Improve the equity and the Take appropriate time to plan and execute an investment Reduce inflation in public investment and a efficiency of government spending greater efficiency of public investment Provide a geographic coverage of the budget by division or rural vs. urban Better targeting of the poor divisions to areas improve spending equity  Public expenditure review in agriculture Ensure that limited resources are Provide line ministries with experienced and trained staff on PFM issues Strengthen the capacity of sector line used as efficiently and effectively ministries on PFM issues as possible Take measures to make funding available on time, especially given the Greater budget predictability in the sector strong seasonality of agriculture Monitor and evaluate spending Create a results and performance based system A strong base for monitoring and evaluation of public expenditures Ensure that monitoring reports are used inside and outside of MAE and Greater budget control MPA to reward good performance Strengthen the agriculture support Build the analytical capacities of the fund Better selection of program by the fund fund Take potential farmers through the selection process of the fund to ensure Better functioning agriculture support fund the sustainability of their project if they are to receive any financial support (continued on next page) xxxii Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Matrix of Key Policy Recommendations (continued) Public expenditures review in education Operational objectives Actions Expected outcomes Re-prioritize and improve the allocative Shift funding to secondary education, mainly in capital expenditures Greater quality of secondary education, and operational efficiency of the Increase the funding of the post-basic education Greater equity in access and education education sector budget attainment Align budget allocations to strategic Increase funding to programs dedicated to repetition and drop out Greater efficiency of the budget in the education goals reduction sector Remove ghost staff in the sector by carrying a physical inventory of Greater efficiency of the budget in the education staff sector Realign budget to reduce the high ratio of administrative staff to teaching Greater quality of teaching staff Provide budget to recruit already trained teaching staff, with a focus on Greater quality of teaching the rural area Public expenditures review in health Render government health spending Allocate a growing share of public financing to the poorest divisions in the Bridge the gaps in health status between pro-poor country the poor and the non-poor Expand and rationalize government health spending and moving toward Bridge the gaps in health status between universal health care the poor and the non-poor Render government health spending Evaluate national hospitals which currently receive block grants from Better services of hospital to the more efficient government to determine their efficiency population Adopt a policy to progressively expand the share of public resources going Better services of hospital/dispensaries to health dispensaries and health centers to the population Public expenditure review in energy Strengthen the capacity of national Set a mandatory committee between DGGT and the MEH to plan, program, Strong national energy planning and and regional planning to formulate a and implement investment projects in the energy sector greater efficiency strategy for resolving the energy deficit Commit to a shared vision that takes advantage of regional synergies Integrated energy plan Improve SNE operational performance Restructure the recovery department of SNE and render it more efficient in Healthy financial balance for SNE and restore its financial balance bill payment collection Promote and generalize the system of prepaid meters, which allow Simplified recovery management cost customers to better manage their consumption (continued on next page) Executive Summary xxxiii Matrix of Key Policy Recommendations (continued) Planning system and budgetary process Operational objectives Actions Expected outcomes Improve the entire PFM system Accelerate the reform of the legal (RGCP, NB, GFS, PC) and regulatory Effectiveness of decree no. 2013–807 of framework of public accounting December 30, 2013 Complete the modernization of SIDERE, with a complete payment Complete computerization of the spending compartment (treasury), integrating other systems of financial authori- channel ties for budgetary control authorizations and payments and automatic editing of the accounts and the overall balance of the State Improve budget planning Rigorously apply the budget schedule in terms of respect of time, Adopt budget on time deadlines, and milestones of activities Adopt budget schedule in accordance with different laws and budget Adopt budget on time calendar Systematize intra-sectoral trade-offs by forming an ad-hoc committee Better budget planning in line ministries in each sector to prepare the “Budget d’Affectation Special” and to define the procedures for its inclusion in the national budget. Improve budget execution Consolidate budget in parallel with parliamentary approval Budget execution effectiveness on January 1st Train DEPs and procurement cells (CPM) staff on the preparation of Better budget execution in line ministries investment projects Deploy at all ministries and agencies the “delegates trained” budget Better budget control controller Render effective de-concentration of the authorizing officer of spend- Implementation of the LORFE 2012 and fiscal ing in favor of sector ministers and heads of institutions management focused on results Improve the treasury management Set performance targets to the treasury based on the percentage of Reduction of delay in payment actual payment of mandate within three months prescribed Improve the current accounting system through the development of Better treasury transparency and reporting technical and functional capacities Produce all balances accounts of class 1 to 7 and 9 to input balances Greater quality of the consolidated balance of at January 1, and by observing the deadline of 15 days of publication the treasury after the end of the month Implement strict internal control mechanisms by periodic statements No arrears in revenue collection of reconciliation Improve cash management Develop a procedural manual for DGTCP, then ensure the effec- Effective cash management tive application of the rules, tools, and procedures in place for cash management Strengthen the systematic internal controls to ensure a proper ap- Effective cash management plication of current accounting policies Develop and implement a technical and institutional framework of Effective cash management cash management Prepare and update the cash plan according to a monthly budget and Effective cash management use for control purposes frequency Apply rigorously relevant procedures of the accounting instruction of Effective cash management 2001 to the cash management system (continued on next page) xxxiv Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Matrix of Key Policy Recommendations (continued) Public procurement Operational objectives Actions Expected outcomes Render the legislative and regulatory Adopt all the missing implementation regulations of the code of public Better legal procurement framework framework fully aligned with the procurement, in particular those relating to allowances of CGMP members international procurement standards and their composition, responsibilities, and operating procedures Carry out a cleaning up of the procurement code including provision for Better legal procurement framework the compulsory use of pre-qualification procedure for works or complex equipment contracts Adopt legislation to ensure prior availability of budget before the launch of Better legal procurement framework any tender or before contract signing Remove existing bottlenecks in the contract approval procedure by the ministry of finance Improve procurement planning and Increase the ex-ante control thresholds and reinforce the ex-post control integration into the public financial Develop systems helping to collect procurement data and statistics and to Better information and statistics on management system disseminate reliable information procurement issues Set an efficient communication, Provide needed support to ARMP to ensure the systematic publication Better communication on procurement information, statistical, and archiving of all relevant procurement information on its website and in the public issues system procurement newsletter  Provide technical support to contracting authorities to help track and control Better contract management works contracts and establish an effective coordination mechanism between contracting authorities and DGGT Remove major constraints to Develop competency profiles and develop a specific career plan in public Greater staff capacity within the contract management and procurement procurement system supervision systems Provide financial and technical support to the ARMP in order to enable it to Lower delay in the procurement system carry out regular and exhaustive annual procurements audits Render internal and external control Develop internal control procedures of procurement activities Better procurement control systems efficient Strengthen the external audit bodies in particular the IGF, the CNLCCF, and Better procurement control OAC by providing technical support to enable them to effectively carry out their missions Improve access, dissemination of information on public procurement in Greater transparency particular the provision of electronic communications, the development and dissemination of standard models of progress reports to the ARMP, the DGCMP, and CGMP Forster integrity and transparency of Promote a policy of zero tolerance against corruption in public procurement Greater integrity the procurement system in particular through the implementation of mechanisms for the prevention and repression Develop and provide codes of conduct and ethics specific to public Greater integrity procurement Executive Summary xxxv PART I Macroeconomic and Fiscal Space This part focuses on the macroeconomic and fiscal context in Congo.The first chapter presents the structure of Congo’s economy and public finance, then its economic performance during the period 2008–2013. This is followed by the presentation of its macroeconomic outlook and its financing requirement during the same period. The second chapter focuses on issue of the fiscal space. Macroeconomic and Fiscal Context 1 F rom 2008 to 2013, driven by the higher price of oil, the Congolese economy grew fairly strongly. On average during this period, Congo’s growth rate stood at 5.4 percent. High oil prices translated into higher revenue to both the government as well as to the pri- vate sector related to the oil sector. This ultimately led to higher demand for goods and services, thereby boosting the non-oil sector. This favorable macro-economic condition coupled with low repayment of debt services lead to a greater fiscal space. Higher oil prices led to higher government oil revenues and the strong performance of the non-oil sector translated to higher collection of non-oil revenues. Both led to an increase of the total government revenues. Meanwhile, the achievement of the comple- tion point of the HIPC process in 2010, lead to a decrease of government recurrent or mandatory spending, thereby freeing the Congolese fiscal space. 1.1. Structure of Congo’s Economy and Public Finance The Congolese economy is dominated by oil production, which accounted for about two- thirds of the GDP over the 2008–2013 period. Similarly, for Congolese Public finance, oil revenues accounted for three-fourth of total revenues during the period. Besides, there has been a shift in spending structure, with a sharp decline of debt services payment consecutive to the completion point of the HIPC process during this period and the rebalancing of spending in favor of capital expenditure, which has accounted for more than 50 percent of spending since 2010. 1.1.1. Economic Structure Congo is essentially an urban oil exporting economy. Unlike many sub-Saharan African countries (SSA), Congo is a highly urbanized country. With an urbanization rate of 61.8 percent according to the latest census of 2011, Congo is one of the most urbanized economies in Africa. However, like many African country, Congo has a younger population, with young people representing nearly 67.5 percent of Congolese. This characteristic sustained the trend of urbanization in Congo, through the mass rural exodus phenomenon, which pushes young people to cities, mainly Brazzaville and Pointe-Noire. As a consequence, urban 3 employment is a more critical issue in Congo than in FIGURE 1.2: GDP Share of Key Non-Oil Sectors other African countries. Trade, restaurants The domination of Congo’s economy by oil and hotels production indirectly contributed to this high urban- Transport and ization. In nominal terms, the share of the oil sector in telecommunications Buldings and GDP has remained above 60 percent over the last five public works years. The lowest was recorded in 2009, at 62 percent of Manufacturing GDP, while the highest was in 2011 (mainly due to price increase) in which the sector accounted for 70 percent Agriculture, livestock, hunting and fishing of GDP. Since then, with the oil price stabilization, its 0 1 2 3 4 5 6 7 size has slightly declined and it is estimated at 63 percent 2004–2008 2009–2013 of GDP in 2013. Overall, in the last five years the oil Sources: The World Bank, IMF, and National Authorities. sector had increased its domination of the Congolese economy thanks to high oil prices (see Figure 1.1). The large size of the oil sector exacerbated the revenue differ- Although overall the non-oil sector declined in ence between agricultural sectors (main activity of rural the last decade, its dynamic was not homogenous. areas) and services sectors (main activity of urban areas), Overall, the share of non-oil GDP declined from 44 and thus renders rural areas less attractive for Congolese percent in 2000–2003 to 36 percent in 2004–2008, population.2 and finally to 34 percent in 2009–2013. There are The domination of oil exposed the Congolese five key sectors in this non-oil sector (see Figure 1.2), economy to high volatility from fluctuations in oil which are i) agriculture, livestock, hunting and fish- production and prices. The volatility of oil production ing; ii) manufacturing; iii) buildings and public works; and prices in international markets leads to significant iv) transport and telecommunications; and v) trade, res- problems in fiscal planning and government spending.3 taurants and hotels. In fact, these sectors are grounded The Congolese government needs to bear in mind that in the economy, they employed a fair share of the labor the lack of economic diversification to date makes the market, and they account for about two-thirds of the country’s economic performance sensitive to fluctuations non-oil GDP. From 2004–2008 to 2009–2013, four of production and international oil prices. of these sectors lost in their share of GDP, in fact, only building and public works saw a slight increase of its share from 3.2 percent to 3.3 percent. Moreover, only FIGURE 1.1: GDP Share, 2000–2013 trade, restaurants, and hotels has a share higher than 5 100 percent of GDP. In Congo, the three key components of 80 GDP had almost the same weight. Over the period 60 2009–2013, Consumption accounted for 35 percent Percent of GDP, Investment for 39 percent and Net exports 40 for 26 percent. These results were almost the same dur- 20 ing 2004–2008. In fact, Consumption accounted for 39 percent, investment for 32 percent and net-exports 0 2000–2003 2004–2008 2009–2013 2 Oil GDP Non-oil GDP One can recall the mechanism of Dutch disease. 3 Supply shortage or oil production can result from an unplanned Sources: World Bank, IMF, and Congolese authorities. refinery outage, pipeline damage, or any other mechanical problem. 4 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 1.3: GDP Share of Key Components FIGURE 1.4: Government Revenue Composition 100 Net exports Private 80 investments Public 60 Percent investments Private 40 consumption Public 20 consumption 0 10 20 30 40 0 2004–2008 2009–2013 Percent Oil revenue Tax revenue 2004–2008 2009–2013 Sources: The World Bank, IMF, and National Authorities. Sources: World Bank, IMF, and Congolese authorities. for 29 percent (see Figure 1.3 for details: public and the decline in oil production during the last period by private). This development is mainly due to the fact that about (–3) percent at an annual rate. public investment grew from 7 percent in 2004–2008 Government revenue increased steadily during to 15 percent in 2009–2013. This high increase of the the last decade. From 2003 to 2007, government rev- public investment share came as the expense of other enues increased at an average growth rate of 27 percent, sectors that saw a decrease of their share in this period. while from 2008 to 2013 it increased at an average Relatively, private investments’ share did not decrease growth rate of 8 percent. The very strong increase in the much, probably due to the positive externality effect of first period was due to the growth in the price of oil, public investment on private investment. which more than tripled during that period, while the The share of net exports masks the fact that exports weak growth in the second period is mainly due to the accounted for more than 80 percent of GDP. Driven by stabilization of oil price and a decline in oil production oil exports, the share of exports in GDP was 80 percent which was not compensated fully by a strong increase of in 2004–2008 and was 86 percent in 2009–2013. In the non-oil revenues. However, oil revenue still accounted same time, driven by investment in Congo infrastructure, for three-fourths of total revenues. imports as a percent of GDP move from 51 percent in Government revenues from taxes have grown 2004–2008 to 60 percent in 2009–2013. steady in the last five years, led by growth in the non- oil sector and a slight improvement in tax collection. 1.1.2. Public Finance Structure In fact, nontax revenues grew at an average growth rate of 18 percent from 2008 to 2013, an improvement Size of oil revenue in the Congo’s total from 10 percent from 2003 to 2008. There has been government revenues a significant increase in non-oil revenues in 2013 that Over the last decade, Congolese government revenue reached about XAF 86.5 billion, which is an increase of accounted for about 40 percent of its GDP. From 13.3 percent. In 2011 and 2012 non-oil revenues, which 2004–2008 it accounted for 43 percent while for 2009– consist mainly of tax revenues (91.8 percent), increased 2013 it accounted for 40 percent. These revenues were by 17.9 percent. The tax ratio has averaged 21.7 per- dominated by oil revenue, which account for 82 per- cent over the period, reflecting improved performance cent in 2003–2008 and 76 percent in 2009–2013 (see of tax administration, following the implementation of Figure 1.4). The slight decline in this ratio was due to reforms in tax policy. In 2013, the tax administration Macroeconomic and Fiscal Context 5 is estimated to have collected about 96 percent of the services accounted for 27 percent of current expenditure forecasted non-oil revenue, which is a good rate for that and between 2008 and 2013 it accounted only for 9 administration. During this period tax collection experi- percent of current expenditure. enced a slight increase of about 2.2 percent on average, The general trend of contributory shares in thanks to measures to expand the tax base, and the fight public finances and economic affairs decreased con- against fraud and tax evasion. With the improvement trary to other sectors that have risen recently. The of the information system, significant progress has been share of social sectors has risen from 13 percent on made in the management accounting system used to average between 2002–2007 to 20 percent on average track revenue. between 2008–2013 mainly because of new govern- Congo’s collection of external revenues is weak, ment policies (NDP) and the fact that 2012 and 2013 corresponding to the government’s cautious policy of was successively declared as the “années de la santé et de borrowing. The level of achievement of external revenue l’éducation (national Year of Health and of Education)” collection has been declining from one year to the next. (see Figure 1.5). This trend is the same in the sovereignty In 2011 and 2012 alone it has declined from 93.1 per- sector, which has grown on average from 17 percent to cent to 40.1 percent. In fact, after reaching the comple- 23 percent between 2002/2007 and 2008/2013. In addi- tion point of the Enhanced Heavily Indebted Poor tion, the shares in infrastructure and production sectors Countries (HIPC) Initiative the government adopted a have been tripled on average, respectively from 11 and 3 policy that requires accepting only grants or loans with percent to 30 and 6 percent over the same comparative a substantial grant component. periods. Great works done in the country and installa- tion of heavy industries explain these growths. However, A shift from current spending toward Figure 1.5 clearly shows that the share of public finance investment infrastructure and economic affairs decreased from 56 percent over The share of government spending remained stable 2002/2007 to 21 percent over 2008/2013. This could over the last decade, however it underwent a struc- be explained by the reallocation to other ministries of a tural shift with investment infrastructure taking the big part of the resources budget previously concentrated lead in recent years. Total expenditures stood at 28 in the finance ministry. percent of GDP in 2003–2007 and remained stable at 29 percent in 2008–2013. In fact, the government kept its spending moving at the same speed as the nominal FIGURE 1.5: Share of Total Government Budget by GDP. During the same period, the government made Sector a strategic decision to increase investment spending. 100 This started in 2006 and accelerated in 2012. As a result investment spending moved from 22 percent of 80 government spending in 2003 to 63 percent in 2013. 60 Percent Comparing periods, investment spending moved from 27 percent of total spending in 2003–2007 to 53 per- 40 cent in 2008–2013. Over this period the composition 20 of investments remained the same with 12 percent of spending coming from external funding while 88 percent 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 was from domestic financing. This was not the case for current spending. In fact, the share of debt services in Sovereignly sector Public finances and economic affairs current spending dropped from 31 percent in 2003 to Production sector Social sector Infrastructures sector about 2 percent in 2013. In fact, over 2003–2007, debt Sources: World Bank and Congolese authorities. 6 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) 1.2. Economic Performance — TABLE 1.1: Selected Countries – GDP Annual 2008–2013 Growth Rate, in Percent 2003–2007 2008–2013 Over 2008–2013, the Congolese economy grew faster Republic of Congo 3.3 5.4 than between 2003–2007. This was mainly due to higher Gabon 1.5 4.0 oil prices, sharp declines in debt services payment, and Equatorial Guinea 16.3 2.7 increases of investment in basic public infrastructure. Nigeria 7.9 6.8 Chad 12.0 5.6 1.2.1. Economic Performance Cameroon 3.2 3.7 2008–2013 Angola 15.7 5.7 Democratic Republic of the Congo 6.4 6.1 Growth performance Congo’s performance over the last decade has been Mauritius 4.4 3.9 far behind the growth rate needed to achieve its Kenya 5.5 4.1 developmental goal by 2025. Over 2008–2013, Congo Cote d’Ivoire 0.8 3.6 experienced significant economic growth with an aver- Ghana 5.8 8.5 age annual growth rate of 5.4 percent, up from 3.5 China 11.7 9.0 percent over 2002–2007, while the average growth rate India 8.9 6.0 required (to reach the country’s development goal) lies Brazil 4.0 3.1 between 7 and 8 percent over 2012–2025, according Russia 7.5 1.9 to the National Development Plan (NDP). This weak Poland 5.2 3.1 growth is largely due to the poor performance of the oil Czech Republic 5.6 0.2 sector and a lack of diversification. Comparison with Malaysia 5.9 4.4 neighbors shows that the country growth profile is lower Indonesia 5.5 5.8 than in Angola and DRC (other natural resources rich Sources: World Development Indicators and Staff calculations. countries), see Table 1.1. In recent years, GDP growth has been increasingly driven by the non-oil sector. In fact, in the last three years, the non-oil sector experienced nearly double-digit average FIGURE 1.6: Annual Growth of Non-Oil Sectors growth, but the oil sector has declined at an average rate of –8.2 percent during the same period. This was mainly 12 due to accidental disturbances in offshore oil production. 10 However, the sector grew at 2.0 percent in 2004–2008 and 5.5 percent in 2009–2013. Meanwhile, the non-oil sector 8 Percent grew strongly in the last decade, on average 5.7 percent in 6 2004–2008 and 7.1 percent in 2009–2013. The contribution of non-oil sectors to GDP 4 growth has been important during the last decade. 2 Figure 1.6 shows that positive growth in Congo is largely 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 driven by the non-oil sector. In fact, in 2008–2013 the Agriculture, livestock, hunting and fishing Manufacturing contribution of non-oil sectors is 4.5 percent out of the Buldings and public works Transport and telecommunications 5.4 percent growth, i.e., contribution more than 80 per- Trade, restaurants and hotels cent of GDP growth during that period. The situation Sources: World Bank, IMF, and Congolese authorities. Macroeconomic and Fiscal Context 7 FIGURE 1.7: Sectors Contribution to GDP 6 6 5.4 5 5 1.5 4 4 3.3 0.9 3.3 Percent 3 Percent 4.5 3 1.1 0.8 2 2 0.5 0.7 3.4 0.7 1 1 0.6 0.6 0.1 0.8 0 0.1 0 0.1 0.5 –1 –1 2003–2007 2008–2013 2003–2007 2008–2013 Oil Non-oil GDP growth Oil Agriculture Manufacturing Transport & Telecom Trade, restaurants & hotels Other sectors GDP growth Sources: World Bank, IMF, and Congolese authorities. was even larger in 2003–2007, because during that FIGURE 1.8: GDP and GNI Per Capita Trends, period, the contribution of the oil sector was slightly 2002–2013 in USD negative. More precisely, agriculture, manufacturing, 4000 transport and telecommunication, trade, restaurant and 3500 hotels contributed 3 percent of the 5.4 percent of GDP 3000 growth from 2008 to 2013, while they contributed 2500 2.3 percent out of 3.3 percent over 2003–2007. This 2000 confirms the growing impact of non-oil sectors in the 1500 Congolese economy (see Figure 1.7). 1000 The poverty rate in Congo is high 500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 compared to its GDP per capita Despite the macroeconomic stability and its low mid- GNI per capita, Atlas method (US$) GDP per capita (US$) dle-income status achieved in 2006, poverty remains Source: World Development Indicators. pervasive with about half of the 4.6 million Congolese living below the poverty line. Congo achieved lower- middle-income status in 2006, and quadrupled its GNI percentage points to almost three quarters of the rural per capita from US$680 in 2002 to US$2660 in 2013 population, as explained by the high and rising poverty (see Figure 1.8). However, poverty and inequalities levels among subsistence farmers. Poverty rates declined continue to strongly hamper the country’s efforts to for those engaged in the modern sectors as well as for develop. The Gini index of inequalities is estimated at female-headed households. 0.39, far from a zero level of inequality. These figures This non-inclusive growth was due to the fact mask important regional differences; urban poverty that economic growth was not associated with a declined rapidly from the 2005 level and is now below diversified economy. In fact, growth has not led to job 30 percent in the main urban centers of Brazzaville and creation. The majority of the Congolese earns a living in Pointe Noire. In contrast, rural poverty increased by 10 the informal sector or is underemployed. Unemployment 8 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 1.9: Unemployment Rate a significant improvement in all education levels. Recent Percentage of the labor force data from the latest household and demographic and 25.0 health surveys point out to important improvements in meeting MDGs 4 and 5 with important progress made 16.1 in reducing child mortality and improving maternal 26.4 12.7 health. Progress has been taking place with regards to 18.8 MDG 6 however malaria is still endemic in the country 15.7 23.5 5.4 and is responsible for a large number of deaths every year. 5.3 13.9 10.6 5.5 HIV/AIDS rates are low (3.3 percent). 15–29 years 30–49 years 50+ years Total In conclusion, in recent years Congo experienced Male Female Total a modest rate of economic growth, mainly due to oil Source: EESIC 2009. revenues. The economy is little diversified and there is need for increased diversification as oil reserves have reached maturity and oil production is dropping. Steps is high among the youth (see Figure 1.9). According have been taken in such directions and improvement to the 2009 Employment and Informal Sector Survey of growth rates have been seen in some non-oil sectors. (EESIC), in urban areas 25 percent of the age group Economic prospects for Congo are good; there is need 15–29 years is unemployed. In the countrywide survey of however, for a reflection of such success in human devel- 2005, the unemployment rate for the same age group was opment and poverty reduction. Almost half of Congolese more than 40 percent. The unemployment rate declines live below the poverty line and earn their living in the significantly with age: only 5 percent of those over 50 informal sector. Progress has been made in human devel- years are unemployed. Women are more affected than opment, but more is required. The Congolese authorities men with higher unemployment rates especially in the are aware of the need to invest in the social sectors, and 30–49 years age group. spending has been increasing (although slowly), even if Further, according to World Bank (2014) prog- overall country budget execution rates are still low. The ress has been made in human development but impor- next section provides a summary of the public expendi- tant challenges remain. Congo still ranks very poorly ture reviews of the education and health sectors, discuss- in the Human Development Index; in 2013, Congo ing in more detail results, spending trends, efficiency, and ranked 142 out of 187 countries. Progress towards the equity in the sectors service delivery. achievement of the Millennium Development Goals (MDGs)4 has been continuous but uneven. Congo is far Inflation from eradicating Extreme Poverty (i.e. meeting MDG Historically, inflation in Congo has not been a great 1), in fact in 2011 about 45 percent of its population challenge. In fact, since 2003, inflation in Congo was still lived below the poverty line, and with this trend below 12 percent, whether considering annual average Congo will not achieve the required poverty rate by or the end-of-year inflation. The annual average of CPI 2015. The country has however seen more progress in inflation, which is the most smooth inflation indicator, achieving universal primary education (MDG 2) and in shows that consumers have experienced a steady increase some aspects of MDG 3 (Promote Gender Equality and Empower Women). Most school age Congolese are in 4 MDG 1 – Eradicate Extreme Poverty; MDG 2 – Achieve Universal school, with 12.2 percent of boys and 13.1 percent of Primary Education; MDG 3 – Promote Gender Equality and Empower girls being out-of-school. However, in spite of improve- Women; MDG 4 – Reduce Child Mortality; MDG 5 – Improve Maternal Health; MDG 6 – Combat HIV/AIDS, Malaria and Other ments, not all complete primary education; the comple- Diseases; MDG 7 – Ensure Environmental Sustainability; MDG 8 – tion rate in 2011 was 88 percent. Gender parity has seen Global Partnership for Development. Macroeconomic and Fiscal Context 9 in the price of their goods basket every year at an average high dependency on food and non-alcoholic beverages rate of 4 percent over the last decade. Therefore, the CPI for growing domestic consumption. All these two indi- inflation in the Republic of Congo has been very low by cators are above the CEMAC convergence criterion. developing countries’ standards. This is also true for the Despite this, CPI inflation in Congo has been very low entire CEMAC region. Inflation in Congo and in the by developing country standards. This is also true for the entire CEMAC region is even lower than that of the world entire CEMAC region. Inflation in Congo and in the average (see Figure 1.10 and Figure 1.11). From 2008 entire CEMAC region is lower than the world average. to 2013, there was inflationary pressure from imported Over the last decade, the central bank interest food in 2008 and also due to the Mpila catastrophe in rate applied to financial institutions has been decreas- 2012. On average during this period inflation was 5.4 ing. In order to keep stability of the official exchange rate, percent for end of year inflation and 4.3 percent for the the central bank (BEAC) sets external reserves in line annual average. This is a sharp increase of 2 percentage with the guidelines of the European policy, as the CFA points for end of year inflation and 1.4 percentage points franc of the region is pegged to the euro. It follows mon- for annual average inflation. This indicates the country etary policy that creates a stable inflation in the region as indicated above. In November 2013, the central bank cut its interest rate by 50 basis points to a record low of FIGURE 1.10: CPI, Inflation 3.25 percent for supporting regional GDP growth and 6 boosting credit availability, whereby commercial banks failed in the past to finance small and medium size enter- 4 prises (see Figures 1.12 and 1.13). Figure 1.13 shows that Percent since 2006, the ratio of domestic credit to private sector to GDP is continuously rising as a result of declining 2 policy rate. On average basis, the interest rate tenders (TIAO)5 average rate fell at 4.3 percent over 2008–2013 0 compared to 5.8 percent experienced over 2002–2007. 2003–2007 2008–2013 Despite the recent favorable trends, the finan- End of year Year average cial sector in Congo remains significantly undevel- Sources: World Bank, IMF, and Congolese authorities. oped and commercial banks in place have abundant liquidity. With a dozen private banks and few financial institutions, Congo has only 45 depositors with com- FIGURE 1.11: Selected Countries – CPI, Inflation, Year Average mercial banks per 1,000 adults, a result far below the SSA average of 106 depositors with commercial banks 8 per 1,000 adults, in 2006. In this context, between 2002 6 and 2013, credit to the private sector increased on the average of 3.0 percent of GDP over 2002–2007 to 7.3 Percent 4 percent of GDP over 2008–2013 (see Figure 1.14). During the same period, deposits of firms and house- 2 holds strongly rose, bringing the ratio of deposits to GDP up to 24.0 percent at end-2012 (compared to 0 6.8 percent in 2003). However, standard indicators of Lower middle Sub-Saharan CEMAC Congo, Rep. income Africa financial depth and breadth suggest that the country 2003–2007 2008–2013 5 Source: World Development Indicators. Taux d’intérêt des appels d’offres. 10 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 1.12: Trend of the BEAC’s Main Policy Rate FIGURE 1.14: Selected Indicators of the Financial 7.5 Sector 6.5 70 63 6.0 60 5.5 48 Percent 50 5.0 Percent 40 4.5 4.0 30 3.5 20 3.0 10 7 3 5 1/1/2002 1/1/2003 1/1/2004 1/1/2005 1/1/2006 1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1 0 Domestic credit Bank liquid Broad money to total to private sector reserves to bank reserves ratio Source: BEAC and World Bank staff calculations. (% of GDP) assests ratio (%) 2002–2007 2008–2013 Source: The World Development Indicators, 2013. FIGURE 1.13: TIAO on Annual Average Rate and Ratio of Domestic Credit to Private Sector to GDP FIGURE 1.15: Current Account Ratio of GDP 14 1.0 12 0.76 0.8 10 0.6 Percent 8 Percent 0.4 6 0.2 4 0.0 2 –0.2 0 –0.17 –0.4 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003–2007 2008–2013 Source: BEAC and World Bank staff calculations. Source: World Bank Staff calculations. lags behind its neighbors. Cross-country comparisons A number of factors explain this situation of large of some commonly used measures, such as private credit reserves in a context of weak financial performance. to GDP ratio, number of bank branches, depositors and According to the IMF (2013), very high reserves result from borrowers (scaled by population) reveal that the respec- serious limitations in the array of investment instruments tive values for Congo are well below the median for a available to banks due to the capital controls, while the group of countries with broadly comparable per capita near non-existence of the domestic securities market does GDP. Surprisingly, at the same time banks have abundant not make it easy for banks to effectively deploy resources. liquidity as demonstrated by their large excessive reserves In addition, the lack of understanding of the risk associated held in the central bank. Bank liquid reserves to bank with small and medium enterprises (SME) in Congo par- assets are above 20 percent over the 2002–2013 period tially explains why banks are not lending to SMEs. Private and the broad money to total reserves ratio stayed below sector actors, for their part, complain about this rigid posi- 2 percent since 2005 due to the massive size of reserves tion of the banking sector with abundance of liquidity and held (see Figure 1.15). enterprises, which cannot secure loans to carry their business. Macroeconomic and Fiscal Context 11 Current account, foreign reserves, and Congo’s real effective exchange rate (REER) is exchange rate broadly in line with macroeconomic fundamentals Congo’s external balance is dominated by develop- over 2008–2013. The currency appreciated by 9.8 per- ments in the oil sector. Over the last decade, current cent on average in real terms between 2002–2007 and and financial accounts have been fairly volatile reflect- 2008–2013 periods on the back of a strengthening euro ing swings in international oil prices, production cycles (vis-à-vis the U.S. dollar) and higher international oil in existing oil fields, and investment spurts to improve prices, as the CFA franc is pegged to the euro at a fixed extractive capacity. Oil receipts have been generally rate of XAF 655.95 = EUR 1. In nominal terms, there strong allowing the country to finance large and persis- is also an appreciation of the XAF over 2008–2013 in tent non-oil trade deficits, while generating significant comparison to 2002–2007 (see Figure 1.16). Therefore, profit repatriation outflows. Non-oil exports as a share Congo’s external sustainability has moderately improved of total exports has risen somewhat from their very over 2008–2013 and remains generally strong. low levels, but the increase has been lower than that of Sub-Saharan African peers owing in part to a very poor 1.2.2. Fiscal Performance in 2008–2012 business environment in Congo. Developments outlined above have resulted in a Strong tax collection, slowing revenue considerable gain in the current account since 2008. growth, and increasing revenue volatility Indeed, the current account increased on average at Over 2008–2013, oil revenue has strengthened its 0.76 percent of GDP over 2008–2013, up from –0.17 domination of government revenues in Congo. percent of GDP over 2002–2007. The deterioration in Although between 2008 and 2013, government revenue performance before 2008 was driven by the oil output experienced erratic evolution due to opposing variations shock of 2007. Despite two successive years of current of oil output and price trends on markets, oil revenues account deterioration in 2012 and 2013, the Congolese accounted for at least three-quarters of total revenues foreign reserves position remained sound, amounting to each year. In this period, the country improved its per- 38.4 percent of GDP and, on average, nearly 8 months formance in revenue collection, at 41.4 percent of GDP of imports. compared to 35.1 percent of GDP over the 2002–2007 period, and almost achieving the average of 42.4 percent expected in the National Development Plan (NDP). In FIGURE 1.16: Real and Nominal Effective Exchange addition, the country is doing better than other CEMAC Rates (2005=100) oil producer countries or the average SSA country (26.5 10 percent of GDP) (see Figure 1.17). Government efforts and success in collecting taxes or non-oil revenues 5 allowed the country to equilibrate the potential decline 0 in oil revenue which depends on oil output, international Percent –5 demand, and oil prices. Government revenues grew slower in 2008–2013 –10 than in 2003–2007. From 2008–2013, government rev- –15 enues grew at an average annual growth rate of 16.5 per- –20 cent, a drop from 25.8 percent in 2003–2007. This came 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 as a result of slow growth in oil revenue (18 percent in Nominal exchange rate (CFAF/US$, percent) 2008–2013 compared to 33 percent in 2003–2007) (see Real effective exchange rate (2005 = 100) Figure 1.18). The slow average growth of oil revenues was Source: IMF and World Bank staff calculations. due to a drop in oil production in the last three years, 12 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 1.17: Selected Countries – Ratio of compare to 10.1 percent in 2003–2007. The tax ratio has Government Revenue to GDP averaged 21.7 percent over the same period, reflecting 50 improved performance of tax administration, following the implementation of reforms in tax policy. In 2013, the 40 tax administration is estimated to have collected about 96 30 percent of the forecasted non-oil revenue, which is a good Percent rate for that administration. During this period, tax col- 20 lection experienced a slight increase, thanks to measures 10 to expand the tax base and the fight against fraud and tax evasion. With the improvement of the information 0 system, significant progress has been made in the manage- Cameroon Chad Republic of Congo Equatorial Guinea Gabon Sub-Saharan Africa Botswana China Cote d’Ivoire Indonesia Kenya Malaysia Nigeria ment accounting system used to track revenue. In the last six years, the volatility of govern- ment revenues increased sharply. Table 1.2 shows that the coefficient of variation of revenue doubled 2002–2007 2008–2013 from 2003–2007 to 2008–2013, moving from 1.3 to Source: IMF and World Bank staff calculations. 2.5. This was due to very strong volatility of oil revenue which peaked to 2.8 in 2008–2013, compared to 1.4 FIGURE 1.18: Growth Rate of Government in 2003–2007. During the same period, the volatility Revenues, 2003–2013 of non-oil revenue dropped from 0.6 to 0.3, in part 120 30 because the growth of the non-oil GDP has been stable 80 25 and the quality of the tax administration improved. Axis for non-oil revenue 20 Finally, with a coefficient of variation greater than 1, 40 Percent government revenue in Congo should be considered as 15 0 a very volatile distribution. 10 –40 5 –80 0 TABLE 1.2: Government Revenues, 2003–2013 2003 2005 2007 2009 2011 2013 2003–2007 2008–2013 Non-oil revenue Total revenue Oil revenue Average growth, percent Sources: World Bank, IMF, and Congolese authorities. Total revenue 25.8 16.5 Oil revenue 31.9 18.3 which was not fully compensated for by the increase in Non-oil revenue 10.1 17.6 non-oil revenues. In fact, oil revenues still account for Standard deviation, percent three-quarters of total revenues. A setback in oil produc- tion and stable international oil prices led to substantially Total revenue 33.6 41.2 reduced oil revenues in each of the last two years. Oil revenue 43.4 51.7 Government revenues from taxes have increased Non-oil revenue 6.0 5.0 steadily over the last six years, driven by growth in Coefficient of variation the non-oil sector and improvement in tax collection. Total revenue 1.3 2.5 There has been a significant increase in non-oil revenues in Oil revenue 1.4 2.8 2008–2013. During this period, non-oil revenues, which Non-oil revenue 0.6 0.3 consist mainly of tax revenues, increased by 17.6 percent Sources: World Bank, IMF, and Congolese authorities. Macroeconomic and Fiscal Context 13 Strong expenditure growth opportunities to easily do business, provide employment Public spending was positively correlated to revenue’s and improve the quality of life of the population (see trends, continuously increasing due to the imple- Figure 1.20 and Figure 1.21). Since 2003, capital invest- mentation of a large investment program, despite ment is growing, but between 2008 and 2013 the pace absorption and implementation capacities con- became very high at nearly 30 percent growth on average straints. Since 2003, Congolese authorities launched the each year. In comparison to oil exporting countries of Municipalisation Accélérée (Accelerated Reconstruction CEMAC, Congo lost its first rank over 2002–2007 to of Municipalities) program, an infrastructure investment Equatorial Guinea over 2008–2013 in terms of expendi- program aimed at equipping and modernizing the coun- ture but its spending rose in 2013 to reach the Equatorial try’s division (“Départements”) to solve the infrastruc- tural gap caused by severe damage or destruction during political troubles in the late 1990s and to stimulate their FIGURE 1.20: Expenditure Composition economies and improve the living conditions of popula- 100 tions. During the last two years, the implementation of the 2012–2016 NDP and the construction and rehabili- 80 tation efforts in the aftermath of the 2012 ammunition 60 Percent explosion have heavily affected the government spending and reduced the size of budget surpluses. 40 Public spending skyrocketed over 2008–2013, 20 driven by the capital investment expenditure (see Figure 1.19). Thanks to the implementation of the first 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 PRSP 2008–2010 and its evaluation, the Government changed its strategic policy by making capital investment Current expenditure Capital expenditure in infrastructure a main vehicle to growth and sustainable Source: IMF and World Bank staff calculations. development in 2010 with effects in 2011. For the first time, capital investment became more important than current spending in the budget in 2011 in order to create FIGURE 1.21: Selected Countries – Ratio of Expenditure to GDP 50 FIGURE 1.19: Trends of Government Revenue and Expenditure 40 4000 30 Percent 3500 3000 20 2500 2000 10 1500 0 Cameroon Chad Republic of Congo Equatorial Guinea Gabon Sub-Saharan Africa Botswana China Cote d’Ivoire Indonesia Kenya Malaysia Nigeria 1000 500 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total revenue (billion of CFAF) Total expenditure (billion of CFAF) 2002–2007 2008–2013 Source: IMF and World Bank staff calculations. Source: IMF and World Bank staff calculations. 14 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Guinea investment in terms of government expenditure Therefore, the government has enough resources to in percentage of GDP. invest in the construction of infrastructure such as roads, The country’s budget management generated schools, hospital, water and sanitation, and electricity. fiscal surpluses over a decade despite oil output and Congolese debt indicators are below the relevant prices shocks of 2007 and 2009. Since 2003, the country-specific debt burden thresholds. In August Congolese economy achieved on average XAF 551 bil- 2013, the World Bank and the International Monetary lion in savings, mostly saved at the central bank and in Fund performed a debt sustainability analysis (DSA) and Exim-Bank of China, and can be regarded like a buffer classified Congo as a country with low risk of debt distress. against potential risks and shocks. Over 2008–2013, This is reflected in lower debt sustainability thresholds Congo accumulated important budget surpluses, con- compared to countries operating in a strong policy environ- trary to the average country of SSA that was experi- ment. Nevertheless, given the low level of external debt and encing budget deficits over the same period. Issues of strengthening indicators of repayment capacity, the debt establishing institutions like sovereign wealth funds for stock and debt service ratios remain comfortably within their long-term management and efficiency is under the sustainable debt domain throughout the projections discussion with the World Bank support. period under the baseline. In addition, Congo’s domestic public and publicly guaranteed debt is low. Congo favor- Sustained budget surplus in a context of able debt indicator is in line with the situation of debt in low external and domestic debts other African oil exporting countries (see Figure 1.23). Driven by higher oil prices and by prudent spending, Congo’s government has posted large budget surpluses 1.2.3. Fiscal Sustainability Analysis in the last decade. Over the last decade, Congo posted a positive primary fiscal balance each year. This has been With the adoption of the fiscal rule, the current the result of the boom in the oil sector and good policies fiscal situation of Congo should have been sustain- of public spending, with the objective to build a budget able, but since its adoption in 2013 it has not be buffer for oil price reversal. From 2003–2007, the aver- fully implemented. During 2008–2013, the growth age primary fiscal balance was about 6 percent and it rate of spending has been too strong with an average peaked at 16 percent from 2008–2013 (see Figure 1.22). growth rate of 15 percent, hence not sustainable. The FIGURE 1.22: Fiscal Surplus to GDP Ratio, FIGURE 1.23: West, Eastern and Central African 2003–2013 Oil Production External Debt to GDP 25 Ratio 40 20 15 30 Percent 10 Percent 20 5 0 10 –5 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0 Angola Cameroon Chad Congo, Gabon Nigeria Sudan Overall fiscal balance Primary fiscal balance Rep. Sources: World Bank, IMF, and Congolese authorities. Sources: IMF and World Bank, 2012. Macroeconomic and Fiscal Context 15 government adopted a fiscal rule in 2013 to reduce the FIGURE 1.24: Infrastructure Sources of Funding space of spending, but has not been able to apply it (see 100 90 Chinese funding percent of external Box 1.1 for details on the fiscal rule). If the government 80 80 Percent of total funding continues with the current trend of missing a policy that it has approved any time that it is facing difficulty then 60 70 the sustainability of the fiscal stance is not guaranteed. Another issue relevant for fiscal sustainability is the reli- 40 60 ability of treasury data, since there is some of doubt on 20 50 that at this point. Additionally, the very high level of public invest- 0 40 2010 2011 2012 2013 2014 ment is not sustainable. Over 2008–2013, public Internal External China investment grew at an average annual growth rate of Sources: Congolese Authorities and The World Bank Staff estimate. 40 percent. By end-2013, capital spending stands at about 23 percent of GDP. This trend is certainly not sustainable; hence the government should substantially Implication of China strategic partnership reduce the pace of its capital spending over time, in of Capital expenditures order to maintain the current level and quality of capital Congo relies heavily on China to finance its main stock. Rather than creating new assets, the government infrastructure projects. In recent years, China became should focus its efforts on ensuring an adequate level the principal source of funding for Congolese infra- of maintenance spending to ensure that existing assets’ structure. Chinese funding accounted for more than quality is protected. 50 percent of external funding each year since 2010. On average it accounted for 75.8 percent from 2010 to 2013 (see Figure 1.24). During the same period the share Box 1.1: Implication of the new fiscal rule of external funding in infrastructure increased sharply, on recurrent expenditures moving from 35 percent in 2010 to 64 percent in 2013. In fact, Chinese financing funded almost all major infra- In January 2013, the government adopted a new fiscal rule in order to protect public finance from oil revenue volatility structure constructed over the period 2003–2013. In and to prevent fiscal policy pro-cyclicality. The rule calls for the medium-term, China is predicted to do the same by the allocation of XAF 500 billion of oil revenue to current funding infrastructure that could amount to XAF 1,500 expenditure and XAF 1000 billion to capital expenditure each billion thanks to an extension of the Brazzaville-Beijing year, and to save the remaining oil revenues in the government deposits (see IMF 2013). In the coming years, this new rule Strategic partnership signed in 2013. These infrastructure would secure gradual gains in fiscal consolidation, and facilitate investments so far have kept non-oil GDP booming at investment in key infrastructure areas as planned by the National an impressive rate close to a double-digit annual growth. Development Plan. Specifically, from 2014 to 2020, about 47 percent of projected total oil revenue would be spent to scale up basic infrastructure, and about 30 percent saved. However, 1.3. Macroeconomic Outlook and if oil revenue falls temporarily below 1,500 billion XAF, the authorities can draw on the saved funds to keep going with Financial Requirement – planned infrastructure projects. 2015–2020 The government is introducing critical reforms to strengthen non-oil revenue collection. The list of taxpayers is being updated, The Congolese economy is expected to expand at an and the exchange of taxpayer data between the Tax and Treasury departments and Customs has been stepped up. A withholding annual rate of approximately 5 percent over the next tax on government contracts has been introduced, and a one- five years (see Figure 1.25). This growth will be driven stop window for customs clearance put in service. by non-extractives sectors in a context of low inflation. 16 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 1.25: GDP Annual Change, 2013–2020 FIGURE 1.26: Oil, Mining and Non-Extractive GDP 12 Shares, 2008–2020 9 100 6 80 3 Percent 0 60 Percent –3 –6 40 –9 20 –12 2013 2014 2015 2016 2017 2018 2019 2020 0 GDP Oil GDP Non-oil GDP 2008–2013 2015–2020 Source: World Bank staff forecast, August 2014. Non-extractive Mining Oil Source: World Bank staff forecast, August 2014. However, the Congolese economy remains vulnerable to exogenous shocks such as volatile oil prices, drops while potassium reserves are assessed at about 1 billion in oil production, and delays in mining production, as tons and phosphate reserves at about 500 million tons. well as internal risks embedded in strategic choices of Until recently, mining activities were confined to artisanal its economic authorities. diamond and gold production, but mining activities have Driven by moderate growth in public invest- experienced a new dynamism in recent years following the ments, non-extractive sector will keep growing but adoption of a more attractive mining code. Some projects at a moderate pace.6 This sector will grow on average are expected to advance to the production phase starting by 4.6 percent from 2015 to 2020 (figure 1.26). The in 2018, although there is a large degree of uncertainty main drivers of this growth will be: agriculture at 4.9 surrounding the success of the mining projects, as it hinges percent average growth during the period and services on the completion of large infrastructure projects. (4.8 percent average). This moderate growth in the non-extractive sector will have limited impact on sector Substantial fiscal deficit prospects in diversification of the Congolese economy. coming years Congo’s oil production will gradually stabilize Contrary to recent years, the government will post in the upcoming years, in part because of discovery substantial deficits in coming years. Government rev- of new wells. In 2015 oil production is expected to con- enues will decrease sharply during the coming five years, tinue growing slightly at a 3.5 percent annual rate in part but spending will not. Extremely low oil prices would because of the end of major maintenance work in many effectively reduce funds available for spending over this oil fields. In 2016, the new offshore oil wells discovered timeframe. In the meantime, the newly adopted gradual (in 2013 by ENI, an Italian company) will gradually salary increase of civil servants will keep current spend- enter into production and will increase Congo’s total oil ing growing. In addition, the securitization of external production, forecast to grow by 6.5 percent in that year funding from China will stabilize a fairly strong level of and by 10 percent in 2017; the production then stabilized investment despite the fiscal rule. at a plateau of 120 million barrels per annum by 2020. The prospect of iron ore production could strengthen growth prospects. The country is endowed 6 All figures in this section are computed by World Bank Staff using with large mineral reserves. Iron ore reserves are estimated Mac-Congo Model and based on data provided by Congolese authori- to exceed 10 billion tons (always metric tons in this report), ties, international databases on commodities prices, as well as IMF data. Macroeconomic and Fiscal Context 17 In addition to an increase of oil production, the FIGURE 1.27: Congo Rep – Volatility of Oil and launch of mining production, and expanded non-oil Mining (annual growth rates), production would attenuate the impact of declining 2000–2013 oil revenues on the dynamics of government revenues. 100 20 Moreover, the Congolese government may slow down 80 15 the growth pace of public spending in order to follow its 60 10 Oil production new fiscal rule and to reduce the size of its fiscal deficit. 5 40 Price 0 20 Congolese economy remains vulnerable to –5 0 –10 internal as well as external shocks –20 –15 The Congolese economy remains vulnerable to exog- –40 –20 enous shocks such as volatile oil prices, drops in oil 2000 2003 2006 2009 2012 production, and delays in mining production (see Congo’s oil production Price of Crude Oil (Brent) Price of Iron Ore Figure 1.27). Its vulnerability to oil price volatility is Sources: Congolese authorities and WEO. the most likely risky given historical trends. Although no substantial reduction in oil price is expected, an impor- tant slowdown in China and other BRICS countries that this may not be the case or that mining production could plausibly contribute to a sharp fall in oil prices. could be lower than expected. Also, the predictability of oil production has been in Congo’s macroeconomic framework is also vul- question in recent years. In 2013, oil production dropped nerable to endogenous risks embedded in the strate- by –10.2 percent instead of the forecasted –2.5 percent gic choices of its economic authorities. This includes: expected at the beginning of the year. Also, in 2007 the i) excessive use of Chinese financing for investment proj- production dropped by –17.2 percent, due to an accident ects; ii) internal pressures on rent-seeking and unbalanced in offshore oil wells. Finally, according to the NDP, min- allocation of resources between infrastructure and social ing production was supposed to start in 2012. But this sectors; iii) issues in the disbursement system; iv) low has not been the case. The present framework assumes budget execution rates in line ministries; and v) over- the beginning of production in 2015, but there is a risk spending related to hosting the 11th All-Africa Games. 18 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Fiscal Space in Congo 2 C ongo government revenues have been historically high compared to the regional average and are well above the CEMAC convergence criterion. During the last decade, total revenues (excluding grants) were about 40 percent of GDP. This is very high by developing country standards where the majority of countries are below 25 percent of GDP. This high level of revenues is driven by a fair taxation of oil producing companies in Congo. In fact, oil revenues have provided a large share of total government revenues over the last 10 years, and accounting on average for 78 percent of total government revenues from 2008 to 2013. The high level of oil prices as well as stable production has kept revenues very high. The key issues for fiscal space in Congo are the management of the oil revenues or any natu- ral resource revenues and the improvement of revenue collection of the non-oil sectors. The high dependency on oil revenues posits the issue of the management of revenue volatility and other key issues related to natural resources management. Oil prices are well known to be very volatile, and this has been the case during 2008–2013, with a higher drop in 2009, which reduced government revenues significantly. Oil is also a non-renewable resource, posing a threat to the long-term sustainability of government revenue in Congo. Congolese oil production was set to decline in coming years because of the depletion of its reserves. However, the recent discovery of new oil wells by Eni7 could change this landscape of declining production if relevant investments are done. Like any developing country, Congo faces revenue collection issues. The rate of non- oil revenues to non-oil GDP is about 20 percent, a rate in line with other developing countries. Congo will have to continue reforms in this area in order to bring the rate to a higher level. This chapter finds that the enviable fiscal space that the Congolese government enjoyed during the five years period is coming to an end. In fact, the large fiscal surpluses of more than 10 percent of GDP on average over 2008 to 2013 will disappear in coming years driven by a projected lower level of oil price and substantial spending commitments of the government for salaries to civil servants and the construction of basic infrastructure such as the road between Brazzaville and Dolisie. It is therefore possible that treasury tension could reappear. From the chapter’s findings, the government should consider setting policies and actions to i) strengthen the collection of non-oil revenues, ii) better manage oil revenues 7 It has discovered 3.5 billion barrels of oil in the Congolese Marine XII block, of which 1.5 billion are attributable to ENI on Nene Marine field. This production is expected to plateau at 140,000 barrels per day. 19 volatility, and iii) capture a greater share of forth- 2.1. Recent Dynamic of Key Sources coming mining production. In order to strengthen of Government Revenues the collection of non-oil revenue, the government could improve the functioning of the Personal Income In the last decade, the government of Congo collected Tax (PIT), introduce a property tax and strengthen a large share of revenues from domestic production. the capacity of the Tax and Customs administrations. From 2003 to 2007, its revenues represented on aver- In order to improve the management of oil revenues age about 37.5 percent of GDP; this share increased to volatility, the Congolese government could strengthen 41.6 percent over the period 2008–2013. This is a very the capacity of the Ministry in charge of hydrocarbons high share by developing country standards. Figure 2.1 to efficiently manage the oil sector, improve transpar- shows that over the period 2008–2011, Congo per- ency in the sector, and strengthen the capacity of the formed better than emerging countries, such as Brazil, stabilization fund to smooth international price fluc- Chile, China, Russia, South Africa, and Turkey; none tuations of oil resources. In order to capture a greater of these countries exceeded 30 percent. Even among net share of forthcoming mining exploitation, the govern- oil exporting countries in Africa, Congo is still a top ment could consider making sure that the process of performer (see Figure 2.1). negotiating oil and mining contracts appropriately takes into account technical advice in the decision-making Government revenues is dominated by oil process. revenues which has been very volatile The remainder of this chapter assesses the recent Congo’s government revenues are dominated by oil dynamic of key sources of government revenues. In revenues, which have been strong during the period addition, it assesses the medium- and long-term natural 2008–2013. Oil revenues have been the main compo- resources outlook and its impact on the overall resource nent of government revenues in the last decade, at an envelope. It also assesses the capacity of the Congolese average share of 78 percent of total government revenues government to manage oil and mining revenues and to excluding grants. Oil revenues are coming from two adjust to volatility. Finally, it provides recommendations main components: tax on exports of cargoes (three- to better manage the volatility of these revenues in the fourths) and oil royalties (one-fourth). The share of Tax medium and long term. on Cargoes exports increased from 57.8 percent of total FIGURE 2.1: Selected Countries – Government revenues (excluding grants) Share of GDP2008–2011. 45 40 35 30 Percent 25 20 15 10 5 0 China Nigeria Indonesia Ghana Cameroon Benin Kenya Malaysia Chile Congo, DR Turkey Mauritus Brazil Russia South Africa Tunisia Chad Botswana Congo, Rep Sources: WDI, IMF, and Congolese authorities. 20 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) revenues over the period 2003–2007 to 60.2 percent over administrations are facing difficulties for the imposition the period 2008–2013, while oil royalties increased from of duties and taxes owed by oil companies other than 13.7 percent in 2003–2007 of total revenues to 16.0 those entrants in the oil tax system (taxes on corporate percent in 2008–2013 (see Table 2.1). profits, VAT on consumer of the local market, etc.). Other sources of oil revenues in Congo are mar- Oil revenues and its components have been ginal. The Congolese government received its oil rev- very volatile in recent years. The growth rate of oil enues also from three other sources: oil bonus, profit oil, revenues was negative in 2009, with about –50 per- and investment allowance. It is worth mentioning that cent growth. This in the only year that saw a nominal the country did not received bonuses during 2008–2013, decrease of oil revenues. Oil revenues reached three certainly because new wells (ENI) were not discovered peaks; in 2005 at more that 90 percent of growth rate; and allocated to a company within this period. In addi- in 2008, with about 60 percent; and in 2010, at about tion, profit oil decreased significantly from 5 percent of 90 percent. The most volatile component of oil rev- government revenues in 2003–2007 to 0.9 percent in enues is oil royalties, which fluctuated between about 2008–2013. Finally, the Congolese government so far –60 percent in 2007 to more that 500 percent in 2010. does not tax oil companies because its tax and customs Tax on cargo exports is the less volatile component TABLE 2.1: Government Revenues Composition Average — Average — 2003–2007 2008 2009 2010 2011 2012 2013 2008–2013 Percentage of government revenues Own revenues 99.6 100.0 98.9 100.0 99.0 99.7 100.0 99.6 Oil revenues 78.0 86.0 69.8 79.0 79.1 77.0 77.1 78.0 Oil royalties 13.7 9.1 6.9 25.3 20.1 19.1 15.2 16.0 Profitoil 5.0 2.0 0.5 0.9 0.6 0.7 0.6 0.9 Cargoes 57.8 73.8 61.1 51.1 57.2 56.2 61.9 60.2 Non-oil revenues 21.5 14.0 29.1 21.0 19.9 22.7 22.9 21.6 Tax revenues 20.7 12.4 26.7 20.0 19.0 20.8 21.1 20.0 Domestic taxes 15.9 9.8 21.5 16.5 15.5 16.9 16.6 16.1 Direct 7.4 4.5 9.1 7.3 7.0 7.6 7.7 7.2 Taxes on non-oil companies 3.6 2.1 4.1 3.9 3.6 4.0 4.1 3.6 Tax on personal income 2.8 1.8 3.5 2.5 2.4 2.6 2.5 2.5 Indirect 8.5 7.0 7.3 7.9 8.6 9.0 9.7 8.2 Value added tax 7.2 5.5 5.4 5.7 6.1 6.4 6.8 6.0 Customs revenues 4.7 2.4 5.0 3.5 3.5 3.9 4.5 3.8 Registration recipes 0.2 0.2 0.3 0.0 0.0 0.0 0.0 0.1 Non-tax revenues 0.8 1.6 2.4 1.1 0.9 1.9 1.8 1.6 Grants 0.4 0.0 1.1 0.0 1.0 0.3 0.0 0.4 Billions of XAF Government revenues 1198.4 2462.0 1338.4 2227.1 2887.1 2975.8 3368.7 2543.2 Source: Congolese Authorities. Fiscal Space in Congo 21 FIGURE 2.2: Growth Rate of Oil Revenues Items 120 550 90 440 60 330 Percent 30 220 0 110 –30 0 –60 –110 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Oil royalties (right axis) Production profit sharing (right axis) Tax on cargo exports (right axis) Oil royalties (right axis) Sources: Congolese Authorities. fluctuating between –55.0 percent and 64.9 percent. total. The introduction of new other indirect taxes as Overall, oil revenues have been more volatile in the well as new other direct taxes has reduced the share of current that in the previous period, for two main rea- these key items. sons: the drop in price in 2009 and the sharp drop in During the recent period, key components of production in 2012 and 2013. non-oil revenues have been less volatile. Although less volatile than oil revenues, some components of non-oil Non-oil revenue has been less volatile and revenues have shown significant volatility in 2003–2007, has increased its share as a result of better with the growth rate of tax on non-oil companies fluc- revenue collection tuation between about –325 percent and 65 percent. In Non-oil revenues account for about one-fifth of total addition, VAT, customs revenues, and tax on personal government revenues. These revenues were consis- income all experienced important negative and posi- tent in both periods, accounting for 21.5 percent in tive growth rates. However, since 2008 none of these 2003–2007 and 21.6 percent in 2008–2013. Non-oil key items recorded a negative growth rate. During that revenue has four main components: taxes on non-oil period they recorded growth rates between 5 percent companies, tax on personal income, value added tax and 55 percent. (VAT), and customs revenues. These four components The strength of the non-oil sector and a substantial accounted for about 85 percent of non-oil tax between improvement in tax collection of the tax administration 2003 and 2007 and of about 80 percent between 2008 has contributed to these good results. This improvement and 2013. Non-tax revenues decreased its share from is consecutive to reforms made by tax administration 0.8 percent of revenues in 2003–2007 to 1.6 percent such as the establishment of the one-stop window for between 2008 and 2013. customs clearance, the changeover of the ASYCUDA The Non-oil revenues are dominated by tax +++ to ASYCUDA, the introduction of the unique revenues, which account for about 95 percent of all taxpayers’ identification number, and the tax payments non-oil revenues. Non-oil tax revenues are dominated through the commercial banking system. Moreover, the by Domestic taxes, which account for three-fourths government is introducing some essential reforms to of the total, while customs revenues account for the strengthen non-oil revenue collection. The list of tax- other fourth. VAT is the major single item of the non- payers is being updated, and the exchange of taxpayer oil revenues, accounting for about one fourth of the data between the Tax and Treasury departments and 22 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 2.3: Growth Rate of Oil Revenues Items 50 80 40 60 30 40 Percentage 30 30 20 0 0 –10 –20 –20 –30 –40 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Tax on non-oil companies (right axis) Tax on personal income (left axis) VAT (left axis) Custom revenues (left axis) Sources: Congolese Authorities. Customs has been stepped up. A withholding tax on tax evasion. With the improvement of the informa- government contracts has been introduced, and there tion system, significant progress has been made in the has been a simplification of tax procedures and a pro- management accounting system used to track revenue. gram of training of taxpayers. However, on average it did not close its gap with the The effective tax ratio has been volatile for rate in the period 2003–2007. the oil sector but not for the non-oil sector in In 2011 and 2013 authorities introduced per- 2008–2013. The taxation average of oil production sonal income tax (PIT) reforms. The PIT reforms sat at 49.3 percent during the period, down from 51.2 of 2011 and 2013 consisted of reducing the rate of percent in 2003–2007. Over these six years, the effec- each bracket8 by 5 percentage points (except for the tive tax ratio in the oil sector has been very volatile; first bracket which was maintained at 1 percent, see it was 70 percent in 2008 and 37.1 percent in 2009. IMF 2014b), and increasing the four lower brackets. This is due to the type of contract that links oil produc- According to IMF, this reform was mostly regressive, tion and price in Congo. Since some oil production as its benefits accrued more to higher income families, is sold at a predetermined price, national accounts and single people with intermediate levels of income. used the value during the year of the production to Their results reflect the larger impact of the reduc- compute value added of the sector, while the taxation tion of the tax rates than the increase of the lowest is based on the price at which oil has been sold. The brackets and the large tax allowance on salary income taxation ratio of the non-oil sector has been increas- and the family tax system, as they are proportional to ing, moving steadily from 16.1 percent of the non-oil income. GDP in 2008 to 20.2 percent in 2013 (see Table 2.2). This improvement reflects improved performance of Strong tax collection due to improvement tax administration, following the implementation of of the tax administration reforms in tax policy. In 2013, the tax administration Budget revenues collection rate was 88 percent on is estimated to have collected about 96 percent of the average over the period 2008–2013. Unusually, in forecasted non-oil revenue, which is a good rate for 2011 Congo collected more than expected revenues that administration. During this period, tax collec- tion experienced a slight increase, thanks to measures 8 PIT brackets of income are labor, business, property or capital, and to expand the tax base and the fight against fraud and other incomes. Fiscal Space in Congo 23 TABLE 2.2: Government Revenues Share of Oil and Non-GDP Average — Average — 2003–2007 2008 2009 2010 2011 2012 2013 2008–2013 Percentage of GDP Own revenues 37.5 54.0 30.0 36.6 40.9 42.5 45.7 41.6 Grants 0.2 0.0 0.3 0.0 0.4 0.1 0.0 0.1 Percentage of oil GDP Oil revenues 51.2 70.0 34.1 41.4 46.5 49.1 55.0 49.3 Oil royalties 10.4 7.4 3.4 13.3 11.8 12.1 10.8 9.8 Production profit sharing 2.3 1.6 0.3 0.5 0.4 0.4 0.0 0.5 Cargoes 37.7 60.0 29.9 26.8 33.7 35.8 44.1 38.4 Percentage of non-oil GDP Non-oil revenues 19.5 17.2 17.9 19.0 19.9 21.3 21.7 19.5 Tax revenues 18.7 16.1 16.6 17.7 18.6 19.8 20.2 18.2 Domestic taxes 14.5 12.6 13.2 14.2 15.0 16.1 16.3 14.6 Direct 6.9 6.0 6.2 6.4 6.6 7.1 7.3 6.6 Taxes on non-oil companies 3.5 3.0 3.1 3.2 3.3 3.6 3.8 3.3 Tax on personal income 2.4 2.1 2.1 2.2 2.4 2.5 2.5 2.3 Indirect 7.6 6.6 7.0 7.7 8.4 8.9 9.0 7.9 Value Added Tax (VAT) 6.1 5.0 5.2 5.6 6.0 6.3 6.4 5.7 Customs revenues 4.1 3.3 3.3 3.3 3.4 3.7 3.9 3.5 Registration receipts 0.2 0.2 0.2 0.2 0.1 0.1 0.0 0.1 Non-tax revenues 0.8 1.1 1.3 1.3 1.3 1.5 1.5 1.3 Billions of XAF GDP 3060.9 4556.9 4409.7 6082.5 6982.5 6971.9 7374.1 6062.9 Non-oil GDP 1178.6 1529.9 1672.2 1839.1 2072.3 2301.9 2649.7 2010.9 Oil GDP 1882.3 3027.0 2737.5 4243.4 4910.2 4670.0 4724.3 4052.1 Source: Congolese authorities. (101.9 percent) due to taxes and internal taxes, domain those of the Treasury to regularly produce reconcili- revenues, and borrowing. From the forecast, the mobili- ation statements and eliminate the risk of accumula- zation of own resources (90.7 percent), driven by strong tion of recovery arrears. fiscal performance (107.2 percent) far exceeds that of For non-oil revenues, communication and infor- external resources (65.3 percent). mation efforts to taxpayers were made by tax services The country was declared compliant with such that, over the period 2008–2013, revenues from the Extractive Industries Transparency Initiative taxes and internal taxes exceeded expectations (107.2 per- (EITI) in 2013, reflecting improvements made in the cent). Aspects of low national coverage and non-general- declaration of oil revenues to the treasury. However, ization of the unique identification system (NIU) should bookkeeping efforts should ensure consistency be corrected in order to increase the quantity and quality between the tax and customs administrations with of taxpayers throughout the country. 24 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 2.4: Execution of Budget Revenues 4,500 4,000 3,500 3,000 Billions of XAF 2,500 2,000 1,500 1,000 500 0 Prevision Collection Prevision Collection Prevision Collection Prevision Collection Prevision Collection Prevision Collection 2008 2009 2010 2011 2012 2013 Domestic taxes Customs taxes and duties Oil revenues Non taxes revenues Government loans Grants Sources: Settlement laws and Reports of the Court of Accounts and Budgetary Discipline 2008–2013. 2.2. Medium- and Long-Term Natural about 75 percent of total government revenue. In com- Resources Outlook and its ing years, exports of oil will be moderate while oil prices are expected to be lower than in the previous period; as Impact on the Overall Resource a result, oil revenue will be lower. This, coupled with Envelope the strength of the non-oil sector will lead to a less than 50 percent share by oil revenue in total government rev- Extractive industries are likely to see their importance enue starting in 2018. Meanwhile starting in 2018, the to Government revenues reduced in the coming years. government is expected to have revenue from the min- Since 2008, oil has been the leading source of revenue for ing sector, which could account for about 4 percent of the Congolese government, accounting, on average, for total revenue from 2018 to 2020. Hence, even with the prospect of the mining sector development, extractive sector revenues will slowly lose their place of precedence FIGURE 2.5: Global – Oil Price Scenario in Congolese government revenues. 110 100 Driven by moderate production and 90 modest oil price, government revenues $/barrel 80 from the oil sector will slow down 70 Moderate growth rate of oil production in an environ- 60 ment of strong growth of the non-oil sector will lead 50 to a constant decrease of the oil share in government 40 revenues. Since the 2000s, oil has been the leading export 2015 2016 2017 2018 2019 2020 of Congo, accounting on average for about 90 percent of Scenario of June 2014 Optimistic Scenario export earnings. However, over the period 2015–2020, World Bank Scenario Pessimistic Scenario oil production is expected to grow at an average grow rate Source: World Bank Staff Scenario. of about 5 percent thanks to the discovery of the oil well Fiscal Space in Congo 25 by ENI that will start to be exploited in 2017 and to the euro. Four scenarios are tested using the MAC-Congo end of the major maintenance work in oil wells. In the model while the main scenario is tested using both mod- long term, the oil production is expected to decrease as els. Figure 2.5 presents the four price scenarios: the sce- oil reserves deplete. Coupled with a growth rate of about nario prior to the decline of oil price in July, an optimistic 5 percent in the non-extractive sector, revenue from oil scenario, a reference scenario, and a pessimistic scenario. sector will decrease constantly from about 75 percent of The Congolese government would lose substan- total revenues in 2013 to 56 percent in 2020, if a world tial revenues over the next five years. On average the price of $65/barrel from 2018–2020 is assumed. government will lose between XAF 400 billion to XAF The above analysis is based on simulations using 1500 billion each year from 2014 to 2020. The smaller Mac-Congo and MFMod of the Macro-Fiscal global loss will be in 2020, given that the price drop is less practice (see Box 2.1). The production scenario is taken important on an annual basis. The loss will be large in as given; the nominal exchange rate is not modified by 2015: if the projection by analysts of $50/barrel is real- the oil price scenario given that XAF is pegged to the ized, the government could lose about between XAF 1100 billion to XAF 1300 billion. With the World Bank scenario, oil will account for Box 2.1: Model used to simulate government less more than 60 percent of government revenue over the oil revenues dynamics entire period. Using the optimistic scenario, the drop in the share of oil revenues in total revenues will be smaller. MAC-Congo is the model used by Congolese authorities as well as Bank MFM staff; it is built on the theoretical framework It will settle at about 65 percent within that period. of the IS-LM (Investment Saving–Liquidity Preference Money The average annual projected revenue could Supply) Aggregate Supply and Demand model with some range in the period 2015–2020 between 13–29 per- behavioral equations embedded with a balance of payment cent of GDP, compared to 40 percent in 2010 to 2014. (BoP) equation—following the Mundell-Fleming model of a small open economy—and making the exchange rate endogenously The average annual revenue in the World Bank scenario determined in the model. The model also integrates a tool for the would amount to 23 percent of GDP, decreasing to close Government’s budget planning (Government Financial Statistics to 20 percent from 2018 to 2020. Projected revenue is (GFS) and Medium Term Expenditure Framework (MTEF) slightly better for the optimistic scenario with 26 percent accounts). The endogenous growth aspect incorporated into the framework makes the model more suitable for forecasting of GDP on average during the period (see Figure 2.6). economic growth. Many countries in Africa have a variant of However, the situation is worst for the pessimistic sce- MAC-Congo (see N’cho-Oguie et al. 2006). nario, with 19 percent of GDP on average but with less MFMod is the model used by MFM Global Practice; it than 15 percent of GDP over 2018–2020, see Table A2.1 is a global Keynesian (IS-LM) model with a supply-side. Its long-run supply side for each country is anchored to a neo- in the appendix for more details. classical growth theory production function, while short-term demand disequilibria (relative to potential output) are captured If the expected investment in mining is with a standard Keynesian demand representation of GDP realized, the Congolese government will and its (demand) components. The core of the model is an explicit supply side, where potential output is determined by receive a small share of its revenue from the available factors of production (capital and labor) and the mining starting in 2018 or later efficiency (total factor productivity (TFP) with which they are In the medium to long term, exports of iron and combined. The relative position of overall demand relative to other mining could represent up to 5 percent of potential—the output gap—is a critical input to the forecasting: Economies with positive and growing output gaps tend to: a) government revenues. The value of mining exports is overheat (inflation, rising current account); and b) slowdown expected to grow significantly in the medium and long (inflation or rising imports means demand does not translate term. However, the current environment of low com- into growth), see Burns (2014). modity prices is likely to significantly delay investment of Source: Authors. foreign companies in mining industries over this period. 26 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 2.6: Oil Revenue as Share of Government FIGURE 2.7: Mining Revenue as Share of Revenue Government Revenue 70 8 60 6 Percent Percent 50 4 40 2 30 0 2015 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 Optimistic Scenario World Bank Scenario Reference price Pessimistic price Optimistic price scenario scenario scenario Source: World Bank Staff estimate. Source: World Bank staff simulations. The execution of these major private investment projects aimed at creating production capacity in the mining (Nabemba) and other prospective mines will operate as sector could slow down the expected drop of the size of joint ventures with limited liability. In this case there extractive industries in Congo. This expectation is based will no dividends but the government could directly on a number of assumptions about planned production, get a share of the profits. prices, operating costs, and key elements of the fiscal package. Government revenues will accrue in the form 2.3. Capacity of the Congolese of royalties, dividends, and profit taxes. Although the size of expected revenues from min- Government to Manage Oil ing is likely to remain modest relative to oil revenues, Revenues and to Adjust to the new revenue flows could provide the government Volatility with more fiscal space to implement its development plan. Table A2.3 in appendix provides details of the Better forecast of oil revenues is key to an assumptions and expected revenues from oil and mining efficient management of oil revenue sectors under different scenarios. The projected govern- The Congolese economy is highly exposed to fluctua- ment revenues from oil and mining would account for tions in oil production and prices. Oil dependence more than 50 percent of total government revenue in and the volatility of oil production and prices in inter- the reference price scenario (see Figure 2.7). national markets can lead to significant fiscal planning Information constraints limit the accuracy of issues and to a reduction in the quality of public spend- revenue estimates. Mining is often conducted through ing. Supply shortage or oil production can result from state-to-state arrangements where prices and costs may an unexpected refinery outage, pipeline damage, or any be distorted by strategic considerations. A complica- other mechanical failure. Historically, the economic per- tion arises since Congo is a price taker, especially when formance of Congo has been largely affected by swings it will sell its iron to a single buyer who is also a key in global oil demand. The boom of the mid-seventies shareholder (China). Moreover, government equity gradually brought the oil sector contribution to GDP stakes are often negotiated as a part of a mining con- to 40 percent by 1984. This period was also marked by vention. These mines will pay dividends and will be a significant increase in government spending. Between subjected to profits and dividends taxes. The iron mine 1986 and 1993, oil entered a recessionary period, which Fiscal Space in Congo 27 saw the sector contribution to GDP plunge to below 25 Transparency in the use of oil and mining percent of GDP by 1993. However, in August 1994, revenues after the adoption of the Hydrocarbon Code, Congo’s In Congo, oil licenses and oil exploitation agree- oil agreements with the French oil company Elf Total ments are often subject to sole-source contracting provided some stability to prices and revenues regarding and bonus signature. The contract for the development the improvement of the “production share” which has of the ENI oil field did not go through open bidding, increased from 17 percent to 34 percent per barrel. In but involved political negotiations at the highest level bust periods, stability was achieved through long-term between Congo and Italy. Although a quick and easy contracts with shareholders, while in boom periods the way for the Government to gather revenues, the prac- government has been able to renegotiate long-term price tice of signature bonuses is not generally considered as a agreements and to increase the volume it can sell on its good fiscal tool as it may lead to fewer revenues for the own account in the spot market. Government in the future when the oil company seeks However, the government has very weak to recoup its investment. This practice also can turn away technical capacity to oversee extractive industries good potential investors who may not want to commit operations or to forecast oil revenues to allow significant amounts in advance. sound planning of resources use. The Ministry of Congo became a full member of EITI in 2004 Hydrocarbons (MH)9 is insufficiently endowed in but has not published audits on oil revenue flows since human and financial resources to perform its mission, 2010. Greater transparency and public involvement in including negotiation skills regarding contracts. As a oil revenue management could improve accountability result, the predictability of oil production has been and reduce political capture. Becoming a part of EITI in question in recent years. In 2013, oil production was a first step toward improving transparency of extrac- dropped by –10.2 percent instead of the forecasted –2.5 tive sector revenues. The Steering Committee, compris- percent expected at the beginning of the year. Also, in ing representatives of government, oil companies, and 2007 the production dropped by –17.2 percent, due civil society, was established by Presidential Decree: to an accident in offshore oil wells. 2006-626 of October 11th 2006. The government Better management of the oil sector requires appointed the EITI members and validated their first that the institutional capacity within the MH and the 2008–2010 action plan in September 2007. Government Ministry in charge of Finance be strengthened. The provides budget allocations for the implementation government could consider training staff of the MH in of the EITI responding to the EITI requirement that estimating and forecasting oil production. This institu- countries fund the implementation of the EITI from tion could collect its own data on major fields and in their own resources in order to ensure their sustain- this case would be able to have an independent view, ability. During the implementation of the 2011–2013 rather than only compiling information given by oil action plan, the country became compliant with EITI producing companies. rules in early 2012. This finding is not new; the 2008 PER by the The risks of political capture and conflicts World Bank found the same shortcomings in oil revenue are substantial. Congo has had a tumultuous history forecasting. In the PER, the World Bank carries out a marked by political instability through the 1990s. deep analysis in Annex 6 entitled “Oil revenue forecast- Disagreements over the control and distribution of ing—current (limited) capacity and suggestions for improvement.” The Bank proposed a model to forecast 9 Regarding the prediction of oil revenues, data comes from the Di- production, price and revenue from the oil sector. The rection General of Hydrocarbons (DGH) and the Natural Resources Office of the Cabinet of the Minister of in charge of Finance who work Government should consider using that document as closely with oil companies (such as the National Society Petroleum a reference. (SNPC), Total E & P Congo, ENI CONGO, and others.) 28 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) resource wealth could threaten the political situation. it will have a significant redistributive impact. To make After curbing the civil conflict in 1997 and the Pool it progressive, the tax could exclude the permanent conflict in 2002, the country could enter a new phase residence below a certain threshold, to prevent the taxa- of tumult with the possibility of constitutional change tion of low-income households. Property taxes could be to allow the President to run once more. The consensus implemented gradually, as it requires a reliable land reg- that formed the bedrock of the relative peace could be istry, as well as the administrative capacity to manage it. shattered, and the influence of watchdog entities (such The government would need to strengthen the as the National Assembly, the Constitutional Court, and capacity of both the tax and customs administrations. civil society) could be greatly diminished. Enhancing In order for the tax administration to deal with the transparency in revenue flows related to oil and other above-mentioned two reforms, the government should extractive industries is crucial to help prevent conflict in consider strengthen the capacity of these administration Congo as well as ensure an efficient use of related windfall in personnel as well as in technology. In addition, the gains to the benefit of key NDP sectors. government should consider improving the capacity of these institutions to fight corruption and fraud, which 2.4. Recommendations are often present in these types of institutions in CEMAC countries. One way to do this is to set a clear and precise From the above finding the government should set agenda and protocol on how a staff member can work policy and actions to i) strengthen the collection of with the client. Another way could be to have a single non-oil revenues; ii) better manage oil revenue volatility; window policy for taxpayers. Finally, it might be fruitful and iii) capture a greater share of forthcoming mining to transform the DGI and the DGC into a public entity exploitation. that could be name as “Agence des revenues du Congo.” This could allow this agency to set performance-based Policies and actions to strengthen the pay for career staff and establish remuneration that will collection of non-oil revenues reduce fraud and corruption and will ultimately lead to A better-functioning Personal Income Tax (PIT) sys- higher revenue to the government.10 tem would enhance tax progressivity of the tax system in Congo and improve tax collection. Currently PIT Policies and actions to improve the represents less than 3 percent of government revenues; management of oil revenues volatility there is enough room to increase this line of taxation. The government should consider methods to According to IMF (2014) strengthening the PIT yield i) strengthen the capacity of the Ministry in charge of can raise the tax ratio while strengthening progressivity. hydrocarbon to manage efficiently the oil sector as a Implementing a zero-tax bracket for the lowest incomes whole—in particular with respect to the analysis, negoti- would both simplify revenue administration and enhance ation, and follow up of oil sector contracts; ii) strengthen tax progressivity. Rationalizing tax deductions is also the capacity of the Ministry of in charge of hydrocarbons needed, as they accrue disproportionally to the rich, and and Ministry of Mines and Geology to oversee extrac- lead to significant revenue losses. tive industries operations; iii) improve transparency in The country should consider full implemen- the sector, including by having an up-to-date functional tation of the property tax, which has been recently website for the Ministry of Oil and Energy, and pub- introduced in the 2015 Budget. Prior to 2015, no lishing accounts of public enterprises in the sector; and property tax was applied in Congo. This is a major source of income for local as well as the central government that 10 The Canadian federal government and some of its provincial gov- was not collected. However, in the 2015 budget the gov- ernments used this model. The African Development Bank is helping ernment introduced this new tax. If fully implemented some WAEMU countries such as Togo in implementing this model. Fiscal Space in Congo 29 iv) publish oil contracts on the Société Nationale des the oil sector and publish and disseminate audit reports Pétroles du Congo (SNPC) website. to all stakeholders (public administration, private sec- In addition the government could set trans- tor, NGOs, etc.). parent managing rules for its stabilization fund (created at BEAC in 2012) to smooth international Policies and actions to capture a greater prices fluctuations of oil resources. This could ensure share of forthcoming mining exploitation steady revenue to the government budget, which takes The government could make sure that the process into account the absorptive capacity to support the of negotiating mining contracts appropriately takes PND implementation. The rules governing the stabi- into account technical advice in the decision-making lization fund should be simple and transparent. The process. It should also consider i) strengthening the fund should receive the excess of oil resources over the capacity of the Ministries in charge of mining to develop annual budgetary forecast, if the excess is larger than a a mining sector policy; ii) undertaking periodic reliable threshold, which could be set at a percent of the GDP independent audits of financial flows in the mining (to be determined by further studies). The resources of sector; iii) publishing and disseminating audit reports the stabilization fund could be used only through appro- to all stakeholders (public administration; private sec- priations in the budget law. Finally, it should undertake tor; NGOs); and iv) complete current revisions of the periodic reliable independent audits of financial flows in mining code. 30 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) PART II PUBLIC EXPENDITURE REVIEW This part of the report consists of two chapters. Chapter 3 focuses on the composition of public expenditure and the analysis of budget allocation and execution. Chapter 4 covers the public expenditure analysis of each of the country’s four priority sectors. In each of these chapters the issue of government spending efficiency is fully assessed. Composition of Public Expenditure and Key Source of Fiscal Pressure 3 O ver 2008–2013, a shift in budget allocation toward economic and social sectors took place. During this period, the share of recurrent expenditures in the budget decreased, revealing the government’s efforts to achieve its development priorities set forth in the NDP. The increase in the social sector was mainly driven by allocations to education ministries. Moreover, the bulk of the increase in allocations was directed to growth-enhancing and poverty-reducing sectors, including agriculture, education, health, and infrastructure. This was mostly driven by a sharp increase in infrastructure. Total spending increased slightly in real terms by about 6 percentage points of GDP on average between 2008–2009 and 2010–2013. The infrastructure and the economic sectors increased their share in total spending over the period under review. Despite significant increases in allocation share—3 percentage points of total spending—the share of social sector spending in the total spending declined by about 3 percentage points from 2008 to 2012, due to a low execution rate in this sector. The volatility of the budget execution rate was an important challenge for Congo during the 2008–2013 period, since it has distorted budget outcomes in favor of non- priority sectors. Budget execution rates have been volatile, but overall are in line with low- middle-income country standards. This general trend tends to hide high variability among sub-sectors. Social sectors recorded a relatively low execution rate; in fact resources allocated to this sector were poorly executed relative to the overall budget execution. However, budget execution has improved in many ways since 2009. Finally, the significant level of over- and under-execution has distorted budget outcomes in recent years, generally in favor of non- priority sectors. Overall government spending efficiency improved after the 2009 reforms, but is still far behind developing country standard. Government spending was more efficient over 2010–2013 than over 2003–2009, however public investment spending efficiency has deteriorated. In addition, poor investment planning has rendered significant, and otherwise productive, investments in the energy sector completely inefficient, while poor selection of investment project have led to white elephants such as airports in various rural localities. Moreover, the high cost of building infra- structure in Congo has reduced the efficiency of public investment, for example, in investment in 33 road and bridges. In fact, the construction cost of roads 3.1. Analysis of Public Expenditure in Congo is among the highest for developing countries. The findings of this chapter called for substan- 3.1.1. Allocation Trend: Shift in Budget tial reforms of public expenditure including plan- Allocation toward Economic and ning, budgeting, and actual spending. Therefore, the Social Sectors government should consider methods to: i) strengthen its budget planning process and keep a link between A key feature of budget allocation in Congo is the pre- planning and budgeting; ii) improve its budget presen- dominance of “institutions of the executive power.” tation in order to ease analysis, by enabling the distinc- Institutions of executive power include the presidency tion between directly productive sectors and indirectly and ministries in charge of economic, political, social, productive sectors; iii) strengthen human resources of and cultural sectors. The institutions accounted for some line ministries on public finance issues and reduce about 85 percent of total allocation on average over the tendency to use special procedures in budget execu- 2008–2013. When public debt amortization is removed tion; and iv) improve the equity and the efficiency of its from the budget, non-executive institutions12 together spending by better targeting the allocations of public make up on average barely 2 percent of total allocation resources and by providing a geographic coverage of the over the same period.13 budget by division or rural vs. urban areas. In 2010, Congo benefitted from debt relief This chapter aims at understanding public after reaching the HIPC completion point. This spending trends and composition, trying to iden- has considerably changed its budget landscape, with tify both allocation and execution issues. It analyzes debt amortization falling from about 20 percent of public expenditures by economic and functional clas- total spending in 2008 to almost about 8 percent in sifications, provides factors determining the structure 2013. The government has used most of the available of public expenditure. It therefore reviews the broad resources to increase its domestic spending. The reduc- trends and patterns of public spending by functional tion of the debt size in the budget increases the share classification. In addition, it analyses the key issue of of almost every component of the spending budget. government spending efficiency. The analysis of pub- In order to take this into consideration, the share of lic expenditures by functional classification focuses budget reported in this chapter will be without public on whether sufficient resources are being allocated debt amortization. to sectors and line ministries. However, the extent to Over 2008–2013, the share of expenditures of which resources allocated to sectors are considered suf- key budget sectors remained stable. These sectors are ficient or not is limited by the lack of sector strategies with clearly defined spending targets.11 In this context, 11 The government can argue that in 2012 it developed a priority ac- the current analysis limits itself to broad trends toward tion plan (PAP) for all line ministries with a detail budget from 2012 to 2016. In each ministry programs were developed with a budget the Government’s development priorities spelled out in attached to each of them. However, due to capacity issues, the govern- the NDP. The analysis also highlights the broad trends ment has not implemented it at all. 12 The list of these non-executive institutions is as follows: Parliament in actual spending and discusses the drivers of the exe- (National Assembly and Senate), Constitutional Court, Ombudsman, cution of spending. The structure of the Government Economic and Social Council, High Court of Justice, Supreme Court, public investment program (PIP) is discussed, focusing National Audit Office, Superior Council of Magistrates, National Human Rights Commission, and National Council for Freedom of in particular on the influence of China’s financing of Communication. the PIP. The analysis of public expenditure structure 13 Over the period 2008, the forecasted budget for these institutions and trends is complemented by an analysis of spending was on average 2.1 percent, with 3.6 percent for current spending and 1.0 percent for capital spending. But in actual spending the amount in the priority sectors —agriculture, education, health, was 2.4 percent with 4.1 percent for current spending and 0.9 percent and energy—in Chapter 4. for capital spending. 34 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 3.1: Broad Structure of Budget Allocations in Percentage of Total Budget 2008–2013 Public debt Independent Public debt amortization, organizations, amortization, Independent 20.9% 0.2% 8.2% Judiciary, organizations, 0.2% 0.2% Judiciary, Legislative, 0.3% 1.4% Legislative, Executive, Executive, 2.0% 76.5% 90.0% 2008 2013 Source: Congolese Authorities and the World Bank staff computation. FIGURE 3.2: Budget Allocation, Share of Total TABLE 3.1: Budget Allocation as a Percentage of Allocation, in Percent Total Budget Sovereignty sector 2008 2009 2010 2011 2012f 2012s 2013 Non-Executive 2.6 2.7 2.6 2.2 1.4 2.1 1.4 Public finance and institutions economic affairs sector Political sectors 20.8 20.5 21.3 21.8 19.0 19.4 19.8 Production sector Economic 57.7 57.5 56.3 56.1 64.2 60.2 56.2 Social sector sectors Social sectors 18.9 19.3 19.7 20.0 15.4 18.3 22.6 Infrastructure sector Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 0 10 20 30 40 Sources: Congolese Authorities and World Bank staff computations. 2008–2009 2010–2013 Source: Congolese authorities. declined by 1.5 percentage points from 21.3 percent of total allocations in 2008 to 19.8 percent in 2013 (see the “political sector”, the “economic sector,” and the Table 3.1 and Figure 3.2). The budget stability of these “social sector.” The political sector includes the execu- key sectors reflects the authorities’ tradition of smooth tive branches of sovereignty sector; the economic sector modification of the budget by ministry and their view includes the public finance and economic affairs sec- that the share of these sectors in the budget was already tor as well as the production sector.14 Specifically, the consistent with the government policy. political sector accounted on average for 20.6 percent, During this period, the share of recurrent expen- economic sectors for 57.9 percent, and social sectors ditures in the budget decreased, revealing the govern- for 19.4 percent over this period. Budget allocations to ment’s efforts to implement its development priorities “economic sectors” increased from 57.6 percent of total set forth in the NDP. The share of recurrent expendi- 2008 budget to 64.2 percent in 2012, in part due to the tures allocated to the “economic sector” decreased from Mpila crises, but have readjusted to 56.2 percent in 2013. 55.6 percent in 2008 to 43.7 percent of total recurrent The allocation to the “social sector” increased slightly, expenditures (including interest payments) in 2013, leading to an increase in their share in total budget allocation from 18.7 percent in 2008 to 22.6 percent in 2013. In the meantime, the share of the “political sector” 14 See appendix Table A3.1 for detailed composition of each sector. Composition of Public Expenditure and Key Source of Fiscal Pressure 35 while investment expenditures increased from 62.8 to about 45.6 percent on average over the four fiscal year percent in 2008 to 64.8 percent in 2013. Allocations to period 2010–2013. This reflects the combined effect the “social sector” followed a different pattern with an of increased resources to the investment budget and a increase of its share both from current expenditures and reallocation of recurrent expenditure over the past four from investment expenditures, which moved respectively years. In real terms, total allocations to these sectors from 19.6 and 17.3 percent in 2008 to 27.0 and 19.5 more than tripled from 2008 to 2013. As indicated percent in 2013 (see Table 3.2). above, the reallocations of recurrent expenditures in The increase in the social sector was mainly the budget were done by reducing or keeping almost driven by allocations to education ministries. In fact, unchanged the allocations to the “political” sector, the share of all education ministries grew from 9.4 per- most notably the Presidency, the ministry of External cent in 2008 to 12.2 percent in 2013; or from 9.9 per- Affairs, and the ministry of interior. The shift in budget cent over 2008–2010 and 10.2 percent over 2011–2013. allocations was particularly pronounced during the past In real terms, the allocations of recurrent budget to the three years. Total allocations to the growth-enhancing education sector increased by more than 9.7 percent over and poverty-reducing sectors more than tripled in real the past five fiscal years while the total allocation to the terms in 2008 and nearly quintupled in 2013 compared sector grew in real terms to more than 20 percent over to 2002. the same period. Driven by the sharp increase in infrastructure The bulk of the increase in allocations was allocations, Congolese allocation to priority sectors directed to growth-enhancing and poverty-reducing has increased substantially since the last PER in sectors, including agriculture, education, health, and 2008. The last PER found that Congo spent too large infrastructure. Accounting altogether for about 30 a share of its budget on administrative activities, to the percent of Congolese budget during 2008–2009, the detriment of funding for the PRSP priorities of devel- share of these four sectors in the total budget increased oping economic infrastructure and enhancing services by about 15 percentage points over the period under in education, health, and social protection. Since 2008, review: up from 29.8 percent in the 2008–2009 period the government has allocated much more funding to build or repair infrastructure as a result, the share of infrastructure moved from about 20 percent to about TABLE 3.2: Budget Allocations 30 percent in the period under study. Meanwhile, no 2008 2009 2010 2011 2012f 2012s 2013 major change has been observed for allocation in health, Current spending allocation as a percentage of current spending education, and agriculture. Non-Executive 3.0 3.3 3.9 4.2 3.5 3.6 3.5 Congo compares favorably with developing as institutions well as emerging countries on allocations to priority Political sectors 21.9 21.4 26.8 31.1 29.8 26.9 25.9 sectors. Congo is a leading country in allocations to Economic sectors 55.6 53.6 44.5 36.6 42.4 47.3 43.7 the infrastructure sector; during this period more than Social sectors 19.6 21.7 24.8 28.1 24.3 22.2 27.0 one-fourth of the budget went to ministries in charge Investment spendingallocation as a of infrastructure. The country also performed relatively percentage of Investment spending well on social sectors; 17.5 percent was allocated to Non-Executive 1.3 1.4 1.1 0.6 0.3 0.7 0.0 health and education—this proportion is higher than institutions in Uganda and Niger but lower than in Brazil, Kenya Political sectors 18.6 18.9 15 14.8 14.9 13.2 15.7 and El-Salvador. Congolese allocations in agriculture are Economic sectors 62.8 62.2 71.1 70.9 72.8 71.2 64.8 higher than in many developing countries, it performs Social sectors 17.3 17.6 12.8 13.7 12 14.9 19.5 better than Brazil, El-Salvador, Niger, and Uganda, but Sources: Congolese Authorities and World Bank staff computations. not as well as Kenya (see Table 3.3). 36 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) TABLE 3.3: Selected Countries – Budget allocation to Priority Sectors, Percentage of Total Budget 2008–2011 Sectors Brazil Kenya El-Salvador Niger Uganda Congo, Rep Education 12.1 15.5 18.1 3.6 4.0 10.0 Health 10.1 5.3 10.7 3.5 3.2 7.5 Agriculture 1.1 3.7 1.3 0.7 1.2 2.6 Infrastructure 4.0 18.0 3.9 1.7 2.1 27.3 Political 11.1 15.7 24.4 9.7 19.5 15.9 Source: World Bank recent PER. 3.1.2. Analysis of Actual Expenditures ministry in charge of social affairs, the ministry of interior and regional administration, the ministry in charge of Total spending for priority sectors increased slightly land affairs, the ministry of post and telecommunication, in real terms by about 6 percentage points of GDP and the ministry in charge of industry and private sector. on average between 2008–2009 and 2010–2013. The slight increase of the share of sovereignty It accounts for about 36.6 percent of GDP on aver- sectors in the total budget is explained by the increase age over the 2008–2009 period and 42.9 percent over of spending in the ministry of interior and decentral- 2010–2013. This increasing trend of spending is driven ization. For this ministry, the program of Accelerated mainly by capital expenditures, where spending increased municipalization (Municipalisation Accélérée) entirely in real terms and on average at an annual rate of more explains the increase. Without this ministry, the share of than 30 percent during the period and to a lesser extent sovereignty spending would have decreased sharply by by recurrent spending, which grew at an average annual more than 6 percentage points of total budget mainly rate of more than 13 percent during the same period. due to the decrease of the share of the presidency by The infrastructure sector and economic sector 3 percentage points of total budget. have increased their share in total spending over the Despite significant increases in allocation period under review. Total spending in the infrastruc- share—3 percentage points of total spending—the ture and economic sectors increased in real terms, on share of social sector spending in total spending average, at an annual rate of more than 30 percent in the 2008–2013 period, mainly driven by spending of the ministry of building and public works, the ministry of FIGURE 3.3: Budget Spending, (share of total transport, and the ministry of energy and water, which spending, in percent) together account for about 90 percent of total spending Sovereignty sector of infrastructure. The budget of each of these ministries Public finance and grew, on average, during the period with an annual rate of economic affairs sector greater than 20 percent. When infrastructure is embodied Production sector in the economic sectors, these three ministries account for more than 40 percent of the budget of the sector. Social sector It is worth pointing that many ministries posted a Infrastructure sector strong growth rate during the period even though they are not the one with the biggest share of budget. For 0 10 20 30 40 example, each of the following ministries grew on average 2008–2009 2010–2012 at more than 50 percent annually during the period: the Source: Congolese authorities. Composition of Public Expenditure and Key Source of Fiscal Pressure 37 declined by about 3 percentage points from 2008 to comprehensive sector strategies with clear and realistic 2012. During this period, unlike the trend for budget spending targets and outcomes to monitor the progress allocation, actual spending of other sectors grew more achieved. While designing the spending targets, the quickly than actual spending for the social sector budget, authorities should not only take into account their pri- primarily driven by issues with budget execution in some orities but also the absorptive capacities of the sectors. social ministries. However, in real terms, social spending Yearly fluctuations of spending on priority increased over this period. Specifically, investment spend- sectors during the period under review reveal the ing for this sector increased at an average annual rate of fragility of a spending policy highly dependent on 19.1 percent during the period. This mainly reflects the volatile oil revenue and subject to abrupt changes increase of investment spending in the ministry of health, in political context. It is worth noticing that during ministries of education, and the ministry of social affairs. the NDP process, the government developed a priority Also, recurrent spending increased in these sectors. action program (PAP) with a joined MTEF for a five- Accounting on average for about 5.1 percent of year period 2012–2016. In this 1156-page document, the 2008–2012 GDP, recurrent spending for priority each ministry and public institution of the Republic sectors increased by nearly 8.1 percent in real terms of Congo was accounted for—with strategy, an action during that period. In Congo, priority sectors include plan, and a budget for the entire period. However, the agriculture, education, health, and infrastructure. The government printed the document only recently (May share of priority sectors in total recurrent spending 2014), and the Ministry in charge of Finance and plan- increased by more than 3.7 percentage points, from an ning is not following what was decided in the document. average of 27.4 percent in 2008–2009 to 31.1 percent Furthermore, the government is already engaged in the in 2010–2012. This positive trend was driven by the process of creating another MTEF from scratch. increase in the share of the health sector, which account for 1.7 percentage point of the total increase of the share 3.2. Structure of Public Investment of recurrent spending on priority sectors spending and agriculture sector (1.2 percentage points). Total invest- Public investment has been driven by Chinese ment on priority sectors increased in real terms by about funding 28.9 percent between 2008 and 2013, stemming from a External funding partially finances Congo’s public sharp increase in investment spending in the education investment program (PIP). During the 2008–2013 sector (34.2 percent) and in investment spending in the period, available data reveals that about 9 percent of infrastructure sector (30.9 percent). Congo’s investment allocation was financed by donor assistance. Most of this is allocated to investment in 3.1.3. Functional Distribution of Actual economic and social sectors. Prior to the completion Total Expenditures, Payment Basis of the HIPC, the percentage of investment allocation from external borrowing was tiny (2.2 percent). Since Congolese authorities intend to further increase the 2010, this share jumped to 20 percent on average from spending on priority sectors, particularly health, 2010 to 2012. education, agriculture, and infrastructure in the Public sector investment has been driven by coming years. This signals the Government’s com- China-funded projects. The Government’s abundant mitment to implementing its development priorities. resources are mainly allocated to recurrent expenditure However, the success of this approach will depend on and building reserves, while investment expenditures are the Government’s ability to increase absorptive capaci- financed by oil revenues but also by external financing ties and enhance resource management in these sec- from China and France. This has caused a disconnect tors. This also requires that all priority sectors develop between the government’s current expenditure budget 38 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) and the overall investment made in the public sector. Economic sector: the PIP in this sector is largely Hence, the Chinese preference for financing projects and dominated by the allocations to the ministry of building programs in priority sectors has a strong influence on and public work, the ministry of energy, gas and water, the share of priority sectors in total public expenditure. and the ministry of transport, which together account Investment expenditures are not clearly identi- for about 90 percent of allocations to the infrastructure fied and planned in a coherent framework. As a result sector, over 200–2013. Allocations to this sector reflect of weak investment planning and execution capacity in the large programs and projects being (or in the process line ministries, planning and changes to the investment of being) executed in the transport sector, in the energy budget are driven at a central level by the DGGT and by and water sectors, and in building and construction. the DGPI. In fact, line ministries have had little control Social sector: investment programs and projects in over the planning and execution of capital expenditure the social sector are mainly directed toward the educa- in their respective sectors. Although, the government tion and health sub-sectors. Altogether, these sub-sectors identified the list of infrastructure that an investment account for 80 percent of the social sector PIP on average need to be carry on within the NDP, and that the DGGT over 2008–2013. This structure of the social PIP reflects have developed a master plan for infrastructure in the the Government’s policy choice of priority given to upcoming years, it is not very clear to all actors involved improvement of education and health outcomes while so in the budgeting and planning process that there is a far social protection appears to be a secondary objective. clearly integrated multi-year investment program. There Political sector: this sector accounts for about is a lack of strategic planning of investment expenditure, 20 percent of the total PIP. The ministry of defense, following about 15 years of neglect of capital budgeting the ministry of interior and decentralization, and the and weakening of institutions involved in preparing and presidency dominate the structure of the political sector monitoring the public sector investment program. PIP, primarily as a result of renewed attention to public security and the program of Municipalisation Accélérée. The current public investment favors the economic More specifically, defense accounts for about 6 percent of sector as well as the social sector total PIP, the ministry of interior and decentralization for The structure of the PIP is skewed toward economic about 5 percent, and the presidency for about 3 percent. sectors. On average the economic sector consists of more than 50 percent of total resources allocated to the An absence of defined targets and the volatility PIP over 2008–2013, while the social sector accounts of sources of funding are key challenges to the for about 15 percent, and political (sovereignty) sec- sustainability of the country public investment tors account for about 20 percent. The analysis of the program intra-sectoral allocations of the 2008–2013 PIP reveals More generally, the lack of specific spending targets the dominant position of the ministry of building and in the PIP does not provide a baseline for assessing construction, which accounts for more than 25 percent the trends of resources allocated to the sectors. Thus, of total investment allocations; followed by the ministry the increase in allocations (or in the shares) becomes of energy, gas, and water with about 10 percent, and the meaningless. Part of the problem is the absence of a ministry of transport with 10 percent. Shares of invest- clear link between the PIP and sector strategies. In fact, ment in agriculture, education, and health are small: the PIP is built with little reference to sector strategies. about 3 percent for agriculture, 6 percent for education, The volatility of both domestic and external and 6 percent for health. The share of the infrastructure resources translates into variability of shares and sector has increased from the 2008–2009 period to the relative importance of the sub-sectors. Yearly changes 2010–2013 period, while the share for agriculture, edu- in allocations appear substantial and do not display any cation, and health declined over the same period. specific pattern. For instance, allocations to agriculture, Composition of Public Expenditure and Key Source of Fiscal Pressure 39 health, and primary and secondary education dropped During this period, common expenses (public con- significantly from 2011 PIP to 2013 PIP. In the meantime, sumption, festivals and public ceremonies, legal fees, liti- resources allocated to urban development and to a lesser gation, and liability of the State, the unpredictable needs extent to defense sectors increased sharply. Part of the that manifest themselves unexpectedly, etc.) have run in volatility of the allocations is explained by the lack of rig- excess because either a poor estimate of unexpected or a orous resource planning on the part of the Government. small selection expenses qualified in this category. The lack It is worth noting that this report does not highlight high of rigor in the chain of public spending and a computer movements in shares due to the Mpila catastrophe, which system with firewalls contributes to overpayments. The necessitated a revised version of the budget in 2012. practice of exceptions (prepayments) in the first quarter of each year before the end of the coding and the process 3.3. Issues in Budget Execution of delegation of procurements, also participate in this fact. In addition, data in Table 3.4 show that the perfor- Budget execution rate has been volatile, but overall mance of investment spending is mostly done with own is in line with low-middle-income country standards resources rather than with external resources. The execu- Budgetary execution rates were strong (92.0 percent) over tion of investments from external resources is driven by the period 2008–2013, more in recurrent expenses (95.8 loans to medium and long term (83.3 percent) instead percent) than in investment spending (88.6 percent). of donations (22.2 percent). Lack of knowledge of the Several reasons contribute to the achievement of such procedures of donors could explain these poor results performance in investment. with donations. Operating expenses, primarily common expenses The execution rate on public investment in (119.0 percent) and expenditures of goods and services Congo compares favorably to developing-country (110.1 percent) drove the high execution rate of bud- standards, while its overall budget execution com- get expenditures. These two major types of expenses pares less favorably with middle-income country were often in excess of forecasts. The year 2011 was standards. With a rate of about 87 percent, the public exceptional in terms of budget overrun (104.8 percent), investment execution rate in Congo is higher than the just after reaching the completion point of the HIPC rate in many SSA countries. In fact, Congo’s rate is higher Initiative, indicating relaxation and reduction of effi- than the rate in Kenya and Uganda, countries with a ciency by the fund managers. better effectiveness of public administration according FIGURE 3.4: Implementation of Expenditure Budget 3,500 3,000 2,500 Billions of XAF 2,000 1,500 1,000 500 0 Prevision Payment Prevision Payment Prevision Payment Prevision Payment Prevision Payment Prevision Payment 2008 2009 2010 2011 2012 2013 Current expenditure Capital expenditure Sources: Settlement laws and Reports of the Court of Accounts and Budgetary Discipline 2008–2013. 40 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) TABLE 3.4: Budget Execution Rate by Type of Spending, in Percent Nature of expenditure 2008 2009 2010 2011 2012 2013 2008–2013 Recurrent expenditure 96.4 84.6 94.6 108.5 99.5 92.5 95.8 Debt service 85.3 84.9 79.6 114.5 85.5 57.5 82.7 Loans and advances — — — — 69.5 — 69.5 Staff costs 99.5 100.9 95.5 97.7 100.0 101.7 99.4 Expenditure for goods and services 103.7 89.1 102.1 120.3 110.5 126.2 110.1 Common charges 113.8 100.7 174.1 146.3 — 100.9 119.0 Transfers and interventions 99.3 66.5 90.8 100.2 112.8 80.5 92.2 Capital expenditure 97.5 95.0 88.4 102.0 78.2 88.2 88.6 Internal resources 97.4 99.3 99.8 102.5 93.2 100.6 98.3 From external resources (excl. grants) 364.5 8.7 69.1 156.4 66.5 82.2 83.3 On grants 39.4 59.9 8.9 35.4 7.2 23.7 22.2 Total final expenditure 96.8 88.4 91.8 104.8 86.7 90.0 92.0 Source: Reports of the settlement laws, 2008–2013. to the CPIA scores. Congo is doing also better than Execution rate varies substantially by sector, line Brazil, which has a rate of 80 percent. However, in terms ministry, and institution of the overall execution rate, Congo is lagging behind A key feature of the execution rates is their volatility countries such as Brazil and Kenya, but is doing better during 2008–2013. On average, execution rates were than Uganda and Niger. Please note that the authors relatively high during the entire period 2008–2012 with do not consider El-Salvador an example to followe; it an average rate of 93.1 percent. This reflects the use of is rather an indication of poor planning and absence of the Budget Exceptional Execution Procedures (OPPA), blocking mechanisms in budget execution, which is not rather than high absorptive capacity. The execution recommended. rates dropped in 2009 and 2012. The drop in 2009 was mainly due to the adoption of new reforms (e.g., pro- curement codes) while the 2012 drop primarily reflects FIGURE 3.5: Selected Countries – Budget the limited absorptive capacity of sectors in the face of Execution Rate sudden increases of allocation of resources in 2012, fol- 160 lowing a large increase in public spending following the 140 Mpila catastrophe. 120 This general trend tends to hide high variability 100 among sub-sectors. Broadly, the political sector tended Percent 80 to fully spend (or even overspend) the resources allocated 60 during 2008–2012. There was an average rate of 101.3 40 percent over the entire period and more impressively a 20 rate of 105.5 percent from 2010–2012. The presidency 0 Brazil Kenya EL- Niger Uganda Congo, is one of the institutions that overspent frequently dur- Salvador Rep. ing the period. For instance its execution rate was higher Execution rate of the budget Execution rate of public investment than 150 percent in 2008 and 2009. The ministry of Source: The World Bank recent PERs and Congolese authorities. interior and decentralization as well as the ministry of Composition of Public Expenditure and Key Source of Fiscal Pressure 41 defense also experienced overspending—since 2010 such execution improved in a number of important func- overspending is primarily due to spending related to tional areas since 2004, improvements were not stable the Municipalisation Accélerée program. This high rate over time or across functions. The average total bud- of execution of spending was facilitated by increasing get execution was 101 percent over the period, with a recourse to OPPA. high of 109 percent in 2007 and a low of 92 percent The social sector recorded relatively low execu- in 2005. Execution of the recurrent budget was more tion rates; resources allocated to this sector were consistent, with an average total execution rate of 108 poorly executed relatively to the overall budget execu- percent over all functional categories for the period. tion. Part of the identified challenge is the weak capacity Execution of the investment budget was somewhat of ministries that comprise this sector. The sector never more erratic, ranging from a low of 69 percent in 2008 executes its entire budget. In 2009 the sector executed to a high of 131 percent in 2006. less than 60 percent of its allocation; and in 2012 it The execution of expenditure by departments executed only about 75 percent of its allocation.15 The and institutions shows mixed situations over the low execution rate in these line ministries may also be period 2010–2012 (see Table A2.1 in Appendix). explained by the budgetary cycle in some of these min- When the ministries in charge of health, education, istries which might not be aligned with the budget cycle agriculture, and energy are examined, the ministry and the lack of coordination between these line minis- for energy is the biggest spender and often beyond tries and the DGGT. Some staff involved in investment the standards (recurrent and investment exceeded). projects in these ministries might be unwilling to let the This is also true of the Ministry of Interior and DGGT execute all the procurement of their ministries. Decentralization. Low execution rates in these sectors also mean that it Cost overruns have exceptional or extraordinary could be more difficult to achieve better social outcomes cases in infrastructure ministries. The Ministry of in Congo during this period. Energy and Water in 2011 (182 percent of the total Budget execution has improved in many ways budget), the Department of Special Economic Zones in since 2009. The budget execution exceeded 100 per- 2011 and 2012 (276.2 percent and 1098.8 percent off cent only once (in 2011), while from 2003 to 2007, total budget respectively) and the Ministry of Industrial the overall budget execution rate was 101 percent with Development and promotion of the private sector some years exceeding by about 10 percent budget allo- in 2012 (480.5 percent of the total budget). Due to cation, for example, 2007 with an execution rate of political will or to major works to host an international 109 percent. The distortion of budget outcomes that event some other ministries have also experienced is created by excess spending on recurrent expenditure budget overruns, for example, the ministry of health and a lower and volatile execution of public investment and population (442.5 percent of the execution rate of has also been reduced. In fact, in 2003–2008 the execu- investment percent in 2013) and the ministry of sports tion rate of recurrent budget was 108 percent, while and physical education (314.2 percent of the execution the execution rate of public investment was less than rate of investment percent in 2013). 85 percent; that is a difference of about 20 percentage Unlike these atypical cases, there are ministries and points. From 2008 and 2013, the different is only about institutions that have near-zero rate of implementation of 5 percentage points. However, important distortions the investment budget (e.g., Senate, mining and geology remain in some line ministries of key priority sectors in 2012 and advancement of women in 2013). such as health and education. Significant over- and under-execution has dis- torted budget outcomes in recent years, generally 15 The sector recorded low execution rate in years that the overall in favor of non-priority sectors. Although budget execution rate was low. 42 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Specific issues in the execution of the PIP: poor 3.4. Public Expenditure Efficiency in budget planning and limited absorption capacity Congo Since 2010, overall execution of the PIP is lower than execution of current spending. In fact, about 3.4.1. General Government Efficiency in 89.2 percent compared to 99.1 percent for recurrent Congo budget. This reflects the combination of low absorptive capacity of the overall Congo economy, the slow start Government spending was more efficient from 2010 of the execution of the PIP, and delays on the part of to 2013 than from 2003 to 2009, however public line ministries in processing the required documenta- investment spending efficiency deteriorated. From tion for the disbursement of funds in order to execute 2003–2009 to 2010–2013, indicators of public spending their projects and programs. In addition, the revision of efficiency decreased while indicators of public investment initial allocations to the PIP resulted in further delays spending increased. In fact, IGSOR and Non-oil IGSOR by line ministries, most of which adopted a “wait and decreased by about 2 points, moving from 8.1 to 6.3 and see attitude.” from 11.6 to 9.7 respectively. This provides some merit Large disparities exist among and within sub- to the 2009 reforms in public financial management. sectors. Economic and social sectors recorded relatively However, both measures of IPCOR increased by about low execution rates: 75.6 percent and 69.1 percent, 1.5 points. The IPCOR increased from 2.5 to 3.9 while respectively on average. Within the social sector, most the Non-oil IPCOR moved from 4.3 to 5.8, hence the of line ministries in charge of the execution of programs efficiency of public spending failed to improve after the and projects recorded low execution rates, with the reform. The reform seems to have been more effective exception of the ministry of youth and sport as well as for recurrent spending (see Figure 3.6). the ministry of culture. The low execution rates are essentially due to the Overall government efficiency improved after 2009 combination of poor budget planning and the limited reform but is still far behind developing country absorption capacity of the Congolese economy. Three standards factors can influence the execution of spending in a typi- During the last decade, government spending effi- cal developing country: (i) a cash rationing decision to ciency deteriorated until the adoption of reforms in limit an eventual fiscal deficit (a macroeconomic issue); 2009 and since then has started to improve. Non-oil (ii) poor budget planning (a macroeconomic issue); and IGSOR increased from 8.8 to 15.8 from 2003 to 2009, (iii) limited absorptive capacity at the sectors level (micro- sector issue). The first factor is well established as a key determinant of execution rates in many sub-Saharan Africa FIGURE 3.6: Public Spending Efficiency countries. Over the past four years, Congo did not experi- 14 ence a sudden cut in expenditures during the fiscal years 12 that might have prevented the country from fully executing 10 its planned spending. In fact, the low execution rates are 8 identifiably due to the combination of poor budget plan- 6 ning and the limited absorption capacity of the Congolese 4 economy. Poor budget planning is reflected by the lack of a 2 sound budget preparation process. The numbers included 0 in the Government budget are sometime meaningless, as IPCOR Non-oil IPCOR IGSOR Non-oil IGSOR they may not reflect the real needs of the sectors and the 2003–2009 2010–2013 country as whole. Source: World Bank staff computation. Composition of Public Expenditure and Key Source of Fiscal Pressure 43 Box 3.1: Public spending efficiency indicators This study uses two categories of indicators of public expenditure efficiency in Congo: the Incremental Public Capital Output Ratio (IPCOR) and the Incremental Government Spending Output Ratio (IGSOR). In each category, computations show the standard indicator as well as some variant to account for specificities such as the volatility. IPCOR is an indicator of investment efficiency, while IGSOR is an indicator of government spending efficiency. Higher indicators indicate less efficiency. IPCOR measures the marginal productivity of capital. Therefore, a higher IPCOR value for a given country indicates a higher investment required to earn an additional point of GDP growth, and thus a lower marginal productivity of capital. It is computed as the ratio of GDP growth to the rate of capital spending to GDP. Non-oil IPCOR measures the marginal productivity of capital on the non-oil GDP. Therefore, a higher non-oil IPCOR value for a given country indicates a higher investment required to earn an additional point of non-oil GDP growth, and thus a lower marginal productivity of capital. It is computed as the ratio of non-oil GDP growth to the rate of capital spending to non-oil GDP. This measure is appealing in oil-rich countries as it is less volatile. IGSOR measures the marginal productivity of government spending. Therefore, a higher IGSOR value for a given country indicates that a higher spending is required to earn an additional point of GDP growth, and thus a lower marginal productivity of government spending. It is computed as the ratio of GDP growth to the rate of government spending to GDP. Non-oil IGSOR measures the marginal productivity of government spending relative to non-oil GDP. Therefore, a higher Non-oil IGSOR value for a given country indicates that a higher level of spending is required to earn an additional point of non-oil GDP growth, and thus a lower marginal productivity of government spending. It is computed as the ratio of non-oil GDP growth to the rate of government spending to non-oil GDP. This measure is appealing in oil-rich countries as it is less volatile. Non-market services IGSOR is an indicator of government recurrent spending efficiency. It measures the marginal productivity of government recurrent spending on non-market services production. Therefore, a higher Non-market services IGSOR value for a given country indicates a higher spending is required to earn an additional point of non-market services GDP growth, and thus a lower marginal productivity of government recurrent spending. It is computed as the ratio of non-market services GDP growth to the rate of government spending to non-market services GDP. Source: Authors. indicating a gradual decrease in government efficiency. Congo does not compare well internationally This is indicative that the sharp increase of government on government spending efficiency. The country is spending was constrained by the absorptive capacity of less efficient than both emergent market economies the economy. However, in 2010, the non-oil IGSOR and some African countries. However it has been more decreased to 9.9, which is a sharp decrease of 37.6 per- cent in one year. Therefore it seems that the 2009 reforms had some immediate impact on government efficiency, FIGURE 3.7: Selected Countries – Government Spending Efficiency, IGSOR Index see Table 3.5. 25 Since 2010 government spending efficiency has remained stable but has started to deteriorate again 20 recently. The Non-oil IGSOR has moved from 9.9 in 15 2009 to 10.1 in 2013. If the government wants to go back to the level of efficiency which prevailed prior 10 to the increase of its spending in 2006, it will have to 5 more vigorously implement its reforms. This message 0 not sensitive to the measure of government spending Brazil Congo, Dem. Rep. Russian Federation India Ghana Malaysia Uruguay Angola Cameroon Mauritus Gabon Congo, Rep Equatorial Guinea Cote d’Ivoire Kenya Chad used. Using IGSOR, this study finds that (although it is volatile with erratic behavior due to oil prices as well as production volatility) the situation has been deterio- rating since 2010. Source: World Bank Staff Computation. 44 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) TABLE 3.5: Government Spending Efficiency Indexes 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 In percentage GDP growth 0.8 3.6 7.7 6.2 –1.6 5.9 7.5 8.7 3.4 3.8 3.4 Non-oil GDP growth 5.4 5.1 5.3 6.0 6.6 5.3 3.9 6.4 7.5 9.7 8.2 Non market GDP growth 0.1 2.1 4.2 4.8 4.9 3.0 2.9 3.2 3.2 17.7 7.9 Ratio of public spending to GDP 24.0 21.5 18.3 22.8 30.0 23.9 23.6 19.2 23.6 26.8 30.2 Ratio of public capital expenditure to GDP 6.6 6.5 5.3 8.9 10.9 10.0 11.0 9.0 14.5 17.1 19.7 Ratio of public recurrent expenditure to non- 239.6 241.4 261.4 325.7 376.4 331.1 269.6 279.6 270.1 238.8 230.1 market services of GDP Ratio of public spending to non-oil GDP 48.0 49.6 51.0 72.7 76.9 71.1 62.1 63.4 79.4 81.3 82.2 Ratio of public capital expenditure to non-oil GDP 13.3 15.1 14.8 28.4 27.9 29.7 29.0 29.7 48.8 51.8 53.7 Unit Standard IPCOR 8.2 1.8 0.7 1.4 –6.8 1.7 1.5 1.0 4.3 4.5 5.9 Non-oil IPCOR 2.4 2.9 2.8 4.8 4.2 5.6 7.4 4.7 6.5 5.3 6.6 IGSOR 29.6 6.0 2.4 3.7 0.0 4.0 3.1 2.2 6.9 7.0 9.0 Non-oil IGSOR 8.8 9.7 9.6 12.2 11.7 13.4 15.8 9.9 10.7 8.3 10.1 Non-market-services IGSOR 2721.8 114.7 61.9 68.3 77.4 109.8 92.5 86.6 84.4 13.5 29.1 Source: World Bank staff computation. efficient than Chad and Equatorial Guinea, two oil pro- spending was used to increase services to the population. ducing countries of the CEMAC region.16 However, the In fact, non-market services IGSOR decreased from country seems to have been more efficient than Kenya 109.7 to 29.1 in 2013. This sharp increase in efficiency (see Figure 3.7). was driven by better services in health, education, and other social services. Finally, the weak efficiency of the Recurrent government spending efficiency has government spending in 2003 and 2005 is explained by improved in recent years the fact that the country was just emerging from political During the last decade, government recurrent spend- instability; some civil servants were being paid without ing efficiency improved in general, although it dete- actually giving any services to the population. riorated from 2006 to 2008. The non-market services IGSOR increased from 61.9 in 2005 to 109.7 in 2008. Government capital spending efficiency has This should be interpreted as a sign that the first phase of deteriorated the sharp increase of government recurrent spending was The sharp increase of government capital in 2006 led to not efficient enough as it failed to translate to a greater further inefficiency. From 2005 to 2006, the government number or quality of the services given by the government doubled its investment spending, which moved from 5.3 to the population. In actuality, this increase of govern- percent of GDP to 8.9 percent of GDP and from 14.8 ment spending served to catch up on the poor condi- percent of non-oil GDP to 28.4 percent. This coincides tion of government workers and provided workers with work equipment rather than providing new services to 16 Given that these countries are oil producing countries this should the population. As the time goes by, additional recurrent be taken with caution. Composition of Public Expenditure and Key Source of Fiscal Pressure 45 FIGURE 3.8: Selected Countries – Public effectively and efficiently, public investment management Investment Efficiency, IPCOR Index needs to be improved in all areas of the project cycle. The 14 index is far from perfect and was computed a couple of 12 years ago; however, change in the infrastructure manage- 10 ment system has been slow; even if there may have been IPCOR index 8 some improvement, the state of efficiency continues to 6 be low in Congo. Also using the IPCOR, Congo public 4 investment efficiency is among the poor performers in 2 Africa and in a set of developing countries. 0 Brazil Russian Federation Congo, Dem. Rep. Uruguay Cameroon India Ghana Angola Malaysia Mauritus Gabon Cote d’Ivoire Congo, Rep Kenya Equatorial Guinea Chad 3.4.2. Specific Issues in Recent Investment Project Dabla-Norris et al. (2011) identified that public invest- Source: World Bank staff computation. ment inefficiency in Congo was due to poor selection, evaluation and monitoring of investment projects as well as to previously non-regulated public procurement systems. with the increase of non-oil IPCOR from 2.8 to 4.8, This section presents determinants of public investment which indicates a sharp deterioration of the efficiency of inefficiency in recent infrastructure project in Congo. public investment. From 2006 to 2009, non-oil IPCOR increased steadily from 4.8 to 7.4. Hence, additional Poor investment planning has rendered important increase of public investment in Congo during this period and productive investment in the energy sector was more and more inefficient. During this period, many completely inefficient infrastructure projects were under construction and thus Investment in power infrastructure has been the sec- their impacts on the economy could not entirely be felt. ond most import investment of the government in The introduction of reforms in 2009 seems to this decade accounting for a total of US$1100 mil- have brought immediate improvement in efficiency. lion. More specifically, the government invested about Following these reforms, IPCOR dropped from 7.4 to US$310 million in the Pointe-Noire Thermal central, 4.7 in 2010, however, the situation has further deterio- US$240 million for the Imboulou Dam, and US$550 rated since then; the non-oil IPCOR bounced back to million to improve power transmission from Pointe- 6.6 in 2013. This message is confirmed by the standard Noire to Brazzaville. The potential of these projects was IPCOR, which dropped from 1.7 in 2009 to 1.0 in great. The completion of the project helps cover the 2010. Since then it efficiency has deteriorated sharply, deficit of power production in Congo; Congo is now and the IPCOR reached 5.9 in 2013. exporting power to DRC with nearly 33 MW in 2013. Internationally, Congo also lags behind in terms Analysis prior to the completion estimated of public investment efficiency. Based on the PIMI that these projects would have substantial economic developed by the IMF, the Republic of Congo ranks 70th impact. It was estimated that, each of these proj- out of 71 surveyed countries. Congo ranks second to last, ects would have an IRR greater than 90 percent (see just ahead of Belize with an overall score of 0.50, while the Table 3.6), while any project will be beneficial at 10 per- median score for all countries is 1.65. The country fares cent. This higher IRR and BCR comes from improving particularly badly in the appraisal and evaluation category the availability and reliability of power (and hence reduc- with a score of 0 each. This situation has not dramatically ing its cost) for the manufacturing and service sector in changed since then. In order to use the country’s resources Pointe Noire and Brazzaville, as well as the southern 46 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Box 3.2: Cost-Benefit Analysis and Benefit Cost Ratio Methodology The Cost-Benefit Analysis (CBA) is based on the Present Value of Net Benefits (PVNB), which can be written as follow: ( Bit / (1 + r ) [ Ct / (1 + r ) ] – [ D jt / (1 + r ) ] t t t PVNB = – t t t t Where Bit represents the Incremental Benefit (willingness to pay) for incremental infrastructure project use of availability in sector i in year t; Ct is capital operating costs in year t; Dij represents incremental project-induced dis-benefit (foregone benefits or external costs) to sector j in year t; and r is the discount (interest) rate. The Benefit Cost Ratio (BCR) hypothesis to be tested is whether PVNB > 0 or not. The Internal Rate of Return (IRR) is the interest rate that would make the Net Present Value of the project equal to zero. The threshold rate of return typically used by International Financial Institutions is of the order of 10 percent. Any investment with a return close to this level would be justifiable from an economic standpoint. Projects with returns well above this level represent a very good investment and vice versa. For investment whose costs exceed their benefits, the IRR cannot be calculated and is reported as missing. The Benefit Cost Ratio (BCR) is the ratio of the present value of benefits to the present value of costs. Benefits and costs are discounted at a rate of 10 percent. A BCR greater than one is equivalent to an IRR greater than 10 percent and vice versa. According to Briceno and Garmedia (2009), the advantage of the BCR is that it can be reported even for interventions whose costs exceed their benefits and for which the IRR cannot therefore be calculated. Source: Authors. TABLE 3.6: Economic Returns of Infrastructure comes from the fact that the energy is produced, is trans- Projects ported to the gateways of major consumption centers but IRR, percent BCR cannot be distributed. In fact, the within-city network of energy transportation is in a dilapidated state and needs Power northern (incl. 104 350 Imboulou Dam) a complete update. Power southern 93 330 A better planning of investments could have upgrades (incl. Pointe- solved these shortcomings. The failure of this major Noire Power Plan) investment to achieve its goal of improving access to energy Source: Briceno and Garmendia, 2009. for consumers is essentially due to poor planning (or a lack thereof ) relating to investment in this sector. To render forestry concessions. It was estimated that the response investments more efficient, it is critical to make all project in production values could be very substantial, estimated investments that make essential contributions to the goal in the order of 41 percent for manufacturing and services in the proper sequence. Investments should be made so as well as timber (see Briceno and Garmendia 2009). that each part of the puzzle is ready at the right time to play However, at the end of these projects, the sec- its respective role in the project. When drafting a complex tor failed to secure reliable sources of energy to the investment project such as a mega-project in the energy Congolese population and its enterprises. At end sector, the government can improve its planning by pull- 2013, the average consumption of electricity to house- ing together all the available human resources during the hold is 222.4 KWh per capita compared to 124.1 KWh early stages so that no part of the process is overlooked. per capita in 2010 before the completion of the project. However, global technical losses of power remain very Poor selection of investment projects has led to white high at 40.6 percent in 2013, leading to an actual house- elephants such as airports in various rural localities hold consumption almost unchanged. Hence, so far this The Congolese government had invested recently to investment has been very inefficient. The inefficiency build or upgrade airports in the country, but many Composition of Public Expenditure and Key Source of Fiscal Pressure 47 of these are in localities with very few people. A total municipalisation accelérée framework, any important of ten airports have been built or upgraded: Brazzaville, infrastructure that has been built previously in one Pointe Noire, Ouesso, Dolisie, Ewo, Owando, Ollombo, division “should” be built in other division. A build- Sibiti, Djambala and Impfondo. Unlike Brazzaville and ing for the Head of the State is built with more-or-less Pointe Noire which cover a population of about one the same dimensions from one locality to another; a million inhabitants each, all the other airports covers building for the division chief and its administration less than 100 thousand inhabitants and are generally is built with more-or-less the same dimensions, and so in areas with a higher rate of poverty. Many of these on. According to various sources, the building for the airports are close to Brazzaville (e.g., Djambala), or to Head of State is often not used after the ceremony, but Pointe Noire (e.g. Dolisie), in fact these localities are less the state has invested in a building that is costly and will than 200 km apart. Unlike Impfondo, which cannot be require maintenance for many years to come. A proper reached by road and Ouesso, which is very far from the economic analysis of these investments could have led to major center of Brazzaville, other localities have a fair building other types of infrastructure more useful to the road connection with one of the major cities. population: a school, a hospital, a community hall, or a For example Ewo airport is built in a small city hotel for example. The elite tend to favor prestige invest- of about 10,000 inhabitants, and is almost unused. In ments rather than useful infrastructure that can boost fact, according to many sources interviewed, the plane job creation in their locality and the country in general. arrivals are very rare—sometimes a long as two months between arrivals. Ewo airport construction cost about XAF The high cost of building infrastructure in Congo is 80 billion (US$53 million) of taxpayers money, but it is reducing the efficiency of public investment such as serving only few rich of the region. The poor cannot afford investments in road and bridges the price of taking the plane from there to Brazzaville; the The government invested substantially in road and poverty rate in the Cuvette Ouest division (Ewo’s divi- bridge construction in recent years, with the road sion) is about 78.9 percent. Moreover there is an airport between Pointe Noire and Brazzaville being the most in Owando and another in Ollombo. These cities are very important. Brazzaville-Pointe Noire road is the biggest close; less than 100 km between Ewo and Ollombo. infrastructure investment in Congo in decades and it is Airports in Owando, and Dolisie are not better estimated that it will cost more than US$1327 million. It in terms of economic return. Each of these airports cost will have a major socio-economic impact on the country. taxpayers about XAF 80 billion, and were built in the It will link the country’s two major cities, which account Municipalisation accelérée program. As a result no proper for more than 60 percent of its population. In so doing it economic analysis on the need to invest in airports in those will bring more convergence in the country. Moreover, it localities was done. The issue was political; since the air- will ease trade between these cities by reducing transporta- port was built in Ouesso as part of the Municipalisation tion cost; it will spur economic development. As a road, accelérée program, political figures and elites in other both poor and rich people in the country will use it. This divisions requested airports as well and the government infrastructure will ultimately increase the production level granted the request. These airports might be some help for of many sectors; for instance the production of crops is esti- the elite, but not to the vast majority of the population, mated to increase by 4 percent while the exports of timber given that in these localities more than two-thirds of the by the port of Pointe-Noire will also increase by 4 percent population lives with an income under the poverty line. (see Briceno and Garmendia 2009 and World Bank 2014). Much of the infrastructure built within the Many other roads and bridges have been com- framework of municipalisation accelérée suffers from pleted or are under construction such the Road from a similar lack of proper socio-economic analysis Owando to Ouesso and the Road Obouya to Gabon of the cost and benefit of the investment. With the Border. The Owando-Ouesso road covers 328 km in 48 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) the northern part of the country with a major bridge on with more than 9 m pavement cost US$2.04 million/km. the Mambili River and road is one of the Congo’s bigger The quality of the road is therefore an important part of infrastructures of the current infrastructure program. The the costing. From a 7m pavement to a 9m pavement, the entire project cost about US$483 million with the bridge price per km almost doubles. From a 7m pavement to a costing about US$69 million alone. The marginal impact mixed 2-lane, 3-lane, 4-lane, the price almost triples. Of of the construction of the bridge has been very important course many other characteristics such as the slope of the given that it was the missing link of the road and since area and the number of rivers are important cost factors. it implementation it has been instrumental in spurring Congolese roads seem to be more costly com- interregional trade between Congo and Cameroon. In pared to developing countries standards. Data from addition, this bridge will contribute to having a complete Rocks database, reveals that a 7m paved road in Congo paved road from Pointe-Noire in the South to Ouesso is at the top in terms of cost per kilometer, for either in the North linking the three main economic cities in newly constructed or reconstructed road. At US$0.79 the country. The Obouya-Gabon Border road is another million per kilometer, the Congolese price is in the road in the northern part of the country. It covers over upper 75 percent for newly constructed roads and over 207 km and has cost US$161 million. This road helps any reconstruction. The same is true for road with 9m to link the northern part of the country to Gabon. pavement and more; Congolese roads are expensive. The cost per kilometer of these roads depends on The Brazzaville–Pointe Noire Road, when completed, their characteristics; one important being how large it will have cost US$2.04 million per kilometer, but it is a is. From the sample of roads used here, a road of 7m pave- mix of reconstruction, newly built road and a mix of 9 ment cost on average US$0.79 million/km, a road between m and 12 m newly constructed road; it will be expensive 8 and 9m pavement cost US$1.42 million/km, and a road on average (see Tables 3.7 and 3.8; Figures 3.9 and 3.10). TABLE 3.7: Cost of Road Infrastructure Disbursement in millions of US$ Length in km Million US$/km Roadof 7 m pavement Road Obouya-Boundji-Okoyo 84 117 0.72 Road Okoyo-Gabon Border 77 90 0.86 Total 161 207 0.79 Road with 9 m pavement Road Owando-Makoua 85 73 1.16 Road Makoua-Mambili 85 56 1.52 Road Mambili-Ouesso 313 199 1.57 Total 483 328 1.42 Road with more than 9 m pavement Road Pointe-Noire Malele 85 55 1.55 Road Malele-Les Saras 84 37 2.27 Road Lessara-Mvouti 84 36 2.33 Road Mvouti-Dolisie 74 45 1.64 Road Dolisie-Brazzaville 1000 415 2.41 Total 1327 588 2.04 Source: Congolese authorities and World Bank staff computation. Composition of Public Expenditure and Key Source of Fiscal Pressure 49 TABLE 3.8: International – Road Unit Cost, US$/km 6–7m pavement 8–14 m pavement Reconstruction Newly constructed Reconstruction Newly constructed (6 m–7 m) (6 m–7 m) (9 m–11 m) 12 m–15 m) Highest 0.53 1.24 0.33 3.43 Lowest 0.05 0.37 0.16 1.15 Median 0.22 0.70 0.22 Average 0.23 0.76 0.23 2.72 Lower 25 percent 0.12 0.49 0.16 Upper 75 percent 0.28 0.78 0.29 Sources: ROCKS Database – World2008, author computation, Author considered only contract after 2000 and countries with at least three contracts to compute average price per countries. Congolese roads are more expensive than in many are less important. One should therefore be cautious in African Countries; the prices per kilometer are closer to these comparisons. However, previous studies confirmed that of a newly constructed road in China or Indonesia. these findings, for example Alexeeva et al. (2008) find that Of course this comparison has many weaknesses, such as to re-gravel a road, Congo (US$0.068 million/km) was the time of construction that differs—many of the road the most expensive among Zambia (US$0.066 million/ in Rocks Database had their contracts signed by 2008, km), Madagascar (US$0.055million/km), and DRC while the Congolese roads had their contract sign after (US$0.0025 million/km). 2006, and many after 2009. Moreover, the other prices Many factors can explain the higher cost of road are from World Bank projects, where procurement issues construction in Congo including absorption capacity, FIGURE 3.9: Selected Countries – Cost of a 7m FIGURE 3.10: Selected Countries – Cost of 9+m Paved Road, Million US$/km Paved Road, Million US$/km 1.4 3.5 1.2 3.0 1.0 2.5 0.8 2.0 0.6 1.5 0.4 1.0 0.2 0.5 0 0 Turkey, recon Congo, Dem. Rep., recon China, recon Uganda, recon Brazil, recon Argentina, recon Burkina Faso, recon Ghana, recon Angola, recon Poland, recon South Africa, recon Ethiopia, recon Mozambique, recon Nigeria, recon Kenya, recon China, new Indonesia, new Congo, Rep, mix recon... Poland, new Bangladesh, recon, 11m Estonia, recon, 9m Malawi, recon, 12 Mozambique, recon, 10m Poland, recon 14 Venezuela, recon, 9m Vietnam, recon, 9m China, new, 15 Poland, new, 14 Venezuela, new, 15 Congo, Rep, mix recon... Congo, Rep, mix recon... Sources: ROCKS Database – World2008, Congolese Authorities and author Sources: ROCKS Database – World2008, Congolese authorities and author computation. computations. Note: Congo data are from the government procurement system while other Note: Congolese data are from the government procurement system while data are from the World Bank Procurement system, The comparison is other data are from the World Bank Procurement system, The comparison is therefore not straightforward. therefore not straightforward. 50 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 3.11: Selected Countries – Average country built many roads in rural areas. For example, Number of Firms Buying Bidding in the south the road Nkayi-Zanaga covers about 250 Documents, Bidders, and Bidders km and covers three poor regions: Niari, Bouenza, and Accepted for Detailed Examination Lekoumo, the Bouansa-Mouyoundzi road of about 50 25 km is also in the rural area in the Bouenza region, the 20 Brazzaville- Kinkala-Boko road is about 100 km and helps the population of the pool division to have access 15 to Brazzaville; the roads Madingo-Kayes-Pointe Noire 10 and Pointe Noire-Dolisie do the same. They allow the local population to have access to markets and to health 5 infrastructure. In the Northern part, many roads have 0 been built, including the Epéna-Impfondo-Dongou Congo, Rep Congo, DR Ethiopia Ghana Madagascar Malawi Mozambique Nigeria Tanzania Zambia road, the Owando-Ouesso road, the Obouya-Okoyo road, and the Brazzaville-Owando road. All these roads Firms buying Bidders Bidders accepted allow the population in the poorest areas of the coun- bidding documents for detailed examination try to have access to a city and therefore improve their Source: Alexeeva et al. (2008). chance to have health care and also to have access to markets in order to sell their agricultural products. All these road rehabilitation programs accounted for more high cost of contract supervision, and governance than 50 percent of the public investment program dur- issues. The country is small and with the very high num- ing this period. One should recall that the poverty rate ber of projects to carry, the number of firms than can bid in rural Congo is about 76 percent, while the overall is small. Moreover, many contracts are attributed directly poverty rate is 46.5 percent. to Chinese companies since the funding is coming from Rail as well as port investments have been ExximBank. In addition, according to Alexeeva et al. equitable for all by reducing transportation costs for (2008), the proportion of road costs going to supervision international trade. The government invested a fair in World Bank road construction in Congo is very high at amount of money to render the port of Pointe Noire almost 12 percent of the total cost. Governance issues in more efficient. It also invested to allow the railway contracting are also a key aspect in cost increases in Congo, between Pointe Noire and Brazzaville to be effective after as is the case for many developing countries. In Congo, many years of inactivity resulting from lack of use and delays in construction do not seem to be very problematic. maintenance during the civil war and political unrest period. All these investments have resulted in a reduc- 3.4.3. Public Investment Equity tion of transportation costs and a convergence of price between Pointe Noire and Brazzaville to the benefit of The recent government investment program has been all the population. in favor of the poor in some respects. In fact, the most Investments in electricity would have been important share of investment programs has been given equitable, but are not yet effective. The second most to roads, ports, railways, and hospitals, while the second important item for investment by the government has most important share was given to electricity develop- been investment in electricity. With a total of US$1100 ment and the third-most to airports and buildings. million, it accounts for about a quarter of the govern- Road investment in Congo has improved equity ment investment program. This electricity has been more in the country by easing the transport of the rural beneficial for the urban population and less for the rural population to city centers. From 2008 to 2013, the population, which is still experiencing difficulties to be Composition of Public Expenditure and Key Source of Fiscal Pressure 51 linked to the national network; only 5 percent of this government should consider creating a proper budgeting rural population has access. However, even the urban process for lower levels of government to obtain greater population is not benefiting yet from this investment. equity for the population. Airports and airplanes investments, which account for about 10 percent of the overall govern- 3.5. Policy Recommendations ment investment program is benefiting only the rich. In the current Congolese investment program, luxury The findings of this chapter called for substantial reforms buildings for no one and airports in nowhere are the of the public expenditure in planning, budgeting, and most inequitable investments. In fact, the price of a plane actual spending. ticket is too expensive for the majority of Congolese. In addition, many of these investments can benefit only The government should consider strengthening its the elite, and in some cases it is even a complete waste budget planning process and keep a link between as it is not benefiting even the elite. The Presidential planning and budgeting Palaces are almost unused either by the President or by As Congo is reviewing the implementation of its the other dignitaries. NDP, it is critical that it commit to improving its The available budget data on lower level of gov- public investment planning. The massive failure of ernment do not show any specific pattern of equity. the investment in electricity to deliver to its promise has In fact, the budget for the country divisions is almost highlighted the need for a better planning of investments constant for each of them, independent of considerations in Congo. The government should consider planning all of size or poverty reduction objective. This is due to the its investments for typical timeframes; a period of five fact that the variable allocation budget is limited, in 2013 years or three years could be set. Within this period, the it accounted for XAF 7.3 billion, while the fixed alloca- government would plan investments with the highest tion accounted for XAF 22.8 billion, see Table A3.2. As marginal socio-economic return and build a workable a result, Bouenza division, with a population of 309k, sequencing that would be used in the budget. The plan- is receiving almost the same budget as Kouilou, with a ning would have to make sure that the most critical items population of 91k (see Figure 3.12). Going forward the for the development of the country are prioritized before new projects are added. It is critical that the investment plan has many layers of prioritization. The first layers would be the FIGURE 3.12: Ratio of Budget Allocation to Population. Millions of XAF Per 1000 layer of essential investments that have to be taken dur- Per Habitant ing the period. It should be based on the pessimistic scenario of government resources, such that in any case 30 those investments will be carried out. The second layer 25 could be based on the reference scenario, it could con- 20 tain investments that are useful and that are important 15 to carry out within the period. The third layer could 10 be based on the optimistic scenario and could contain 5 investments which are very useful but that could be car- 0 ried in the next period without hampering the develop- Bouenza Cuvette Cuvette Ouest Kouilou Lekoumou Likouala Niari Plateaux Pool Sangha ment path that the country has envisioned. The current NDP with its PAP has only one layer of investment and the goals are sometimes very high for the capacity of Sources: Congolese Authorities and World Bank Staff estimate. some line ministries. 52 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) The government should also make sure that procedures and their volumes. A second step should be team working on planning is involved in the budget- to agree with the line ministries concerning a calendar ing process and are present and have a say when the to regularize the OPPA. Finally, the government may final decisions are made. The absence of those involved need to strictly implement a condition to limit the ratio in drafting the planning documents such as the NDP of OPPA to total expenditure (excluding salaries and are detrimental to the budgeting process. Moreover, it debt) to a given percent or less. This would signal its is critical that representatives of this team have their say resolve to improve transparency and accountability in when arbitration occurs on the final budget so that they the use of public resources. could flag any critical component of the budget that Improve the execution of spending by improv- seems to be overlooked in the budgeting negotiations. ing budget planning, increasing absorptive capacity, and increasing the efficiency of public resources. The The government should consider improving its trend of execution of spending over the past five years budget presentation in order to ease the analysis was not satisfactory. To improve the execution of spend- Improve budget classification by enabling the distinc- ing, policy actions should focus on: (i) improving budget tion between directly productive sectors and indi- planning; and (ii) increasing sectors’ absorptive capac- rectly productive sectors. Since 2011. The functional ity. In the short-term, the Government would need to classification of the budget is no longer provided. This undertake bold actions in the area of budget preparation renders the analysis of actual use of spending difficult, by strengthening the capacity to prepare the budget (rev- and the government might not be able to track its spend- enue and expenditure projections, sector needs, and so ing in any meaningful way. forth). In the medium-term, policy actions should focus From a policy perspective, as Congo is review- on increasing the capacity of sectors to absorb resources. ing the implementation of its NDP it is critical that This would include increasing their budget management the budget classification reflects the Government’s capacity, human resources, increasing the scope of pro- declared objectives to grant priority to key sectors. grams and projects to be executed, and other measures To this end, distinguishing between priority and non- recognized to increase absorption capacity. priority sectors could be a classification to consider. The advantage of doing so is two-fold: first, it would allow The government should consider improving the the government to assess whether allocations and actual equity and the efficiency of its spending spending are in line with its development priorities. This Beyond the objective of increasing the levels of execu- requires that sector strategies are in place and include tion rates, the main issue is the issue of efficiency of specific spending targets. Second, such classification spending. The quality of spending matters more than would enable the government to track the execution of its levels. Improving the efficiency of public spending specific spending in priority sectors and provide a policy would require better targeting the allocations of public response to correct deviations from the spending targets. resources. It would be better to increase resources to infrastructure that have a stronger growth and human The government should consider strengthening the development impact (through its direct and indirect human resources of some line ministries relating effects on education and health outcomes) than to to public finance issues, and should also reduce expand investments related to prestige. Take appropri- the tendency to use special procedures in budget ate time to plan and execute an investment as it allows execution strengthening of absorptive capacity and make sure that Initiate a policy of reducing the use of OPPA. A first the proper sequencing of investment has been respected. step could be for the government to clearly define the Provide a geographic coverage of the budget by list of existing OPPA, the institutions which use these division or rural vs. urban areas in order to better Composition of Public Expenditure and Key Source of Fiscal Pressure 53 target the poorest divisions. So far, no budget includes to discuss levels of allocations to the various depart- an annex on geographic allocation of expenditures. ments. This would require involving representatives This is not good enough, because it does not allow an of the divisions in the budget discussions. However, analyst to know whether the allocation of spending the issue is the ability of the division representatives reflects the country’s spatial poverty incidence. There to be familiar enough with budget procedures to have is a need to make the budget reflect the government’s an influence the budget decisions. The government poverty reducing priorities by better targeting the would need to strengthen local capacities in budget- poorest division. Starting in 2015, it would be a posi- ary processes. This could be done in the context of a tive step if budget conferences were to include sessions decentralization program. 54 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Sector Expenditure Reviews 4 T his chapter provides a detailed public expenditure review (PER) for four priority sec- tors for Congo: agriculture, health, education, and energy. It shows that budget alloca- tions and execution vary dynamically across sectors. Spending has been more important in energy but less in agriculture. Efficiency of spending is an issue for each of these sectors. The chapter is based on four standalone PERs: the agriculture sector PER, the health sector PER, the education sector PER, and the energy sector PER. The PER for each sector is a section in this chapter. The section first analyzes the trend of allocations of public resources to the sector over the past five fiscal years, and the extent to which they are consistent with development priorities of the Government. It then analyzes the structure of spending in these sectors and highlights the relative weight and trends of recurrent versus invest- ment expenditure in these sectors. The chapter also discusses the execution of spending and sheds some light on the determinants of the execution rates. The efficiency of spending in these sectors is presented and its main characteristics are discussed. The weaknesses, issues, and challenges of public expenditure management in these sectors are also discussed. Finally, it concludes by provid- ing some policy recommendations to improve effectiveness of public spending in these sectors. The key findings of the chapter are the following: i) the allocation of public spending to the agriculture, health, education, and energy sectors increased by more than 10 percent in real terms on average over the period 2008–2013, with education and energy increasing by more than 20 percent each; ii) these increases in allocations were not fully implemented and as a result the increase of actual spending has been lower than the increase in the allocation. In real terms, the growth rate of spending in health and education was lower than 7 percent, was less than 9 percent in agriculture, while it was at about 16 percent in energy; iii) these increases reflect the low levels of allocations to begin with and are mainly the result of resources available after the completion point of the HIPC process in 2010; iv) the share of spending in the social sector remains low; education (about 3 percent of GDP in 2012) and health (about 2.5 percent of GDP in 2012) sectors are still low by international standards and spending remains low in agriculture (about 0.6 percent of GDP in 2012); v) the PIP has been on the rise in these sectors, reflecting the commitment of the government to fill in the infrastructure gap in Congo; vi) weaknesses and issues of poor public expenditure management result in inefficiency of public spending, which impedes Congo from achieving higher development outcomes. 55 4.1. Public Expenditure Review in only 66.8 percent during the period. This execution Agriculture rate was low compared to an execution rate of total public expenditures of 94.8 percent on average over the Over the last decade, Congo’s agricultural sector has period 2008–2012. The average execution rate of the underperformed relative to the ambitious targets set by sector masks some discrepancies observed over time and Government. The agricultural sector as a share of GDP across the various components of the agricultural sector. has been decreasing over time. Indeed, since independence, Indeed, for the agricultural sector, the lowest execution this sector has grown more slowly than the other sectors: rate was reached in 2009, with an execution rate of 39.8 annual average growth in the agricultural sector was about percent, while the execution rate of the total expenditures 2.6 percent between 1960 and 2011, compared to 6.7 per- was 89.3 percent. In addition, fisheries and aquaculture cent for industry and 4.1 percent for services. This decline are the components of the agricultural sector with the accelerated during the 1990’s mainly because the sudden lowest execution rate with an average of 55.2 percent withdrawal of the state from production activities, vari- compared to 68.7 percent for agriculture and livestock. ous recurrent armed conflict, and very little involvement It also finds that the agriculture sector govern- in agricultural research. Thus, following the decline in ment spending has been fairly efficient. In fact, an agricultural production, food security has become an issue average growth rate of government spending in agri- and the country now depends heavily on imports of agri- culture of 20 percent from 2004 to 2007 resulted in an food products. Limited agricultural performance largely average growth rate in agriculture of 5.8 percent over results from competitiveness problems, compounded by the period, while an average growth rate of 19.6 percent low production and productivity. Since the government of government spending in this sector resulted in an is currently stepping up its effort in the sector, it is worth average growth rate of production of 7.0 percent from assessing the quantity and quality of public expenditures in 2008 to 2012. This efficiency however suffers from an the sector, as well as the sector’s effectiveness and efficacy. absorption capacity issue when the speed of government These are the two goals of this section. investment is too high. In recent years, agriculture seems to have started Based on the findings, the main recommenda- recovering. From 2003 to 2013, the sector grew at an tions of this section include: i) improve the coordina- annual growth rate of 6.6 percent compared to 4.4 per- tion of activities between the government and donors; cent for the entire economy. The growth has been even ii) strengthen capacity of staff on PFM issues in these stronger from 2008 to 2013, with an annual growth rate ministries; iii) improve budget predictability by increas- of 7.3 percent. This new start, although slow compared ing the execution rate of budget; iv) implement sys- to the ambitions of the government of a double-digit tematic project evaluation to improve monitoring and growth, could be the result of renewed government evaluation (M&E); v) modernize family farming and interest in the sector. agri-business; and vi) strengthen the Agriculture Support This section finds that the government budget Fund. More details can be found in World Bank 2014e. in the agriculture sector faces two key issues: low budget allocation and very low execution rate. The 4.1.1. Background of the Agriculture agricultural sector’s share of total expenditures increased Sector from 0.9 percent in 2008 to 1.6 percent in 2012, with a peak of 2.6 percent reached in 2011, which is far below In this section, the term “agriculture sector” includes agri- the 10 percent recommended by AU in Maputo in 2003 culture, livestock, fisheries, and aquaculture. Currently as the target level that would allow agriculture to fully in Congo, two ministries are in charge of the sector: the play its role in poverty reduction. Budget execution in ministry of agriculture and livestock (MAE) and the the agricultural sector has been quite low; averaging ministry of fisheries and aquaculture (MPA). 56 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Agriculture TABLE 4.1: Selected Sub-Saharan African (SSA) Congo has enormous, still largely untapped, agricul- Countries – Agricultural Potential, tural potential. The most important is undoubtedly the 2005–2010 large quantity of arable land. The country has over 10 Agricultural Agricultural million ha arable land, of which nearly 90 percent is still land (percent sector Population available. The country thus has high growth potential in of surface area production density of country) (percent GDP) (persons/km2) both food and cash crops. This land availability contrasts Congo 30.9 4.20 10.6 with the conditions found in many Sub-Saharan African Burundi 86.5 34.8 308.8 countries, where population pressure and agricultural development cause severe land constraints. This is the Cameroon 19.4 19.6 39.8 case for countries with a large population per km2 such Côte d'Ivoire 63.6 23.6 63.1 as Rwanda, Burundi, Ghana, and other (see Table 4.1). Ghana 67.8 32.2 101.6 Congo has high growth potential in food and Rwanda 78.0 35.8 391.8 cash crops. In addition, its unique geographical location, Tanzania 39.3 29.8 47.3 straddling the equator, provides opportunities for crops Source: FAO. throughout the year. This is quite rare in Africa and even in the world. The country also has a large current endow- Moreover, on small farms (0.5 to 1.5 ha), tra- ment of fruit trees that are not fully exploited. Finally, ditional agriculture is also characterized by very low know-how in grafting and layering makes it possible to yields. For example, in Congo, the main consumable shorten production cycles. These factors allow the Congo agricultural products are cassava and plantain, and to a to position itself as an exporter of fruits. lesser extent, maize. However, the country underper- Despite these strengths, agriculture has declined forms in terms of yield of these productions. The yield over the years due to low investment and produc- for plantain/banana was 7.3 t/ha in 2012, lower than tivity. This decline affected both food crops and cash in Cameroon (12.5 t/ha) and Ghana (10.5t/ha). The crops such as coffee, cocoa, sugar cane, and peanuts. same trend is observed for cassava. The yield in Congo Thus, following the decline in agricultural production, (7.8 t/ha) is far lower than similar African countries that food security has become an issue and the country now produce twice as much as Congo. Regarding the yield depends heavily on imports of agri-food products. While for maize, it was 800 kg/ha in 2008 and 1t/ha in 2012. agricultural production stagnated or contracted, imports This is half of the yield of similar African countries like of foodstuffs increased significantly, reaching about XAF Cameroon (2.1 t/ha) or Ghana (1.9 t/ha). These low 130 billion per year, and consuming nearly 12 percent yields are due to rudimentary production techniques, of export earnings. This reflects the increased vulner- including the low level of fertilizer use. ability of countries and peoples, especially the poorest. The poor performance of agriculture in the past Limited agricultural performance largely results is the result of a lack of sustained government sup- from competitiveness problems, compounded by port and poorly designed policy over a long period. low production and productivity. These problems are Indeed, over thirty years (1960–1992) agricultural policy related to the predominance of traditional production focused on the creation of public enterprises (offices, and systems, which occupy 81 percent17 of cultivated land state farms and ranches). During the structural adjust- and are characterized by low productivity. This type of ment period that led to the withdrawal of the state from agriculture coexists with two other agricultural produc- production activities, agricultural policy has focused tion systems—peri-urban agriculture and large private plantations—which, although developed on smaller scales, are more productive. 17 DGE (Estimations). Sector Expenditure Reviews 57 TABLE 4.2: Yields of Cassava, Maize and Plantain, TABLE 4.3: Selected Livestock Production, 2008–2012 (t/ha) 2007–2012 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 Cassava Chickens 2400 2450 2500 2600 2700 2780 Cameroon 14.0 14.0 14.1 14.6 14.5 (1000s) Congo 10.0 9.8 8.9 7.6 7.8 Goats 295,000 295,000 315,000 320,000 323,000 324,500 Ghana 13.5 13.8 15.4 16.0 16.7 Sheep 105,000 116,000 118,000 120,000 122,000 122,000 Source: FAO 2013. Maize Cameroon 2.0 2.0 2.0 2.1 2.1 Congo 0.8 0.8 0.8 0.9 1.0 experiments have been conducted with the success- Ghana 1.7 1.7 1.9 1.6 1.9 ful introduction of new breeds (Lagoon and Ndama). Plantain/Banana However, the development of traditional cattle farming Cameroon 12.0 12.0 12.2 12.5 12.5 was stifled by the emergence of state farms that occupied Congo 7.5 7.4 6.7 7.5 7.3 the best pastures and whose products competed with Ghana 10.7 11.0 10.8 10.8 10.5 traditional farmers. The failure of state farms provides Source: FAO 2013. an opportunity to boost the stock and consumption/ export of cattle in the private sector. Congo also has great potential in small livestock on the development of private farms with the idea of and poultry, which is most developed in rural areas. improving productivity. However, unlike Sahel countries (such as in Chad or The Government is determined to revitalize the Cameroon) or areas with large populations of pastoral agricultural sector to make it a driving force for struc- culture (Kenya and Tanzania), the Congo’s culture is not tural transformation of the economy. However, several intensively agro-pastoral. Therefore, the development major constraints need to be resolved in order to enhance of small livestock requires further support via farmer- the strengths of Congolese agriculture and strengthen its farmer mentoring to help them to take an interest in this contribution to development. These constraints are farm sub-sector. As for traditional small farmers, government size and low productivity and land titling. support will help them to modernize their farms and thus increase their productivity. Livestock Despite its potential, the livestock sector is still Fisheries and aquaculture embryonic in Congo. Like agriculture, issues of capac- In fisheries, the country has great and underexploited ity and competitiveness have hampered its development. potential. It has a coastline of 170 km and a dense hydro- For example, between 2008 and 2012, chicken produc- graphic network on the continent with two major rivers: tion has experienced an average annual growth rate of the Congo and its tributaries and Kouilou-Niari and its 3.0 percent to reach a production of 2.78 million heads tributaries. These two major rivers are very rich in fishery in 2012 (Table 4.3). However, this growth rate is much resources with about 100,000 tons of freshwater fish and lower than that of all non-oil sectors and even agricul- 80,000 tons of marine fish per year. However marine ture. Consequently, its relative contribution to non-oil fisheries have been declining, while freshwater fishing GDP has declined steadily. is stable at a harvest of about 15,000 tons fish per year. Congo has significant natural assets well suited The annual contribution of the fishing sector to livestock, including huge natural areas conducive to GDP was just below 1 percent during the period for raising sheep and goats. In past decades, several 2002–2012. Compared to other “coastal” countries, 58 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) the contribution of the Congolese fisheries to GDP FIGURE 4.1: Growth Rate of Agriculture and Total and exports remains low. The production of fish (fresh Government Expenditures, 2008–2012 water and marine fisheries) averaged about 60,000 tons 10 140 per year and grew by an average growth of 4.1 percent 120 8 100 annually from 2002 to 2011. 80 Fisheries and aquaculture employ a large 6 60 Percent 40 upstream and downstream workforce. This work- 20 4 force includes some 60,000 operators (representing 3.8 0 –20 percent of the national labor force) including 30,000 2 –40 fishermen in inland waters and 3,000 in marine waters. –60 0 –80 Eighty percent (80 percent) of the artisanal marine 2004 2005 2006 2007 2008 2009 2010 2011 2012 fishermen are from West Africa. They own 90 percent of the vessels, mainly canoes with drift or set gillnets, Growth of public spending Growth rate of the in agriculture (left axis) agriculture sector (right axis) platforms, and cast nets. Source: Congolese authorities. 4.1.2. Budget Allocation in Agriculture FIGURE 4.2: Ratio of Agriculture Expenditures Between 2008 and 2012, the agricultural sector bud- to Total Expenditures and to get constituted a very small share of the total budget Agricultural GDP with slightly less than 1.6 percent of the total budget. 4 35 During this period, aggregate budgeted government 30 expenditures averaged XAF 1,906.6 billion. Of that 3 25 amount, the agricultural sector budget constituted a 20 Percent very small share, averaging only XAF 29.7 billion per 2 15 year, or slightly less than 1.6 percent of the total budget. 1 10 MAE represented an average of 1.5 percent while MPA 5 represented only 0.1 percent. However, over this period, the expenditures on the agricultural sector increased by 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 more than total government expenditures. Indeed, the annual average growth rate of expenditures on the agri- Agr. expenditure/Agr. GDP Agr. expenditure/Total spending (right axis) (left axis) cultural sector was 19.5 percent between 2008 and 2012, compared to 11.6 percent for the total expenditure of Source: Congolese authorities. the government (Figure 4.1).18 Budget allocation in the agriculture sector is still far below the share of the total budget recom- of 2003 to allow agriculture to fully play its role of pov- mended by the African Union. The agricultural sector’s erty reduction. share of total expenditures increased from 0.9 percent in However, the recommended allocation of the 2008 to 1.6 percent in 2012, with a peak of 2.6 percent African Union seems very high. Available data on reached in 2011. This share of expenditures is far below the share of agriculture budget in developing as well as the 10 percent recommended by the Maputo meeting emerging economies show that the share of the agricul- ture budget is generally lower than 5 percent. Countries 18 Meanwhile, this should not mask the need to substantially increase with a higher proportion of rural population such as of the share of agricultural expenditures. Uganda and Niger do not even exceed 2 percent. This Sector Expenditure Reviews 59 FIGURE 4.3: Selected Countries – Agriculture Share decrease of the share of the agricultural GDP. It is note- of Total Budget, Average 2008–2011 worthy that in 2012, even as expenditures in agriculture 4 as a share of total expenditures decreased, the share of agricultural GDP increased, which corroborates the 3 recent increase in rhetoric from Congolese policymakers to make agriculture a key driving sector of the economy. Percent 2 Despite the fact that the share of agricultural GDP is now very small, this shows that the government is on 1 the right path but needs to do more for the agricultural sector to turn it into a driving sector of growth. 0 Brazil Kenya El Salvador Niger Uganda Congo rep. Between 2008 and 2012, agricultural expen- ditures in Congo were smaller than its economic Source: Various World Bank countries PER. contribution to GDP. Figure 4.4 displays agriculture expenditures as a share of total public expenditures is also true for middle-income countries such as Brazil divided by the ratio of agricultural GDP and total GDP. and El-Salvador (see Figure 4.3). A ratio of 1 indicates that public spending in agriculture The standard approach for assessing the adequacy expressed as a share of total public spending is equal to of agricultural expenditures relative to the size of the the contribution of agricultural GDP to total GDP. A sector is to express public expenditures in agriculture ratio of less than 1 indicates that the expenditure share as a share of agricultural GDP. Figure 4.2 displays going to the sector is smaller than the economic contri- agricultural sector expenditures as a share of total public bution of the sector, and vice versa. Between 2008 and expenditures and as a share of agricultural GDP; 2009 2012, the ratio in Congo was between 0.53 in 2008 represents a low level of agricultural sector expenditures in and 0.44 in 2012 with a peek at 0.79 in 2011. Hence, terms of agricultural GDP, while 2011 is the high point for agricultural expenditures in Congo are smaller than the this indicator. Indeed, 2009 is a year of drastic decline of economic contribution of the sector. The average of this public expenditures even if agricultural sector expenditures ratio during the five past years is 0.50. relative to total expenditures still increased. As the effect of expenditures is always delayed, we did not see the impact FIGURE 4.4: Agricultural GDP as Percent of Total on agricultural GDP. Beginning in 2010, public expen- GDP ditures start to rise again to reach a peak in 2011 (19.6 5 percent). The light decline observed in 2012 is mainly due to a decline of agricultural sector expenditures in 2012. A 4 level of public expenditures in agriculture relative to the 3 Percent size of the country’s agricultural GDP above 20 percent shows that the country spends enough on agriculture rela- 2 tive to the size of the sector in the economy. 1 The public expenditure and GDP shares of agri- culture have opposite trends. While the agricultural 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 sector expenditure share of public expenditures increased between 2009 and 2011 (see Figure 4.4), agriculture Agr. expenditure/Total spending as a share of total GDP has decreased the trend for the Agr. GDP/GDP same period. This decreasing trend is mainly due to the Agr. expenditure share/Agr. GDP share increase of oil production in 2010, which resulted in a Source: Congolese authorities. 60 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) The above analysis provides evidence, based on agriculture is also low compared to the execution rate of the various measures of agricultural sector expenditures total public expenditures of 94.8 percent on average over (agricultural expenditures relative to the size of the the period 2008–2012. The average execution perfor- agricultural sector, the contribution of agriculture to mance masks some discrepancies observed over time and the overall economy, and Africa-wide spending targets across the various components of the agricultural sector. formulated by policymakers), that agricultural sector Indeed, for the agricultural sector, the lowest execution public expenditures are low. This low level of agricultural rate was reached in 2009, with an execution rate of 39.8 sector public expenditures is not in the direction of the percent, while the execution rate of the total expenditures important role that, according to the policy makers, was 89.3 percent. In addition, fisheries and aquaculture agriculture in Congo must play as an engine of growth are the components of the agricultural sector with the and poverty reduction. lowest execution rate with an average of 55.2 percent compared to 68.7 percent for agriculture and livestock. 4.1.3. Budget Execution in the Effective public provision of agricultural goods Agriculture Sector and services is critically affected by the predictability of the budget.19 Government ministries, departments, From 2008 to 2013, budget execution in the agricul- tural sector has been quite low. Table 4.4 shows that 19 One measure of budget predictability is the relationship between during this period, budget execution in the agricultural voted and executed budgets. The relationship between voted and ex- sector averaged only 66.8 percent. This means that an ecuted expenditures is an indicator of the effectiveness of the budget in allowing departments and programs to plan their activities and average of about 33 percent of the approved amount was deliver public services for the year, as expressed in policy statements, never spent. The execution rate of public expenditures in output commitments, and work plans. TABLE 4.4: Agricultural Sector Expenditure Execution Rate, 2008–2012 (percent) 2008 2009 2010 2011 2012 2008–2012 Fisheries and aquaculture Average Recurrent 106.3 65 107.5 92.7 90.2 92.3 Capital 60.8 23.9 45.2 20.8 42.3 38.6 Total 78 37.1 71.2 31.7 58.1 55.2 Agriculture and livestock Recurrent 101.7 65.9 104.6 86.3 100.8 91.9 Capital 61.7 30.9 60.3 82.1 68.2 60.6 Total 73.7 40.2 73 82.9 73.8 68.7 Agricultural sector Recurrent 102.2 65.7 105 87.2 99.3 91.9 Capital 61.7 30.1 58.9 71.9 66.4 57.8 Total 74.1 39.8 72.8 74.6 72.5 66.8 Government expenditure Recurrent 99.5 84.4 94.6 107.2 108.1 98.8 Capital 97.5 95 88.4 102 82.2 93.0 Total 98.7 89.3 91.3 104 90.7 94.8 Source: National Authorities and authors calculation. Sector Expenditure Reviews 61 and agencies can plan and implement programs, projects, in 2006 was followed by a low of 43 percent in 2007, and activities in a systematic way only if the budget pro- with these fluctuations mostly driven by the execution vides a good indication of the resources that will actually of the investment budget (see Figure 4.5). become available. In terms of international comparison, the execu- Unpredictability of spending mainly originates tion rate of Congo is low. For countries with recent from the instability of capital outlays more so than PER, Congo is one of those with an execution rate instability of recurrent expenditure. On average, the lower than 80 percent in this sector (see Figure 4.6). execution rate of capital expenditure was 60.6 percent in As stated previously the issue of low capacity in line MAE compared to 91.9 percent for recurrent expendi- ministries in charge of agriculture is a leading cause of ture and 38.6 percent for MAP compared to 92.3 percent low execution. Going forward, the government should for recurrent spending in this ministry. This situation consider strengthening public financial management in in Congo is common for most other countries where these line ministries. budget execution is a problem. The unpredictability of capital spending in Congo is reflected not only in the chronic large discrepancies between budgets and actual FIGURE 4.5: Agriculture Sector Execution Rate spending, but also in the extreme variability in the size 2003–2007 of those discrepancies. The execution rate of capital 600 expenditures in the agriculture sector varies from 30.9 500 percent in 2009 to 71.9 percent in 2011. For fisheries 400 and aquaculture, the execution rate varies from 78 per- Percent cent in 2008 to 31.3 percent in 2011. 300 The existence of chronic large discrepan- 200 cies between approved and executed budgets is an 100 important challenge for the elaboration and imple- 0 mentation of public programs and projects in the 2004 2005 2006 2007 agricultural sector. When there is no consistent and Total spending Recurrent spending Investment spending predictable relationship between budgets and actual Source: Congo PER, 2008. releases, designing and implementing programs and projects becomes extremely difficult. These unstable and unpredictable capital budgets often forced policymakers FIGURE 4.6: Selected Countries – Agriculture and program managers to change course and reprioritize Sector Budget Execution Rate, spending in response to unexpected shortfalls or wind- 2008–2011 falls. The consequences in terms of project implementa- 120 tion were clearly negative. Some critically needed capital projects had to be delayed or canceled entirely, and others 100 that had been launched faced delays in completion or at 80 Percent worst remained unfinished. Attainment of policy goals 60 was jeopardized, and achievement of expected outcomes 40 was undermined. Compared to 2004–2007, the execution rate in 20 the agricultural sector has been less volatile. During 0 2003–2007, the sector suffered from highly volatile and Brazil Kenya El- Salvador Niger Uganda Congo, Rep. generally low execution rates. A high rate of 305 percent Sources: Various World Bank countries PER. 62 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) 4.1.4. Overall Efficiency of the the 2006 spending which bore fruit in the coming years. Investments in Agriculture Meanwhile extreme variability of the budget in the sec- tor is not a positive sign. The government should plan Government spending in agriculture has been fairly its investment in order to build absorption capacity and efficient if measured by the sector outcome. In fact, increase its spending efficiency in the sector. during this period, the growth rate in the agriculture Government spending has been effective since sector accelerated. Indeed, from 2003 to 2010, annual the number of programs in the agriculture sector, growth in the agricultural sector averaged about 6.0 per- which have been created and implemented, has cent. Since 2010, this growth rate accelerated from 7.9 increased. The renewed financing of the sector by the percent in 2011 to 7.8 percent in 2012 and 8.5 percent government resulted in the creation of seven programs in 2013. Growth in government spending in the sector and the launch of others. A detailed description of each clearly contributed to the growth of the production of of these programs is presented in Box 4.1. Each main pro- the sector. A spending growth rate of 20 percent from gram of the government is described with its main out- 2004 to 2007 resulted in a growth rate in agriculture of puts. The main government programs (financed only with 5.8 percent, while from 2008 to 2012 the growth rate of internal resources) include the Agriculture Support Fund, 19.6 percent resulted in a growth rate of production of Modern Agricultural Villages, Agricultural Techniques 7.0 percent. The IGSOR of the agricultural sector stayed Demonstration Centre, The National Centre for Crop stable from 4.5 in 2004–2007 to 4.4 in 2008–2012 (see Disease Control, and the palm oil and sugar industries. Figure 4.7). The implementation of these initiatives has The efficiency of government spending however accelerated the growth of the agricultural sector since suffers from absorption capacity issues when the 2001 and especially over the past three years. The level speed of government investment is too high. Figure 4.7 of production of the main agricultural products demon- shows that IGSOR increases substantially when gov- strates this acceleration of growth. Apart from paddy rice, ernment spending increases; for example in 2006 the the production of the main agricultural products had a IGSOR was equal to 11.3, which is a very high ratio. Of positive trend. For example for cassava, the production course in 2007 the IGSOR was low due to reductions increased by 20 percent between 2005 and 2012, mov- in government spending but also to the lagged effect of ing from 1.0 million tons to 1.2 million tons. The same trend held for plantain/banana production, between 2008 and 2012, plantain/banana production increased FIGURE 4.7: Sector GDP Growth Rate 2000–2013 from about 78,000 tons to 84,000 tons. 12 75 However, the expanded agricultural production 10 60 has not kept pace with population growth. Per capita 8 production was on the decline until 2008. Since 2008, 45 Percent per capita production has stabilized and earlier declines 6 30 have begun to turn around for some products. Hence, 4 cassava production per capita was around 275 kg per 2 15 capita during the period 2010–2012, and plantain/ 0 0 banana production was around 19 kg per capita over 2004 2005 2006 2007 2008 2009 2010 2011 2012 the same period. The measurement of efficiency is not fully sat- Ratio of Government Spending to Agriculture GDP (right axis) Growth rate of the Agriculture sector (left axis) isfactory because of the lack of data. To estimate the IGSOR (left axis) efficiency and the effectiveness of total government agri- Source: World Bank staff estimate. cultural expenditures on the sector, information on the Sector Expenditure Reviews 63 Box 4. 1: Agricultural programs The Agriculture Support Fund: Since being re-launched in 2008 the Fund has financed more than 1,113 agricultural sub-projects for a total amount of XAF 7.2 billion, along with XAF 1.3 billion in grants for institutional support in the following areas: agriculture, livestock, fisheries, fish farming, aquaculture, and marketing of agricultural products. The Fund has also funded development activities in technical centers. These activities are mainly: (i) improved seeds activities in the Etsouali, Mayoumina, and Néméyong centers; (ii) technical support for rearing cattle in Boundji and Dihesse centers; and (iii) agricultural extension and livestock in Kombé, Brazzaville (Agricongo), Dolisie, Pointe-Noire, and Ouesso. The Imvouba Agricultural village: The village was inaugurated on February 5th, 2012. The village specializes in the production of broiler chickens (poulet de chair) and is built on an area of 150 hectares. The village accommodates 50 residential homes including 45 families and 5 operators and support staff. Each of the 45 semi-industrial poultry operations contains 1,500 broilers. In addition, each farmer received two plots of land to grow cassava or for gardening. The Imvouba Agricultural village has produced 20 million eggs since its creation, nearly 300 tons of vegetables, and 466,008 broilers. The Agricultural Techniques Demonstration Centre: The Centre provides training and research in agricultural domains, and agricultural extension services that are unfamiliar to Congolese farmers. Training kits consisting of hardware and farm implements were purchased and given to the trainees at the end of their training. Seven training sessions were organized for 199 producers in the fields of horticulture, poultry, and cassava production. The Centre also has several structures, including experimental greenhouse varieties of Congolese, Chinese, and African vegetables and an extension center of breeding techniques. The National Centre for Crop Disease Control: The center acquired laboratory products and began the implementation of timber yards (5 hectares or ha). To reduce the problems related to land management in the context of the implementation of the program of horticultural centers, the Ministry of Agriculture and Livestock has acquired farmlands at Nkayi, Dolisie and Yie for total area of 29 hectares. Vegetable seeds and pesticides were purchased for XAF 102 million. The National Centre of Improved Seeds also produced 2.2 million healthy cassava cuttings. The palm oil industry: The palm oil industry is being revived in the Sangha region through the 18,000 ha concession to Atama Plantation Company, which already operated 5,000 ha. In Sangha, Cuvette and Cuvette-Ouest, the company Eco-Oil Énergie took over the activities of the Ex-Sangha-palm and the Congo National Palm Plantations Authority. The investment of XAF 351 billion francs should eventually lead to the operation of palm oil production on 50,000 hectares across three sites (Mokéko, Owando and Itoumbi) and employ 5,000 people. Sugar: In March 2012, the Société Agricole de Raffinage Industriel de Sucre (SARIS) relaunched the manufacture of sugar cubes with a new operational chain of production in Moutéla (Nkayi, Niary Department). Launched in June 2010 and created with the support of the Congolese state, the project represents a total investment of approximately XAF 1.5 billion. The SARIS Congo factory, which has an installed capacity of 70,000 tons per year, is the only sugar factory in the country. However, the 2012 sugar harvest was poor due to unfavorable weather conditions. In 2013, production was around 68,000 tons, a 17 percent increase from 51,000 tons in 2012. The production plant produces about 4,300 tons of sugar per month for the domestic market and exports 12,000 tons annually. SARIS Congo is the third largest employer in Congo, with more than 3,500 direct jobs, including permanent and temporary employment during the harvest period. Annual turnover at the end of December 2013 was up 16.3 percent (XAF 29.2 billion in 2013, against XAF 25.2 billion in 2012). Development and Rural Roads Rehabilitation Project, co-funded by the World Bank: This program has: (i) built about 1251 km of rural roads, facilitating market access to production areas; (ii) rehabilitated the Support Centre of the Agricultural Research Center of Loudima; (iii) constructed the Landing of Makotimpoko and Makoua; (iv) constructed infrastructure for 36 infrastructure projects (33 boreholes and 3 water points); and (v) financed 814 micro agro-pastoral and fisheries projects. Source: Authors. outputs and outcomes associated with the different types However, lack of data availability on outputs and out- of expenditures reviewed earlier are needed. Measuring comes made it impossible to estimate these unit costs. efficiency requires estimation of the unit cost of provid- Fraud in the sector occurred mainly during ing different services, which can be compared over time. the project financing process and has reduced the 64 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) government spending efficiency. The most important comparisons are made between the level of aggregate case of fraud was found during the implementation of agricultural spending and the corresponding aggregate the Agricultural Support Fund. The main objective of spending projection in the NDP. The long-term vision the fund is to support agriculture projects and then of the agricultural sector of the government is that by provide financial support to most profitable ones. 2050 this sector is transformed into a major sector of the However, in 2009, an assessment of the fund provided Congolese economy. The sector could feed the country’s to projects showed that numerous projects that do population and could generate export revenues, while not qualify were financed. This poor targeting led the preserving the natural heritage. The strategic objective Government to restructure this fund and hire a new of the sector is, by 2035, for Congo to have become self- management team that changed the financing process. sufficient in fulfilling its basic food needs, and to export In terms of technical losses, there is room for improve- more raw and processed products while preserving its ment. Indeed, the low productivity of the sector is ability to meet the needs of future generations. mainly due to the lack of the use of improved seeds In terms of outcome indicators that need to be and fertilizer. Getting better seeds and more fertilizer monitored to effectively track progress in delivering on its into the hands of Congolese farmers should not be dif- mandate as stated in the NDP 2012–2016 and to moni- ficult, but it must happen on a sustainable basis. This tor and evaluate the sector’s contribution toward achieve- will happen faster with a public role in the expansion ment of the overall growth and development objectives of agricultural support services, ideally leading to a of the country as stated in the NDP, the information stronger private sector role as agricultural operations presented on budget execution of the MAE and MPA become more productive and profitable. suggests that these ministries are already aligning their budget with the development strategy of the government. 4.1.5. Government Spending Consistency of the NDP 4.1.6. Recommendations Since 2010 the government has tried to design its Faced with prospects of declining budget allocations budget using the MTEF approach. The approach forces in the future, the topmost priority for MAE and the budget to be aligned with the programs and strategic MPA is to ensure that limited resources are used as axes of the NDP. The two last MTEFs of the agricultural efficiently and effectively as possible. These ministries sector show that the alignment with the strategic priori- should target the highest priorities and seek institu- ties of the government is improving over time. tional arrangements to deliver services more effectively The main discrepancies tend to crop up in the through decentralized implementation arrangements. form of a low budget execution rate. A deviation of more In line with the widely accepted principles of good gov- than 10 percent from the approved budget for a project ernance, MAE and MPA should ensure transparency, puts its successful implementation at risk. The lack of accountability, and participation in its service delivery predictability of the budget, especially for capital expen- in an effort to maximize the efficiency and effectiveness ditures, makes it difficult for projects to be implemented of their expenditures. Against this background, the fol- and for services to be provided to farmers. In addition, lowing recommendations are made to improve public the length of the budget cycle and the disbursement of expenditures in the sectors. funds that occurs generally around June-July make it very Strengthening capacity of line ministries on difficult to implement the approved budget, as only a PFM issues. The most important issue found from the maximum of six months are left to execute such a budget. PER is the low budget execution in line ministries of the In assessing the consistency between agricul- sector. This is mainly due to low capacity within these tural spending and agricultural strategic priorities, ministries to prepare and implement projects planned in Sector Expenditure Reviews 65 the budget. The government should consider strength- between different priority areas. In addition, rigorous ening these ministries by providing them with staff impact evaluation should be done for most develop- experienced with PFM issues and by training existing ment projects. Results-based M&E is indispensable to ministry staff dealing with PFM issues to improve their good national management and policy planning. The skill with PFM-related issues. regular monitoring system provides very little informa- Coordination of activities with other ministries tion about the real impact of public programs. Impact and donors: During project implementation, wastage evaluations can range from the PETS analysis to more can be reduced through better coordination of activi- detailed assessments. Once these evaluations become the ties and the allocation of adequate operating funds for norm, policymakers and planners will be well equipped supervision by local production department staff. to guide budget allocations across sectors and address Budget predictability. Budget execution, the operational constraints in agriculture programs. binding constraint for implementing projects, should Modernizing family farming and agribusiness. take into account the strong seasonality of agriculture To support agricultural production and family farm- (and thus resource requirements) and the large costs of ing, the government should help traditional farmers untimely, unpredictable counterpart financing in devel- modernize their farming methods by modernizing opment projects. In terms of overall cash flow, MAE their farms. Modernization is quite different from and MPA should cater carefully to relatively small but mechanization, which the government is implement- time-sensitive cash flow requirements to improve their ing now. Modernization implies mechanization and operational effectiveness. management of the farm as a market oriented business Efficiency and efficacy. One of the main con- (agri-business). straints of the sector is its underperformance in term Strengthening the Agriculture Support Fund. of results achievement. To overcome this underper- The Government should strengthen the analytical formance, the government should set up program to capacities of the Fund and avoid providing access to increase agricultural productivity. This can be done ready-to-roll cassava plantation plots for new farmers. through these following steps: (i) Create a formal land Experience from various countries shows that providing market with land title to allow agriculture on larger these ready-to-roll farms to new farmers failed most of areas; (ii) facilitate farmers’ access to finance by provid- the time because of lack of experience and focus of these ing a guarantee or collateral; (iii) develop the agriculture new farmers. It is recommended that potential farmers value chain from farm product to industry production; go through the selection process of the Fund to ensure and (iv) strengthen the capacity of the farmers in agri- the sustainability of their project if they are to receive business or modern farming. any financial support. Monitoring and evaluation. Substantial benefits will arise from creating a results-based system to moni- 4.2. Public Expenditures Review in tor and evaluate public expenditures. This system would Education contain provisions for regular program monitoring and for evaluating the impacts of major interventions. The Congolese government has given increasing atten- Currently, MAE and MPA focus on regularly monitor- tion to the education sector in the national budget, ing project implementation. Such monitoring is neces- however insufficient allocation to achieve the sector sary to follow the progress and achievement of targets; goal and poor budget planning which led to overruns it is also critical to ensure that monitoring reports are are critical issues for the government budget in the used inside and outside of MAE and MPA to reward education sector. From 2008 to 2013, budget alloca- good performance (or impose sanctions on poor per- tions to the education sector have increased, as have formance), address inefficiencies, or reallocate resources budget execution rates, even as these varied between 66 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) line ministries. The progress made in access to primary Moreover, although public spending in Congo education can been seen as a result of the efforts made is pro-poor in primary education, it is regressive in in civil works to rebuild the school network, and in the post-basic education, and overall it favors the well-off; introduction of the free primary education policy; bud- hence, it does not contribute to improved equity in get allocations supported these efforts. However, overall, access and education attainment. The current system is the share of public spending allocation in the education favoring the well off and keeping many Congolese caught sector decreased slightly as a result of greater investment in the poverty trap. Free primary education has supported in economic infrastructure. The country is still lagging access to education to poor Congolese, however, most behind middle-income-country standards. Between of them either do not complete this level or even if they 2004 and 2007, the average share of budget allocation to do, do not move up the education ladder to secondary the education sector was 10.8 percent, which was higher and upper levels, which are those that would allow them than the 10.2 percent average from 2008 to 2012. In a significant increase in income. Post-primary education fact, over this four-year period, the share of the budget is unaffordable and higher education is prohibitively to the education sector fluctuated between 12.4 percent expensive for poor Congolese, who constitute half of in 2004 to 9.8 in 2007. The budget allocation to the the country’s population. Although gender, distance to sector grew at an average real growth rate of 24.2 percent school, and geography play a role in equity of access and between 2008 and 2013, a rate higher than between attainment, it is income that prevents poor Congolese 2004 and 2007 (22.1 percent). The budget execution from obtaining an education. At the same time, public rate was higher than 90 percent, but varies among the spending is regressive in post-primary education rein- three education ministries. forcing the inequities—for example, the high level of This section also finds that from 2005 to 2011 spending in scholarships for high education targets the that the efficiency of government spending in educa- most well off, which are those who can reach this level. tion presented a mixed picture. On the one hand it has Based on these findings, the main recommenda- been efficient because it led the increase of the quality tions of this section include: i) increase the allocation of education of the workforce as well as the reduction of of resources to the education sector, with a focus on pri- unemployment for people with a greater level of educa- mary education; ii) executing the sector Medium-Term tion. On the other hand, it has been inefficient since the Expenditure Framework (MTEF); iii) improve budget rate of return of education decreased. data and information; iv) improve public resource man- There is room to re-prioritize and improve the agement; v) prepare a list of poverty reducing expendi- allocative and operational efficiency of the Congolese tures to be protected against a sudden shortfall in the education system. For example, the gains obtained in resources and follow up its execution on a quarterly basis; primary education need to be sustained. The develop- vi) ensure sustained investment flows and target specific ment of Technical Vocational Education and Training investment programs; vi) develop a tracking mechanism (TVET) is important but revamping the TVET infra- for donors’ aid flows provided and executed outside structure and equipment is not sufficient to ensure the the education sector’s budget; vii) create and reinforce development of the required skills. In terms of efficiency, Public/Non Public Sector Partnerships; viii) reinforce repetition and dropouts are systemic sources of ineffi- technical capacity in public finance management; and ciency in the Congolese education system. In addition, ix) take into account the specificity of the school year the high ratio of administrative staff to teaching staff, calendar in the budget implementation of line ministries and evidence that many parents still pay fees to cover in these sectors, which could be done for example by salaries of volunteers in primary education indicate allowing for multi-year budgeting for these lines min- potential systemic sources of inefficiency around human istries. This section is adapted from Chapter 1 of the resources in the sector. social sector PER—see World Bank (2014 a) for details. Sector Expenditure Reviews 67 4.2.1. Background of the Education secondary and three years of upper secondary educa- Sector tion. TVET falls under the administrative mandate of the METPFQE, while higher education falls to MES. From 2005 to 2011, with the abolishing of school fees, Within each ministry education management the Congolese education system attracted most young is highly centralized. MEPSA and METPFQE are Congolese, both boys and girls, reducing the number of organized by directorates at the regional level, which out-of-school children in the country. With the expan- constitute an intermediate layer in terms of adminis- sion of private higher education more students, includ- trative and pedagogical coordination between central ing many girls, enrolled in post-primary education and administration and schools. Devolution to the regional are now enrolled in tertiary education. However, there is directors of education of some responsibility over peda- room for improving the quality of learning outcomes, and gogical guidance and staff allocation has been taking many challenges remain with regards to repetition and to place; however, overall staff management is centralized the ability of the system to retain its students. Although and schools have very limited autonomy. more Congolese are completing the various levels of edu- The private sector plays an important role in cation, the numbers decrease with the education level. education delivery in the Congo. During the armed conflicts of the 1990s, communities and private sector Objectives of the Education Sector filled in the void in education delivery left by the public Education is one of the priority sectors under Pillar 4 – sector. Communities hired local primary and lower sec- Social Development and Inclusion of the NDP 2012– ondary teachers (les bénévoles), often with very limited 2016. Both the NDP and the Document de stratégie capacity and qualifications, and paid their salaries. Private sectorielle de l’éducation 2008–2020 set the following schools at all levels opened in the country. As a result, 31 key objectives for the sector: (i) ensure universal pri- percent of primary school Congolese children are enrolled mary education for all by 2015 in line with the MDGs; in a private school, which is a high rate when compared (ii) improve retention in primary and secondary educa- to 16.6 percent that is the average for Sub-Saharan Africa tion while improving the flow of students through the (SSA). Private higher education provision enrolls almost cycles; (iii) develop technical and vocational education in half (44 percent) of all higher education students. line with market demands and economic diversification; and (iv) develop quality higher education in line with Access and Quality market demands and priority sectors growth. From 2005 to 2011, Congo saw substantial improve- ments in access of all levels of education for both Governance and Management of the boys and girls. Most school age Congolese children are Education System enrolled in primary education. In fact, primary gross Three ministries are in charge of education in Congo, rate (GER) stands at 116 percent while net enrollments each implementing its own policy, and there is no rate (NER) is at 88 percent in 2011. In addition, good coordinating body overseeing policymaking and progress has been made in all other education levels. implementation for the overall sector. These minis- However, the number of school age Congolese attending tries are: the Ministry of Primary, Secondary Education secondary (lower and upper) education is still low (NER and Literacy (MEPSA), the Ministry of Technical of 49 percent for lower secondary and of 24 percent for and Professional Education, Qualifying Training and upper secondary) (see Figure 4.8). While primary educa- Employment (METPFQE) and the Ministry of Higher tion has been free since 2007 and textbooks and learning Education (MES). MEPSA is responsible for primary materials are distributed to schools, this is not the case and secondary education and literacy programs. Primary for post-primary education, for which families are forced education is of 6 years, followed by 4 years of lower to make a significant financial contribution. Enrollment 68 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 4.8: Enrollment Rates by Gender and by higher number of girls have enrolled in secondary and Level of Education, 2005 and 2011 higher education making gender parity also reachable 100 at these levels (see Figure 4.8). In fact, with regards to access to primary education (for both boys and girls), Congo compares well with countries such as Namibia and has access rates higher than the average for SSA, Percent 50 and for some of Congo’s neighboring countries, such as Cameroon and Gabon. Although not all young Congolese complete primary education, the number of completers has 0 Male Female Male Female Male Female Male Female increased in the last decade. The primary completion Primary Lower Upper Tertiary rate increased from 72 percent in 2005 to 88 percent in Secondary Secondary 2011. Thus, even if Congo will not be able to meet the 2005 2011 MDG, it compares very favorably with most SSA coun- Source: Estimations calculated from QUIBB 2005 and QUIBB 2011 data. tries. As Figure 4.9 highlights, by presenting a regional comparison of the net primary rate (which is a proxy for primary completion rate) and higher education access in higher education has more than doubled in the period rate, Congo compares with strong performers such as of 2005–2011, in association with an increase in pro- Cape Verde and performs better than its neighboring vision mostly by the private sector. Meanwhile gender countries such as Gabon. parity in access to primary education is achieved, and Challenges remain with regards to student progress towards gender parity in post-primary education repetition, retention rate, and quality of education. is even more significant. In recent years, a significantly In Congo, student repetition on average is one of the FIGURE 4.9: SSA Countries – Net Primary Enrollment Rate and Higher Education Access Rate 100% Seychelles Gabon Rwanda Cape Verde Net primary enrollment ratio 90% Angola Lesotho Botswana Zimbabwe Togo Congo, Rep. Malawi Madagascar São Tomé and Príncipe 80% Namibia Cameroon Swaziland Ghana Guinea-Bissau Mozambique DRC Kenya Côte d’Ivoire Liberia 70% CAR Burundi Sierra Leone Zambia Uganda Equatorial Guinea Sudan Nigeria 60% Comoros Tanzania Benin Guinea Mali Niger Ethiopia 50% Gambia Mauritania Senegal Chad South Sudan 40% Burkina Faso Eritrea 30% –1% 1% 3% 5% 7% 9% 11% 13% 15% Higher education enrollment ratio Source: Authors’ computation using ECOM 2011 for Congo Rep. and similar household surveys in other countries: Benin (2010), Burkina Faso (2010), Burundi (2010), Cameroon (2011), Chad (2011), Cote d’Ivoire (2011), Comoros (2004), DRC (2010), Ethiopia (2011), Gabon (2011), Gambia (2010), Ghana (2010), Guinea (2012), Kenya (2008), Lesotho (2011), Liberia (2010), Madagascar (2010), Malawi (2010), Mali (2010), Mauritania (2008), Mozambique (2009), Namibia (2010), Niger (2011), Nigeria (2010), Rwanda (2010), Sao T&P (2010), Sierra Leone (2011), Senegal (2011), South Africa (2012), South Sudan (2009), Sudan (2009), Swaziland (2010), Tanzania (2010), Togo (2011), Uganda (2010), and Zambia (2010), and Zimbabwe (2011). Sector Expenditure Reviews 69 FIGURE 4.10: Retention Rate by Level of Education 100 92.24 90 80 70 Percent 60 51.11 50 40 30 23.11 20 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Primary Lower Secondary Upper Secondary Post Secondary 2005 2011 Source: Estimations calculated from QUIBB 2005 and QUIBB 2011 data. highest in SSA. Repetition is high for all education lev- low performer in comparison to other countries. Congo’s els, but particularly so for primary education. Close to performance at fifth grade was slightly below the average 1 in 4 primary school Congolese children is a repeater. for PASEC countries in French, while slightly above the Repetition rates reach 18.4 percent in lower secondary average in mathematics. and 17.2 percent in upper secondary. Such high rates place Congo amongst the worst performers in SSA coun- 4.2.2. Budget Allocation in the tries, with only Burundi presenting higher repetition rates Education Sector for primary and lower secondary education. Concerning retention rates, although some small improvement has Education in the Congo is mostly financed through occurred, still only 50 Congolese children enrolled in the public budget, although it also benefits from grade 1 reach grade 6 with no repeated grades (the last external partners and household contributions. The grade in primary), and only 23 reach grade 10 (the last recurrent budget covers salaries, scholarships, and learn- grade in lower secondary education). Further, given that ing materials, while the capital budget covers mostly only 88 percent complete primary education, and 54.9 infrastructure and equipment. No maintenance of capi- percent complete lower basic education, many Congolese tal goods is covered. Household contributions support loose the opportunity of education. The education sys- salaries of bénévoles (volunteers), food, some furniture, tem still fails many through repetition, which combined school maintenance, and examination fees. External with dropouts and low retention, is responsible for this financing has focused mainly on technical assistance low performance. Finally, quality, as measured by learn- and support to infrastructure development. Over the ing outcomes is also still a challenge. The latest results period of 2008–2012, the external financing contribu- from the Program d’Analyse des Systèmes Éducatifs de la tion represented about 5 percent of total financing for CONFEMEM20 (PASEC) (2007) position Congo as a the education sector. Although there is no direct public subsidizing of private education provision, the salaries 20 Program d’Analyse des Systèmes Éducatifs de la CONFEMEM stands of teachers in private accredited schools are paid by the for Program of Analysis of CONFEMEN Education Systems. Con- public budget. In 2011, these teachers represented 20 federation des Ministres de l’Éducation des États et Gouvernments de la Francophonie (CONFEMEN) stands for Confederation of the Ministers percent of all primary school teachers and 4 percent of of Education from States and Governments of Francophone Countries. all secondary teachers paid by the state. 70 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) TABLE 4.5: Weight of Actual Education Expenditure in Total Expenditure and in GDP Over the Period 2008–2013 2008 2009 2010 2011 2012 2013 Total recurrent and capital expenditures in 107 106 135 155 197 258 Education (Billion FCFA) As a percentage of total public expenditure (%) 9.8 10.7 11.1 8.8 7.8 14.0 Recurrent 15.5 16.3 17.0 16.8 13.1 17.7 Capital 2.2 5.0 5.0 3.8 4.2 10.7 As a percentage of GDP 2.0 2.3 2.3 2.3 2.8 3.9 Per capita in FCFA 28,30 27,35 34,03 38,02 47,21 59,91 Per capita in US$ 63.2 57.9 68.7 80.6 92.5 121.3 Source: Estimates based on IMF, Republic of Congo: 2012 Article IV Consultation. FIGURE 4.11: Budget Allocations for Selected TABLE 4.6: Intra-Sectorial Allocation Over the Sectors, 2008–2010 as Percentage Period 2008–2013 of Total Budget 2008 2009 2010 2011 2012 2013 60 MEPSA 61,3 65,3 61,6 56,2 61,5 49,0 50 METPFQE 16,9 11,5 17,3 20,1 16,7 34,5 40 MES 21,8 23,2 21,1 23,8 21,8 16,5 Percent Total 100,0 100,0 100,0 100,0 100,0 100,0 30 Source: MEFPPPI: Budget Execution and other data 2008–2012. 20 10 0 20 percent in 2011. When measured as a percentage Economic Defense and Education Social Health of GDP, expenditures in education increased from 2 affairs public security protection and housing percent in 2008 to 2.8 percent in 2012, and it would 2008 2009 2010 have jumped to 5.1 percent if the 2013 budget were Source: MEFPPPI, Loi de Finances. fully executed, thereby surpassing the SSA average of 3.9 percent of GDP. Until 2012, a large proportion of the educa- In relative terms, the weight of education expen- tion budget was allocated to MEPSA, in line with the diture in total public expenditure fluctuated from 7.8 objective of achieving the MDGs in 2015. An increas- percent in 2008 to 12.9 percent in 2013. In 2012, due ing attention to the goal of developing skills for growth to the response to the catastrophe resulting from the sectors led to a very important increase in the funding explosion of an ammunitions depot in Brazzaville, the allocation to the METPFQE. This accompanied the Head weight of education expenditure in total expenditure of State’s declaration of 2013 as “l’Année de le Formation dropped to 7.8 percent. In nominal terms, the actual Qualifiante.” As a result, MEPSA’s allocation decreased, total expenditure with education increased from XAF while the allocation for the METPFQE doubled. Further, 107,256 million in 2008 to XAF 197,214 in 2013, an until 2012, both the METPFQE and MES were allocated overall increase of 84 percent. In 2013 the allocation an increasing share of recurrent expenditure, whereas in the sector climbed to 12.9 percent. However, these MEPSA benefited from a higher share of capital expendi- figures are still below the average for SSA, which was ture. In 2013, 83 percent of the 2013 budget allocated to Sector Expenditure Reviews 71 FIGURE 4.12: Evolution of Public and Education FIGURE 4.13: Selected Countries – Education Expenditure (recurrent and Share of Total Budget Allocation, investment), 2008–2012 2008–2011 600 21 500 18 15 400 Percent Percent 12 300 9 200 6 100 3 0 0 2008 2009 2010 2011 2012 Brazil Kenya El-Salvador Niger Uganda Congo, Rep. Public investment expenditure Education investment expenditure Sources: Recent countries PERs and IMF. Public recurrent expenditure Education recurrent expenditure Source: Estimates from MEFPPPI, Budget Execution and other data, 2008–2012. from 2008 to 2013. In fact, over this four-year period, the share of budget to the education sector fluctuated the METPFQE was on investment. However, the percent- from 12.4 percent in 2004 to 9.8 percent in 2007. The age of investment expenditure budget for the METPFQE budget allocation to the sector grew at an average real for 2014 is slightly lower, but still very high, around 77 growth rate of 24.2 percent between 2008 and 2013 a percent. If the budget for 2013 were implemented as rate higher than between 2004 and 2007 (22.1 percent). planned, capital expenditures in education would have The main reason for this is the fact that the government been higher than recurrent expenditures. substantially increased its budget during this period by From 2008 to 2012 in real terms, overall public scaling up its investment in economic infrastructure such expenditure in education grew at an average rate of as roads, bridges, airports, dams, and the like. Moreover, 11.4 percent, whereas the growth rate of total public the budget share of education in Congo is still low by expenditure for the same period was 17.9 percent. This middle-income-country standards. At about 10 percent was largely the result of an imbalance between invest- of budget allocations, Congo is behind countries such as ment and recurrent expenditure allocations, strongly El-Salvador, Kenya, and Brazil (see Figure 4.13). favoring those for investment. During the period, educa- tion capital expenditure was multiplied by a factor of five, 4.2.3. Budget Execution Rate in whereas total public capital expenditure was multiplied Education by a factor of 2.7. Recurrent expenditure in education followed the same pattern as overall public recurrent The execution rates of the consolidated education expenditure (see Figure 4.12). budget improved noticeably over the last several Overall, the share of public spending allocation years, both for recurrent and investment expendi- in the education sector decreased slightly at a result tures, although the latter are systematically lower of greater investment in economic infrastructure, and than the previous. The consolidated execution rate the country is still lagging behind middle-income- increased from 89.9 percent to 94.6 percent from country standards. From 2004 to 2007, the average 2008 to 2012. While it is true that the execution rate share of budget allocation to the education sector was for investment expenditure is lower than for recurrent 10.8 percent. That is higher than the 10.2 percent expenditure, it is important to note that investment 72 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) expenditure showed the most remarkable improve- and sustainability studies are not often included in the ment. The investment expenditure execution rate decision-making process for investments, which poses increased from 39 percent in 2008 to 83.4 percent in risks to their sustainability. 2012. The introduction of a new Procurement Code The budget execution rate varies among the in May 2009 (revised in 2011) along with the imple- three education ministries. MES seems to be facing mentation of other measures from the Public Financing overruns both in recurrent (5 percent in 2012) and Management Program (PFMP) framework, such as the investment expenditure (14 percent in 2011), although decentralization of budget execution and the introduc- more significantly in the latter. This suggests potential tion of a computerized budget chain, seem to have programing problems that MES needs to address. The borne good results. lowest budget execution rates are found in investment In spite of the good progress made there are expenditure in METPQE and MEPSA. In 2010, the several important challenges that must be addressed last year for which there is available data on the com- in order to continue to improve budget execution position of investment expenditure, the lower execu- rates in the education sector. The implementation of tion rate was associated with the low execution of the the new procurement code seems to have not yet been categories (i) elaboration of studies (only 37 percent fully realized and requires sound dialogue among the executed); and (ii) acquisition of equipment (64 per- various line ministries. All procurement, irrespective of cent), potentially reflecting a limited capacity of the the line ministry, higher than XAF 1 billion falls under planning departments in the preparation of the tender the responsibility of the Délégation Génerale de Grands processes. Travaux (DGGT). In 2012, projects managed directly Compared to 2004–2007, budget execution in by the DGGT accounted to 73 percent of all projects the education sector has improved, however, the exe- in Congo. This centralization of large procurements can cution rate remained low by middle-income-country lead to different investment budget execution rates in the standards. On average the execution rate moved from various line ministries. Procurement for high visibility 85 percent during the period to more than 90 per- and larger projects may precede other procurements and cent in the current period. The improvement affected thereby favor the budget execution rate of one minis- both recurrent and capital expenditure. Recurrent try over the others. Other challenges in the execution spending execution rate was on average 89 percent in of public investment relate to issues such as (i) lengthy the previous period, while it stood at more than 100 reaction from the Treasury during the payment phase, percent over 2008–2012. In addition, the execution (ii) a highly centralized decision-making mechanism at rate of investment spending moved from less than 50 the minister level, and (iii) different procedures required percent in 2004–2007 (see Figure 4.15) to about 70 by external financiers. It is worth noting that feasibility percent in 2008–2012. However, the execution rate of TABLE 4.7: Budget Execution Rates (percentage) by Ministry, 2008–2012 2008 2011 2012 Current Investment Total Current Investment Total Current Investment Total Total Budget 52.7 104.7 67.0 107.2 107.3 107.2 121.6 76.6 90.1 MEPSA 100.3 29.0 83.2 90.7 95.0 91.6 97.1 84.6 92.1 METPQE 124.8 87.7 113.1 104.1 79.1 91.0 107.3 72.7 91.7 MES 107.5 21.4 96.3 111.7 114.3 112.3 106.1 99.4 105.0 Total Education 104.9 39.0 89.9 97.2 91.6 95.6 100.9 83.4 94.6 Source: MEFPPPI Budget Execution and other data, 2008–2012. Sector Expenditure Reviews 73 FIGURE 4.14: Budget Execution Rate of the 4.2.4 Overall Efficiency of the Education Sector Investments in Education 100 Internal efficiency 80 In Congo efficiency gains could be made on the 60 quality of service delivery. These need to focus on an Percent overall improvement in the quality of service delivery 40 that increases the number of quality teachers, decreases 20 the ratio between administrative staff and teaching staff, makes better use of teaching time, separates the teaching 0 function from others, and is based on improved planning 2004 2005 2006 2007 Total spending Recurrent spending Investment spending of distribution of human resources. Further, the quality of teaching needs to be addressed and gains are required Source: 2008 PER. in retention and repetition rates, as well as in dropout rates. Data collection and analysis on inefficiency factors FIGURE 4.15: Selected Countries—Budget are also required in order to better identify other sources Execution Rate of the Education of inefficiency and act upon them. Sector 120 100 Box 4.2: Internal and external efficiency 80 There are two types of efficiency aspects of the education Percent system: internal efficiency and external efficiency. 60 The internal efficiency of an education system can be 40 analyzed in various ways. The chosen approach in this section is the most widely used and accepted, which can be defined as the 20 ability of an education system to educate the greatest number of 0 students in the shortest period of time, and with the least use of Brazil Kenya El- Salvador Niger Uganda Congo, Rep. financial and human resources. The following indicators/aspects are used in the analysis of internal efficiency: (i) repetition rate, Source: 2008 PER. (ii) dropout or retention rates, (iii) survival or completion rates by level of education, (iv) quality of education, and (v) resource utilizations (pupil/teacher ratio, student/textbook ratio, and investment spending is still volatile; it suffered a blow scholarship administration). in 2008. Finally, Figure 4.16 shows that the country is The external efficiency of the system provides a perspective of the social and private benefits generated by education, as lagging behind many other developing countries that well as other intermediate benefits of education that can lead to have done a PER in recent years. Many developing better social and economic rates of return. In order to provide countries are able to achieve a rate of execution of more some insights on the external efficiency of the Congolese than 95 percent. education system, a Mincer regression model was used to estimate earning increases associated with additional years of The improvement in the investment rate changed levels of schools. A logistic regression was used to estimate the dramatically in 2004 to 2005. It moved from less role of education in choices of job based on security and return than 10 percent in 2004 to about 60 percent in 2005. differential. Further, given that educational attainment is a critical Some reforms undertaken since 2006 have been fruit- determinant of poverty in developing countries, an estimation of poverty incidence by level of education for the working age ful although others such as the implementation of the was also carried out. METFs have failed in 2012 after the country achieved the HIPC process in 2010. Source: HD PER of the Republic of Congo 74 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 4.16: SSA Countries – Percentage of Trained Teachers and PTR in Primary Schools in, Circa 2011 120 100 80.3 80 Percent 60 40 44.4 20 0 Country Guinea-Bissau Angola Senegal Sao T&P Equatorial Guinea Ghana Mali Sierra Leone Comoros Liberia Ethiopia CAR Sudan Benin Chad Gambia Nigeria Lesotho Guinea Swaziland Malawi Cameroon Congo Togo Mozambique South Africa Eritrea DRC Cabo Verde Uganda Burkina Faso Burundi Madagascar Rwanda Tanzania Kenya Niger Namibia Seychelles Cote d’Ivoire Botswana Mauritus Mauritania Source: Authors: Estimations calculated from QUIBB 2005 and QUIBB 2011 data. Although Congo increased the funds allocated decrease with grade in primary education. However, to education, student retention is very low and barely there have been important investments to improve the changed between 2005 and 2011; repetition is a key availability of quality inputs such as textbooks—close factor of inefficiency. High repetition is very costly. In to three million French and Math textbooks were 2011, the grade repetition cost in Congo was about 0.6 distributed between 2007 and 2012—and there were percent of GDP, close to 21 percent of the annual current some initiatives in teacher training, with more than education expenditure (at 2011 prices). School dropout 9,000 teachers benefiting from in-service training in rates have significant implications in public and house- the same period. hold expenditure and income. The current dropout rate Nonetheless, most students seem to be satisfied in Congo (7 percent, two percentage points lower than with their schools, although many complain about in 2005) implies an opportunity cost of 3.3 percent of overcrowded classrooms. In fact, student satisfaction is GDP, and 10 percent of total household consumption high both for primary and lower secondary education, and expenditures. While improvements have taken place it slightly increased between 2005 and 2011. Nonetheless with regards to reducing the number of dropouts, rep- student perception of key factors for quality teaching and etition rates continued persistently high between 2005 learning point to challenges around teacher distribution and 2011, reaching more than 20 percent in primary and teaching issue: overcrowded classrooms, lack of sup- education. On average, and at the national level, it takes plies, and teacher absenteeism. The fact that there are no 7.4 years of schooling for a Congolese child to complete real major changes in students perceptions between 2005 6 years of primary education, and 4 years to complete and 2011 can indicate possible slow changes in improve- 3 years of upper secondary education. Efficiency gains ment of key efficiency factors such as teacher distribution can be made in this area. and teacher quality. This is evidence of how low budget More Congolese children are completing pri- execution in the sector is negatively affecting services mary education but quality is still an issue. Although delivery. In fact, some investments planned to improve the completion rate in primary education increased to school infrastructure have not been implemented due to 88 percent, Congo is a low performer among PASEC the lengthy and complex processes characterizing small countries, and there is some indication that quality may to medium size budget execution in Congo. Sector Expenditure Reviews 75 With regards to share of trained teachers and FIGURE 4.17: Educational Attainment of the Labor pupil teacher ratio (PTR), Congo ranks in the middle Force, 2005 and 2011 of SSA countries, comparing favorably with coun- 40 tries such as Cameroon and Togo. PTR and the share 35 of trained teachers are two indicators that can be used 30 to measure efficiency in use of resources and quality of 25 Percent service delivery. The PTR is an important indicator in 20 education planning, and a low PTR may give a pupil a 15 better chance of contact with the teacher, hence better 10 (quality) teaching and learning processes. However, a 5 0 low PTR also increases unit costs, since teacher salaries No education Incomplete primary Completed primary Lower secondary Upper secondary TVET Higher education constitute a large proportion of the total cost of school- ing. In 2011, the primary school PTR for Congo was 44 to 1. In the same year, the share of trained primary 2005 2011 teachers was 80 percent (see Figure 4.16). Source: Authors estimations calculated from QUIBB 2005 and QUIBB. 2011 data. However, the teacher to administrative staff ratio is very high in Congo, which indicates an additional inefficiency in the distribution of human resources in the education system. The excessive number of from other ministries was identified under MEPSA’s administrative staff suggests that the education system is budget. However, no follow up assessments were made, being used as an employment buffer, implying a signifi- as no clear information has been collected on the exist- cant financial burden that could be reallocated to other ing bénévoles (volunteers) in the system. There is also no needed inputs. As the budget information provided by additional detailed information on staff paid under the the Ministry of Finance does not distinguish between the METPFQE and MES. This is required as the staff costs remuneration of the teaching and non-teaching staff it for both ministries are very high and are one of the key is not possible to reckon the associated financial impli- drivers for the unit costs for TVET and higher education. cations. The teaching function is also often performed in conjunction with other functions. Indeed, MEPSA’s External efficiency education statistics reveal the functional accumulation From 2005 to 2011, government spending in educa- of the school staff, namely administrative staff that also tion efficiency presented a mixed picture. On the one teach (21 percent of the teaching staff in primary and hand, spending was efficient because it led the increase 6.7 percent in the Collège), as well as school directors of the quality of education of the workforce as well as a that also carry out teaching activities (10.8 percent of reduction of unemployment for people with a greater total teachers in the primary level). level of education. On the other hand, it has been inef- The financial implications of these overlapping ficient since the rate of return of education decreased. functions are also not clear, given the level of aggregation Overall, using an efficiency frontier analysis, one finds of the information from the Ministry of Finance. In fact, that education spending in Congo is much closed to the there may be additional sources of inefficiency for which efficiency frontier (see Figure 4.18). In fact, when the there is no available information. The latest primary edu- primary school enrollment is consider as the outcome cation teaching census dates from 2008 and at the time of the education sector, one finds that with the level of it allowed for the identification of 5,148 ‘ghost’ teachers, spending done by the Congolese government during the whose salaries were frozen, and 1,672 ‘ghost’ personnel period 2008–2013, the adjusted enrollment rate should which salaries were also suspended. Further, 2,253 staff have been 91 percent compare to 87 percent currently. 76 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 4.18: Efficiency Frontier in Education, FIGURE 4.19: Unemployment Rate by Level of 2008–2013 Education, 2005–2011 100 30 Adjusted net enrollment rate, primary (% of primary school age childen) 80 25 20 60 Percent 15 40 10 20 5 0 0 No education Incomplete primary Completed primary Lower secondary Upper secondary TVET Higher education Total 0 5000 10000 15000 20000 25000 Government expenditure per student, primary (current US$) Source: Authors computations based on WDI data. Note: Congo is represented by the red point. 2005 2011 Source: Authors estimations calculated from QUIBB 2005 and QUIBB 2011 data. During this period, although the educational attainment of working age21 was overall low, the percentage of those with a higher education degree living in the informal sector. The formal sector is largely increased. The percentage of Congolese with a completed circumscribed to the public sector, and the formal private post-primary education is low, indicating that for some sector is very limited. This can explain the low unemploy- time, the system has not been favoring progress between ment rates for working age Congolese with very limited cycles. Further, men are more likely to attain higher levels educational attainment: most of these do not have wage of education than women: 4.6 percent of men completed jobs and earn their living in the informal sector. As for the secondary education against 3.7 percent of women, and highly educated Congolese, jobs have been found in the 7.9 percent of men completed higher education against public sector. It is the middle level educated Congolese 5.6 percent of women. The percentage of women without (secondary education) that find it more difficult to find instruction is more than double that of men (11.3 per- wage jobs. However, some progress has been made as cent against 4.9 percent). This difference is wider in rural highlighted by the decrease from 25 percent to 12 percent areas, where one woman out of five has no instruction.22 in the unemployment rate of Congolese with a secondary Between 2005 and 2011, unemployment dropped education diploma (see Figure 4.19). for all levels of education, but particularly so for upper Education rates of return in Congo are high, secondary and higher education. Given the strong partic- albeit decreased from 2005 to 2011, but education was ipation of the informal sector in the Congolese economy, the main factor justifying increases in earnings during unemployment figures should be read with caution. Such a this period; further, the higher the education level, the low overall unemployment rate of 8 percent hides the fact higher the probability of being wage employed. During that more than six out 10 working age Congolese earn a the period, education was responsible for an average earn- ings change of 91 percent, while labor market factors only 21 Working age is defined as aged 15 to 64. contributed to a 35 percent change. The highest returns 22 Data from the Demographic and Health Survey of 2011–2012 resulted from a TVET and education diploma, and this was used for this analysis. The level of educational attainment is measured in this survey through the percentage of the population pattern is common to men and women although rates that has reached a certain level of education. are slightly lower for women, indicating that the role of Sector Expenditure Reviews 77 FIGURE 4.20: Rates of Return by Level of Education, National and Female, 2005–2011 200 184 176 175 164 163 160 146 132 125 120 Percent 100 97 106 89 80 76 66 70 58 44 40 87 40 28 9 3 15 3 0 Incomplete primary Completed primary Lower secondary Upper secondary TVET Higher Incomplete primary Completed primary Lower secondary Upper secondary TVET Higher National Female 2005 2011 Source: Authors estimate based on QUIBB 2005 and 2011. education in increasing earnings was more significant in fundamental factor for poverty reduction but spending 2011 than in 2005 (see Figure 4.20). Incomplete primary on education has not supported this role. and complete primary produce much lower rates of return The population of primary school age and enroll- compared to any other education level. Holding of an ment at primary level seemingly decrease with the upper secondary education diploma or higher education wealth quintile, from the poorest to the richest quin- is more important for women than men. The employment tile. This means that, in comparison to the richest house- profile varies accordingly with the education level, and thus holds, more children from poor households are enrolled those with higher education are mostly employed in wage and benefit from public spending at the primary level.23 jobs and earn more than those without. In 2011, 80 per- In post-primary levels, although the population figures cent of those with a higher education diploma were in wage show very minor differences except for the richest quintile, employment against 55 percent, 56 percent, 36 percent, where there are fewer primary school age children, enroll- 21 percent, 14 percent, 10 percent, for those with a TVET ment figures clearly show that the poorest household chil- diploma, secondary, lower secondary, primary education, dren benefit less from post-primary education. It should incomplete primary, and no education, respectively. also be noted that, as stated above, primary education has been free in Congo since 2007, which might have con- 4.2.5. Spending in Education and tributed to the increase in the share of primary enrollment Equity from the poorest households from 22.8 percent to 26.8 percent from 2005 to 2011 respectively. The education system has been pro-poor in primary Post-primary education poses an important education and favored mostly the well off in post- financial burden on households and enrollments basic education, thus contributing to the intergen- 23 There are several factors why poor households are associated with erational cycle of poverty among the Congolese. Rural large numbers of children: (i) more educated people have lower and urban disparities are significant in the educational fertility rates and less prevalence of poverty; (ii) children contribute attainment of both young and working age Congolese; to household production as they grow, and the poverty level of the household diminishes with increased working household members; regional differences are also significant but disparities of and (iii) in rural areas where poverty rates are high, people have less income are the most important. Education in Congo is a access to health services and less practice of family planning methods. 78 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 4.21: Distribution of Enrolled Students and School Age Population by Quintile 60 56.8 50 43.5 40 37.6 34.5 Percent 32.0 30 26.8 27.5 22.8 23.1 19.9 20 14.6 16.1 13.3 15.8 11.4 10 6.2 6.4 3.8 1.1 3.8 0 Preschool Primary Lower sec Upper sec Higher Preschool Primary Lower sec Upper sec Higher 2005 2011 Q1 Q2 Q3 Q4 Q5 Source: Estimate based on QUIBB 2011. are therefore mostly comprised of children from mostly favored the well off. In 2011, the poorest quintile high-income quintiles. For instance, in 2011, only 3.8 received 21.1 percent of the public benefits allocated to percent of upper secondary students, and 0.3 percent primary (just slightly above the population share of the of higher education were from the poorest quintile of quintile), while the richest received 16 percent (4 percent households, while the corresponding figures from the less than the population share of the quintile). For post- richest quintile were 27.5 percent and 56.8 percent, basic education, however, the situation is different with respectively (Figure 4.21). Compared to 2005, the 22 percent of the budget allocated to higher education share of children from the poorest households enrolled and per student spending of 12 times higher than for in post-primary education declined. This implies that any other level (see Figure 4.22). Compared to 2005, the government spending on post-primary education ben- benefit to the poorest households decreased, even in pri- efits primarily more affluent households. mary education, and increased for the richest households. Public spending in primary education has been The benefits of public expenditure on both pri- pro-poor, while spending in post-basic education has mary and lower secondary education were relatively FIGURE 4.22: Benefit Incidence Analysis of Public Expenditure on Education, 2011 70 62 60 50 46 Percent 40 37 31 30 26 24 23.9 25 23 25 19 2022 21.2 19 21 20 16 17.3 16 17.8 18 12 12.3 10 7.8 7.2 3.6 3.6 4.2 0.5 0 Preschool Primary Lower sec Upper sec Higher Preschool Primary Lower sec Upper sec Higher 2005 2011 Q1 Q2 Q3 Q4 Q5 Source: Estimate based on QUIBB 2011. Sector Expenditure Reviews 79 FIGURE 4.23: Lorenz Curve for Household more biased towards the poor than was the distribution Consumption Expenditure and Public of income. In other words, expenditure at these levels of Spending on Education by Level education was relatively more equitable than income, as 100% the benefit incidence for public spending on each were 90% both above the consumption concentration curve. Public 80% spending on primary education was progressive, while 70% expenditures on lower secondary education were still 60% progressive, though to a lesser degree than primary, but 50% was not pro-poor, as was the case for post-basic education. 40% Overall spending in education favors the richest 30% households; however, the allocation of the education 20% resources by education levels has clearly different pat- 10% 0% terns. About 32 percent of the total education benefits 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% accrue for the poorest quintile, compared to 10 percent to Perfect equality Consumption Preschool Primary the richest. Whereas in primary and secondary education Lower secondary Upper secondary TVET Higher Education benefits are progressive, in higher education the benefits Source: Estimate based on QUIBB 2005 and QUIBB 2011. are regressive (see Figure 4.23 and Figure 4.24). FIGURE 4.24: Education Benefits by Level 75 65 55 45 35 25 15 5 (5) Poorest Poor Middle Rich Richest Poorest Poor Middle Rich Richest Poorest Poor Middle Rich Richest Preschool Primary Lower secondary 65 55 45 35 25 15 5 (5) Poorest Poor Middle Rich Richest Poorest Poor Middle Rich Richest Poorest Poor Middle Rich Richest Upper secondary TVET Higher education 2005 2011 Source: Estimate based on QUIBB 2005 and QUIBB 2011. 80 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) 4.2.6. Recommendations Understand the profile and distribution of human resources beyond the simple knowledge of Based on this finding of this section, this PER advocates pupil-teacher ratios, so as to allow for the definition that the government take the following action to achieve of clear policies that can tackle the existing inefficien- its goal in the education sector and to render its spend- cies. Although there is insufficient data to allow for a ing in the sector more effective. detailed understanding of the distribution of human Re-prioritize and improve the allocative and resources, the high administrative staff to teaching staff operational efficiency of the education sector budget. ratio, and evidence that many parents still pay fees to There is space to re-prioritize and improve the allocative cover salaries of benévoles in primary education indicate and operational efficiency of the Congolese education sys- potential systemic sources of inefficiency around human tem. In fact, there is room for a revision of the investment resources in the sector. Further, the last teacher census allocation for the METPQE. A trade-off can be considered indicated a large number of ghost personnel in the sector. with secondary education, for which very limited fund- Create the conditions to improve equity in ing is now being allocated, and most of that to finance education. There is an urgent need to create the condi- recurrent expenditure. Moreover, given the weight of tions to improve equity in education. Public spending scholarships in MES overall expenditure and the recurrent in Congo is pro-poor in primary education, regressive overruns, there is a need to reconsider the distribution of in post-basic education, and overall favors the well off, funds between expenditure categories within MES budget. thus it does not contribute to improving equity in access Align budget allocations to strategic education and education attainment. goals. While all strategic education goals are funda- mental for sector development, it will be important to 4.3. Public Expenditures Review in better align budget allocations with such goals, based on Health strategic planning and sound understanding of the role of the public budget for key development areas. In Congo, the improvement of the health condi- Create conditions for the establishment of sus- tions of the population is considered fundamental tainable partnerships with the private sector. There in achieving poverty-reduction and economic growth is need for the public sector, through MES and the outcomes. This is clear from the NDP 2012–16. The METPQE, to create the conditions for the establish- NDP and the Programme National de Développement ment of sustainable partnerships with the private sector Sanitaire (PNDS)24—currently being updated—define that provide both technical and financial support, and key areas of intervention in the sector. Priority is given decisively contribute to the achievement of the strategic to the achievement of the Millennium Development sector goals. Goals (MDG) for health: child/infant mortality; mater- Understand the underlying causes of high nal health; and fighting HIV, malaria, and other infec- repetition levels, and create the conditions to retain tious diseases. Important attention is also given to the students in higher levels of education than primary. general strengthening of the health system in terms of Repetition and dropout are systemic sources of inef- governance. ficiency in the Congolese education system. Although From 2008 to 2012, increased attention was practically all school aged Congolese children enroll in given to the health sector in the national budget, primary school, close to only half complete this level and however public health spending still remains low and less than a fourth complete lower secondary education. reliance on household spending to support health Very few reach higher education. This pattern of reten- tion has high costs for the system, for families, and for the Congolese labor market. 24 National program of health sector development. Sector Expenditure Reviews 81 care is very high. Real government health spending most needed; this positive relationship does not hold has increased since 2009 both in absolute terms and as for all health outcomes. The limited resources available a share of GDP. However, in 2009 and 2010 the Congo in Congo are not distributed evenly across the country. devoted a relatively low total amount of resources to the This contributes to inequalities in access and outcomes health sector. According to the NHA study, in 2009 gov- across different populations. The excessive price of ser- ernment and household financing for health were about vices seems to create a barrier to the poorest households equally split but in 2010 government financing went and those living in rural areas. Given that government up in relative terms, to reach 57 percent of total health expenditures in health do not vary too much across financing. The heavy reliance on household spending quintile this expenditure is equitable. However, there is is, in large part, from the fact that all public providers a real possibility that households in the poorer quintiles lack budget resources to purchase medicines and other are not accessing all the services and medicines they medical supplies. would need due to a lack of financial resources. Indeed, This section finds that insufficient allocation to when asked about their level of satisfaction with the achieve the sector goal, and poor capacity to execute service received at health facilities, the most common budget are critical issues in the health sector. Both problem identified by poor is the fact of service being Congo’s total health budget allocation as a share of too expensive. This problem appears to have intensified GDP and as a share of the total government budget for the bottom quintiles from 2005 to 2011. allocation are very low, in relation to the country’s per Many challenges remain in the government’s capita income. Whereas Congo’s per capita income in budgeting and expenditure system in health. For international dollars is among the highest in SSA, the example, according to various stakeholders the formula- share of resources in the economy that is devoted to the tion of the government’s budget for the health is a highly health sector is among the lowest, and so is the share of centralized process. This highly centralized management government spending going to health. Additionally, the of public resources for health does not promote efficiency Ministère de la Santé Publique (MSP) budget execution in spending by the recipients at the peripheral level. rate was volatile during the period 2008–2012, but with Moreover, the government budget formulation for health an upward trend in recent years. In 2008 and 2010, lacks transparency and budget criteria are basic. Budget the execution rate of the health budget was under 80 execution remains a challenge. Problems also remain in percent. In 2009, only 42.7 percent of the budget was procurement and disbursement. executed. The year 2011 saw the highest level of execu- The main recommendations to improve public tion, at 90 percent. The MSP execution rate has been expenditure efficiency in the heath sector include: lower than the overall government’s budget execution i) increase allocations to the health sector, with a focus rate that averaged 93.4 percent in 2009–2012, with a on delivering basic health services; ii) improve the bud- low of 83.9 percent in 2012. get preparation process by elaborating a clear timetable In addition, the low utilization rate of beds in and defining responsibility of each actor involved in basic hospitals and limited use of services in general, the preparation of the budget; iii) reinforce the links suggests efficiency problems in the system. Although between the sector’s strategic objectives and spending there is some evidence of a positive relationship between targets, and monitor progress closely; iv) set the basis public per capita spending and indicators of health for a programmatic budgeting approach by reinforcing system performance—such as number of visits to pub- prerequisites for an MTEF; iv) prepare a list of poverty lic health facilities, the use of contraceptives, and the reducing expenditures to be protected in the case of a percentage of women that received pre-natal care and sudden budget shortfall and follow up on its execution that took anti-malarial drugs during pregnancy—that on a quarterly basis; and v) strengthen human resource can suggest that services are located where they are the management and reinforce capacity in budget processes 82 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) and spending management by the provision of techni- promote health by strengthening care and services at cal assistance. This section is adapted from Chapter 2 the district-level, general hospitals, specialized support of the social sector PER in Congo (see World Bank services, as well as strengthen institutional capacity and (2014a) for details). partnership coordination. Specific priorities for the health sector have also 4.3.1. Background of the Health Sector been identified in the NDP 2012–2016 and will likely be the basis for the updated version of the PNDS. Congo’s health sector is guided by a set of clearly defined These include: (i) improving the governance and direc- objectives, aligned with the MDGs and focused on tion of the sector; (ii) improving access to healthcare ser- improved service delivery. The sector is decentralized at vices; (iii) reducing inequities in access to health services; three main levels, and uses a referral system. The private (iv) strengthening the supply of healthcare; (v) improv- sector plays an important part in delivery of care how- ing the quality of services; (vi) managing medications; ever, there are important challenges associated with it: (vii) combatting communicable and non-communicable (i) there is little regulation and a heavy process of registra- diseases, with particular emphasis on maternal and child tion; and (ii) there are few quality control mechanisms health; and (viii) managing emergencies, disasters, and concerning procurement of drugs. Quality control also responses to epidemics. an issue with regard to public health providers, as these often bypass COMEG and procure directly from private Organization of the government health providers at lower prices. The latest EDSC 2011–12 system has revealed a positive tendency of improvement of key The government health system in Congo is formally health status indicators in the country. The latest esti- decentralized and comprises three hierarchical levels. mates indicate that Congo has achieved considerable They are (i) central, (ii) departmental, and (iii) periph- gains in health status. The positive trends shown by the eral and operational (Figure 4.25). The central level is most recent data are definitely a good sign and cannot strategic and normative and is responsible for health be neglected. system planning, monitoring, evaluation, coordination, mobilization, and resource allocation. It comprises the Objectives of the health system Minister’s Office, the general and central directorates, The objectives of the National Health Policy public autonomous health entities, and specialized (NHS) adopted in 2003 are to: (i) promote the health public health programs. The intermediate level is in the of Congolese; (ii) guarantee access to quality health- hands of the departmental health directorates (DDS). care services by the population; and (iii) reinforce They provide technical support to Socio-Sanitary the national capacity of management of the health Circumscriptions (CSS). The peripheral and operational system. Two Programmes National de Développement level comprises operational units responsible for program Sanitaire (PNDS) have since been published to translate planning and implementation. It is composed by CSSs, these goals into actionable measures. With the support each of which is subdivided into health areas. A CSS of development partners, the government set up and consists of a network of ambulatory health providers, implemented the most recent PNDS between 2007– both public and private. 2011, in a manner aligned with the aim of achieving the The government health care delivery system MDGs, and within the context of the vision laid out by comprises a national network of health facilities the Head of State known as the “Nouvelle Esperance” distributed throughout the country and organized (New Hope). This Plan, which is being updated, aims to under a pyramidal referral system. At the bottom of the improve the performance of the health system in order public delivery system are health dispensaries. The next to reduce the burden of morbidity and mortality, and referral level is composed of Integrated Health Centers Sector Expenditure Reviews 83 FIGURE 4.25: Structure of Public Health System Minister of Health’s office, general and central directorates, public Central level autonomous health entities, and specialized public health programs Department Health Directorate National National Departmental level DDS (DHS) Hospital Hospital 12 DDS 6 National Hospitals Socio-Sanitary Circumscriptions CSS (CSS) Base Hospital 27 Base Hospitals Integrated Peripheral and Health Center operational level (CSI) 306 CSI 36 CSS CSI Health Dispensaries 345 health posts Health Dispensaries Source: Congo HD PER, 2014. (CSI), of which there are two types, depending on the Corporation (IFC) report that analyzed Congo’s private services they offer. The Centres de Santé intégré à Paquet health care delivery system, in 2005, there were 1,712 Minimum d’activités Elargi (“CSI à PMAE”)25 offer a health care providers in the country, of which more than broad array of preventative and curative ambulatory half (1,002) were private. The vast majority of private pro- services, whereas the Centres de Santé Intégré à Paquet viders (88 percent) were for profit. The private health care Minimum d’Activités Standard (“CSI à PMAS”)26 offer delivery sector is largely unregulated and poorly organized. a narrower set of such services. The first referral facility As is the case for the health system, there is for CSIs is the Hôpital de base (Basic Hospital). In 2012, a private and a public pharmaceutical sector. The all regional departments except Kouilou had one or more MOHP requires that government health providers buy Basic Hospitals. These inpatient facilities, in turn, have drugs from Congo Essential Generic Drugs Agency as their referral, in the public system, the Hôpital general (COMEG), a public entity. However, many public pro- (General Hospital). viders, including Basic Hospitals and CSIs, choose not Beside the public sector, Congo has a significant to comply, and prefer instead to bypass the institutional private health care system. The private health care pro- procurement system in order to purchase drugs and viders play a major role in Congo’s health system, but there is little coordination between public and private 25 Integrated Health Centers with a Minimum of Services Offered. providers and little regulation of the latter. According 26 In English, Integrated Health Centers with Additional Services to a 2012 World Bank (WB)/International Finance Offered. 84 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) TABLE 4.8: Selected SSA Countries – Infant, Child Mortality, and Neonatal Mortality Rates, 2011 Infant mortality rate Child mortality rate Neonatal mortality rate Per capita GDP 2011 (deaths per (deaths per (deaths per (2005 PPP int. dollars) 1,000 live births) 1,000 live births) 100,000 births) Benin (2011–12) 1,430 42 70 23 Cote d’Ivoire (2011–12) 1,580 68 108 38 Cameroon (2011) 2,053 62 122 31 Senegal (2010–11) 1,834 47 72 29 Congo (2011–12) 3,850 39 68 24 Gabon (2012) 13,998 43 65 26 Source: WBWDB and ICF International (2012). supplies directly from private providers, at lower prices. Congo is the second richest country among those The lack of regulation and control of the private drugs selected, after Gabon. Several factors and government procurement system poses patient safety problems. The initiatives contributed for the positive trends observed private drugs supply system comprises five wholesalers in IMR and CMR. For instance, child vaccination cov- and a large number of retailers, including pharmacies and erage has improved overall for the Bacillus Calmette– shops, which sell their products to public and private Guérin (BCG) and diphtheria, pertussis, and tetanus health care providers. (DPT) and measles. The coverage of the yellow fever vaccine also increased dramatically, from 31.8 percent Health outcomes and health risks to 54.5 percent. Infant Mortality Rate (IMR) and Child Mortality Maternal Mortality Rate (MMR). According Rate (CMR). Up until recently Congo was lagging to EDCSs, the MMR has also fallen from 781 deaths behind other countries in the region in terms of health per 100,000 live births to a rate of 429 in the past indicators. In contrast with these trends, the EDCS six years. Congo’s MMR compares favorably with that 2011–2012 report presented an encouraging picture. of countries with similar per capita income, including From EDCS (2005) to EDCS 2011–2012, the estimates Cameroon, Mauritania, Nigeria and Swaziland. This of the IMR and CMR decreased, and improvement is improvement is related to the positive performance of statistically significant and accelerating. It estimated that several indicators related to maternal health including: in 2009, the IMR was 39 deaths per 1,000 live births, (i) improvement in the rate of Congo’s institutional the CMR was 68, and the death rate for children ages deliveries by qualified health personnel, which is now 1–5 was 30.27 Congo performs well in comparison to high; (ii) improvement of knowledge about contracep- neighboring countries such as Cameroon and Gabon tion; (iii) increase of the intergenesic period (the time with regards to child health outcome indicators. The lapse between birth of one child and conception of the following child in mothers with at least two children); 27 As discussed in the introduction, priority is given to surveys above (iv) increase in the use of prenatal care; and (v) improve- administrative data. However, it is important to note that there is a large discrepancy between the data reported by the World Bank’s ment in the coverage and utilization of services, but also World DataBank (WBWDB) for Congo and the estimates obtained a reduction in inequality. through the EDSC 2011–12 survey. The DataBank reports much Life Expectancy at Birth (LEB). The LEB for flatter IMR and CMR rates over time and this tendency is felt in most health indicators with the EDSC 2011–12 showing better Congo was reported as 57.8 years in 2011 (World results than the WBWDB. Bank DataBank). However, this number may be Sector Expenditure Reviews 85 under-estimated since the recently released informa- capita budget nearly doubled between 2011 and 2012 tion about the country’s drop in the IMR and CMR and in 2013 it fell but to a level that was considerably probably has not been reflected in these numbers. Still, higher than in the years prior to 2012. In 2011 the LEB in Congo has steadily been rising for the past MOHP budget represented 3.8 percent of total gov- decade presenting a value slightly above the average for ernment budget, a slight increase from 3.4 percent in Sub-Saharan Africa; the LEB is in line with the values 2010. This percentage increased to 5.3percent in 2012 observed for African countries with similar income per and decreased again to 4.2 percent in 2013. capita and HIV prevalence. However, when compared In 2012, the MOHP budget experienced a sharp to middle-income countries worldwide, there is still a increase to reach about 45,000 XAF per citizen, or lot of room to catch up. US$87. This one-year increase reflected the government’s decision to declare 2012 as the country’s “Health Year.” 4.3.2. Budget Allocation and Spending Budget information for the year 2013 confirmed that in the Health Sector this increase was a one-off phenomenon, although the 2013 per capita real MOHP budget of approximately Except for the year of 2009, public allocations to the XAF 35,840 (US$70) per citizen was much higher than health sector have been improving very mildly, and in in preceding years. per capita terms have remained mostly constant. Overall, Compared to the period 2004–2007, budget budget allocations for the sector are low in comparison allocation in the health sector has been fairly stable. to countries of similar income and in comparison to In fact, from 2004 to 2007, the share of budget alloca- the average for SSA. Donor contribution to the health tion to the health sector moved from 4.5 in 2004 to 21.5 budget is also low by regional standards, but this is not percent in 2006 and then to 5.2 percent in 2007. This the case for household contributions. The latter financed has not been the case during the recent period. From mostly curative care and medicines and, although 2008 to 2013, this share fluctuated between 8.6 in 2013 decreasing, in 2010 household contributions amounted to 10.1 in 2009. to 37 percent of the health budget. Budget execution Both Congo’s total health budget allocation as a rates have improved. Challenges remain with the regula- share of GDP and as a share of total government bud- tion of fees applied by providers, as well as controls on get allocation are very low, in relation to the country’s procurement of drugs both by public and private pro- viders. Several measures introduced to improve service provision seem to be bearing fruit. FIGURE 4.26: Government Budget Allocation, Size of MOHP Budget allocation in the health sector 4,000,000 Million of real XAF of Dec, 2012 Within the social sectors, the MOHP has been gain- 3,500,000 ing importance, but its per capita ratio remained 3,000,000 constant. In 2009 the MOHP budget represented about 2,500,000 75 percent of the overall education budget. By 2012, 2,000,000 1,500,000 the MOHP and overall Education budgets were similar. 1,000,000 The above factors combined have resulted in a MOHP 500,000 budget that remained nearly constant, in real per capita 0 terms, between 2008 and 2011 (see Figure 4.26). The 2008 2009 2010 2011 2012 MOHP’s real per capita budget was nearly the same in Other social sectors MOHP budget Ministry of Education budget the years 2008, 2010, and 2011, in the range 28,000– Other, non-social government budget Total 29,000 XAF (US$60–65) per citizen. Yet the real per Source: Ministry of Finance MOHP budget data. 86 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 4.27: Selected SSA Countries – FIGURE 4.28: Selected SSA Countries – Government Health Spending as a Government Health Spending as Share of GDP and of Government a Share of Government Spending, Spending, 2011 (in percentage) Average Rate, 2008–2011 100 Highest (in percentage) 80 12 70 10 60 Quintile 50 Rank 8 40 6 30 20 4 10 2 0 Lowest Per capita Health expenditures Government health GDP as a share spending as a share 0 of GDP (%) of total government Brazil Kenya El Salvador Niger Uganda Congo rep. spending (%) Source: Authors from World Bank DataBank. Gabon ROC Mauritania Cameroon Senegal Cote d’Ivoire Benin Source: Authors from World Bank DataBank. needs and priorities. Such autonomy, when exercised in the spirit of a results-based management approach, can be effective for the health system. Transfers are allo- per capita income. Whereas Congo’s per capita income cated on a lump sum basis and carry no conditions with in international dollars is among the highest in SSA, the respect to how they should be spent. In Congo, almost share of the economy that is devoted to the health sector two-thirds of all government financing for health is in is among the lowest, and so is the share of government the form of delegated credits and the remaining one- spending going to health (see Figure 4.27). Congo’s third is channeled to health care providers in the form pattern is similar to that of neighboring SSA countries, of transfers of block grants.28 such as Gabon. Despite recent increases, Congo’s pro- The health budget is formulated mostly at the portion of government expenditures allocated to health central level and is structured into four main categories, falls short of the Abuja Declaration commitment of which are salaries, goods and services, transfers, and increasing government funding for health to 15 percent investments. Salaries are centrally allocated to central and of government’s total expenditure (Figure 28). regional directorates. Goods and services are allocated to central directorates as well, but not to the regional level Government’s budgeting, spending and (see Figure 4.29). Thus, resources for the acquisition of resource allocation system in the health goods and services must come at these levels, mostly from sector user fees. Goods and services are also envisioned in the Public funding for the health sector is channeled budget for central health institutions, including some through either delegated credits or transfers, both health care providers. Transfers are directed primarily of which are directed to institutions and health care to autonomous public hospitals. providers. Delegated credits call for the execution of budget items whose nature and amount are preset by government. Transfers involve the allocation of a budget 28 According to the National Health Account (NHA) of 2013, envelope, or block grant, to recipients who are given the transfers do not seem to have had a sizable impact in terms of im- freedom to allocate these resources according to their provements in health indicators. Sector Expenditure Reviews 87 FIGURE 4.29: Structure of the Government’s Budgeting and Expenditures System in the Health Sector Ministry of Finance Ministry of Health and Population Salaries Goods and services Transfers Investments Minister’s office Maternity Tietie Hospital Directorate of studies and planning Hospital Center Loandjili Hospital National Inspection of Public Health Hospital Brazzaville University Directorate of cooperation Central Directorates Medical-Social Center Hospital Center General Directorate of Public Health Inspection A dolphe Sice Hospital Directorate of primary, secondary, COMEG (Congolese Nkayi Hospital and tertiary education Essential and Generic 31 Juillet d’Owando Medicines Company) General Hospital Regional Directorate (RD) of Brazzaville Dolisie General Hospital RD of Kouiliou Other transfers Regional Directorates RD of Niari RD of Lékoumou RD of Bouenza Departmental Directorate Investment project 1 (DD) of Pool Investment project 2 DD of Plateaux DD of Cuvette Departmental Directorates DD of Shanga DD of Likouala DD of Cuvette-Ouest Investment project N Source: Congo HD PER 2014. Budget execution in the health sector FIGURE 4.30: Ministry of Health Budget and The MSP budget execution rate has been volatile Budget Execution during the period 2008–2012, but has had an 300,000 90.0% 100% Budget (million of FCFA of Dec. 2012) upward trend in recent years. In 2008 and 2010, 78.7% 78.6% 90% 250,000 76.3% 80% the execution rate of the health budget was under 80 Execution (percent) 200,000 192,903 70% percent. In 2009, only 42.7 percent of the budget was 60% 42.7% executed. The year 2011 saw the highest level of execu- 150,000 119,712 159,969 50% 112,581 tion, at 90 percent. The MSP execution rate has been 94,002 97,307 40% 100,000 107,397 30% lower than the overall government’s budget execution 107,784 88,570 20% 50,000 71,679 76,480 rate that averaged 93.4 percent between 2009 and 2012, 45,891 10% with a low of 83.9 percent in 2012. Figure 4.30 shows 0 0% 2007 2008 2009 2010 2011 2012 2013 Government, Ministry of Health budget and budget execution in millions XAF (Dec. 2012) in percentages. Budget MOH (million FCFA Dec. 2012) Execution rate (%) Between 2008 and 2011 the real executed budget per Execution MOH (million FCFA Dec. 2012) citizen went up by one-third. Source: MSP budget information supplied by the MEFPIPP. 88 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 4.31: Execution of Government Health FIGURE 4.32: Execution of Government Health Budget, 2007–2011 Budget, 2004–2007 120,000 180 107,784 160 Millions of FCFA of Dec. 20212 100,000 88,570 140 80,000 76,480 120 71,679 Percent 100 60,000 45,891 80 40,000 60 40 20,000 20 0 0 2007 2008 2009 2010 2011 2004 2005 2006 2007 PIP (including HIPC) Investment Goods and services + transfers Personnel Total spending Recurrent spending Investment spending Source: MSP budget information supplied by the MEFPIPP. Source: Congo PER, 2008. Between 2008 and 2010, personnel accounted This execution volatility is a testimony that the for approximately one-fifth of total government health government did not significantly improve its manage- expenditures. In 2011, it fell to 14 percent. Goods and ment of financing in the health sector since the last services and Transfers represented a decreasing share PER. In fact, from 2003 to 2007, execution rates in the of total expenditure, from 71.3 percent to 45 percent health sector fluctuated widely, ranging from 78 percent in 2011. Investments accounted for 14.4 and 40.9 in 2004 to 143 percent in 2006 to 68 percent in 2007 percent in 2000 and 2011, respectively. In terms of (see Figure 4.32). This fluctuation was particularly strong execution, the rate seems to be lower for investment in the investment budget, where execution rates ranged spending than for current spending, but in the two from 25 percent in 2004 to 164 percent in 2006. High years with data available there was a big improvement execution rates in 2006 were driven by the Government’s in the execution rate of investment that went up from efforts to accelerate investment projects related to the 25 percent in 2010 to 89 percent in 2011. Figure 4.31 I-PRSP, which had been delayed during the first two shows the execution of Government health budget years of I-PRSP implementation (2004–2005). Wages over the period 2007–2011 in millions of XAF as of and salaries in health were markedly under-executed December 2012.29 due in part to problems of recruitment and retention of health staff. The execution rate in the sector is still low 29 (79.1 percent) compared to other developing countries Budget items have changed over time, making analyzing trends in budget execution by budget item a challenging exercise. In fact, (see Figure 4.33). budget items differed between the period 2007–2009 and the period 2010–2013. In the former period the items Salaries and Goods and Health expenditure by source Services were lumped together while no information was presented for Investments. Instead, the budget item Program Implementing Two major sources of funding are used for health Partners (including Heavily Indebted Poor Countries, HIPC) showed expenditure in Congo: household income and gov- up in the data. In the latter period, Salaries and Goods and Services were presented separately, Investments were reported, and the item ernment budget. From 2009 to 2010, the Government Program Implementing Partners (including Heavily Indebted Poor budget covered 53 percent of total health spending and Countries, HIPC) was removed. Given this discontinuity in budget households supported about 42 percent. In fact, unlike line items, it is not possible to present a systematic analysis of trends by item. The trends are in execution of the health budget and its many developing countries, donor financing of the components. health system in Congo is limited. Sector Expenditure Reviews 89 FIGURE 4.33: Selected Countries – Execution community contributions and spending by enterprises of Government Health Budget, are also very small overall at the national level (see 2008–2011 Figure 4.34). 120 Medicines are the major expenditure category, 100 accounting more than one-half of household spend- ing on health. In fact, medicines (so called “modern” and 80 “traditional” according to the survey terminology) are Percent 60 the major expenditure category, accounting for about 40 56 percent of household spending on health. Spending on actual medical services, in the form of fees paid to 20 public and private providers, represents just 20 percent 0 Brazil Kenya El-Salvador Niger Uganda Congo, Rep. of household health OOPS (16 percent on medical and dental offices plus 4 percent on auxiliary medical ser- Sources: PERS. vices) (see Figure 4.35). Health system financing in Congo is heavily FIGURE 4.34: Health Expenditure Source, dependent on households’ out-of-pocket spending 2009–2010 (OOPS). According to the NHA study, in 2009, 48 Other percent of all financing for health care came from house- financing, 1.8 holds; in 2010 it fell to about 37 percent. However, those Donors and NGOs, 3.1 estimates may underestimate current figures since they were inferred on the basis of the 2005 ECOM household Household Government financing, 41.9 financing, 53.2 survey. When the NHA report was produced, results from the more recent 2011 ECOM survey were not yet available. An analysis of the more recent ECOM estimates a total household spending amount of XAF Source: MOH. 112,352 million that is more than twice higher than the equivalent figure reported in the NHA report for the year 2010 (about XAF 50,000 million). If this fig- FIGURE 4.35: Structure of Household Annual out- ure of XAF 112,352 million is the most accurate, then of-Pocket Health Spending, Around household OOPS on health would be 30 percent higher 2010–2011 (percent) than the government reported health spending in 2010, Medical of XAF 77,914 million.30 Donor financing for health product, 7 care in Congo, on the other hand, is relatively low by Therapeutic devices, 9 regional standards. Other sources of financing, such as Traditional medicices, 50 Medical services, 13 30 The results obtained from the 2011 ECOM for households’ OOPS Dental care, 3 on health in the year 2011 may or may not be directly comparable with those reported in the NHA report. Comparability depends on X-ray/lab the exact methods used by the authors of the NHA report to estimate services, 8 household OOPS for the years 2009 and 2010 on the basis of the Auxiliary medical, 4 Modern health-related OOPS amount reported in the 2005 ECOM survey, medecines, 6 however they are further proof of the importance of household spending in health and its upward trend. Source: Constructed by authors from ECOM 2011 database. 90 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 4.36: Structure of Government and Households Health Expenditures by Provider Category and Function, 2010 (millions of XAF of each year and percentage) Provider Function Public management Others of health system 3% and of health insurance Hospitals Curatives care 38% Public management 31% of health system 29% Others 34% 5% Public health Fight against Ambulatory program transmissible Capital health centers 17% diseases formation 9% 16% 18% Source: Ministère de la Santé et de la Population (2013). The share of total spending devoted to health was post-natal care as well as vaccination and growth moni- almost constant among the income quintiles, represent- toring for children, represented only 1 percent of govern- ing on average 1.5 percent of total household spending, ment health spending in 2010. Government spending on with the households in the poorest quintile spending the COMEG, the public central purchaser of essential medi- highest percentage at 1.8. Strong reliance on OOPS in cines, represented a negligible share of public resources Congo is partly the consequence of a revolving fund-like devoted to health in 2010. Similarly, when looking at the system for drugs that operates in all or virtually all gov- structure of government, by function, as reported in the ernment health facilities. Aside from autonomous public recent NHA report, this report finds almost negligible hospitals, which receive a block grant and may use part spending by government on medicines (see Figure 4.36). of their budget to purchase medicines, all other public providers lack budget resources to purchase medicines 4.3.3. Public Expenditure Efficiency in and other medical supplies. To have a stock of medicines the Health Sector they charge user fees to patients and with the revenue collected from these fees they purchase medicines from The low utilization rates of beds in basic hospitals and COMEG or private providers. In Congo, the reliance on the limited use of services in general, suggests efficiency user fees for financing of medicines in government health problems in the system. However, there is some evi- facilities is in line with the Bamako initiative, which calls dence of a positive relationship between public per for the implementation of a drug revolving fund. capita spending and indicators of health system per- A large share of government health spending is formance—such as number of visits to public health devoted to the administration of the public health sys- facilities (as reported in the ECOM 2011 survey), the tem, followed by curative hospital care. One-third of all use of contraceptives, and the percentage of women government health spending is devoted to health system that received pre-natal care and that took anti-malarial administration. The next most important spending cat- drugs during pregnancy—that can suggest that services egory is the provision of curative care, with 29 percent are located where they are the most needed. However, of all spending. The third and fourth most important this positive relationship does not hold for all health categories were investments (capital formation) and outcomes. The limited resources (human, physical, and programs and activities for the fight of communicable financial) available in Congo are not distributed evenly diseases, such as HIV and tuberculosis. Maternal and across the country, contributing to inequalities in access child health services, a category which includes pre- and and outcomes across different populations. The excessive Sector Expenditure Reviews 91 price of services seems to create a barrier to the poorest FIGURE 4.37: Efficiency Frontier in Health, households and the ones living in rural areas. 2008–2013 100 Efficiency 90 There is some evidence of a positive relationship Life expectancy between public per capita spending and some indica- 80 tors of health system performance. Indicators such as 60 number of visits to public health facilities (as reported in the ECOM 2011 survey), the use of contraceptives 50 and the percentage of women that received pre-natal 40 care and that took anti-malarial drugs during pregnancy 0 2000 40000 6000 8000 10000 are positively correlated to public spending. However, Health spending per capita, US$ the positive relationship does not hold for all outcomes. Source: Authors computations based on WDI data. Important indicators on children’s health like the per- Note: Congo is represented by the red point. centage of fully immunized children show negative cor- relation with per capita spending.31 There is also evidence of a positive correlation between number of beds in pub- sign in terms of equity. However, richer quintiles lic facilities and public spending on health per capita– spend a lot more of their own money in absolute terms this suggests that resources are located where people are in obtaining health services (see Figure 4.38). There is a looking for them. Brazzaville is an outlier with a much real possibility that households in the poorer quintiles are larger number of visits than any of the other regions. not accessing all the services and medicines they would Overall, health spending efficiency in Congo need for lack of financial resources. Indeed, when asked is still far from its potential. Using efficiency fron- about their level of satisfaction with the service received tier analysis on data of all countries in the world (see at health facilities, the most common problem identified Figure 37) this report finds that Congo is still lagging is the fact of service being too expensive. This complaint behind in term of efficiency. In fact, if life expectancy is is, unsurprisingly, more common in the lowest quintile consider as the proxy of the quality of health care in any of income. This problem seems to have intensified for given country, then with an average life expectancy of the bottom quintiles from 2005 to 2011. Similarly, about 58 years at birth over 2008–2013, Congo is lagging behind many countries that have spent less on per capita during this period. In fact with the level of spending of FIGURE 4.38: Expenditure in Health by Government the country during this period the efficiency frontier and Households in Quintiles stands at a life expectancy of about 70 years at birth. 60,000 50,000 Equity of public health spending Millions of XAF 40,000 Government expenditures in health do not vary too 30,000 much variation across quintiles, this is also a good 20,000 31 Due to data limitation, the assessment of efficiency spending is the 10,000 health system did not analyze the existence of a correlation between different levels of spending per capita, in each of the regions and 0 variables that approximate the use of the system (numbers of visits) Q1 Q2 Q3 Q4 Q5 and health outcomes in each of the regions. Going forward, regular Government Household data collection at division (département) level should be encouraged if more reliable analysis of these relationships is to be undertaken. Sources: ECOM 2011 and MOHP. 92 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) when analyzing the reasons why respondents did not go FIGURE 4.39: Reporting of Illness and Visits to to a health facility when they became ill, high price is Health Provider the number one reason mentioned, particularly for the 100 bottom quintiles of income. In this case, however, the 80 situation seems to have improved from 2005 to 2011. Taking total spending together gives a picture of 60 Percent a system that is not markedly pro-poor or pro-rich. To 40 get a more accurate picture of government’s spending by population segments it would have been useful to have 20 a breakdown of spending by inpatient and outpatient 0 at the hospital level, since the costs associated with each Q1 Q2 Q3 Q4 Q5 can be quite different, but that was not possible due to Yes No Visited health provider data limitations. Source: ECOM 2011. In Congo, government spending with ambula- tory care is pro-poor, while government spending in hospitals is slightly pro-rich. HD PER of 2014, used FIGURE 4.40: Visits to Health Facilities by Type of Benefit Provider and Expenditure Quintile Incidence Analysis with data from the ECOM 100 2011 and from the NHA study (2010) to estimate the amount of government subsidy by visit to public pro- 80 viders, separately by hospital and ambulatory centers 60 Percent assuming constant unit subsidies. It found that subsidies per visit are higher for hospitals than ambulatory centers, 40 as expected. In fact, hospitals receive more visits than 20 ambulatory centers but in general ambulatory centers are more used by the poorest segments of the population. 0 Q1 Q2 Q3 Q4 Q5 The prevalence of health problems does not vary Others Traditional healer much across quintiles. In the same way, the percentage Drugstore/pharmacist Intergrated health center of respondents that reported seeking help from some Public hospital Medical cabinet/private hospital type of health provider does not differ much across the Source: ECOM 2011. quintiles of wealth (see Figure 4.39 and Figure 4.40). This seems to be a good sign in terms of equity—poorer individuals are not excluded from the system and know which is also a positive sign in terms of equity of access where to seek health care. It can also be a sign of the to public services. Figure 4.39 shows visits to health high level of urbanization of the country; according facilities by type of provider and expenditure quintile. to the same survey a vast majority of population (85 All these differences in access and ability to percent) lives within 5km of a health facility. These afford services and medicines are reflected in differ- numbers reflect both reporting of illnesses and visits to ent health outcomes across quintiles. Obviously, not health providers. all the differences in health outcomes across quintiles can Meanwhile, as expected, the population in be attributed to inequities in access to the health system; richer quintiles has more access to private care and several socio-economic characteristics and behaviors that uses less traditional medicine healers. The use of public are correlated to income (education, type of housing, facilities, however, does not vary much across quintiles, etc.) play an extremely important role as well. As an Sector Expenditure Reviews 93 FIGURE 4.41: Access to Malaria Treatment by FIGURE 4.42: Reason Why Did Not Use Health Expenditure Quintile Service when Needed, 2011–2012 100 9 8 80 7 6 60 Percent Percent 5 40 4 3 20 2 1 0 Q1 Q2 Q3 Q4 Q5 0 Urban Rural Children being treated for fever Woman that recieved abti-malarial drugs during pregnacy Too expensive Too far Other Source: ESDC 2011–2012. Source: ECOM 2011. example, Figure 41 depicts the situation across quintiles 4.3.4. Recommendations for access to malaria treatment. Rural populations report a higher rate of illness than urban ones (40 percent versus Policy to render government health 36 percent), but also report a higher use of health services spending pro-poor for the reported illness. This at least gives some hope that Policymakers could adopt policies that seek to bridge the services are available and populations know how to use gaps in health status between the poor and the non-poor. them including in rural areas. When looking at the type Achieving nationally better health status indicators in of provider sought, it is clear that in rural areas there is less Congo is commendable, but policymakers in the country reliance on private health services and more reliance on should pay more attention to the evolution of inequality informal providers like traditional healers and churches. in health status and should adopt policies that seek to The use of public services, however, does not vary much bridge the gaps in health status between the poor and from urban to rural, with rural tending slightly more to the non-poor. For example, allocating a growing share CSIs than hospitals. These facts can be just a reflection of of public financing to the poorest departments in the the different availability of services in rural areas. country might help to achieve this goal. The very high cost of health services is a major Congo could define a national policy to identify barrier to health care both in rural and urban areas the poor and vulnerable, in order to waive user fees for in Congo. Looking at reasons for not accessing a health them in government health facilities. This policy might provider in case of illness, it is clear that surveyed popula- also help to reduce inequity in access to basic health ser- tions in rural areas report more problems both in terms of vices and nutrition supplements, and inequality in health the price of services and distance. In the same way, rural status. A policy of targeted public subsidies for the poor households seem to have more reasons for complaining should also comprise a mechanism to compensate public about the service recently received than the urban ones. providers for the user-fee income forgone as a result of Meanwhile, the “too expensive” complaint leads the way, their acceptance of waivers for the poor and vulnerable. followed by “lack of medicines.” These results seem con- There is a need to increase government financing sistent with the ones observed for the different levels of of health in Congo. This could move from 5.7 percent income quintiles, and price again seems to be a barrier of the budget in 2013 to 15 percent of total govern- of access to low-income populations (see Figure 4.42). ment spending. Further improving health status and 94 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) financial protection in Congo’s health sector calls for health services in the public sector. A noteworthy find- increased volumes of financing. This would be in line ing, however, is the low rate of utilization of hospital with the Abuja Declaration by which African Union beds around the country, except in Brazzaville. members pledged to commit 15 percent of their bud- gets to health.32 Policies to increase access to health The government could carry out an actuarial study services of the Cordaid33 benefits package, or of alternative for- Health authorities could make treatment protocols mulations of a benefits package in Congo, in order to available to health staff and train them in the use such determine the volume of public and private financing protocols. This will improve the quality of health care required to deliver explicit benefits. In fact, expand- in government health facilities throughout the country. ing and rationalizing government health spending and Congolese health authorities could revise the user moving toward Universal Health Care may call for the fee policy of government providers. Outright abolition explicit definition of a benefits package in Congo. of fees is not recommended because it is likely to lead to greater access problems than in the current scenario, Policies to render government health such as widespread out of stock situations with drugs in spending more efficient facilities. However, government may want to regulate National hospitals, all of which currently receive block the fees to ensure that they are not abusive, that they are grants from the government, should be evaluated to waived for the poor, and that the provider is compen- determine the efficiency consequence of such grants sated accordingly, and that these fees are charged only and to make any necessary changes in this financing for medicines and not for other services. mechanism in order to improve efficiency. Congo should consider hiring qualified health Congo should adopt a policy to progressively staff in all public facilities throughout the country. This expand the share of public resources going to health could improve access to these facilities. Currently there dispensaries and health centers. It would allow CSIs to is a lack of doctors and nurses in CSIs, particularly in waive user fees for poor and vulnerable patients and it the more rural and remote locations. All countries face would also serve to attract more qualified health staff to the challenge of endowing rural health facilities with these facilities through higher salaries and the adoption appropriate staffing, and many countries have adopted of economic incentives. More public subsidies would also a system of economic and other incentives to achieve serve to subsidize an expanded set of basic medicines, a this objective. Congo would benefit from learning about policy that the government has started but which has met such approaches in order to identify those that could logistical problems owing to a faulty implementation. work in the country. Assessing hospital occupancy, the reasons behind low occupancy rates, and the feasibility of closing some Policy to improve the evaluation of the beds in order to reduce unnecessary hospital spending is government spending a research priority. The authors found limited informa- Congo needs to produce data and maintain databases on tion with which to judge efficiency in the production of heath indicators and budget and spending data in the health sector. Since health status improvement is a central objective of any health system, it is indispensable that 32 For example, Rwanda, which is aggressively seeking to expand health coverage, devotes 10.8 percent of GDP to health and 57 a new survey be conducted in the near future, to verify percent of that amount comes from the government. Ghana, which that the gains reported in the EDSC are maintained or is also actively promoting health coverage expansion, devotes 4.8 furthered, and also to confirm that results are aligned percent of GDP to health and the government contributes 56 percent of that amount. with the EDSC 2011–12. Additionally, government 33 A Dutch NGO in the health sector. and the development community should continue to Sector Expenditure Reviews 95 support in a systematic way the initiative that led to which causes significant losses of more than 50 percent of the production of the 2012 Statistical Yearbook. These the energy actually produced and invoiced, which make efforts should involve the strengthening of institutional electricity supply inefficient and little reliable. Moreover, capacities in health management information systems, in coming years, a substantial increase national demand both at the central and decentralized levels, the training is expected, reflecting the anticipated increase in urban- of staff involved in data collection and reporting, and ization, the implementation of mining projects, and the the supply of computers and other equipment required objectives of the industrialization policy. Therefore, the to operate such a system. rehabilitation of the power grid is a high priority in the short to medium term. 4.4. Public Expenditure Review in The section finds that the absence of budget Energy credibility is the main issue for public expenditure in the energy sector in Congo from 2008 to 2013. From 2008 to 2012, the Government took strong The energy sector has substantially exceeded its allocated measures to strengthen the productive capacity, trans- budget each year since 2006. An average execution rate mission, and distribution of electrical energy. This of about 140 percent over 2008–2012 is a sharp increase includes the construction of a gas power plant with a from about 105 percent in 2004–2007. The analysis of capacity of 300 MW in Pointe Noire as well as a hydro- investment execution rates show that budgetary authori- electric dam in Imboulou with a capacity of 120 MW. ties have over-executed in recent years. Poor planning For the transport of electrical energy, the government is and cost overruns in the construction of energy infra- rehabilitating the transmission and distribution network structure are the main reason for this very high rate of in Pointe Noire and Brazzaville and lines associated with execution. These raise a flag about the robustness of the the Imboulou power plant. Progress is being made in budgetary and disbursement system in Congo to moni- upgrading part of the energy infrastructure, which will tor efficiency in the execution of the country’s budget. enable generation capacity to potentially cover the coun- The relative share of total spending in the energy sec- try’s current needs. The installed capacity has increased tor in the country remained stable in 2008–2012 at from about 90 MW in 2001 to 600 MW in 2013. about 8.3 percent, which is a substantial increase from Even though the potential of electric power the rate observed in 2004–2007, when the share of the supply currently exceeds demand, the total available government budget devoted to the energy sector fluc- capacity is low due to the dilapidated state as well as tuated from 1.5 percent to 4.0 percent, an average of the weak transfer capacity of the transmission and dis- 2.4 percent during this period. This share jumped from tribution facilities. Distribution of electrical energy from 4.0 percent in 2007 to 10.7 percent in 2008 because of the newly completed power plants remains suboptimal the government’s plan to build the Imboulou Dam, the due to the advanced state of degradation of distribution Pointe Noire thermal center power plant, and a power networks and delays in the rehabilitation of power lines,. transport line. This has resulted in a situation where, even though poten- Moreover this section finds that the government tial supply is more than adequate, actual supply provided spending in the energy sector has been fairly inef- is not sufficient to meet the demand of the country. The ficient. In fact, during this period, the growth rate in lack of rehabilitation and maintenance of facilities the energy sector decelerated, moving from 7.7 percent and equipment has seriously eroded the capacity of on average in 2003–2007 to 5.1 percent in 2008–2012 the SNE to meet energy demand. Insufficient resources despite massive investments in the sector over the lat- have been devoted to the maintenance of energy facili- ter period. The increase of government spending in the ties. This has led to the dilapidation and saturation of sector clearly failed to stimulate the growth of the pro- production, transmission, and distribution equipment, duction in the sector. In fact, these investments did not 96 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) result in improving utilization of production capacity reasons. First, most jurisdictions and departmental agen- between 2008 and 2011. Despite the entry into produc- cies do not have all the technical and financial capacity tion of Imboulou and CEC power plants in 2010, Congo to ensure effective regulation of the sector. In addition, produced only 25 percent of its capacities in 2011, as Congo does not yet have legislation with specific provi- compared to 31 percent in 2008. The efficiency of gov- sions governing public and private partnerships (PPP). ernment spending suffers from absorption capacity issues Moreover, the master plan for restructuring public and from poor planning and coordination. water services and electricity has not yet been updated. Based on these findings, the PER key recommen- This plan for restructuring public water and electricity dations are that the government should: i) strengthen services was written in 2008 and provided for 2015, national and regional planning capacity to formulate a including liberalization of production, marketing, and strategy for solving the energy deficit in Congo; ii) make distribution of electricity with a refocusing on the trans- an effective institutional framework by operationalizing port activities and production. The regulatory agencies the regulatory agencies and diversifying the actors to are not yet fully operational and independent. The coun- spread financial risk sector investment which today is too try is lagging behind its peers in terms of consumption, focused on the Congolese state; iii) restructure the SNE access and reliability. According to the infrastructure to improve revenue collection performance and restore index of AfDB (2010) on the energy dimension, Congo its financial balance; iv) master the changing demand and has low scores relating to the quality of energy infrastruc- improve the efficiency of electrical systems; and v) attract ture. The country is ranked 32nd out of 53 countries on private investment through balanced financial incentives the continent for the energy development dimension of to strengthen capacity. This section is adapted from the the index. The rate of access to electricity (30 percent of Energy sector PER in Congo (see African Development the total population) is below the average of other low- Bank (2014a and 2014 b) for details). income developing countries (41 percent). Even if the country no longer dependent on imports from the DRC, 4.4.1. Background of the Energy Sector through an ambitious investment plan prepared for the 2008–2012 period, distribution remains unreliable. Energy infrastructure of the Republic of Congo is The operational performance of the parastatal insufficient and is managed inefficiently. The national infrastructure services is weak and hence, limit invest- strategic planning in the energy sector is insufficient and ment in the rehabilitation and expansion of the system. does not yet have a medium-term and long-term strategy. The National Electricity Company (SNE) is the main The Congo has not updated its plan of priority actions source of inefficiencies in the sector. Losses in transmis- in the sector. Projects contained in prior priority actions sion and distribution reach 47 percent of the generated plans are already completed or under implementation. power, which is high compared to the average of 27 per- As a result, the Ministry of Energy and Water currently cent of other resource-rich African countries. Financial only monitors past projects, given the lack of targets losses equivalent to 37 percent of the revenue of the SNE. for the next three years. Meanwhile, a new master plan This is likely due to lack of maintenance and rehabilita- of the energy sector is being development by the gov- tion of the existing distribution network, and permissive ernment with the technical assistance of Electricité de policy towards illegal connections. France (EDF). There is also an overstaffing, which is relatively high Institutional capacity and sector framework is inad- compared to other African power companies. Finally, the equate despite institutional reforms. Sectoral policies and company recovers only 88 percent of its bills. Significant strategies for the energy sector were updated in 2010. hidden costs impede the ability of the SNE to improve its Despite these advances, the institutional and regulatory investment return and limit its capacity of rehabilitation framework for infrastructure remains low for several and/or expansion In Congo, the electricity infrastructure Sector Expenditure Reviews 97 services are under-billed.34 The current prices barely cover billion in 2012. Given the significance of the expendi- half the cost of providing the service, while the total cost ture in the energy sector, over 85 percent of the budget recovery would be affordable for the population. allocated to MEH is devoted to the Energy sector. The volume of public expenditure devoted to energy almost 4.4.2. Budget Allocation in the Sector doubled between 2008 and 2012, from XAF 108 billion to XAF 205 billion. A significant effort was made by Government spending in the energy sector almost the Congolese government to develop electricity infra- doubled in absolute terms from 2008 to 2012. It structure and improve production capacity. The budget moved from XAF 108 billion in 2008 to XAF 205 of MEH almost doubled from XAF 116 billion in 2008 to XAF 226 billion in 2012. 34 Many households are lump sum billed customers with monthly The share of current expenditures in the energy payment far from actual consumption. sector is relatively insignificant compared to investment TABLE 4.9: Republic of Congo—Sectorial Expenditures of MEH Over the Period 2008–2013 2008–2012 Commitments (Billion XAF) 2008 2009 2010 2011 2012 2013 Sum Total expenditures and water power 116 53 137 126 226 165 658 Current expenditure and water power 3 4 7 6 8 14 28 Including energy 2 3 4 4 7 20 Including hydraulic 0 0 3 2 2 7 Unaffected 0 0 0 0 0 0 Energy expenditure and investments hydraulic 113 49 130 120 217 151 629 Including energy 106 30 113 85 199 533 Including hydraulic 7 17 17 35 19 95 Unaffected 0 2 0 0 0 2 Total expenditure (excluding debt) 1080 991 1186 1711 2545 2798 7513 Total current expenditure (excluding debt) 636 502 589 680 1010 1002 3417 Total investment spending 444 489 597 1031 1535 1796 4096 In percentage Average Expenses ratio MEH/total expenditures 10.7 5.3 11.6 7.4 8.9 5.9 8.3 Ratio of current expenditure/total expenditure 0.5 0.8 1.2 0.9 0.8 1.4 0.9 Ratio of investment expenditures/total expenditures 25.5 10.0 21.8 11.6 14.1 8.4 15.2 Structure of MEH expenses Energy ratio 93.1 62.3 85.4 70.6 91.2 80.5 Hydraulic ratio 6.0 32.1 14.6 29.4 9.3 18.3 Unaffected Ratio 0.0 3.8 0.0 0.0 0.0 0.8 Energy expenditure structure Current expenditure ratio 1.9 9.1 3.4 4.5 3.4 4.5 Ratio Capital Expenditures 98.1 90.9 96.6 95.5 96.6 95.5 Sources: Comptes Administratifs and détail des BIPs. 98 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) expenditures. They are usually at around 3 percent to 4 FIGURE 4.43: Budget Execution Rate in the Energy percent of total spending of the sector.35 These consist Sector primarily of personnel costs, goods and services, and 250 transfers. 200 Allocations of investment expenses were over 95 percent of total infrastructure spending over 150 Percent the 2008–2012 period, while operating allowances 100 represent less than 5 percent of total spending. This imbalance between the two categories of expenditures 50 explains the lack of maintenance of existing equipment and infrastructure. The 2010 AICD study on Congo 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 estimated that nearly 23 percent of total infrastructure Sources: Comptes Administratifs/détail des BIP, Congo PER, 2008. spending must be used for operation and maintenance. These differences are urgent in energy sub-sectors. Using a more detailed analysis, a drop is seen in the share of execution rates show that budgetary authorities have investment spending in energy sector capital investment over-executed in recent years. Poor planning and cost in the country. Indeed, energy investments amounted overruns in the construction of energy infrastructure to 14 percent of total investments in 2012, against 26 are the main reason for this very high rate of execution. percent in 2008. This decrease can be explained by the These raise a flag about the robustness of the budgetary increase in investment in other sectors of the economy. and disbursement system in Congo to effectively and The relative share of total spending in the Energy efficiently monitor the execution of the country’s budget. sector was stable between 2008 and 2012 at about 8.3 The Congolese system of public investment percent, which is a substantial increase from the rate has several shortcomings that are illustrated by the observed between 2004 and 2007. Between 2004 and expenditure of the sector. First, the project costs are 2007, the share of government budget devoted to the significant and frequently exceed budget allocations. energy sector fluctuated from 1.5 percent to 4.0 percent. Second, both technical preparation of operational staff On average this share stands at 2.4 percent during this and project quality are generally low and uneven; proj- period. This share jumped from 4 percent in 2007 to ects contribute to the achievement of low sector strate- 10.7 in 2008 because of the government’s plan to build gic objectives despite being fully executed. Third, many the Imboulou Dam, the Pointe Noire gas power plant, weaknesses are rooted in the urgency that accompanies and a power transport line. Since that these projects project preparation at this scale, not the least of which are multi-year projects the budget for the sector has is the myriad of specific demands to which the projects remained at a high level. are supposed to meet and the overlap of responsibilities between various authorities and stakeholders. 4.4.3 Budget Execution Rate of In addition, institutional and governance Expenditures on Energy issues contribute significantly to limiting the sec- tor’s success. Many project decisions are not based on Unlike other sectors discussed previously, the energy socio-economic analysis. Indeed, only projects financed sector has substantially exceeded its allocated budget by international institutions are generally subject to each year since 2006. The average execution rate of the energy sector averaged about 140 percent over 2008– 2012, a sharp increase from about 105 percent from 35 The peak of 9 percent in 2009 is due to a sudden reduction of the 2004 to 2007 (see Figure 4.43). Analysis of investment investment budget of the sector. Sector Expenditure Reviews 99 economic analysis. Studies are rarely performed on the Box 4. 3: Diagnosis of budget expenditures project options favoring running costs. The rule requir- for 2008–2012 ing the publication of the results of the tender process The energy sector shows that there are areas for improvement is frequently ignored. The government used consulting as well as some strengths. firms to conduct technical studies on large projects, but Areas for improvement include: (i) difficulties in establishing the deficiencies in these studies have led, in many cases, coherence between spending and sector policy over the period to increased costs for implementation. Furthermore, 2008–2012; (ii) budget allocations not systematically aligned with sector policy; (iii) very lax compliance with budgetary discipline procedures are inadequate to ensure the quality of tech- by the sector; (iv) lack of clear budget classification including nical studies. In fact, neither the line ministries nor the projects texts; (v) the need for clarity and rigor in budgetary Ministry of Finance have sufficient technical capacity to reporting; and (vi) inclusion in the budget of the projects funded ensure the quality of these studies. Hence, at the micro by partners. Strengths include: (i) existence of a budget detailing projects level, analytical and policy efforts should focus on the by investment and operating costs; (ii) existence of a framework central issues of the effectiveness and cost-benefit ratio of medium-term expenditure framework (MTEF) 2012–2016 of of public expenditure. the MEH; and (iii) internal financing of sector spending. A major weakness of the energy sector spending Source: Republic of Congo Energy PER, 2014 system is related to the channel through which most of the investments are done in the energy sector: the Délégation générale aux grands travaux (DGGT). In fact, in Congo, any investment project with a bud- in the sector clearly failed to stimulate the growth of get exceeding XAF 1 billion is planned, programmed, sector production The IGSOR increased substantially, and executed by the DGGT. In theory this is done in from 16.5 in 2004–2007 to 76.5 in 2008–2012 in the coordination with line ministries. Given that almost all energy sector (see Figure 4.44), indicating a significant investments in the energy sector exceeded this threshold, deterioration of the efficiency of public spending in the all were planned and executed by the DGGT; there was, energy sector. The efficiency of government spending however very little coordination with the MEH accord- suffers from absorption capacity issues and from poor ing to civil servants involved in the process. This absence planning and coordination. of coordination led to poor sequencing of investments in the energy network. Moreover, the high tendency of the DGGT to use exceptional budget execution proce- dures such as OPPA have rendered a priority control of FIGURE 4.44: Sector GDP Growth Rate 2000–2013 the budget execution irrelevant, leading to substantial 12 500 costs overruns. 10 400 8 Percentage 300 4.4.4 Efficiency of Investments in the 6 Energy Sector 200 4 Government spending in the energy sector has been 2 100 fairly inefficient if measured by sector outcome. In 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 fact, during the 2008–2012 period, the growth rate in the energy sector decelerated. Indeed, it moved from Growth rate of the energy sector (right axis) 7.7 percent on average in 2003–2007 to 5.1 percent in Ratio of government spending to energy GDP (left axis) 2008–2012 despite massive investments in this sector IGSOR (left axis) over the last period. Growth in government spending Source: World Bank staff computations. 100 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Access to electricity improved between 2009 and FIGURE 4.45: Evolution Networks Losses and 2012, from 45 percent in 2009 to 58 percent in 2012. Capacity in the Energy Sector Investments in production capacity that increased electri- 60 cal capacity from 171 MW in 2008 to 591 MW in 2012 50 have contributed to this improvement. These investments 40 have reduced the electricity imports from DRC. Percentage However, these investments did not result in 30 improved utilization of production capacity from 20 2008 to 2011 because, despite the entry into produc- 10 tion of Imboulou and CEC power plants in 2010, 0 Congo produced only 25 percent of its capacities in 2008 2009 2010 2011 2011, against 31 percent in 2008. This underutilization Losses Ratio of production to intalled capacity of capacity can be explained by: (i) the limited capacity Source: Energy sector PER, 2014. of transport network hindering the distribution of the installed productions;36 (ii) the obsolescence and the weakness of maintenance efforts for existing plants—the FIGURE 4.46: Selected SSA Countries – Hidden electric facility of Djoué was stopped in 2008, and did Costs not contributed to domestic production from 2008 to 600 2012, despite rehabilitation work; and (iii) the reduced 500 Percentage of revenues use of electric facilities in Moukoukoulou and CTB since 2010 (which became an extra electric central) after the 400 entry of Imboulou and CEC. 300 The level of energy losses remained stable at 200 around 46 percent over the period 2008–2012, 100 despite the significant investments realized.37 This high level of losses can be explained by the poor techni- 0 Benin Cameroon Ethiopia Congo, Rep. of Chad Ghana Nigeria Congo, Dem. Rep. of cal configuration of the Congolese’ electricity network through the technical deficiencies of the SNE in the management of the distribution network, and unbilled Overmanning Fees collection inefficiencies Unaccounted losses consumption (Government and household’s pack- Source: Briceño-Garmendia et al.2008. age) (see Figure 4.45). The National Electricity Company (SNE) is the main source of inefficiencies in the sector. Losses in trans- lack of maintenance and rehabilitation of the existing mission and distribution can be as high as more than 50 distribution network, and a permissive policy towards percent of the power generated, compared to the average illegal connections. There is also relatively high over- of 27 percent for other resource-rich African countries staffing compared to other African countries. Finally, (see Figure 4.46). Financial losses are equivalent to 37 the company only covers 88 percent of its bills. These percent of revenue from the SNE. This is likely due to significant hidden costs impede the ability of SNE to recover its costs and thus limit its ability to invest in the rehabilitation and extension of the system. The current 36 Significant investments for network improvement were identified rates, already high by continental standards, are suffi- in 2012 and 2013. 37 Distribution losses include losses in transmission and distribution cient to cover operating costs, but if investment needs networks (lines). are accounted for recovery costs are only 53 percent. Sector Expenditure Reviews 101 TABLE 4.10: Evolution of Electrical Power percent. Households in rural areas belonging to the Power plants 2008–2009 2010–2013 upper two income quintiles spend less than 0.2 percent Moukoukoulou 74 74 of their budget on electricity. The south has easier access to the electrical network Djoué 15 15 of the SNE, while the north is often reduced to off-grid Central Thermal Djéno 50 50 power, which is much more expensive. Therefore, the real Centrale Therma BZV 32 32 price of electricity in the north is three times higher than Imboulou 0 120 the south. For example, all forest concessions in the north CEC 0 300 (and some in the south) are too far away to benefit from Total 171 591 the electrical network and must rely on their own diesel Source: SNE/MEH. generators for the treatment of wood. The cost of produc- tion based on diesel is estimated at $0.23 per kilowatt- The backwardness of the Congolese energy sector hour for the concessionaires in the south, where fuel is is particularly significant in terms of transport of energy. cheaper because of the proximity of Pointe-Noire, but it is Despite a hydroelectric potential estimated at 14,000 $0.62 per kilowatt hour in the North, almost three times MWh, the access to energy infrastructure in Congo is low. as expensive. By comparison, the long-term marginal cost The access rate to electricity is around 30 percent of the total of grid electricity is $0.08 per kilowatt-hour and could population, which is below the average of other developing drop to $0.06 if the country had sufficient infrastructure countries with low incomes (41 percent). Congo ranks 32nd to import electricity from Cameroon (see Figure 4.47). out of the 53 countries in the 2010 Energy Development Figure 4.48 shows the budget share for electricity per Index Infrastructure Development of the African household, by quintile, depending on region, for 2005. Development Bank. In 2012, the Congo had a capacity of The projections of investment execution rates indi- 591 MW, compared to 171 MW in 2008 (see Table 4.10). cate that budgetary authorizations were over-executed. The access to electricity in 2008 is well below the Indeed, the implementation of an extensive program of average of others African countries, in both urban and public investment entails major challenges at the project rural areas, but the situation has been particularly severe level. In the specific case of the Congo, several reasons can over the past few years with an access rate of only 16.4 explain the fact that resources were diverted to different FIGURE 4.47: Selected SSA Countries – Effective Residential Tariff at 100 KWh 35 30 25 US$ cents 20 15 10 5 0 Zambia Nigeria Malawi Congo, Dem. Rep. of Ethiopia Mozambique South Africa Lesotho Ghana Tanzania Namibia Cote d’Ivoire Benin Niger Cameroon Rwanda Kenya Congo, Rep. of Senegal Burkina Faso Uganda Madagascar Cap Verde Chad Source: Briceño-Garmendia et al.2008. 102 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 4.48: Household Budget Shares for the demand estimations for electricity and predicting its Electricity, 2005 trajectory; and by committing to a shared vision that takes 2.0 advantage of regional synergies. In addition, a better coor- dination between DGGT staff and MEH staff is required Percent of household budget 1.6 in order to improve the quality of investment sequencing 1.2 and programming in the sector. Finally, the DGGT should consider improving the efficiency of its business model. 0.8 0.4 Fostering an effective institutional framework by operationalizing regulatory 0 Q1 Q2 Q3 Q4 Q5 agencies and diversifying the actors National Urban Semi-urban Rural in order to spread the financial risks of investment in the sector, which is Source: IMF, 2009. currently too centered on the Congolese government. objectives, or misspent, instead of contributing to growth. Given the scale of investment needed to increase pro- The Congolese system of public investment has several duction capacity and access to electricity, the use of shortcomings: First, project costs are significant and are fre- private capital is necessary. Indeed, the introduction of quently subject to cost overruns. Second, both the technical independent power producers has two key advantages: preparation of the staff and the quality of projects are gener- the distribution of financial risk among several opera- ally low and unequal; as a result, these projects do not con- tors in the sector due to the separation of the business tribute as well as they could to strategic objectives, despite of production and distribution, and the mobilization being fully executed. Third, many weaknesses are due to the of additional financing and capacity-building of power speed with which projects are prepared, the many specific generation, ultimately improving the energy supply. demands that projects are supposed to meet, and the over- lap of responsibilities among the various authorities and Restructure SNE to improve its performance other actors. Institutional and governance issues also con- and restore its financial balance. tribute significantly to the limited success of these projects. The government is already taking important steps towards reforming the SNE; this reform will tackle oper- 4.4.5 Recommendations ational challenges on the part of the SNE. For instance, among others, two actions might facilitate the restora- From the above assessment of public spending in the tion of the SNE: (i) develop control activities to identify energy sector some policy recommendation to improve problems of recovery and fraud; and (ii) promote and public spending in the sector can be made. They can be generalize the promising innovative system of prepaid are summarized under five points. meters, which, with only a modest management cost allow customers to better manage their consumption Strengthen the capacity of national and and greatly simplifies the issue of recovery. regional planning to formulate a strategy for resolving the energy deficit in Congo Improve demand side management and the coordination between DGGT MEH (DSM) and the efficiency of electrical on investment in the energy sector. systems. National energy planning should be improved by: strength- In terms of economic and financial profitability, public ening technical and human resources planning, improving money should be invested to improve energy sector Sector Expenditure Reviews 103 efficiency: for a given demand by developing energy regulators on the financial terms of these investments conservation and various measures of energy conserva- and their institutional and regulatory environment. On tion to reduce the level of consumption, increase the this issue, there is no universal equation to reconcile and performance of power generation, and the distribu- balance the rights and duties of the public and private tion network and for a given supply by increasing the enterprises. performance of the power generation and distribution The obstacles to the implementation of tax benefits network. This better efficiency could provide compa- relating to the creation of investments designed to reduce rable gains and sometimes greater gains than investing the initial cost (for instance, exemptions from customs in the development of an additional energy produc- duties on imported equipment for the construction of tion. In particular, the use of Compact Fluorescent new facilities and modernization of the network) and Lamps (CFL), still not widespread in Congo, should those relating to operations (such as income tax and be encouraged among the population. A progressive other direct tax exemptions during the first years of tax (as VAT) on energy consumption would also help operation) should be corrected by the simplification of empower and educate actors. Finally, funding measures controls and application systems. Of course, these tax could complement tax measures to encourage industries measures will be useful only if the business environment to diversify energy sources. is attractive enough for investors. Among the different financial conditions that Attract private investment through financial could make the energy sector attractive for investment is incentives to build capacities. the choice of a pricing system (price cap) that is strongly Investment decisions depend on risks and returns of linked to project profitability. Proper planning should projects. Such decisions do not only depend on the allow governments to assess their energy needs and legal security and wider business environment, a com- potential demand in order to properly negotiate with the mon factor in attracting investment in all its forms operators over fee schedules and the level of investment. (PPP, concessions, BOT, BOO). As in other economic Finally, given the technical complexities and uncer- sectors, decisions also depend on the creditworthiness of tainties in the electricity sector, it is useful in many cases the consumer market and the prospects of profitability. to define as precisely as possible the specific commit- This requires more attention from the government and ments of the government and private operators. 104 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) PART III ASSESSMENT OF PUBLIC FINANCE MANAGEMENT SYSTEM This part of the report consists of three chapters. Chapter 5 focuses on the planning system as well as the budgetary process. Chapter 6 covers public financial manage- ment issues. Chapter 7 focuses on public procurement issues and their linkages with budget execution. Planning System and Budgetary Process 5 T he Congolese government has adopted a process to prepare its budget. However, although there is a specific and official schedule for the programming process of public investment, the process is not effective. The program identifies projects to be included in the State budget on the basis of public policy objectives and well-defined criteria. In order to be effective the investment planning process must be clearly planned in the budget preparation calendar. Currently, however, very few projects are subject to feasibility studies prior to enrollment in the State budget and project selection is no longer under the mechanism that has been put in place. As with recurrent spending, the preparation of the investment budget is led by SCMBF, through the central MTEF. Using the central MTEF, the Standing Committee of Macroeconomic and Budgetary Framework (SCMBF) drafts recurrent and capital allocations, but most investment projects are budgeted without prior studies. The budget execution process is very complex and leads to significant delays. The execu- tion of the budget includes several actors, steps, and procedures. Due to a codification proce- dure, the budget is hardly enforceable with normal procedure on January 1 of each year. Budget expenditures execution is scheduled by the Directeur Général du Budget (DGB) and settled by the Treasury. The Minister in charge of Finance is the main organizer of budget. State expendi- tures are provided in the finance law and must comply with laws and regulations. The Financial Controller is responsible for ensuring compliance with regulations for implementation of spending. The Treasury, which centralized and managed revenues collected by various govern- ment agencies, improved many aspects of its management, however the risk involved with cash management remained substantial. The Minister in charge of Finance is the main orga- nizer of the State revenues and the treasurer-general-paymaster is the principal accountant of the State budget. The treasury account is comprised of cash, short-term bank loans, and short-term financial assets, which are said to be centralized in a single treasury account.38 Since 2008, the Treasury improved many aspects of its management, for example the collection and transfer of oil revenues by SNPC has significantly improved according to EITI reports. In addition, the 38 However, this only the case of the Treasury current account; the saving accounts are not centralized and are not under the Treasury direct management. In addition, some other agencies that collect some government revenue send it to the Treasury current account with some delays. 107 realization of budget surpluses over many years is a sign calendar did not comply with its timing on the imple- of good performance of the Congolese treasury system. mentation of the Medium Term Expenditure Framework However, low cash management capacity actually hin- process (MTEF). ders the quality of data and limits the overview. The risk Under the authority of the Head of State, the of the system of cash remains fairly substantial, mainly Minister in charge of Finance is responsible for because the Treasury management has not been able to drafting the finance bill and the budget. He prepares systematically the required document in support of its the draft budget law, which is approved by the entire cash operations. Cabinet, as stipulated in the organic Law of the financial Based on the findings of this chapter, the fol- System of the State (LORFE) of 2012.40 The finance bill lowing measures appear appropriate to the context: of the year is drafted using a multi-year fiscal and eco- i) accelerate the reform of the legal and regulatory frame- nomic program document, which covers a period of three work of public accounting; ii) apply relevant procedures years. The document of fiscal and economic programing of the accounting instruction of 2001 on a cash basis is presented by the Minister in charge of Finance, then before the adoption of a new general regulations on reviewed and approved by the Cabinet. public accounting; iii) implement strict internal control Budget preparation takes place within an mechanisms, which by periodic statements of reconcilia- organizational framework, the Standing Committee tion will eliminate the risk of accumulation of arrears of of Macroeconomic and Budgetary Framework revenue collection; iv) establish an effective cash manage- (SCMBF), which prepares periodic reports of the ment system; and v) design and implement an all-actors budgetary framework. The NDP is the basic document budget implementation training program including cash for budgetary planning. It traces the budget estimates, planning and implementation of fiscal regulations. and for each ministry it defines its strategic share that is updated each year based on socioeconomic conditions. 5.1 Programming and Budget Cycle In June of year n-1, the Committee prepares the mac- roeconomic framework, which is used to prepare the 5.1.1 Budget Preparation programming report. The programming report is the key document used to prepare the budget. The budget The Congolese government has adopted conference process generally begins in July of year n-1 a process to prepare its budget, however it and ends in September. is not fully applied39 The review of the budget bill takes place in each The budget calendar is established in late February house of the parliament (the National Assembly and or early March of each year; it determines the steps to the Senate) through their economic and financial follow in order to enact the finance law but it is not affair committee. The process begins with the submis- always fully applied. The budget calendar is the steer- sion of the budget bill before each house of parliament. ing instrument of the preparation of the Finance law. These houses organize discussion sessions with line It describes budgetary activities undertaken from the ministries on their proposed budget. On this basis, beginning of the previous year (outstanding) until the each committee prepares a report that is submitted to promulgation of the new finance law. It is established in the plenary session. The voting process for the finance late February or early March of each year. It determines bill is in two stages. In the first stage the economic and the steps to follow in order to enact the finance law by the Head of State, defining activities, deliverables, and 39 responsibilities. In fact, some activities may involve See Box A5.1 in appendix. 40 Articles 12 and 13: “under the authority of the Head of Govern- one or more jurisdictions. However, this calendar is ment, the Minister in charge of Finance prepares draft finance laws not always fully applied. For example, the 2014 budget that are approved Cabinet.” 108 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) finance committee vote on the bill. In the second stage, The programming process of public the entire house votes in a plenary session. This vote investment has a specific official schedule enables a consensus within the committee about amend- however, this process is not effective ments that were mostly retained. The law is passed and The program identifies projects to be included in the promulgated by the President of the Republic before the State budget on the basis of public policy objectives first day of year n. and well-defined criteria. Main actors involved in the programming of public investments are: Direction The government would like to render its des Études et Planification (DEP),43 line ministries, budgeting, a result-based process the Direction Général du Plan et du Dévelopement The Government is committed to undertake reforms (DGPD), 44 the Centre for Study and Assessment to improve the quality of its operations and results, investment Projects (CEPI), and the Commission for reflected by the establishment of the Comité National de the identification and selection of public investment Lutte contre la Pauvreté (CNLP)41 and the Committee projects (CISPIP). of monitoring and evaluation of public policies and pro- The NDP 2012–2016 is the general framework grams (CSEPPP) in 2011. Specifically, the President of of strategic planning in the Republic of Congo, where the Republic provided to the government a roadmap42 there are broken key strategic objectives. The NDP is covering the period 2012–2016 and requires of each currently the main reference in the programming of bud- Minister a specific task to ensure that his national policy geting and monitoring activities during the five years that achieve its goal on populations. In addition, improving it covers. It presents a summary of sector strategies and the preparation and execution of the budget, matching policies as well as actions and budget planning medium- with results on a multi-year basis through the MTEF is term programs. The NDP document includes i) the part of the search for efficiency in the management of Program of Priority Actions/Medium Term Expenditure public policy, as it has been reflected in the NDP 2012– Framework (PAP/MTEF) of the government from 2012 2016. Finally, the Annual Work Plans (AWT) of all min- to 2016; ii) the macroeconomic and fiscal framework istries are operational tools of Results Based Management (CMB) 2012–2016; and iii) the institutional framework, (RBM), which are ultimately reviewed by CSEPPP when monitoring and evaluation of the strategy implementa- preparing the budget to assess the Government forecasts tion of PAP/MTEF 2012–2016. for the guidance of the Head of the State. In principle, the programming of public invest- However, recurrent issues arise in operation, ment projects should flow from sector MTEFs, which production, and dissemination of periodic reports. themselves are already linked to sector strategies. But The government is facing many difficulties in the imple- the link between public investment program (PIP) of mentation of its monitoring and evaluation apparatus: ministries and sector MTEFs are not always well estab- meetings are not regular; there is conflict between lished, as well as the link between budget allocations and institutions on their respective responsibilities; there is sector MTEFs. The theoretical project selection process a lack of computer networks and/or websites in some to program and register for the investment budget is ministries (for releasing official documents); the highly presented in Box 5.1. centralized administration requires clearance for every- Under the theoretical project selection process, thing. These issue indicate a need to: i) build technical projects to be programmed are identified and pro- capacity of these two committees in the overall context posed by the DEP through the completed project of improving the coordination by the Government of 41 technical teams; ii) effectively implement tools to support National Committee for the Fight against Poverty. 42 Circular nº016 of 16 March 2013. decision-making; and iii) establish a coherent national 43 Departments of Studies and Planning. policy of managing for results. 44 Directorate General of Planning and Development. Planning System and Budgetary Process 109 Box 5.1: Theoretical project selection were selected, notified, and therefore eligible for funding process from the Fund study for the realization of their feasibil- ity study. But none of these 62 selected projects could 1. Identification of projects by the DEP of line ministries and actually benefit any funding from the Studies Fund for institutions 2. Deposit of files of identified projects at the CEPI the realization of their feasibility studies. This has led to 3. Holding sessions of the CISPIP for selection and notification demotivation of DEP who skim through and pass over of selected projects the CEPI project sheets. In 2012 and 2013, the CISPIP 4. Validation by CEPI of the terms of reference of the feasibility held no session. Consequently, the CEPI activities have studies of selected and notified projects 5. Recruitment of private Cabinets to carry out feasibility also slowed considerably in 2012 and 2013. studies The investment planning process must be clearly 6. Funding through the Study Fund of feasibility studies of planned in the budget preparation calendar, however selected projects currently very few projects are subject to feasibility 7. Completion of feasibility studies by recruited Cabinets 8. Expertise of feasibility studies (carried by Cabinets) by CEPI studies prior to enrollment in the State budget and 9. Enrollment in the investment program and budget of year (n project selection is no longer under the mechanism + 1) of all projects whose studies were appraised by CEPI. put in place. The selection and project feasibility study Sources: Authors and Congolese authorities should in principle be completed before the start of the budget process to obtain reliable data needed for the inte- gration of investment expenditures in the state budget. To this end, the investment planning process must be files and forwarded to CEPI. The selection of projects clearly planned in the budget preparation calendar. In to be programmed is within CISPIP, which is chaired addition, the project files do not contain a timetable for by the DGPD and which ensures the CEPI technical their implementation, which should allow for the inclu- secretariat. CEPI carries out an initial study of the proj- sion in the State budget of annual installments required ect based on the transmitted project sheets and prepares for smooth execution. Moreover, recurrent costs gener- the meeting of the CISPIP. The CISPIP meets to select ated by investments are not assessed, so that they can be projects to program. CISPIP notifies DEP of projects taken into account in budget planning. selected, which then develops terms of references for Given the current shortcomings of the invest- project feasibility studies and submit to CEPI for review. ment programming system identified, the government Based on terms of reference approved by the CEPI, sector should consider the following: i) take steps to revive the ministries launch the Cabinet recruitment procedure to activities of the Identification Commission and selecting carry out the feasibility studies, which are carried out by public investment projects (CISPIP); ii) operationalize the Office recruited. CEPI verifies the feasibility study the Study Fund and analysis of projects to ensure the conducted by the Office prior to the registration of funding and the effective implementation of project the project’s program in the capital budget. In order to feasibility studies; iii) make arrangements to achieve facilitate the completion of feasibility studies necessary project feasibility studies for inclusion in the public for good programming projects a “Study Fund” was set sector MTEF before the start of the budgeting process; up. The fund, managed by DGPD, is powered by the iv) proceed within the framework of project feasibility resources of the State budget and is intended to finance studies of projects of all ministries. 45 The establishment of the CISPIP and a study fund are certainly This system put in place did not work properly. sensible measures to ensure that investment projects proposed by sec- Created in June 2010, the CISPIP became operational tor ministries are properly investigated, evaluated, and are consistent with the strategic objectives, but the device set up for the identifica- in 2011.45 In 2011, the CISPIP actually held four ses- tion and selection of projects, and financing and implementation of sions during which 62 projects identified by the DEP feasibility studies has not functioned properly. 110 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) studies, systematic evaluation of recurrent costs of proj- Line ministries validate their budget allocations ects and make an investment selection criteria prior by the Cabinet before the transmission to Parliament of to inclusion in the State budget; v) match all projects the budget bill. However, ministries have the possibility proposed for a multi-year budgeting implementation to explain to members of parliament the sector policies schedule to allow for the implementation of the program that supported the budgets under consideration. This authorization mechanism or commitment authorization, sometimes leads to substantial changes in the amounts and payment of credit; and vi) strengthen capacity of provided in the bill. DEP in project studies. Overall, these shortcomings in the budget allocation process did not deter the government 5.1.2 Drafting of Line Ministries’ Budgets from keeping its focus on some priority sectors, but not on all. Figures 5.1 and 5.2 show that the priority The process of allocation of recurrent and given to education sector (primary, higher, and techni- capital spending to ministries has been cal) has always been reflected in the budget and even weakened by the end of the use of sector strengthened because its volume has increased by almost MTEF 25 percent per year since 2008. The agriculture sector Allocation of recurrent and capital expenditure (including fisheries) grows very slowly, against this fore- should induce the updating of MTEF, but it is no cast while the sectors of health and energy experienced longer the case. At the level of line ministries, allocation divergent trends. Finally, because of the events of March of recurrent and capital expenditure in the budget should 4, 2012, the alignment of the strategic planning of the respect the process of updating MTEF Box A5.1. But NDP budgeting has not been possible in part due to the because of constraints facing the SCMBF in its operation revision that resulted. and in the implementation of technical tools, the updat- ing of sector MTEF is almost abandoned. For instance, line ministries are now receiving their strategic shares FIGURE 5.1: Changes in Projected Budgets of during the first phase of budget conferences. Preliminary Some Ministries, 2008–2014 draft budgets of line ministries, which were based on 500 sector MTEF and on Priority Action Plans (PAP) have 400 disappeared. Therefore, the latest proposals are adopted Billions of XAF after ministerial review and arbitration during the second 300 phase of budget conferences.46 200 Currently, ministries match budget planning with strategic planning through AWP and Ministerial 100 Performance Contracts (MPC) under the guidance 0 of SCMBF. In this context, the Director General of 2008 2009 2010 2011 2012 2013 2014 the Budget (DGB) technically supervises the work on Education Health recurrent budget expenses with the administrative and Energy and water Agriculture et fishing financial managers (DAF), while the Director General of Source: Finances Law 2008–2014. Planning and Development (DGPD) leads the work on capital budget through Directors of Studies and Planning 46 This lack of usage of the MTEF drives the budget to follow a (DEP). Therefore, budget allocations are currently based yearly schedule, without the ability to master the sector medium- on historical fiscal performance, projects running over term expenditure or the ability to smooth out large expenditures on multi-year stable budget. In fact, PAPs derived from MTEFs almost more than one financial year, the priority sector strate- have disappeared. gies,47 and the guidance of the Head of State. 47 See, sector Strategy Papers and their action plans. Planning System and Budgetary Process 111 FIGURE 5.2: Forecast Budgets by the NDP Some 2006 and 2009. Meanwhile, the economic classification Ministries, 2011–2014 is partially used because currently, the government does 500 not produce all its spending in detail. This is due to the non-use of accounts of class 9 “Cost Accounting.” In 400 fact, the current version of SIDERE does not produce Billions of XAF 300 detailed administrative accounts. This requires specific computer enhancements of the software to enable it not 200 only to make the budget allocation, but also to produce 100 detailed accounting records as administrative accounts for each category of expenditure. 0 2011 2012 2013 2014 Education Health Government revenue estimation is done by Energy and water Agriculture et fishing SCMBF using data from the taxes, customs, Source: NDP 2012–2016, Book 3 du PND, pages 64–67. and petroleum administrations, but its quality is weak The forecast of government revenue in the bud- 5.1.3 Preparation of the Overall Budget get is made by SCMBF in the Ministry in charge of Finance. The exercise consists of determining the Budget nomenclature amount of (i) own revenues (taxes, income area, service The country prefers using administrative and eco- revenue, and portfolio provisions) and (ii) external rev- nomic classifications at the expense of the func- enues (government loans, donations of technical and tional classification. According to the legislation in financial partners) needed to cover the budget expendi- place, three types of budget classification are applied in tures. In practice, in light of recent data on the national Congo. In practice, the country has the propensity to and international situation, the SCMBF works with the use administrative and economic classifications at the the Department of Taxation and Areas (DGID), the expense of the functional classification. The State budget Directorate General of Customs and Excise (DGDDI), was presented by functional classification only between Congolese Fund of Allowance (CCA) to forecast FIGURE 5.3: Forecast of Budget Revenues, FIGURE 5.4: Forecast Expenditure 2008–2014 2008–2014 1,400 5,000 1,200 4,000 1,000 Billions of XAF Billions of XAF 3,000 800 600 2,000 400 1,000 200 0 0 2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014 Domestic taxes Customs taxes and duties Oil revenues Wages Material and supplies Transfers and intervention Non taxes revenues Government loans Grants Common charges Interest on public debt Sources: Finance Laws 2008–2014. Sources: Finance Laws 2008–2014. 112 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) non-oil revenue. The issue in the predictability of exter- (i) staff costs; (ii) goods and services; (iii) transfers and nal resources is the fact that on the one hand there is direct interventions; (iv) common expenses; and (v) the the absence of a debt strategy in the medium and long payment of interest on public debt. terms, and in the other hand, problems of coordination In the same way as for the recurrent spending, of financial partners with many commitments. the preparation of the investment budget is led by Regarding the prediction of oil revenues, data SCMBF, through the central MTEF. But the techni- used by SCMBF comes from the Direction General cal coordination of the DEP is done by the DGPD, of Hydrocarbons (DGH) and the Natural Resources to produce a balanced and sustainable budget, in line Office of the Cabinet of the Minister of in charge of with the guidelines of the NDP, sector priorities, and Finance who work closely with oil companies (such as guidelines of the Head of State. Currently, most invest- the National Society petroleum (SNPC), Total E & P ment projects are budgeted without prior studies. The Congo, ENI CONGO, etc.) to validate projections of coordination of activities of budget preparation and of oil production. The low reliability of the tools used is a execution of feasibility studies for projects to include in constant concern. Indeed, no forecast of oil production the budget that can be considered as overall preparations made since 2005 has been close. One could speak of of priority investment program (PIP) show mixed results overestimates of the original production and therefore and should benefit from additional technical support. oil revenues. Strengthening the instruments used for oil To remedy this shortcoming of lack of feasibil- forecasting is crucial to accurately predict state revenues. ity studies in the validation of investment projects Despite the dominance of oil revenues, tax revenues are by DEP, the Government has set up an Investment often projected as rising steadily under assumptions of Fund to support ministries in design and project success of the ongoing reforms in tax and customs. appraisal. Operational and appropriation difficulties are preventing this Fund from operating effectively to Recurrent and capital allocation are serve all ministries. Given that projects funded with drafted by SCMBF using the central MTEF, technical and financial partners of the Government often but most investment projects are budgeted have feasibility studies, staff of line ministries and of the without prior studies Investment Fund could gain from the transfer of these At the central level, the allocation of recurrent expen- good practices to build their capacity. diture is discussed in the central MTEF. The MTEF is a fiscal instrument that has a historical basis to date, and offers a variety of opportunities for projections FIGURE 5.5: Forecast Capital Expenditure, of public spending. Running in conjunction with the 2008–2014. macroeconomic framework, from which it takes fore- 2,500 casts of budget revenues to come, the central MTEF produces budget allocations over three years, taking 2,000 into account the needs of each sector as well as their Billions of XAF 1,500 strategies (if any) to achieve the defined objectives of the NDP 2012–2016. Based on sector PAP/MTEF 1,000 analysis, the central MTEF allows for a distribution 500 of budgetary resources consistent with the ambitions of the Government. Despite the shelving of the sector 0 MTEF, the SCMBF continues to use this tool or at least 2008 2009 2010 2011 2012 2013 2014 some of its principles to set strategic shares or budget Domestically financed Externally financed (excluding grants) Grants allocations to ministries. Recurrent expenditure include: Sources: Finance Laws 2008–2014. Planning System and Budgetary Process 113 During budget preparation, external resources Capital expenditure proposals, developed from the are included in the finance bill. All external resources sector PAP/MTEF and letters of mission of the President to finance public investment and implementation of of the Republic, are subsequently reviewed and discussed development projects are included in the finance bill. during budget meetings, and finalized and incorporated The estimates of these resources are from information in the proposed budget of the State that is subject to provided by the government’s debt agency (CCA), tech- the approval of the Cabinet. After the examination and nical and financial partners, and some project imple- approval of the State budget draft by the Council of mentation agencies. Ministers, the final amount of the budget for each depart- ment and agency is retained in both recurrent and capital Budgeting of public investment budgets, and the minister for each sector shall be notified Programming and budgeting of public investments of the amount of resources (strategic shares) allocated to are made primarily by DGPD and DGB. While these his department. Based on these strategic shares provided two structures currently fall under the MEFPPPI, the to ministers following budget approval by the Council two processes are done separately. The consolidation of Ministers, each Ministry readjusts its budget (recur- of the portfolios of Economy, Finance, and Planning rent and capital), finalizes and passes it to the DGB for should encourage in principle the unification of the inclusion in the State budget draft to pass Parliament. preparation of the State budget process, but this goal In general, the differences between the amount is not yet fully achieved. The State budget is unified in of the initial estimate of capital spending by sector its presentation, but the process of preparation is not ministries and communicated strategic allocations yet fully unified. are very important. Strategic shares are later shared Ministries usually present projects to program with sector ministries and their inclusion leads to pro- and budget on the basis of sector PAP/MTEF enve- found changes in initial estimates of capital expenditure. lopes. The initial budget proposals for capital expendi- Amendments to the initial capital expenditure forecast tures are then corrected and/or completed on the basis of to readjust strategic envelopes amounts can only be rel- the guidelines in the “mission statements” made by the evant if sector ministries have enough time to rework President of the Republic to ministers. These directives the budget. But according to DEP and DAF of sector of the President of the Republic sometimes bring minis- ministries, very little time (usually about three or four ters to substantially change their investment expenditure days) are often granted to make the necessary adjust- forecasts and sometimes may cover projects that are not ments to take into account the strategic allocations ceil- provided for in the sector PAP/MTEF. ings. Table 5.1 illustrates the differences observed for the TABLE 5.1: Differences between the Amounts of the Projects, the Annual Installment of the MTEF and Strategic Shares of the Ministry of Health and Population in 2014 Value, billion of XAF Annual installment MTEF for capital expenditure 124 Effect of directives of the President of the Republic contained in the mission statement 496 Amount projects presented 620 Final estimates for the 2014 capital expenditures 85 Deviation from the annual installment of the MTEF –31.45% Deviation from the projects presented –86.29% Source: Direction des Études et de la Planification du Ministère de la Santé et de la Population. 114 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) 2014 budget of the Ministry of Health and Population and the regulation law, as stated in the Constitution of in the amounts of the estimates, the annual installment January 20, 2002. According to the law, this bill should of the sector MTEF and PAP-strategic shares. be submitted no later than one week before the open- Due to numerous shortcomings, the budget ing of the budget session on October 15. Given that allocations of public investments do not correspond each house of Parliament has an Economic and Finance to the overall cost of the estimated investment transac- Commission, finance bills, regulations laws as well as the tion. In fact, the late disclosure of strategic participation, report of the Court of Auditors and Fiscal Discipline insufficient time given to sector for the readjustment are examined in these commissions before the plenary. of their budget proposals, the considerable differences In accordance with the law,48 the Ministry in charge of between the budget proposals of sector ministries, and Finance sends for declaration of conformity, the finance the requirement to take into account guidelines of the settlement bill of year n-1 to the Court of Auditors President of the Republic all significantly reduce the before the review of the budget bill for the year n+1 by quality of resource allocations. Moreover, the lack of the parliament. feasibility studies of projects proposed for inclusion does In addition to the documentary exploitation, not allow for reliable estimates of project costs, which the control of public finances by parliament is done weakens the realism of budget allocations. As a result, through hearings of Ministers on their budget lines. the budget line opened for the appropriation of a given The parliament also exercises its authorities through capital expenditure may be overestimated or underesti- committees of inquiry that help more deeply understand mated. This has a negative impact on the effectiveness specific topics. During discussions in the parliament, the of the strategic allocation of resources. The overspend- budget bill sometime changes substantially in levels both ing noted in the execution of capital expenditures could on the resources and the uses side, without breaking the result from the underestimation of budget allocations. macroeconomic balance. Furthermore, the fact that project files to be included in the capital budget are not accompanied by the 5.1.5. Overall Budget implementation schedule, means that the program and payment of credit authorization mechanism (under the Efforts to improve the budget 2000 Law on the financial system of the State or that of Currently, the Government is reforming the chain of commitment authorization and payment appropriations public revenue to guarantee to the State greater over- required by the new Organic Law of 2012 relating to the sight over its financial resources. This will alter how financial system of the State) cannot be implemented. revenue management is tied to daily inputs. This reform To improve the budgeting process of public will streamline the chain of receipt (revenue) by intercon- investment, the government could i) arrange for approval necting data systems (SYSTAF) of the tax administration, and communication of strategic departments share early ASYCUDA of the customs administration, SIBEC of the in the budget process; and ii) improve the presentation budget administration, and SIDERE of budget and trea- of the budget allocations for capital expenditures by the sury administration. Additionally, the implementation of implementation of the program authorization mechanism a reform of the tax collection procedure (by the Treasury or commitment authorization and payment of credit. through the bank), which is currently insufficient, will become more important with the information, train- 5.1.4 Adoption of the Budget by ing, and participation of trader groups. Finally, another Parliament reform would be to implement the collection of customs The role of the Parliament is to control the fiscal and 48 Article 128 of the Constitution, Articles 7 and 30 of the Act of financial policies of the executive, to vote the budget bill n⁰19-99 August 15, 1999. Planning System and Budgetary Process 115 duties and taxes by the Treasury through the clearance year and can continue until the end of March. Hence, of imported goods. These last two reforms would gain the budget is hardly enforceable with normal procedure in importance by being combined. on January 1 of each year. Budget execution may differ Between 2002–2007 and 2008–2013 period, slightly depending whether it is revenue or expenditure. Congolese public financial management has changed both in its form and its substance, but much remains Budget revenue collection is centralized to be done. The Organic Act of 2000 was replaced in and managed by the Treasury 2012; the adoption in 2009 of the procurement code has The Minister in charge of finance is the main orga- profoundly impacted the chain of public expenditures nizer of the revenues of the State. He is entitled to from 2010 with new actors and procedures, the imple- delegate organizers which are: (i) the Director General mentation of the functional budget classification was of Budget for revenue from services; (ii) the Director given up after 2009, and the introduction of the MTEF General of Taxes and Areas for direct and indirect taxes, approach allowed a strong alignment of development assimilated taxes, and receipts field; and (iii) the Director strategies to the budget allocations between 2009–2012. General of Customs and Excise for customs duties and In addition, the decree of 2008 strengthened the bud- excise duties. In addition, public officials and officials of getary nomenclature. the legislative or administrative bodies of local govern- ment management institutions are also the main revenue 5.2 Budget Execution organizers of their respective institutions. Any main organizer of revenue may delegate its The execution of the budget includes several actors, powers or can be supplemented in case of absence or steps, and procedures. There are four type of actors: impediment. For special Treasury accounts, the autho- officers, directors, fiscal or financial controllers, and rizing organizer is responsible for special accounts in public accountants. There are also four steps: commit- accordance with the responsibilities of his department. ment, scheduling, liquidation, and payment. Finally, In addition, an agreement between the State and the there are three types of procedures: normal, simplified, national oil company (SNPC) obliges the latter to repay and without prior scheduling. to the treasury the product of sales of shipments as well In the normal procedure of the expenditure chain, as any revenues collected on behalf of the State. prior to the phase of the engagement, there is a phase The revenue of the State or any other public body relating to pre-procurement. Laws governing this pro- include taxes, charges and fees, grants and loans, dona- cedure are the LORFE, the General Rules of Public tions and bequests, and regulation by a court or by Accounts,49 the Procurement code,50 instructions on conventions.52 procedures for implementation and control of the state All the State resources are supported, collected, budget,51 and annual circular application of the law of centralized, and managed by the Treasury. They are finance. detected, liquidated, and issued by the main revenue Due to codification procedure, the budget is organizer or his representatives.53 The execution of the hardly enforceable with normal procedure on January public revenue is as follows: the organizer makes the rec- 1 of each year. Following the enactment of the Finance ognition of rights, liquidates revenue by issuing orders Act by the President of the Republic, the computer ser- vices of the Directorate General of Budget (DGB) are 49 Decree no 2000-187 of August 10, 2000. responsible for the codification of the budget in an inte- 50 Decree no 2011-843 of December 31, 2011 amending and supple- grated system of income and expenditure of the State menting certain provisions of Decree no 2009-162 May 20, 2009. 51 Decree no 2009-230 July 30, 2009. (SIDERE) in accordance to the budgetary nomencla- 52 See article 65 of decree No. 2000- 187 of August 10, 2000. ture. This rather heavy work often begins early in the 53 See Article 25 of the LORFE 2012. 116 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Box 5.2: Revenue collection process Box 5.3: Spending execution process Organizers (mains, delegates, Public Accountants Administrative phase: Organizers, Accounting phase: secondary, etc.), the directors (main secondary, directors, and managers of funds Public accountants treasury, and managers of funds alternates, subordinates, etc.) financial administrations Ministries DGID/ DGDDI/ DGDDI/ DG DGCCA/SIGADE Commitment Liquidation Scheduling Recovery Ministries, DGCB DGB/SIBEC DG Treasury Organismes, and Institutions • Commitment • Control of • Scheduling • Payment of receipt to ensure revenue collection of State debts. • Liquidation Commitment They shall notify public accountants responsible for the • Liquidation collection of these orders of receipt. However, even if the law addresses the issue of external resources (loans up to medium and long term), the management is up The commitment of an expenditure is the act by to the CCA. In practice, the Treasury does not control which a public body enters into or establishes an obliga- all payments to the Congolese State. For example, exter- tion against itself, which results in a charge. It must be nal resources to finance projects by Congo’s partners are accompanied by a commitment on accounting books often directly passed into the accounts of commercial in order to keep corresponding assets. It is materialized banks; Box 5.2 provides a chart of this process. by an order, a market (procurement), a contract, or a commitment expenditure decision. Budget expenditure execution is scheduled After receiving notification of the commitment by the DGB and settled by the Treasury authority authorizing the credit, administrators (minis- The Minister in charge of Finance is the main orga- ters, heads of institutions, public enterprises, and local nizer for the State expenditure budget. Officials of collectivities) or their delegates, managers of credits public enterprises as well as officials of the legislative offer commitments spending. After recording the com- or administrative bodies of local government manage- mitment in the computer, the administrator of credits ment institutions are also main organizers of spending publishes a commitment package with the right com- for their institutions and bodies respectively. All main mitment and the order that he signs. Once these files are organizers of expenditures may delegate their powers or accepted by the comptroller and returned to the admin- can be supplemented in case of absence or impediment. istrator of credit, the expenditure is incurred. The legal Therefore, the Finance Minister delegates authority to term of commitment is five (5) business days maximum. the DGB regarding the expenditure of the State budget. The administrator of credits gives the order approved For special Treasury accounts and related budgets, the by the financial comptroller to the trader to execute the delegated organizer is responsible for special accounts command. In the case of a public procurement, this phase corresponding to the attribution of his institution. goes up to at least 30 days, which is the time required State expenditures are provided in the finance for the approval by the DGCMP of the procurement file law and must comply with laws and regulations. They before and after tenders for contracts on works and/or are incurred, liquidated, and sequenced before being supplies or for expressions of interest for the procurement paid (sections 124, 125 of Decree No. 2000-187 of 10 of consultants. Administratively, in the upstream phase of August 2000). The expenditure execution of the State procurement, at the time of the preparation of the tender, budget is done in four steps: (i) commitment; (ii) liqui- the administrator of credit makes a booking credit of the dation; (iii) scheduling; and (iv) payment, as described estimated procurement to block appropriations on the in Box 5.3. budget line. After signing the contract, the administrator Planning System and Budgetary Process 117 of funds made a commitment using the normal procedure accounting officer for all expenses of the general budget for the exact amount of the market (procurement) that of the state at central level. This officer can, under cer- comes to replace the original booking. tain conditions prescribed by regulation, delegate some In the case of contracts over XAF 1 billion, under of his powers to other public accountants: accountants the current procurement Code, the General Delegation subordinate or secondary (payers in embassies, regional to the Great Work (DGGT) sends the following to treasurer-payers, and recipients and collectors, etc.). The appropriate administrators of credits: (i) the applica- accountant carries the dual role of payer and cashier. It tion for reservation of credits before the bidding; (ii) the monitors and supports acts of scheduling, shall stamp application for advance payment; and (iii) the individual “Given good at Checkout” and proceed to the settlement responsible for payment. of expense. It is worth mentioning that the payment is The liquidation is used to verify the reality of the the act by which the public body releases debt and that debt and make the expenditure at the specified time. It payment is made exclusively by the assigned agency. can only be made after full delivery of the order on the The duration of the control and the management is a basis of the documentary evidence of the rights acquired maximum of three (3) working days and the settlement by the creditor. of the expenditure is a maximum of 90 working days. The Financial Controller is responsible for Finally, the issue of payment orders in regu- ensuring compliance with the regulations for spend- larization of interim payment (prepayment order ing implementation. It exerts a priori control over all (OPPA), payment order (OP), and early settlement expenditures of the State budget for commitment and order (ORPA) by the delegate organizer takes two days payout phases. Three delegates of the Comptroller are maximum. assigned to the treatment of ministries and institutions files in order to improve the efficiency of commitment Budget expenditure is executed using and liquidation of expenses. Each of the 12 administra- three main types of procedures tive divisions (départements) has a division director of Expenditure execution of the State budget can be done budgetary control that monitors State and decentral- in three separate proceedings, namely: the normal pro- ized services. The legal duration of the liquidation is a cedure, the simplified procedure, and the procedure maximum of 5 working days. For works contracts, the without authorization. demand for any advance startup and various counts are The normal procedure. This procedure should be partial fulfillment of the initial commitment. It is the used for all expenses related to the acquisition of goods same for any contract made in several tranches. and services. The implementation of expenditure from The scheduling of expenditure is the act whereby, public procurement in the normal way consists of two according to results of the liquidation, the order is given phases: (i) engagement and (ii) ordering liquidation to the accountant to pay the expense. The scheduling is payment. done by a main organizer, a secondary, and delegates. The simplified procedure. The simplified proce- The Director General of the Budget provides schedul- dure differs from the normal procedure because it has ing of expenditures on the State budget done at the a single phase. In fact, the commitment and liquida- central level by the issuance of payment orders. At the tion steps are done together. This procedure is used local level, the departmental budget officers (secondary for accrual (rent, water bills, electricity, and telephone, organizer) issue payment orders. The legal duration of contributions to international organizations, student the liquidation is 5 business days maximum (Decree No. scholarships, and others), transportation costs, costs of 7333 of 4 September 2009). assignments, and transfers. The paymaster general treasurer is the princi- The procedure without authorization. This pro- pal accountant general of the State budget. He is the cedure applies in relation to the repayment of certain 118 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) urgent expenses that can be paid without prior issuance FIGURE 5.6: Amounts Remaining to be Paid in 2012 of payment orders, such as medical evacuations and pay- and 2013 (in billions of XAF) ment in XAF of foreign currency with flexible exchange 200 rate. It also covers the payment of advances, menus, 160 recipes, and credits delegations. As a normal procedure, this procedure consists of two phases: (i) payment com- 120 mitment and (ii) regularization. 80 The execution of spending using 40 discretionary accounts is a challenge that 0 should be addressed 2012 2013 In Congo, the execution of spending has used both Payment orders Exceptional procedures of payment (OPPA) normal procedures and exceptional or emergency Sources: Reports of the CCDB, 2012 and 2013. procedures, so-called “Ordre de Paiement par Anticipation” (OPPA). The pervasive use of OPPA, which came about as a result of an attempt to circumvent the creation of this PEMFAR, the team uses the ratio the normal expenditure execution process, has resulted of OPPA in the remaining payment orders by CCDB in a lack of transparency in public resource manage- reports as a proxy of the importance of OPPA in Congo. ment. The use of OPPA has been highly discretionary According to data available on the remaining payment and circumvents the normally complex ex-post control orders in CCDB reports as shown in Figure 5.6, about procedures of the budget. Authorities should be com- 41.1 percent in 2012 and 71.2 percent in 2013 of these mitted to reducing the recourse of OPPA as part of their remaining payments are OPPA. These figures are very efforts to improve transparency and accountability in likely to be the actual figure of the use of OPPA in non- the use of public resources. However, it is important automatic budget spending such the payment of wages to note that normal expenditure execution is plagued and of debt services on external debt. with complicated procedures between the requisition Additionally, after the closing date of the budget, and disbursement stages; this is one of the justifications the treasury unilaterally cancels mandates of transfers for using OPPA. In fact, the public expenditure chain and interventions as well as other mandates of public is lengthy and heavy, and does not allow line minis- procurement and returns to the DGB for re-registration tries to properly execute their budget. DEPs claim that and payment of the OPPA “remained to be paid” to the they are unable to complete any given goods budgetary following budget. This practice currently constitutes an operation using the normal procedure in a fiscal year. infraction of the public financial management standards. At least three main constraints explain this fact: i) com- In addition, DGB postponing expenses from year n to mitments are stopped by a circular note of the Finance year n+1 renders the effectiveness of budget surpluses Minister three months (90 days) before the end of the questionable. fiscal year (in accordance with the legislation in force); ii) the long delay by the Ministry of Finance to approve Capital expenditures financed with any goods contracts; and iii) the non-respect of delay external resources suffered from lack of by the Treasury of the payment of mandates or orders. coordination Although, the use of OPPA is growing and From 2008 to 2013, mobilized external resources becoming too big, the government does not present (medium- and long-term loans and grants) are weak direct statistics on it. Given that no governmental sta- and have averaged 7.8 percent of total government tistics on OPPA have been published or shared during revenue. Because of weak organizational and technical Planning System and Budgetary Process 119 capacity skills of authorized services, management and FIGURE 5.7: Evolution of Public Transfers to Local monitoring of project implementation donations still Governments rely heavily on late information from technical and finan- 400 cial partners. The CCA managed medium- and long- 350 term loans while the Directorate General of Partnership 300 Milliards de FCFA and Development (DGPG) and the DGPD have the 250 management and monitoring of project grants. The 200 coordination of donors is not systematic and Treasury 150 accounting is not yet capable of producing the account- 100 ing statements that would enable PTF to use the coun- 50 0 try’s financial management system. 2008 2009 2010 2011 2012 2013 Transferts aux autorités locales Total des transferts Local government budget is very small, less Sources: Settlement bills and GFSs 2008- 2013. than 5 percent of total budget and has different execution procedures From 2008 to 2013, transfers of local authorities in the At the regional level of public finance management, State budget represented a tiny share of public expen- between the decree 2000-187 of February 1st 2000 and diture in the Congo. They did not even reach XAF 50 decree 2009-230 of July 30th 2009, there was a slight billion, representing an average of 14.4 percent of total change in the budget processes, with the introduction public transfers, or 3.8 percent of current expenditure for of the regional controller from the General directorate in the period. These resources supplement the local authori- charge of budgetary control, the clarification of profes- ties’ own revenues (licensing, municipal taxes, etc.) and are sional relations between regional accountants with the also used to finance development through local councils. treasury in collecting revenues and spending, and the The organization of public expenditure devolved use of new technical tools and reports. and decentralized levels are guided by Law No. 2000- 187 of August 10, 2000. According to this law, the 5.3 Disbursement System main organizer of expenditure: (i) for an administrative division (Département) is the Préfet; (ii) for the depart- 5.3.1 Public Accounts mental Council is the President of the Council; and (iii) for the City council is the council president or the Although the country adopted a new legal framework Mayor. They may delegate their powers on spending to in 2012, it still used law related to the previous frame- delegated organizers. For loans of decentralized services work. In September 2012, Congo adopted a new legal of the State installed in local communities, centers of framework for public accounting with Law No. 20-2012 sub-scheduling are established to ensure the liquidation of September 3, 2012 on LORFE in transposition of and scheduling of the State budget in the division. These CEMAC 2011 Directives 2011. However, the country centers of sub-scheduling are services of the DGB and is applying temporarily previous texts related to LORFE are led by a secondary organizer. No. 1-2000 of February 2, 2000; which are: (i) the Regional paymasters, recipients, and collectors General Public Accounting Regulations of Decree No. are direct accountants of the Treasury and the assis- 187-2000 of August 10, 2000, in which Article 1 states tant accountant Paymaster General (IPG). At the local that it regulates “the management of money, securities, level, municipal recipients are secondary accountants. and property belonging or entrusted to the State, local Collectors are recipients of significant accounting bud- authorities, public institutions and public bodies that gets of local authorities. the law subject to the law of public accounting;” (ii) the 120 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Fiscal Nomenclature of the State, under the Decree with the law. These directives should help the CEMAC No. 92- 783 of August 29, 1992 and supplemented by countries in promoting transparency and disciplined Decree No. 2008-59 of March 31, 2008 on the func- management of public finances. Indeed, according to tional classification of expenditures—this Nomenclature the findings from IBP’s Open Budget Survey 2012, the adopted a differentiation in the classifications depending three CEMAC countries surveyed (Cameroon, Chad, whether it is the operating budget or capital budget; and and Equatorial Guinea) have been ranked among the (iii) the Accounts of the State, which derives from the ten worst performances. chart of accounts Union Douanière et Economique de The Congo needs a new OHADA accounting l’Afrique Centrale (UDEAC)54 1974 (see, the classifica- system (SYSCOHADA) because it could bring impor- tion by economic type), whereas, according to Article tant innovations to the current OCAM system on 6 of the Directive 3/11-CAEU-195-CN-22 CEMAC, accounting and financial information. For example, the accounts of the State is an accrual accounting based it could bring innovation in monitoring cash flow and on the principle of recognition of rights and obliga- statistics, and national accounts through a structured list tions in accordance with the organization system for annexed. It forms a coherent legal framework includ- the Organisation pour l’Harmonisation en Afrique du ing the accounting system, the plan and operation Droit des Affaires (OHADA).55 of accounts, technical deepening, and the cash basis This is currently a partial alignment with CEMAC accounting. With SYSCOHADA, the State still main- standards of the legal system of public financial manage- tains its important place in information requests, but ment that will be soon corrected with a new Règlement other categories of stakeholders are also covered, unlike Général sur la Comptabilité Publique (RGCP), a new the OCAM system that targeted only the State. The budget nomenclature, a new accounting plan, and a code SYSCOHADA brings more financial statements than the of transparency and good governance in the management OCAM, in terms of detail of information in the content of public finances. of these financial statements in order to improve the The West African Economic and Monetary Union judgment and decision of the principal users of financial (WAEMU) and the Central African Economic and statements. It is flexible, versatile and general, contrary Monetary Community (CEMAC) each adopted a num- to the accounting OCAM that featured some rigidity, ber of new Directives for PFM reform. Transposition of complexity, and difficulty of use.56 these Directives into national law in member countries is Thanks to the current legal framework, the mandatory. Regarding the decentralization process, these Direction Générale des Comptes Publics (DGCP) has directives contain some rules or provisions for manag- always produced the year-end accounts, specifically ing the local government budget. But, considering both the Settlement Law. Since 2012, the project of the year the serious delays in implementing and completing the n-1 resolution is tabled at the same time as the draft decentralization process in each country and the slow budget for the year (n + 1) and the two are adopted by rate at which the Directives are being transposed into December 31 of year n; in accordance with good practice. national law, it would be difficult to see a success in short However, technical difficulties persist in the production term implementation at the sub national level. Indeed, and publication of related documents of the finance bills only Senegal has implemented all of the WAEMU PFM by officers and accounting of the State. In addition, for Directives. The Malian government has implemented two of them, and Burkina Faso one. From the CEMAC 54 Previous denomination of CEMAC. side, Cameroon and Gabon has implemented at least 55 Organization for the Harmonization of Business Law in Africa. 56 four of the six CEMAC PFM Directives. Congo and For example, with the OCAM plan, the detail of expenditure by economic classification is not available. In fact, this accounting plan Chad have transposed one directive. This shows that provides class 9 “cost accounting,” but the handling of this class is the majority of member countries are not complying not easy at the end of year. Planning System and Budgetary Process 121 the statements of outstanding receivables and payables DGTCP), CCDB and Parliament, and if possible insti- at the end of the year, and for the accounts of public tutions of the fight against corruption in their organiza- administrative institutions and those of local govern- tion and in in their operations. ments, accounting balances are not often available when Strengthening the capacity of structures of public depositing settlement legislation. finance functions would help to establish the legal basis The country budget execution is not fully or norms and also to build proper tools to develop work- monitored by relevant institutions. In fact, La Cours ing methods and procedures. These instruments together des Comptes et de Discipline Budgétaire (CCDB)57 with a relevant form of organization would support the has limited capacity to perform its mission of judicial efficiency and transparency of these structures. review of public accountants and its audit. In addition Parliament suffers from inadequate resources to exercise 5.3.2 Preparation of Treasury Accounts its powers of control and audit. Hence, monitoring of and Laws of Settlements Reports budget execution is likely ineffective. The disconnect between the Parliament and other institutions that Many documents and reports are used in the moni- are monitoring the Direction Générale du Controle toring of budget execution. These documents include: Budgétaire (DGCB), Inspection Générale des Finances i) reports of the budget execution and administrative (IGF), and Inspection Générale des Finances de l’Etat accounts by the DGB; ii) financial statements and (IGE) further complicates the situation. Reports from management accounts by the DGT; iii) the accounting those institutions should have provided additional data balance and overall balance of the Treasury accounts; to parliamentarians involved in budget preparation and iv) annual CCDB reports on the implementation of implementation analysis. the budget, which include the general statement of Institutionally, the duplication between the conformity between the administrative account and Treasury and Public Accounting is legally abolished. the account management as well as other related goods However, Decree No. 2013-807 of December 30, deemed necessary. As such, the CCDB clearly indicates 2013 on the powers and organization of the General in its 2013 report that “the analysis is done on the basis Directorate of the Treasury and Public Accounting of the administrative account information, account man- (DGTCP), which indicates adherence by the country agement, the general balance of Treasury accounts, vari- to the CEMAC requirements by merging the former ous ancillary development budget operations accounting Directorate General Accounting public (PPB) and and project execution law of the Finance Act of 2013, as Direction Générale du Trésor (DGT) is not yet fully well as the National Centre of information Statistics and implemented. Economic Studies, the monthly report of the Directorate The completion of the transposition of the 2011 General of the Economy (DGE), and documents produced CEMAC Directives by adopting texts covering RGCP, by various ministries.” However, the last 2013 report budget nomenclature, accounts, and transparency code of the CCDB clearly highlights the lack of support- would help the country to standardize its legal basis in ing documentation that may lead them to verify some terms of public finances. This could be an opportunity transactions made correctly with State resources.58 See to correct the significant shortcomings identified in the Box A5.2 for recorded examples of missing documen- first transposition on LORFE. tation highlighted by various CCDB reports. Yet, the Empowering administrative or ministerial struc- law states under the provisions of Law No. 19–99 of tures to drive all the structural and multi-sector reforms August 15, 1999 on the organization of the judiciary requires proper implementation of directives from 2011, knowing that they will affect some departments of the 57 The Court of Auditors and Budgetary Discipline. Ministry of in charge of Finance (mainly the DGB and 58 Pages 69, 78, and 79 (see also Box 5.4 of this document). 122 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) in the Republic of Congo that “the CCDB is the 5.3.3 Treasury System competent court for control financial and accounting management of State funds. It judges the accounts The general paymaster (who is also the Director of officers and accountants as well as of those found General of the Treasury) is the principal accountant of responsible of fact. It certifies by statement of compli- the State budget. He is assisted in by a set of secondary ance, the general consistency of writings of the officers and assistant accountants (Treasurer, Payer, Recipient, and accountants.” and Collector). Hence, he is at the center of the treasury The unavailability of supporting documents of system whose architecture covers financial authorities, the law of settlement could be the direct consequence BEAC, DGT, and its branches in public schools and of the weakness of the current accounting system. The local communities. current system ensures that most of the data are presented Financial authorities such as Customs, Taxes, in large mass, in aggregate form. Indeed, the SIDERE and the Treasury experience difficulties operating their still has not finalized its budget and accounting modules, information systems and thus cash, so that they easily which would assist in the extensive editing needed of resort to manual operations, which are sources of error. administrative and management accounts. In addition, At the DGT, cash management is often done manually DGCP does not produce the general account of the with all possible risks. financial administration (CGAF), which is a document The risk of the system of cash remains fairly summarizing the state accounts for one year of data. substantial according to the 2013 report of the World The recent Public Expenditure Financial Assessment Bank on the country’s financial management.60 Major (PEFA) also reports this issue. The lack of detailed data weaknesses are noticeable in the accounting system, the leads to less reliable budget data. The reports on bud- production capacity of comprehensive reports, lack of get execution are produced on a regular basis. GFS are availability of regular reports, and control of treasury produced on a quarterly basis, but on a non-accounting operations. The upstream control of the delivery of basis according to the PEFA. These documents are not ordered goods and services (the validation phase of the widely distributed especially given that the ministry does spending circuit) is often inadequate, creating down- not have a website. Within the financial administration, stream payment tensions and permissive conditions for permits are often required to obtain data and account- disbursement without services or goods delivery. In addi- ing documents on public record, which sometimes may tion, the frequent unavailability of the general account have different expectations from those of the Finance Act and other control panels for the accounting balance poses promulgated by the President of the Republic. questions about the quality of analysis of the Court of As a consequence, the quality of public finance Auditors and Budgetary Discipline. data suffers from some significant gaps. Cancellation The realization of budget surpluses over many of unpaid orders at year-end creates differences between years is a sign of good performance of the Congolese the accounts of the authorizing officer and those of the treasury system, but could hide systemic deficien- accounting of the treasure. Between CCDB reports cies. Indeed, the upstream strengthening of expendi- and the laws of settlement, significant differences are ture control at different stages of the chain of public recorded. For example, in 2011, the report of the CCDB expenditure (commitment, validation, authorization, posted on page 40, XAF 431.3 billion for capital expen- and payment) reduces the accumulation of domestic ditures,59 while the correct amount is XAF 1030.9 bil- arrears and also major delays in disbursement. Moreover, lion, as specified on page 8. In addition, in 2012, the realization of loans and advances is fixed at XAF 69 bil- 59 For consistency between the administrative and management lion, while in the regulation law the realization is XAF accounts. 139 billion (see details in Box A5.2 in appendix). 60 World Bank 2013. Planning System and Budgetary Process 123 despite significant efforts, which have been made to system. In Congo, cash administration is characterized ensure the regularity and the reduction of transfer times by: i) lack of a reliable tool for management planning, on the CUT revenue collected by the services of tax which affects the ability to regulate and control budget and customs, it would be appropriate to put in place execution and leads directly to a lack of mastery of cash strict internal control mechanisms, which by periodic flow that could increase the risk of arrears accumulation; statements of reconciliation, will eliminate the risk of ii) unorthodox practices of cancellation of liquidated accumulation of revenue arrears. and scheduled expenditure commitments by the DGB and their recommitment to the following year by the 5.3.4 Cash Management line ministry; iii) “obsolescence” and malfunctions of SIDERE; iv) lack of automatic locking mechanisms to The treasury account is comprised of cash, short- stop overspending of new authorizations in relation to term bank loans as well as short-term financial assets, available revenues; and v) current use of procedures with- centralized in a single treasury account. This cash is out prior commitment or without advance scheduling. managed according to the principle of double-entry There is an accumulation of weaknesses in com- accounting engagements, however with tools that are not parison with the situation prevailing between 2002 always effective. The underdevelopment of the financial and 2007. All reforms made after 2007 including the sector in Congo could explain the current composition implementation of the PAAGIP and the PAGGFP, aimed of this account. to solve the first constraints identified in the implemen- tation of the decree of 2000-187 of February 1st 2000. Strength of the cash management Some of those constraints were: (i) low consideration of Since 2008, the Treasury improved many aspects of the macroeconomic framework as a whole; (ii) weak link- its management. These improvements include: i) the ages between programmatic documents, the fiscal stance, situation of both domestic and external debt has been and lines ministries budgets; (iii) lack of sector strategies cleaned up; ii) the collection and transfer of oil revenues in most lines ministries; (iv) a weak relationship between by SNPC has significantly improved according to EITI investment and current budgets; (v) ineffective control a reports;61 and iii) the centralization of the treasury of tax priori; (vi) low or limited involvement of Parliament in revenue and customs has further increased. In addition, the budget process; and (vii) fiscal performance limited the establishment of a new chain of public expenditure only to the financial level without implications to social in 2010 allowed the treasurers to have an instrument to wellbeing. Most of those constraints remained nearly improve predictability of the expenditure. All these good unchanged due to the fact that all reforms implemented results are due to public finance reforms undertaken by were slowed, stopped, cancelled, or forgotten, such as the government in order to reach the completion point the MTEF tool and process, the budgetary functional of the HIPC as well as to the Action Plan for Improving classification. Public Investment Management (PAAGIP) and the Weaknesses in cash management remain a big issue Governmental Action Program for the Management at the CEMAC regional level, even if Government cash Public Finance (PAGGFP). holdings are largely centralized at the BEAC. All coun- tries of this region are facing many weaknesses in this Weaknesses of the cash management matter and need to enhance the coordination between Low cash management capacity hinders the quality fiscal and monetary policies. As governments start using of data, limits its overview, and creates stresses in the the regional government securities market, the BEAC should have better data on their fiscal positions to help 61 Initiative pour la Transparence des Industries Extractives, https:// improve coordination between fiscal and monetary poli- eiti.org/fr/rep-du-congo. cies. The establishment of cash management committees 124 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Box 5.4: Chain of public expenditure for Works contract Procurement Notification and Tax Request a start up Commitment in approval by the Signature of the Payment adavance not more SIDERE at the DGB Ministry of Finance contract than 30 percent (1st round) 5 days Payment. Uploading Procurement. Liquidation. Validation of the of the mandate at Draw of the mandate Clearance bundle commitment by the the Treasury 3 days at the (DGB) 5 days at the (DGCB) 5 days DGB 5 days Actual Payment of the mandate by the Missions to control Commitment in Treasure 90 days the work done SIDERE at the DGB (2nd round) 5 days In the case of equipments, there is no cash advances. Green = Line ministry is responsible, Yellow = The contractor is responsible, Evaluation and work Red = The finance ministry is responsible, liquidation account Request of part Notice of work or all remaining Mixed color = Joint control teams work in the field. delivery 70 percent Bottleneck Sources: Congolese Authorities and World Bank Staff compilations. and public debt committees, with the effective par- that the work was actually done in the field; and iii) the ticipation of the BEAC national directorates, should be payment of the mandate scheduled at the DGB by the very interesting. Indeed, inadequate cash management Treasury. practices by government could negatively impact the monetary policy implementation framework and limit 5.3.5 Recommendations the ability of the BEAC to effectively tackle the current excess liquidity. Based on the findings of this chapter there are some general recommendations that could improve the Overall the execution and disbursement of PFM system. Broadly, many recommendations are public expenditure is marked by important related to the effective implementation of the already bottlenecks. adopted reforms. Box 5.4 provides an overview of the chain of public General recommendations are actions that could expenditure. It focuses mostly on work contracts. It improve the entire system. These actions are: i) acceler- shows that the execution of the budget using procure- ate the reform of the legal (RGCP, NB, GFS, PC) and ment has many steps (at least 13). The majority of these regulatory framework of public accounting (effective- steps are marked by significant bottlenecks that were ness of Decree No. 2013-807 of December 30, 2013); previously discussed. Specifically there are three areas of ii) complete the modernization of SIDERE, with a important bottlenecks: i) the approval by the Minister of complete payment compartment (Treasury), integrating Finance of contracts from line ministries, after DGCMP other systems of financial authorities for budgetary con- examination; ii) the liquidation of decision—this is due trol authorizations and payments, and automatic editing to technical issues on the part of businessmen to prove of the accounts and the overall balance of the State; iii) it Planning System and Budgetary Process 125 is imperative to strengthen the capacity of Parliament integrated and interactive platform to monitor public so that it can exercise its powers in control of fiscal sus- aid for development; v) strengthen financial manage- tainability—all the more necessary as parliamentarians, ment tools from the public treasury in order to ensure members of the Finance and Economics Committee do reliability; vi) train managers and credit managers to not have all the information required on public finances first develop the MPAP and the tender documents upon to carry out parliamentary control; and iv) design and transmission of the Finance Bill in Parliament and final- implement an all-actors budget implementation training ize after his vote; vii) make relevant provisions based on program including cash planning and implementation of recent experience to organize again the devolution of fiscal regulation and public procurement—development budgetary control function by deploying at all depart- and use of MPAP, preparation of bidding documents, ments and agencies of the delegates previously trained bid analysis, and so forth. budget controller; viii) in the context of the imple- Specific measures to improve budget planning mentation of the LORFE 2012 and fiscal management are: i) rigorously apply the budget schedule in terms of focused on results, render effective the decentralization respect of time, deadlines, and milestones of activities; of the authorizing officer for government spending in ii) adopt a budget schedule in accordance with different favor of increasing the empowerment of sector minis- laws—a budget calendar that will become endogenous ters and heads of institutions in the implementation of over the medium term by all those involved in the their programs; and ix) undertake the decentralization budget process; iii) in the context of the transposition of contract approval authority to ministers and heads of of CEMAC directives in 2011, resolve the issue of the institutions, such that these officers can approve their uniqueness of the head of the budget preparation (the spending within defined limits defined; the thresholds preparation of the budget is under the supervision of of their approval jurisdiction markets could be aligned the minister in charge of finance, but in practice the to DGGT competence thresholds. DGPD and the DGB still keep their responsibility of In order to improve the Treasury management, each segment of the budget, recurrent budget for DGB the government should: i) strengthen the statistical and investment budget for DGPD); iv) strengthen the capacity in general and public finance statistics in par- current MTEF mechanism rather than creating a new ticular by a) setting performance targets for the treasury one from scratch.62 based on the percentage of actual payment of mandates Based on the above findings, in order to improve within the three month timeframe prescribed by the cur- budget execution the government should: i) do rent regulations;63 b) improving the current accounting the work of fiscal consolidation in parallel with the system through the development of technical (produc- Parliamentary approval work so that budget execution is tion tables, balance sheets, accounting balances, etc.) and effective on January 1st—pending the final codification, functional (mastery of transparency standards related budgetary expenditure would use exceptional procedures to the dissemination of data) capacities and c) modern- prepayments (PPP); ii) train DEP and procurement cells izing IT tools by introducing an integrated accounting (CPM) in the preparation of investment projects of their information system that would compensate for the respective ministry, given there are too many steps in current shortcomings of SIDERE in the automation this preparation and hence a need for capacity build- ing; iii) strengthen technical specifications of SIDERE to make it more operational and effective in line with 62 These new instruments pose some risks of duplicating instruments, the new guidelines of the CEMAC; SIDERE could then usages and do not induce the desired knowledge acquisition that cover the three classifications of the budget nomencla- could result from a permanent use of the same instruments. 63 This would avoid the current procedures of partial cancellation ture: administrative, economic, and functional in order of unpaid orders at year end and reprogramming the rest to be paid to produce detailed accounting records; iv) establish an the following year. 126 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) of administrative accounts and management accounts; effective application of the rules, tools, and procedures ii) improve the quality of the consolidated balance of the in place for cash management. This strengthening must treasury by producing all balances accounts of Class 1 to be accompanied by the systematization of internal con- 7 and 9 to input balances at January 1, and by observing trols to ensure a proper application of current account- the deadline of 15 days of publication after the end of ing policies and by the modernization of SIDERE at the month; iii) strengthen the process of the production the standards of 2011 guidelines of CEMAC, with of State accounts by including commitment accounting operating cash modules, editing accounting tables, and and investment operations in the administrative accounts blockages of new payment commitment in the event and treasury operations in bills settlement via the man- of reduced liquidity. Moreover, the government could agement accounts; and iv) implement strict internal i) establish effective cash management; ii) develop and control mechanisms which by periodic statements of implement a technical and an institutional framework reconciliation will eliminate the risk of accumulation of cash management; prepare and update the cash plan of arrears of revenue collection. according to a monthly budget used for control purposes In order to improve the cash management, given frequency; and iii) rigorously apply relevant procedures the current state of affairs, the Government should of the accounting instructions of 2001 on a cash basis take rigorous measures to correct the shortcomings (accounts of advances, account balances 38 and 41, that were identified. A first step would be to develop etc.) before the adoption of new general regulations on a procedural manual for DGTCP, then ensure the public accounting. Planning System and Budgetary Process 127 Review of Public Financial Management 6 T he legal framework governing the management of public finances is being reno- vated. In recent years, the government adopted or updated new legislation toward this goal. As a part of this effort, the organic law on the financial system of the State was adopted in September 2012, and the general regulations on public accounting and several regulatory texts were also adopted. However, some critical regulations of these laws are not yet implemented. Compared to 2006, the PFM system has seen some progress in the areas of the medium- term predictability and quality of budget preparation, however the programming and bud- geting process for investments are still not well coordinated. Efforts have been made in the organization of the preparation of the budget, notably through the formalization of the process of preparation, improved capacity forecasts and macroeconomic and fiscal framework, a better match between policies and proposed budget of ministries through the establishment of sector MTEF for all ministries. But, significant differences were found between annual tranches of sec- tor MTEF and budget allocations investments contained in the State budget. Spending limits are not communicated to line ministries early in the budget preparation process, but only after the adoption of the draft budget in Cabinet. There is a huge delay in the completion of tasks before the execution of the budget, including the preparation of annual procurement plans. Due to the cumbersome process of procurement, execution of investment operations starts not earlier than the late third quarter. In addition, the weak capacity of the actors in the execution of capital expenditure at the sector level and lack of anticipation do not help. Payment deadlines are not met, therefore undermining the budget credibility. Due to the lack of cash planning together with the lack of a budget control mechanism, the 90-day payment deadline set by the current regulations to the General paymaster for the settlement of expenses is not always respected. In addition, capital spending is not running smoothly and arrears have accumulated at the end of the budget year. Budget credibility is undermined by this lack of mastery of cash flow, leading to accumulation of arrears despite budget surpluses. The Public Expenditure and Financial Accountability (PEFA) 2014, found that, in practice, budget arrears do exist, even if they do not appear in the accounts due to the cancellation of liquidated expenditure commitments that are then sequenced and recommitted to the following year. 129 The government has created many institutions Based on these findings the government should to control public expenditure; however for capital consider in the short term and in the medium term expenditure the system is weak since only a tiny actions to improve: i) the legal and institutional frame- number of investment operations are controlled. work; ii) budget credibility, comprehensiveness and Control and monitoring are done at two levels, internal transparency; iii) budget accounting, recording, and and external. The internal control is done in two phases: reporting; and iv) predictability and budget execution i) a-priori and ii) post-spending. The a priori control of control. nonwage debt has struggled following the devolution of In the short-term, the government should focus financial control functions and assignment of auditors on getting the basics right: First, put in place the new to credit managers. Regarding post-spending control, Treasury structure in order to fully implement the cur- control bodies exist, but their response capabilities rent legal and institutional framework. Second, in order is very limited; although they have made significant to improve budget credibility, comprehensiveness, and progress in their organization, they are not yet fully transparency: reduce the gap between adopted and actual operational and interventions by these control bodies domestic revenues to less than five percent; reorganize cover only a tiny number of investment operations. the awarding of public contracts circuit so as to ensure External control also has two layers, the CCDB and budgetary control of procurement contracts by the the Parliament. The CCDB has developed the capac- DGCB before approval; include the stock of domestic ity to control the execution of the State budget, but payment arrears in public documentation; and make has yet to strengthen its capacity to perform its other an inventory of revenues received by ministries and not tasks. Additionally, the parliamentary control has been paid into the Treasury account. Third, undertake (at least improved by the progress made in the preparation of on a monthly basis) the reconciliation of accounting budgets, particularly for improving the predictability entries and bank statements and systematically clear the of medium-term financial stability and translation of outstanding accounts and regularize them in the gen- NDP priorities in the budgetary targets, and by the eral accounting of the government in order to improve organization and establishment of good procedures by budget accounting, recording, and reporting. Fourth, the two parliamentary chambers for the examination undertake a comprehensive monthly reconciliation of of finance bills. the operations of revenue administrations (DGI and The information system for accounting and DGD) and the treasury; make budget credits available monitoring is dysfunctional and is there is significant effective on January 1st by adopting the budget earlier delay in its upgrading. Accounting, recording informa- and by completing the codification of the budget in tion, and the financial reports computer system is dys- December, limit the use of simplified expenditure pro- functional. Moreover, it is not able to meet the updated cedures, and end non-contractualized debts so that the requirements of keeping accounts as well as the need of resulting arrears on spending is transferred to the CCA quality data for budget management. In addition, finan- in order to improve predictability and budget execu- cial monitoring of the implementation of investment tion control. spending is faltering because of the inadequacies of the In the medium-term: First, provide to line min- budget accounts and the inability of the computer system istries the status of payment authorization bodies to (SIDERE) to produce budget execution statements and empower them to improve expenditure quality, thereby complete accounts. Finally, there are significant delays in improving the current legal and institutional frame- upgrading the computerization program of the Ministry work. Second, in order to improve budget credibil- of Finance which aims at rehabilitating and integrating ity, comprehensiveness and transparency: strengthen of all current systems including ASYCUDA SYSTAF, human resources in DGCB, DGD, and DGI in rev- DMFAS, and SIDERE. enue collection and compliance with tax and customs 130 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) rules; develop a program-based allocation mechanism vision of the “New Hope” social project proposed by the for government transfers to territorial communities; President of the Republic for 2002–2009, which aimed to strengthen the supervision of autonomous public agen- rebuild the country after years of conflict, pursue peace- cies and public enterprises; and extend the timeline building and put the Congo on the path of development. of line ministries to prepare their budget proposals, From the perspective of financial management involving them in the process of simultaneous prepara- of public resources, several studies have been con- tion of current and investment budget estimates. Third, ducted in the country and important public financial in order to improve budget accounting, recording, management reforms have been implemented. In and reporting: issue revenue collection orders corre- 2006, the following were carried out: (i) an integrated sponding to government revenues whose amounts are assessment of public financial management and pro- known in advance; ensure centralization of accounting curement and (ii) an assessment of the performance operations of decentralized Treasury offices; establish of the public financial management system with the the general account of the financial administration; PEFA methodology. The 2006 PEFA assessment led to and for public investment projects realized by DGPD the preparation and the simultaneous execution of the produce budget execution statements on a semi-annual action plan for improving the management of public basis from the point of execution. Fourth, in order to investment (PAAGIP) and the governmental actions improve predictability and budget execution control: plan for PFM (PAGGFP). These two programs have build the human capacities of the DGI and the DGD not only helped the country to reach the HIPC comple- to increase the level of revenues collected and the qual- tion point in January 2010, but also have helped it to ity of control institutions; coordinate accounting in achieve major results such as: i) a revised chain of public order to avoid frequently observed differences between spending; ii) the public procurement code adopted in the reporting of tax and customs administrations and 2009; iii) the central and sector MTEF; iv) the system those of the Treasury; increase the number of financial of computerized revenue; and v) the centralization of controllers to reduce their workload; ensure a follow- revenue and expenditure by the Treasury. up by the Parliament of its recommendations to the Critical PFM reforms have been adopted and government by establishing an all-supervisory-bodies many other are under preparation or revision. In order consultation framework to coordinate intervention to comply with the 2011 guidelines of the CEMAC on programs. the management of public finances, the government adopted the organic law on the financial system of the 6.1 Context and Overview State in September 2012. However, with the revision of the general regulations of public accounting, the nomen- 6.1.1 State of Recent PFM Reforms clature budget of the State and of the accounting plan of the State is still an ongoing process. In addition, for The government launched a comprehensive program the first time the government is implementing a fiscal of structural reforms and strengthening of governance rule coupled to the integrated computerization of finan- in the early 2000s with a goal to consolidate peace cial administrations (customs, taxes, etc.) in a context and boost the economic and social development of of drafting the law on financial responsibility as part of the country. In this context, it developed the Poverty the transparency initiative on extractive industries. All Reduction Strategy Paper (PRSP) for 2008–2010. This institutions relevant for PFM control are in place with strategy was developed in the context of preparation the institutionalization of the CCDB, the IGE, the IGF for the HIPC Initiative completion, which allowed the and the DGCB. In 2014, a second evaluation of the Congo to benefit from the cancellation of a significant performance of the public finance management system share of its external debt. The PRSP, translated the according to the PEFA methodology was carried out to Review of Public Financial Management 131 measure the progress made since the 2006 evaluation on and reporting; iii) to improve budget comprehensive- various reform programs. ness and transparency; iv) to operationalize the new With these important achievements, the govern- treasury structures and improve cash management; and ment decided to expand and strengthen its strategic v) to strengthen internal control and increase external reform framework through the NDP, which is part of oversight of budget outcomes. a strategic planning and enhanced results-based man- Congo’s public financial management perfor- agement method. The NDP for 2012–2016, which was mance is lagging behind compared to some peer developed, is “a common roadmap” that should help the countries. In a sample comprising Cameroon (CEMAC country to achieve high-middle income status in com- countries); Nigeria, Kenya, and Ghana (SSA countries); ing years. This is a multi-year integrated, multi-sector and India, Brazil, and Indonesia (emerging economies), strategic planning framework that operationalizes the Congo’s performance (8 scores of C+ or more) is lagging President’s vision, articulated in the “Future Path.” Its when compared to Cameroon (score of 10), Nigeria main objective is to accelerate the modernization of the (score of 10), Kenya (20), Ghana (20), India (20), Brazil society and the industrialization of the country with a (27) and Indonesia (20). A more detailed analysis by goal to generate greater and shared prosperity. performance indicator shows some areas that account for this situation: Brazil had the highest score (com- 6.1.2 Main Institutional Challenges prehensiveness of information included in the budget Blocking Effective Implementation documentation; accounting, recording and management of PFM Reforms of Treasury balances, the debt and guarantees; quality and timeliness of in-year budget reporting; quality and In 2014, jointly with the government, the European timeliness of annual financial statements); Congo had Union conducted the PEFA review and the World Bank the lowest (budget cycle, policy-based budgeting). The the Public Investment Management Review (PIMR).64 scoring is summarized in Table 6.2. The PEFA and PIMR review results are mixed given The review noted significant training needs and that the scores for some indicators are good, but those high expectations in this area in all of the various for others indicate the need for significant improvement administrations. Managers as well as executive staff and in the coming years through actions that will enhance workers expressed these needs. With the exception of the budget formulation, adoption, execution, and report- General Directorate of Financial Inspectorate (DGIF), ing as well as internal and external controls. Weaknesses the General Directorate of Financial Control (DGCF), identified by the 2014 PEFA are major challenges which, and the Chamber of Accounts, the lack of training is to be addressed, will require greater efforts and sustained aggravated by a lack of procedure manuals. Moreover, political will by the government. Table 6.1 provides a there is a lack of computer equipment and half of the staff summary of scores assigned to the 31 indicators of the in various ministries has never used such tools. Meeting PEFA assessment system. these training needs should be backed by a recruitment Despite the fact that Congo has made progress policy based on the CEMAC zone provisions on the in recent years, its public financial management sys- harmonized wage bill, and should bear in mind that the tem is still fraught with weaknesses. In this regard, the age profile of the current workforce is high, which will detailed analysis presented in the next sections of this pose serious problems of renewal in the coming years. chapter illustrates the importance of five key challenges: i) to eliminate the excessive use of exceptional spending 64 procedures, which poses serious issues of governance and These reviews not only identified progress made in reforming the public financial management system, but also presented rec- hinders effectiveness of public expenditure; ii) to ensure ommendations to further strengthen it, based on a priority action timely, comprehensive, and accurate fiscal accounting program (PAP). 132 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) TABLE 6.1: Summary of PEFA Scores Scoring Component Scores Aggregate Public Financial Management Performance Indicators Method i ii iii iv Score A. Public Financial Management System Out-Turns: Credibility of the Budget PI-1 Aggregate expenditure out-turn compared to original approved budget M1 C C PI-2 Composition of expenditure out-turn compared to original approved budget M1 D B D+ PI-3 Aggregate revenue out-turn compared to original approved budget M1 A A PI-4 Stock and monitoring of expenditure payment arrears M1 D D D B. Cross-Cutting Features (Comprehensiveness and Transparency) PI-5 Classification of the budget M1 D D PI-6 Comprehensiveness of information included in budget documentation M1 C C PI-7 Extent of unreported Central Government operations M1 C B C+ PI-8 Transparency of inter-governmental fiscal relations M2 B D D D+ PI-9 Oversight of aggregate fiscal risk from other public sector entities M1 D D D PI-10 Public access to key fiscal information M1 D D C. Budget Cycle C(i) Policy-Based Budgeting PI-11 Orderliness and participation in the annual budget process M2 D D A C PI-12 Multi-year perspective in fiscal planning, expenditure policy and budgeting M2 C A C D C+ C(ii) Predictability and Control in Budget Execution PI-13 Transparency of taxpayer obligations and liabilities M2 C B B B PI-14 Effectiveness of measures for taxpayer registration and tax assessment M2 C D C D+ PI-15 Effectiveness in collection of tax payment M1 NN NN D NN PI-16 Predictability in the availability of funds for commitment of expenditures M1 D D D D PI-17 Recording and management of cash balances, debts and guarantees M2 A D A B PI-18 Effectiveness of payroll controls M1 D D D C D+ PI-19 Competition, value for money and controls in procurement M2 B D D D D+ PI-20 Effectiveness of internal controls for non-salary expenditure M1 D C D D+ PI-21 Effectiveness of internal audit M1 D D D D C(iii) Accounting, Recording and Reporting PI-22 Timeliness and regulation of accounts reconciliation M2 D C D+ PI-23 Availability of information on resources received by service delivery unit M1 D D PI-24 Quality and timeliness of in-year budget reports M1 C D C D+ PI-25 Quality and timeliness of annual financial statements M1 D B D D+ C(iv) External Scrutiny and Audit PI-26 Scope, nature and follow-up of external audit M1 D C A D+ PI-27 Legislative scrutiny of the annual budget law M1 A A A D D+ PI-28 Legislative scrutiny of external audit reports M1 A D C D+ D. Donor Practices D-1 Predictability of direct budget support M1 NN NN NN D-2 Financial information provided by donors for budgeting and reporting on project M1 A B B+ and program aid D-3 Proportion of aid that is managed by use of national procedures M1 D D Source: Assessment of Public Finances according to the PEFA methodology, Final Report, June 2014. Notes: NN: no source; M1–The grade is determined based on the lowest grade of all sub-components. M2–The grade is determined based on the average of the grades of the subcomponents. Grade A indicates the highest while grade D indicates the lowest performance. On a scale from 1to 20, the grade A corresponds to 16 to 20, the grade B to 11 to 15, the grade C to 6 to 10, and the grade D to 1 to 5. Review of Public Financial Management 133 TABLE 6.2: Selected Countries – Summary of PEFA Scores Number of Congo Cameroon Nigeria Kenya Ghana India Brazil Indonesia Indicators Juin-14 Nov-12 Juin-08 Aug-12 jan-10 Mars-10 Dec-09 Dec-12 A. PUBLIC FINANCIAL MANAGEMENT 4 1A 3D, 1D+ 1C 1B 1B 1A 3A 1A OUT-TURNS: Credibility of budget 1C 1D 2C+ 2C 2C 1B 1B+ 1D+, 1D 2NR 1NR 1NR 1C 1D B. KEY CROSS-CUTTING ISSUES: 6 1C, 1C+ 2B 1B 2B 2A 4A 4A 3A Comprehensiveness and 3D, 1D+ 2C 1C 2C 1B 1B+ 1B+ 1B Transparency 1D, 1D+ 1D, 2D+ 1D 1C 1C 1C+ 2C+ 1NR 2D+ C. BUDGET CYCLE 2 1C 1C 2D 1B 1A 1C+ 1A 1A C (i) Policy-based budgeting 1C+ 1D 1C+ 1C+ 1D 1B 1C+ C (ii) Predictability and control of 9 2B 2D, 1B 2B, 1B+ 3B, 2B+ 1B+ 1A 4A 1B, 1B+ budget execution 4D+ 1NR 2C+ 1C 1C, 2C+ 1C, 4C+ 1B+ 4B+ 5C+, 1C 2D, 4D+ 2D, 3D+ 1D+ 3D+ 3C+ 1C+ 1D+ 3D+ 1NR C (iii) Accounting, recording and 4 1D, 3D+ 1C, 1C+ 1B+ 1C+ 1B 1A 3A 1B, 1B+ reporting D+ 1C, 1C+ 2D, 1D+ 1C, 2C+ 1B 1C+ 1C+ 1NR 1D 2C+ 1D C (iv) External scrutiny & audit 3 3D+ 2D, 1D+ 1D, 2D+ 2C+ 1C+ 1A 1A 2B+ 1D+ 2D+ 2D+ 1C+ 1C+ 1D TOTAL 28 1A 3A 8A 16A 5A 2B 3B 3B, 2B+ 7B, 2B+ 3B, 1B+ 1B, 2B+ 2B, 5B+ 3B, 5B+ 3C, 2C+ 4C, 3C+ 4C, 1C+ 3C, 8C+ 4C, 8C+ 3C, 6C+ 4C+ 2C, 5C+ 7D,12D+ 9D, 8D+ 8D, 7D+ 3D, 3D+ 7D+ 1D, 5D+ 1D 2D, 1D+ Number of scores at C+ or above 8 10 10 20 20 20 27 20 D. Donor Practices 3 1B+ 2D 3NR 3D 1A 3NR 3NR 1B+ 1D 1NR 1C+ 1C 1NR 1D 1D+ Source: Reports published on the website www.pefa.org. Note: NR = Not Rated. 6.2 Legal and Institutional LORFE, the organic law No. 20-2012 of September 3, Framework 2012 was adopted to comply with the 2011 CEMAC guidelines for the harmonization of budgetary and 6.2.1 Legal Framework accounting procedures in the CEMAC zone. However, the law is recent; its implementing texts have not yet The legal framework for public finance management been put into effect; so that public finance management in Congo mainly includes the Constitution, the continues to be governed mainly by the former organic LORFE, and the RGCP. The constitution of January 20, Law of February 2000 that was (nevertheless) expressly 2002 specifies the role of Parliament in terms of public repealed. The 2012 LORFE fixes fundamental rules finances (control of budget and financial policies of the of the public finance management. In particular it executive, vote finance laws, etc.) and sets deadlines for addresses: broad budget principles; the presentation of submission to Parliament of Finance law and regulations. the general budget; the nature of resources and budget 134 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) of State expenditure; the main stages of budget process;  The General Directorate of Planning and and key actors of budget execution. The general regu- Development (DGPD). Under the authority of the lations on public accounting (RGCP) made by Order Deputy Minister in charge of planning and integra- No. 2000-187 of August 10, 2000, sets rules for budget tion, DGPD provides all programming operations implementation. It deals in particular with authorizing of public investment. The Director General of officers, public accountants, revenue operations, expen- Planning and Development chairs the Identification ditures operations, accounting, imprest, and revenue Commission and selecting public investment proj- records. The RGCP is currently being revised in order ects (CISPIP). to adapt to the 2012 LORFE.  The Commission d’identification et de sélection des projets d’investissement public (CISPIP).65 6.2.2 Institutional Framework with Focus Created as part of the implementation of the on Public Investment PAAGIP, the CISPIP has the mission to select pre- viously identified projects at sector level within the The main players in the management of public spend- DEP, and to ensure the financing of feasibility stud- ing in the Republic of Congo are; (i) the Ministry of ies that will help for their inclusion in the public Economy, Finance, Planning, Public Portfolio and investment program, the MTEF, and the budget integration; (ii) the sector ministries; (iii) the Ministry for the year n+1. of territory planning and general delegation of major  The Centre d’étude et d’évaluation des projets works; (iv) the General Inspectorate of State; (v) the d’investissement (CEPI).66 Created by Law No. 025- Court of Auditors and budgetary discipline; and (vi) the 90 of September 18, 1990, CEPI is a public indus- Parliament. trial and commercial entity under the supervision of The Ministry of the Economy, Finance, Planning, MEFPPPI. CEPI provides technical assistance to the Public Portfolio, and Integration (MEFPPPI). The DGPD in connection with the exercise of its duties. MEFPPPI is the main actor of programming, budget- Thus, it ensures the CISPIP technical secretariat. ing, execution, control, and monitoring the execution  The Directorate General of Budget (DGB) is of public spending in the Republic of Congo. Under responsible for the budgeting of public investments. the provisions of Decree No. 2012-154 of November 9, As the authorizing officer of the State budget, the 2012, the MEFPPPI duties include: i) develop project General Director of Budget ensures the scheduling data for inclusion in the State’s budget; ii) identify and of investment spending. determine the location of public investment; iii) nego-  The General Directorate of Public Procurement tiate development programs with bilateral and multi- Control (DGCMP). Under the authority of lateral partners and ensure their implementation and MEFPPPI, the DGCMP exercises a priori control monitoring; iv) monitor the implementation of public over the procurement procedure of public procure- investment programs and projects and ensure physical ment and follows the implementation of the terms and financial control; v) ensure the programming of of their execution. the investment budget disbursements based on avail-  The Directorate General of Budget Control able resources; vi) prepare and engage the State budget (DGCB) exercises a priori control over expenditure capital expenditures; and vii) seek additional resources commitments and a control of service delivery prior to finance the investment budget. Note that functions to the liquidation of the expense. related to the plan are delegated to the Deputy Minister in charge of planning and integration. 65 Commission for the Identification and Selection of Public Invest- Within MEFPPPI several branches and agencies ment Projects. are involved in the management of public investment: 66 Centre for Study and Evaluation of Investment Projects. Review of Public Financial Management 135  The General Directorate of the Treasury and Parliament constituted by the National Assembly Public Accounting (DGTCP). The DGTCP, and the Senate. It controls government action through through the general Treasurers paymaster, ensures the examination of and voting on draft finance laws and the payment of all public spending. settlement laws. Parliament can exercise control over pub-  The General Inspectorate of Finance (IGF) car- lic finances through auditing and inquiry commissions. ries an internal ex-post control of the execution of The Minister in charge of Finance and the the State budget. President of the Republic are the approval authorities of public contracts in the Republic of Congo. Under Sector ministries, through the DEP, the directions of the provisions of Decree No. 2011-843 of December Financial Affairs (DAF), and procurement management 31, 2011, the procurement contract is approved by the offices, are involved in the planning, budgeting, imple- President of the Republic when the amount is greater mentation, control, and monitoring of the implementa- than or equal to XAF 2 billion, and the Minister in tion of public investment. Sector ministers are credit and charge of Finance if its amount is less than XAF 2 billion. budget administrators of their respective ministry. The Ministry of territory planning and gen- 6.2.3 Financial Risks eral delegation of major works (MATDGGT). This department is a key player in the execution of invest- The delay in implementing the Treasury reform as well ment spending through the General delegation of major as revenue and spending chain reforms could prevent the works (DGGT). In Congo, the DGGT is a major player Treasury from fully playing its role within the government in the implementation of public investment. Founded in financial system, namely keeping the accounts and manag- 2002 by Decree No. 2002-371 of December 3, 2002, the ing the government’s finances. This institutional weakness DGGT was reorganized in 2014 by Decree No. 2014-35 seriously contributes to maintaining a high financial risk of February 17, 2014. The DGGT is responsible for the related to the management of government funds. This has procurement and execution of public contracts as well as resulted in poor performances, namely D+, D, D+, and public service delegation contracts of the State and other D+ that have been assigned to the PEFA PI-22, PI-23, legal moral persons of public and private law, based on PI-24 indicators respectively, and to a lesser extent PI-25. thresholds. These thresholds are defined in Article 13 In addition, it impacts negatively on government financial of Decree 2011-843 of December 31, 2011 amending management (score D for PI-17/component ii). and supplementing certain provisions of Decree No. The inadequate staffing and insufficient indepen- 2009-162 of May 20, 2009 fixing the award, control, dence of CCDB results in the persistence of a high level and approval thresholds of public procurement. detection risk. The PEFA score D+ of PI-26 is a reflec- The General Inspectorate of State (IGE). Under tion of this. The risks relate to financial and accounting the authority of the President of the Republic, the IGE information and the use of government resources. carries an internal ex-post control of the execution of The level of financial risk, which is a fiscal risk the State budget. attributable to public enterprises, is substantial given that The Cour des Comptes et de Discipline the score for the PEFA PI-9/component (i) is D. This Budgétaire (CCDB)67 is established by the Constitution risk could be reduced if the Public Portfolio Directorate and it is the higher institute of control (ISC). It exer- is adequately supervised. cises judicial control over public accountants, assists Parliament in monitoring the implementation of finance 6.2.4 Recommendations laws, and conducts audits and auditing. In the short term, the Government’s implementation 67 Court of Auditors. of the technical and institutional framework for the 136 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) treasury, coupled with the preparation of the treasury FIGURE 6.1: Budget Credibility, PEFA Score forecast on a monthly basis could help to monitor and 60 regulate budget execution. The managers of credit lines 50 should also be instructed to already start using the DAO 40 (Dossiers d’Appel d’Offre) as soon as the budget law is Percent submitted to the National assembly for approval. 30 In the medium term, the government should: 20 i) give line ministries and other spending entities the 10 status of payment authorization bodies to empower them to improve the quality of expenditure; and ii) adopt 0 2006 2013 an action plan to integrate the provisions of the 2011 B or higher grade C grade CEMAC guidelines into the country’s regulations on Sources: PEFA, 2006 and 2010 of Republic of Congo. public finance. 6.3 Budget Credibility, FIGURE 6.2: Selected Countries – Budget Comprehensiveness and Credibility, PEFA Score Transparency, and Policy-Based 100 Budgeting 80 6.3.1 Budget Credibility 60 Percent During the three last years, budget credibility did not 40 improve compared to 2006. There are four indicators 20 of credibility: i) the change in percentage of approved budget to executed budget; ii) the decomposition of this 0 Congo Rep. Cameroon Nigeria Kenya Ghana India Brazil Indonesia change; iii) the difference in percentage of approved rev- enue to collected revenues; and iv) stock and monitoring of arrears on spending. The country regressed on one of B or higher grade C grade these indicators and remained significantly unchanged Sources: PEFA of selected countries, published on the website www.pefa.org. on others. Overall, the percentage of budget credibility indicators higher than C stayed stable at 50 percent. However the percentage of indicators with grade B or From 2010 to 2012, the change in percentage higher decrease from 50 percent in 2006 to 25 percent of approved to executed budget was more signifi- in 2014, see Figure 6.1. However, Congo’s budget seems cant than from 2003 to 2005. From 2003 to 2005, more credible than in Cameroon and in Nigeria—these the budget aggregate expenditure compared to original countries recorded lower percentages of C grades and approved budget three-year gaps was 6 percent, 1 per- above in their recent PEFA assessment. But Congo is cent, and 7 percent. In the 2014 PEFA, the total actual lagging far behind other African peers such as Kenya expenditure against budget estimates (initial budget and Ghana; both countries have 75 percent of their acts) recorded deviations of 0.2 percent, 4.6 percent, credibility indicator score at C grade or above, which is and 29.0 respectively for the years 2010, 2011, and higher than the 50 percent of Congo. Congo is also far 2012. It should be noted that 2012 was an exceptional behind “Emerging Economies” such as India, Brazil and situation because of the disaster in March (explosion of Indonesia (see Figure 6.2). a munitions depot in Brazzaville). The government had Review of Public Financial Management 137 to approve a supplementary budget law in May 2012 costs. This is due to weaknesses (identified previously that significantly amended the original budget law. The in this document) in the process of programming and credits for purchases of goods and services and current budgeting (including the lack of feasibility studies) and/ transfers were increased by nearly 20.4 percent; invest- or execution of projects that were initially unforeseen. ments from internal resources appropriations were Furthermore, it is important to note that since capital increased by about 41 percent. expenditures are provided with capped allocations, there Capital spending execution reveals more of the should be no budget allocations where spending exceeds lack of budget credibility. The implementing capital forecast. The execution of capital expenditure beyond expenditure levels recorded between 2008 and 2013 the allocation is indicative of the ineffectiveness of an has an irregular trend. From 97.5 percent in 2008, the a priori system of control of spending in general and execution rate of investment dropped to 77.1 percent investment in particular. in 2012 after having peaked at 102.0 percent in 2011, There are two primary explanations for the low and was established in 2013 at 88.2 percent. However, performance or non-performance of capital expenditure: these high overall rates mask disparities in ministries and i) the cumbersome process of procurement and chain institutions. In 2010 for example, some departments of expense, and ii) the weak capacity of the actors in and agencies have registered overspending, others could charge of the execution of this spending in ministries only partially run their public investment spending, and and institutions. Also noteworthy are budgeting-related finally others could not consume their allocation of pub- deficiencies related to over-estimation of project costs. lic investment expenditures. The following discussion Compositions of expenditure out-turn com- illustrates disparities that hide the overall implementa- pared to original approved budget did not improve tion rate of capital expenditure of 88.2 percent in 2013. significantly from 2003 to 2013. In the two years prior Over-execution was identified in the five fol- to 2006, the change in the composition of expenditure lowing ministries: i) Health and Population—XAF was higher by 21 percent and 29 percent compared to 355.7 billion against a forecast of XAF 80.4 billion, or the overall deviation in primary expenditure. In 2013, 442.5 percent; ii) Sport and Physical Education—XAF annual budgets included a line of common charges repre- 125.7 billion against a forecast of XAF 40.0 billion, or senting between 3 percent and 5 percent of expenditures 314.2 percent; iii) Higher education—XAF 29.9 billion excluding debt and excluding foreign-financed projects against a forecast of XAF 11.8 billion, or 254.5 percent; (between 5 and 10 percent of expenditures exclud- iv) Construction, Planning, and Housing—XAF 177.3 ing debt and excluding investments). These common billion against a forecast of XAF 159.4 billion, or 111.2 charges usually consist mainly of expenditures on goods percent, v) Industrial Development and Promotion of and services (financial expenses, electricity and water the Private Sector—XAF 17.1 billion against a forecast consumption, telephone, and office supplies). More of XAF 16.8 billion, or 102.0 percent. importantly, the decomposition of variation was 18.6 In addition, during the same year, 24 ministries percent, respectively, 21.6 percent, and 28.2 percent. and institutions of the 37 that make up the Congolese From 2010 to 2012, the accuracy of revenue pre- cabinet were unable to execute spending in excess diction was good even if it deteriorated compared to of 50 percent of the forecast. Seventeen experienced 2003–2005. Actual domestic revenue was, as a share of implementation rates below 25 percent and nine had anticipated revenue, 102 percent in 2003, 125 percent implementation rates below 10 percent. The Ministry in 2004, and 99 percent in 2005, thanks to increasing oil of Civil Service and State Reform could not execute its prices. The data shows that for the last three fiscal years investment operations. revenue realization rate compared to the initial budget The execution of capital expenditure in excess laws are 84.2 percent, 102.1 percent, and 97 percent, of allocations results from the underestimation of respectively. This rather good recovery rate is volatile 138 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) TABLE 6.3: Transfers and Subsidies from the State Budget to Independent Organizations Outside the Devolved Administrations, (in billions of CFA francs) 2012 (For.) 2012 (Real.) 1 Current expenditure excluding interest on debt 838.2 1035.8 Including transfers and interventions 330 387 2 Investments financed out. Ext. 915 1226 3 Total expenditure excluding debt and finance Ext. 1753.2 2261.7 4 Transfers to independent organizations outside decentralized administrations 141.3 126.8 5 Percent of transfers to autonomous entities reported expenditures (4 ÷ 3) 8.2 5.6 Source: DGB and CCDB. due to the fact that oil represented about three-fourths 6.3.2 Budget Comprehensiveness and of government revenue during that period. Transparency Due to reorganization and new way of present- ing data in the GFS and by CCA, it is now very dif- From 2006 to 2014, budget classification deteriorated. ficult to have the exact figure of the level of spending The government stopped presenting the functional classi- arrears. There is no internal annual monitoring of arrears fication of the budget in 2010. The government also failed on spending for the current year. They do not appear in to provide the PEFA team with detailed data. In fact, the the monthly GFS. The DGB and DGTCP do not estab- tables received from the DGB and related administrative lish periodic situations in which all payment instances accounts present detailed expenditures according to the are traced, distinguishing those sequenced for over 90 administrative and economic classifications, but only for days. In addition, the practice of cancellation of obliga- debt, goods and services, wages, and transfers. Capital tions and their carryover to the following year makes expenditures are not included. Moreover, these tables do it even more difficult to monitor arrears. Furthermore, not always show forecast budget laws. this leads to authorities claiming an absence of arrears Extra-budgetary expenditures from indepen- while many PME/SMEs are complaining about arrears dent bodies outside communities represent between accumulation. 5 and 10 percent of government spending (see Overall debt management and monitoring did Table 6.3). The current situation is characterized by the not improve significantly from the 2006. The CCA fact that supervisory authorities for the jurisdictions of manages a stock of arrears resulting from spending years these budgets and accounts provide inadequate super- prior to 2004. This should have been consolidated into vision, and their accounts are generally not centralized debt, but has not. This stock has continued to rise due by the Ministry in charge of Finance and the CCDB. to the transfer to the CCA of warrants pending payment There is no consolidated data on revenues and expendi- at the end of fiscal years subsequent to 2004. The PEFA tures. A fortiori this information does not appear in the team has not been able to verify if this practice persists or, documents accompanying the draft budget or the draft if not, what date it was suspended. In addition, a ministe- settlement bill tabled in Parliament. rial circular specifying that “expenses are paid according The transparency and objectivity in the horizon- to the order of arrival of orders to the Treasury, pursu- tal distribution of assignments between the devolved ant to the principle “first come, first paid” is yet to be implemented due to lack of organization and monitoring 68 This principle would limit or eliminate the risk of accumulation of means.68 Furthermore, the circular does not specify the arrears, but its effective implementation would require organization priority to be given to arrears managed by CCA. and monitoring means that are not yet available. Review of Public Financial Management 139 administrations has improved significantly since FIGURE 6.3: Budget Comprehensiveness and 2006. Although complex, rules for the allocation of fiscal Transparency, PEFA Score resources to devolved administrations are well defined by 60 the Tax Code. Practices for the allocation of fixed por- 50 tions of grants of State do not change and are known by 40 the devolved administrations. Amounts additional to the Percent fixed portion are granted to municipalities and division 30 without well-established distribution rules. These addi- 20 tional amounts, however, represent less than 50 percent 10 of assignments (see Table A3.1 in appendix). However, 0 there is no formal communication procedure on forecasts 2006 2013 of resources to be allocated to local authorities. Before B or higher grade C grade the beginning of the budget year, such authorities have Sources: PEFA, 2006 and 2010 of Republic of Congo. neither reliable data transfers to be granted to them, nor tax revenue collection estimates to be made on their behalf by the tax authorities. In addition, budget data for budget comprehensiveness and transparency indicators the local authorities are subject to either centralization with a grade of C or more decrease from 50 percent to or consolidation by central governments. 33.3 percent. Moreover, the number of indicators of There is still substantial fiscal risk in terms of grade B or more decreased from 16.7 percent to 0 per- oversight of other public sector entities. The scope of cent (see Figure 6.3). With the recent PEFA indicators, oversight by the central government for autonomous it is clear that Congo is a low performer on this dimen- public agencies and public enterprises is weak; in fact, sion within developing countries. In fact, the country’s there is no centralized method of consolidating public percentage of indicators with grade C or more (33.3 institutions accounts (EPIC and EPA). The Ministry of percent) is below that of neighboring and oil producing Finance does not produce an annual report analyzing countries such as Cameroon (66.7 percent) and Nigeria financial situations of public institutions. Moreover, the extent of control of the central government on the fiscal situation of devolved administrations is poor. As FIGURE 6.4: Selected Countries – Budget for public enterprises, there is no centralization and Comprehensiveness and Transparency, consolidation of the financial accounts of local govern- PEFA Score ments. Neither the Ministry of in charge of Finance 120 nor the Ministry in charge of reports produced by local 100 authorities on the financial status of the decentralized 80 administrations. Percent Public access to key fiscal information in Congo is 60 very limited. None of the six criteria for public access to 40 information is achieved. This situation has been the case 20 since 2006. The government has failed to take appropri- 0 ate action to improve on this front. Congo Rep. Cameroon Nigeria Kenya Ghana India Brazil Indonesia Overall the budget comprehensiveness and transparency in Congo deteriorated from 2006 to 2014 rendering the country’s performance weak com- B or higher grade C grade pare to its peers. Within this period the percentage of Sources: PEFA of selected countries, published on the website www.pefa.org. 140 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) (33.3 percent, but with grade B and more) and other SSA 6.3.4 Financial Risks countries such as Kenya (83.3 percent) and Ghana (66.7 percent). Moreover Congo scores far behind “Emerging Overall the low credibility and the lack of transpar- economies” such as India, Brazil, and Indonesia which all ency of the budgeting process render as substantial score 100 percent on this dimension. This is an indica- the financial risk of the Congolese government. tion that the country has much room for improvement, First, accumulation of new payment arrears affects given that its aim is to become an “Emerging Economy” the credibility of the system and delays Congo’s return by 2025 (see Figure 6.4). to a sound public financial situation. Hence, the level of financial risk is high. The score D for the PEFA PI-4 6.3.3 Policy-Based Budgeting component (i) is a reflection of this. Second, the lack of oversight by the central govern- The budget preparation process has improved some ment on autonomous public agencies and public enter- aspects of it organization and its participative charac- prises create a financial risk to the government. Hence, teristics. There is a budget calendar set each year by the the level of the financial risk is substantial as the score Minister in charge of Finance, but this calendar is not C of PEFA PI-7/component (i) indicates. followed rigorously. The clarity and comprehensiveness Third, the allocation mechanism for Government guidelines and participation of responsible policies in the transfers to territorial communities is not driven by any process of preparing budget proposals (budget circular or economic or programmatic document. This represents other document) have deteriorated. In fact the CPCMB a source of risk for their development. Hence, the level prepares the macroeconomic and fiscal framework and of the financial risk is moderate and is reflected by the determines strategic ceilings, but too often this frame- B score of PEFA PI-8/component (i). work is not approved by the cabinet prior to final budget Fourth, the lack of supervision of autonomous allocation by the government. In contrast, the Finance public agencies and public enterprises could make this Acts the last three years were passed before the start of sector vulnerable to embezzlement and misappropria- the financial year. tion. Therefore, the level of financial risk is high. This In recent years, multi-year perspective in fiscal accounts for the D score of PEFA PI-9/component (i). planning and the expenditure policy have started to Fifth, low public access to fiscal information does gain ground, albeit slowly. Nowadays, budget proposals not enable the citizenry to monitor the use of public are part of multi-year perspectives. They are prepared from resources. Hence, the level of financial risk of insufficient three-year macroeconomic and fiscal framing. But bud- citizen control is modest. This can be seen with the D gets do not provide estimates according for classifications. score of PI-10. However, the CCA prepares an annual report on debt sus- tainability and a report on the debt strategy. Sector strat- 6.3.5 Recommendations egies exist with multi-year cost of operating and capital expenditures. All ministries provide an annual update of In the short term, the government should i) reduce the their sector strategy papers and three-year rolling MTEF. gap between adopted and actual domestic revenues to However, currently prepared budgets do not fit these less than five percent and improve the ratio of non-oil MTEF because of shortcomings in setting medium-term tax revenues to non-oil GDP by implementing reforms fiscal frameworks and sector expenditure ceilings, as well to make progress towards meeting the CEMAC criteria; as the harmonization of the MTEF preparation process ii) reorganize the awarding of public contracts circuit so with that of the Public Investment Program. Finally, the as to ensure (in accordance with Decree No. 2009-230 budget preparation process based on the MTEF includes of July 30, 2009 regulating the execution of government capital expenditure and operating costs. expenditure terms) budgetary control of procurement Review of Public Financial Management 141 contracts by the DGCB before approval to limit capi- of treasury banking accounts reconciliation deteriorated tal expenditure commitments to budget allocations; further. In fact, Treasury balances are not available; hence iii) include the stock of domestic payment arrears in the accounting reconciliation with the Treasury accounts public documentation as well as in GFS; iv) improve opened at the Central Bank is done on a day-to-day basis. the presentation of the budget document as per PEFA Moreover, there are accounts held by some government guidelines; v) create an inventory of revenues received agencies (e.g. DGID) in commercial banks that are by ministries and not paid into the Treasury account, unknown to the Treasury. In addition, the capacity of include them in the budget, and take steps to ensure their the Treasury does not allow it to ensure reconciliation payment into public accounts; and vi) improve public with bank statements for all accounts in its network. In access to fiscal information, as per PEFA guidelines, contrast, the regularity of reconciliation and clearance of namely by posting it in the planned MEFPPPI website. suspense accounts and advances has slightly improved. All In the medium term, the government should provisional allocation accounts are cleared after the end i) strengthen human resources in DGCG, DGD, and of the year, just after the end of the additional period for DGI in order to improve revenue collection and compli- the preparation of the settlement bill. However, the sig- ance with tax and customs rules; ii) develop a program- nificant amounts and frequency of expenditure procedures based allocation mechanism for government transfers to without commitment or without prior scheduling lead to territorial communities; iii) improve the centralization of significant balances at the provisional allocation accounts. information on the execution of territorial communities’ Availability of information on resources received budgets and ensure its consolidation into an annual report by primary service delivery units remained very weak. to be publicly disclosed within 18 months after the end of For example, there is no centralized data of resources the fiscal year; iv) strengthen the supervision of autono- currently allocated to basic services units for the sec- mous public agencies and public enterprises by conducting tors of Education and Health. Over the last three years an audit of EPAs and EPICs regarding collection and use of (2010–2012) there has been no specific studies such as fees and adopting financial reporting norms to government PETS (Public Expenditure Tracking Survey) or some- as condition to grant them public subsidies; v) facilitate thing similar on these two sectors. budget preparation by ministries by extending the time- In Congo, the quality and timeliness of budget line (to at least four (4) weeks after budget ceilings are reports during the year is weak and the situation has defined) for preparation of their proposals and involving deteriorated since 2006. First, the scope of reports in them in the process of simultaneous preparation of cur- terms of coverage and compatibility with budget forecasts rent and investment budget estimates; and vi) strengthen deteriorated. The information systems (SIDERE and the capacity of all actors in charge of the execution of others) do not produce complete and reliable informa- expenditure in the ministries including the budget execu- tion on budget implementation. The DGB produced tion process in general and in particular, procurement. quarterly statistics on budget execution on an irregular basis, developed from accounting and non-accounting 6.4 Accounting, Recording, and sources. The data are not disclosed according to forecasts Reporting by the Finance Act. Comparisons can only be made at an aggregate level by ministry across all economic categories. 6.4.1 Quality of Budget Accounting, In addition, data is not available at the commitment stage. Recording, and Reporting Second, the quality of information also deteriorated due to: i) shortcomings in accounting; ii) the fact that the Congo is still struggling to produce its public finan- data are compiled from accounting and non-accounting cial account in a timely manner and to reconcile its sources; and iii) the fact that inconsistencies can occur various accounts. From 2006 to 2013, the regularity between various tables. However, this information is still 142 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) useful, and is used for internal reporting and for reports to commitment authorizations and payment appropriations Parliament. Third, timeliness and distribution of reports will help to properly implement multi-year projects and is also weak and deteriorating. Statistics produced during to monitor cost changes. the year by the DGB (budget execution), CCA (monthly Computer systems for administrative and finan- statistics on debt service), and Directorate of Studies and cial accounting are dysfunctional and are not able to Forecasting (monthly GFS) are not produced on time meet maintenance needs of accounting and informa- and are not subject to any distribution. tion requirements for budget management. The com- The quality and timeliness of annual finan- puterization program of the Ministry of in charge of cial statements in Congo remained very weak. The Finance aimed to rehabilitate and to integrate all sys- Country recorded a grade of D+ in the PEFA PI-25 in tems (SYDONIA, SYSTAF, SYGADE, SIDERE.) is 2006 and 2014. More precisely, the completeness of the experiencing many delays. Specifically, to computerize financial statements deteriorated from 2006 to 2014; the execution, control, and monitoring of the State because the draft settlement law is accompanied by statis- budget implementation, and the production of Audits, tics on revenues and expenses, assimilated to administra- the MEFPPPI has implemented an integrated system tive accounts, but the financial statements (consolidated of expenditure and revenue (SIDERE). However, for accounting balances) did not accompany the draft settle- various reasons, this system is not yet fully functional. ment law of 2012. In addition, accounting standards There are many reasons why SIDERE is not yet have deteriorated substantially. The charter of accounts fully functional. According to the PEFA these include used is adapted from the UDEAC 1974 plan and is too the fact that: i) the integration of budget and accounting old to comply with updated International Public Sector modules is not finalized; ii) application checks with each Accounting Standards (IPSAS). Moreover, the summary phase of the execution of expenditure are not developed; financial statements in the annual reports of the CCDB iii) the system is not deployed in all ministries—hence, and the appendix of settlement laws vary from year to credit managers do not have working station in their year. In contrast, the government substantially improved ministry and so have to move to the Ministry in charge the timeliness of submission of financial statements. For of Finance to do this job; iv) the support of visas instance, the financial statements that were used in pre- granted to each budget phase is not yet edited by the paring the annual report on the implementation of the system—hence, some expenses may not be recorded in 2012 budget and the General Declaration of conformity the SIDERE system. According to the CCDB, these between the administrative account and management include: i) a weakness in the security of the informa- account were sent to the CCDB in July 9, 2013, or just tion system; ii) the lack of completeness in the records over six months after the end of the year. of financial information; iii) the lack of comprehensive The fact that the implementation update of pub- inventory of accounts; and iv) the lack of interface and lic investment spending by DGPD is produced on an interconnection between different software applications annual basis renders it useless as a budgetary manage- from the entities in the Ministry in charge of Finance. ment tool. Rather, it is a document presenting the results Overall, the quality of budget accounting, of the management of public investment, not a manage- recording, and reporting in Congo deteriorated from ment tool. It cannot be used effectively for financial moni- 2006 to 2014 and the country underperformed com- toring of the implementation of capital and to help with pared to its peers. In 2006, 25 percent of the grade of management decisions during the year. Furthermore, its indicators on this dimension was grade C or more, in scope should be expanded to commitments and payments, 2014 it is 0 percent (see Figure 6.5). In fact the country which will help everyone to be aware of and follow both has 3 D+ and 1 D, which is very weak. Compared to its overall and actual project costs. In addition, the opera- neighbors, net-oil exporters Cameroon (50 percent) and tionalization of the program authorizations mechanism or Nigeria (75 percent), Congo is very far behind. This Review of Public Financial Management 143 FIGURE 6.5: Budget Accounting, Recording, and present complete accounts. The level of financial risk of Reporting, PEFA Score incomplete information is therefore high as it can be 30 seen in score of D for the PEFA PI-25/component (i). The lack of monthly reconciliation between the accounting entries and bank statements could seriously 20 hamper or even prevent end-year reconciliation. Hence, Percentage the fiduciary risk is substantial and this accounts for the 10 D+ for PEFA PI-22. The lack of regular monitoring of suspense accounts and regularization of the government’s general 0 2006 2013 accounting risks leading to accumulated amounts that B or higher grade C grade would be difficult to regularize, skewing results of the budget execution and cover dubious operations. The Sources: PEFA, 2006 and 2010 of Republic of Congo. fiduciary risk is substantial. The lack of precision in the budget amounts allo- FIGURE 6.6: Selected Countries – Budget cated to the credits delegated by some ministries and Accounting, Recording, and Reporting, the lack of control in the release of resources to primary PEFA Score service delivery units is source of major financial risk. 100 The level of financial risk is high, accounting for a score of D on PEFA PI-23. 80 The fact that in-year reports on budget execution 60 are not systematically prepared and therefore not used Percent as decision-making and budget execution management 40 tools could adversely affect the efficient allocation of 20 resources. The lack of information on the monitoring of budget execution could also lead to unjustified modifica- 0 tions in expenditure allocations. The level of financial Congo Rep. Cameroon Nigeria Kenya Ghana India Brazil Indonesia risk is high and this is reflected in the D score of PEFA PI-24/component (ii). B or higher grade C grade The practice of a long supplementary period for Sources: PEFA of selected countries, published on the website www.pefa.org. the entry of new operations related to the period about to be concluded could delay the closure of the period and preparation of the draft budget execution review law. observation holds true with “Emerging Economies” Hence, the level of financial risk is moderate as reflected as well, for example India (100 percent), Brazil (100 by the B score of PEFA PI-25/component (ii). percent), and Indonesia (75 percent) (see Figure 6.6). 6.4.3 Recommendations 6.4.2 Financial Risks In the short term the government should i) undertake, The absence of opening balances from previous years at least on a monthly basis, within four weeks after the in the Treasury’s current balance, and the slowness in end of the month, the reconciliation of accounting the centralization of accounting entries could prolong entries and bank statements; ii) systematically clear the the weak situation of the Treasury, by not enabling it to suspense accounts and regularize them in the general 144 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) accounting of the government; iii) publish, within a FIGURE 6.7: PFM Predictability, PEFA Score month after the end of each quarter, on a quarterly 50 basis, a full budget execution update; and iv) update the 40 financial management information system master plan. In the medium term the government should: 30 Percent i) systematically issue revenue collection orders corre- 20 sponding to government revenues whose amount are known in advance; ii) extend to all ministries the inclu- 10 sion of delegated credits in specific budget lines and 0 ensure sufficient control over the release of resources 2006 2013 to primary service delivery units; iii) ensure that cen- B or higher grade C grade tralization of accounting operations of decentralized Sources: PEFA, 2006 and 2010 of Republic of Congo. Treasury offices takes place every 15 days; iv) at end- of-year, establish the General Account of the Financial Administration; v) define and implement all actions FIGURE 6.8: Selected Countries – PFM necessary for the improvement of information so that it Predictability, PEFA Score provides effective and transparent management-system 100 spending and government revenues in accordance with 80 the regulations and budgetary principles and account- ing in force and ensure the reliability of accounts of the 60 Percent State and budget execution statements; vi) make regular 40 (recommended quarterly) production budget execution statements produced by the DGB and improve the scope, 20 quality, and format so that they enable monitoring of the 0 financial implementation of each project at key stages of Congo Rep. Cameroon Nigeria Kenya Ghana India Brazil Indonesia expenditure: commitment, authorization, and payment; and vii) for public investment projects realized by DGPD produce budget execution statements on a semi-annual B or higher grade C grade basis from the point of execution. Sources: PEFA of selected countries, published on the website www.pefa.org. 6.5 Predictability and Internal as well Cameroon (33.3 percent) and Nigeria (44.4 percent), as External Control of Budget Congo is far behind. This observation also holds true Execution with “Emerging Economies” for example India (55.6 percent), Brazil (100 percent), and Indonesia (88.9 Overall, the predictability of PFM in Congo deterio- percent) (see Figure 6.8). In contrast external control of rated from 2006 to 2014 and the country is underper- budget execution improved slightly within this period. forming compared to its peers. In 2006, 44.4 percent of indicators on this dimension recorded grade C or higher, 6.5.1 Relations between Revenue specifically 33.3 percent got grade B or higher. In 2014, Administrations and Taxpayers it decreased to 22.2 percent (see Figure 6.7); in fact the country performance deteriorated on two of the nine The General Directorate of Taxes and Domains indicators. Compared to its neighbors, net-oil exporters (DGID) and Directorate General of Customs and Excise Review of Public Financial Management 145 (DGDDI) have improved access to information on the The government possesses a functioning appeal rights and obligations of taxpayers, despite the inad- mechanism against decisions of the tax and customs equacy of their dissemination capabilities. For example administrations. These redress mechanisms are pro- there is no website for the DGID. Regulations still con- vided for by the texts, are known for taxpayers, and are tain insufficiently clear and practical provisions, leading currently in place. From 2011 to 2012, the number to challenges for petroleum taxes, exemptions tax, and of taxpayers that used this mechanism increased (see others. Tax and customs administrations do not have Figure 6.9), however, their effectiveness has not yet the means to satisfactorily cover all the territory. Their been evaluated. activities are focused on two geographic poles (Brazzaville In Congo, measures for taxpayer registration and Pointe-Noire), which, probably account for over 90 and evaluation of taxes and customs duties are not percent of recoveries. This deficiency is compounded by yet effective. The control system for registration of delays in the generalization of the system of identification taxpayers is weak. The registration number of taxpayers (NIU) of taxpayers established since 2004. (NIU) was established in 2004 but its widespread use by The Congolese government has rendered the all DGs of the Ministry in charge of Finance is recent. liability and obligations of taxpayers more transpar- Information-sharing protocols between services are being ent. The government has done this in part by improv- developed. NIU management requires improvements to ing i) the clarity and the comprehensiveness of tax and expand its reach at least in headquarters of divisions to customs duties; ii) the access to information by taxpay- avoid multiplicity of duplicates. In addition, no penalty ers on tax and customs duties; and iii) the functioning for non-compliance with registration requirements and of appeal mechanisms against decisions of the tax and tax reporting is set. The evaluation of the effectiveness customs administrations. of sanctions for non-compliance with the obligations The government has improved the clarity and NIU use is premature, since the system implementa- the comprehensiveness of tax and customs duties. tion is recent. Systems of sanctions planned for non- The General Customs Code is clear enough, however, compliance with reporting require significant revision to its application is, in some cases, constrained by the con- improve efficiency and to effectively deter fraud. Finally, ventions or provisions of certain laws, which gives the the planning and monitoring tax control program is also administration the discretionary powers, including tax weak. In fact, annual monitoring programs are prepared exemptions. In addition, the Tax Code has many insuf- (at least for the DGID) based on pre-established risk ficiently clear provisions or whose application is very assessment criteria. They do not cover the entire territory complicated (even for major tax categories). Access to information by taxpayers on tax and FIGURE 6.9: Claims Against Tax Administrations custom duties and administrative procedures involved 80 is good, with no significant improvement recorded 70 since 2006. Although, the Tax Office has no web site to 60 disseminate information on tax obligations; it continues Percentage 50 to organize information from taxpayers through release 40 notes or holding regular meetings with their organiza- 30 tions. The office is also working with an organization 20 that launches the updated legislation and regulations 10 and published a collection containing the updated Tax 0 code and various other texts. The General Directorate 2011 2012 of Customs has a functional website containing updated Disputes Equitable relief Clalims for compensation Other information on the obligations of taxpayers. Source: PEFA of the Republic of Congo, 2014. 146 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) and/or taxpayers. The reports on the implementation of allocations, whose decision is taken at a higher hierarchi- audit programs are not available. cal level of management of MGA is also very poor. In fact, decisions to authorize overruns expenditures (i.e. 6.5.2 Cash Management and in excess of allocation) are too frequently made by the Expenditure Regulation authorities. These decisions are not formalized by any regulation; hence they constitute budgetary adjustments, The Congolese government is still struggling to given that they are binding to financial control, which improve the effectiveness of its collection of tax signs these commitments knowingly. payments as indicated by its incapacity to produce The government is recording and managing cash any important documentation related to this. The balances, debt, and guarantees in a fairly good man- effectiveness of transfer to the treasury account of tax ner. The quality of recording data on debt and related amounts, taxes, and customs duties collected by the tax reports is great since the monitoring of internal and and customs administrations is uncertain. According external debts is provided in a comprehensive, reliable, to MEFPPPI services, tax and customs revenue collec- and transparent manner by the CCA. In addition, the tions are transferred daily to the Treasury Single Account mechanisms for contracting loans and granting guaran- (TSA) at the BEAC. Hence, revenues from oil tax are tees are also great. The Finance Act fixed the borrowing paid into the same account within a period that should ceilings in the section related to financial stability. The have been reduced from 45 to 30 days. These deadlines loans are contracted for projects in accordance with the are those that were committed to in 2012 vis-à-vis the prediction of the Finance Act, and under the conditions IMF authorities. An IMF mission in 2013 found that laid down by it. Only the Minister in charge of Finance these deadlines are met, but without obtaining formal is authorized to make commitments in the conditions proof (accounting balances in particular), the PEFA provided by the Finance Act and in compliance with requested, but did not receive, documentation certify- international commitments of the government. This ing compliance. In addition, difficulties resulting from rule is respected. The State does not grant approval or inadequate accounting organizations and shortcom- warranty for several years. However, the state of con- ings of computer systems cause delays in establishing solidation of cash balances of the central government differences between the statements of the officers and needs strong improvement, since the Treasury does not accountants. Reconciliation statements, including year- yet have the capacity to know and consolidate the cash end, are not facts. balances held by all administrations and public entity’s The predictability of the availability of funds administrative nature. for commitment of expenditures is very weak. The Payroll controls are not yet effective. The degree degree of predictability and monitoring of cash flows is of integration and reconciliation of data on the payroll weak, since the Ministry in charge of Finance does not and personnel records is weak. In fact, the computer sys- yet have an organization (framework and procedures) for tem of the Public Service and Salaries is old; its replace- forward-looking management. Hence, the monitor- ment, planned for 2005, is not yet done. There is no ing of cash flows is not done in an organized manner. direct links between personnel files (Public Service) and In addition, the reliability and frequency of periodic that of the balance (payroll). There is no formal and estab- information provided during the year to ministries and lished procedure to check periodically (at least every six government agencies (MGA) on spending commitment months) the consistency between the contents of the two ceilings is poor, since the budgetary control devices are files. In addition, changes to personnel records and to the rudimentary and lines ministries are not sufficiently payroll is not timely or effective, since changes are done informed in advance of the amounts allocated. Finally, with long delays due to the age of the computer systems. the frequency and transparency of adjustments of budget The systems’ age led to the exchange of information or Review of Public Financial Management 147 manuals by mail and resulted failure to comply with sub- The country system of internal controls for non- mission rules. Delays between the new staff recruitment salary expenditures is not yet effective. The effective- decisions and their effective registration in the balance ness of measures to control expenditure commitments file varies from four to eight months. Processing times of is weak, given that much of the budget expenditure is status changes for agents in place (statutory promotions, done beyond the control a priori of commitment due retirement, etc.) may exceed three months. The age of to the excessive use of exceptional procedures. In addi- information systems limits the possibilities for speeding tion, the degree of compliance with rules for processing up the process. Moreover, internal controls of changes to and recording transactions is weak, given that the rules personnel records and to payroll are weak, since the old are not always observed; authorized expenditure alloca- information systems also limits automatic control capa- tions are significant. In contrast, the comprehensiveness, bilities. Existing controls are ineffective. The migration of relevance, and understanding of other internal control systems to the HR Payroll application that would provide rules/procedures are improving. In fact, other rules are efficient control systems has been delayed. clearly defined, although some of them are inapplicable In Congo, the setting of competition, value or insufficiently documented. for money, and controls in procurement are weak. The Congolese internal audit system is ineffi- Although five of six conditions for evidence of transpar- cient. The coverage and quality of internal audit is weak. ency, completeness, and competition in the legal and In fact, there is no coordination between the internal regulatory framework are met, the country is still lag- control institutions (IGE and IGF) nor between those ging behind on many dimensions of procurement. The institutions and the CCDB. There are some concerns use of procurement methods involving competition is about the organizational and systemic aspects. In addi- not effective since information on all contracts awarded tion, the frequency and distribution of reports is weak is not accessible. In addition, public access to informa- since audit reports, when they exist, are not distributed tion on the award of complete, reliable, and timely for verification and information-sharing between audit procurement contracts is weak. The opening of tenders institutions. Moreover, measurement of the response by is published, but not tenders themselves. There are not authorities to the findings of the internal audit is almost yet any statistical publications on public procurement. inexistent. There is no organization or established pro- Finally, the existence of an independent administrative cedures for monitoring recommendations. body responsible for investigating complaints related to Overall, it appears that DGCMP, IGF, and IGE public procurement is still weak. are all competent to perform testing on the physical and financial execution of public investment projects, but these 6.5.3 Internal Controls of Non-Salary controls include only a very small number of investment Expenditures operations. Indeed, these institutions all face challenges primarily related to insufficient quantity and quality of The a priori control of nonwage debt has struggled human resources, which limits their ability to respond. In following the devolution of financial control func- addition, this report notes a lack of coordination between tions. The devolution consisted of the allocation of internal audit institutions and the CCDB. There is no financial controllers to credit managers units. This con- framework for dialogue between different control institu- trol framework was reorganized and strengthened by tions to coordinate their annual intervention programs. better supervision and by making procedures manuals available to financial controllers. However, there was no 6.5.4 Internal and External Audit progress in limiting the use of exceptional procedures that allow the execution of expenditure commitments Regarding internal audits (ex-post control), the con- without prerequisites, including capital expenditures. trols organs exist, but their response capabilities are 148 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) very limited. A priority was granted to these organs are followed. Moreover, the allotted time in Parliament in the PAAGFP framework. Although they are not yet to consider the draft budget regarding detailed estimates fully operational, they have made significant progress is adequate. For example, the government has met the in becoming organized. The IGE has worked with deadline imposed by the Constitution in presenting the support of technical partners to develop an Ethics the 2014 budget to the Parliament. Hence the parlia- Code as well as various manuals at international stan- ment has had over two months to review the proposed dards in order to help inspectors and auditors to carry budget. However, while rules for amending allocations their job. However, these institutions are not apply- approved by the finance law are well established, they ing International Audit Standards and guidelines as are not respected. Finally, expenditures implemented in described by INTOSAI69 and CREFIAF.70 excess of allowed credits are relatively large. The scope, nature, and follow-up of external The review of external audit reports by the leg- audits are still weak. The scope of audits performed islature has significant shortcomings. Hearings con- including adherence to auditing standards is weak since ducted by the Parliament have almost no impact on the few checks are made by the CCDB (less than 50 per- main conclusions. In fact, Parliamentary committees are cent of total spending). This is because the CCDB does essentially based on the report of the CCDB and the not have sufficient capacity and because public bodies hearing of representatives of the ministries for review of (autonomous communities and public institutions) are settlement legislation. These committees do not yet have not adequately supervised. In addition, there is no timely the experience to conduct extensive hearings. Moreover, submission of audit reports to Parliament although there Parliamentary committees make recommendations, but has been some improvement on this dimension recently. there is no evidence of their implementation. In contrast, For example, the report of the CCDB on the 2012 budget the review of audit reports by Parliament (for reports implementation was presented to Parliament in October received over the last three years) complied with deadlines. 2013. In contrast, there is a good follow-up of recom- In fact, the Settlement laws of 2009, 2010, and 2011 were mendations made by auditors. The recommendations passed in December 2012, within a period not exceeding made by the CCDB to the Ministry in charge of Finance three months after filing. The regulation bill of 2012 was are subject to formal responses and the minister generally filed in October 2013 and approved in December 2013. implements measures to correct observed shortcomings. Overall the quality of external scrutiny audit in The review of the annual budget law by the Congo improved from 2006 to 2014, and the coun- Legislature is good in three dimensions but has strong try outperformed some net-oil-exporter neighbors, shortcomings on a key dimension. The scope of review but is still trailing “Emerging Economies.” In 2006, by Parliament is good given that reports produced by 0 percent of indicators on this dimension was grade C each of the committees of the two parliamentary cham- or higher. However, in 2014 it increases to 33.3 percent bers show that issues related to multi-year economic and (see Figure 6.10). Compared to its neighbors, net-oil fiscal outlook, financial balances, and fiscal policies are exporters Cameroon (0 percent) and Nigeria (0 per- processed during the consideration of the Finance Bill. cent), Congo is slightly better. In contrast, the Congo Additionally, Parliament’s procedures are well established compared poorly with Kenya (66.7 percent), India (33.3 and respected, since the rules for finance bills examina- percent, grade B or higher), Brazil (66.7 percent) and tion are defined by the rules of each chamber and they Indonesia (100 percent) (see Figure 6.11). 6.5.5 Financial Risks 69 International Organization of Supreme Audit Institutions. 70 Conseil Régional de Formation des Institutions Supérieures de Contrôle des Finances Publiques de l’Afrique Francophone Sub- The overall very weak quality of predictability and saharienne. internal and external control of budget execution in Review of Public Financial Management 149 FIGURE 6.10: PFM External Scrutinizing Audit, accounts for the D score of PEFA PI-16/component (ii). PEFA Score The existence of redundant expenditure controls could 35 extend the duration of expenditure procedure and could 30 cause government suppliers to raise their prices. Hence, 25 the financial risk is substantial, which accounts for the C score of PEFA PI-20/component (ii). In addition, the Percent 20 weak external control can prolong the situation charac- 15 terized by the lack of sanctions and can contribute to the 10 inadequate detection of public financial management 5 weaknesses. Hence, the financial risk is high and accounts 0 2006 2013 for the D+ score of PEFA PI-26. B or higher grade C grade Sources: PEFA, 2006 and 2010 of Republic of Congo. 6.5.6 Recommendations In the short term the government should: i) dis- FIGURE 6.11: Selected Countries – PFM External seminate the Tax Code; ii) provide taxpayers with better Scrutinizing Audit, PEFA Score information on possible avenues for administrative and 120 judicial appeal; iii) undertake a comprehensive monthly reconciliation of the operations of revenue administra- 100 tions (DGI and DGD) and the Treasury; iv) make budget 80 credits available effective on January 1st by completing Percent 60 the codification of the budget in December; v) improve 40 the quality of control of service provided, notably by involving the beneficiary populations in the process, 20 where the nature of the expenditure allows it; vi) put 0 in place accounting of non-financial assets in the credit Congo Rep. Cameroon Nigeria Kenya Ghana India Brazil Indonesia managers services; vii) organize oil revenues collection by the Treasury in a transparent manner; viii) strengthen B or higher grade C grade the financial resources of the IGE and the IGF; ix) dis- Sources: PEFA of selected countries, published on the website www.pefa.org. seminate the IGE and IGF reports within six months after completion; x) limit the use of simplified expen- diture procedures; xi) enforce the maximum deadline Congo increases financial risk for the Congolese gov- for the expenditure procedure; and xii) put an end to ernment. The absence of a comprehensive and periodic non-contractualized debt so that the resulting arrears on reconciliation of the operations of revenue entities and spending is transferred to the CCA. the Treasury during the year hampers the smooth opera- In the medium term the government should: tion of the tax collection system and drives financial risk i) strengthen human capacities of the DGI and the at a high level, which is reflected by the D score of PEFA DGD to improve the level of revenues collected and PI-15/component (iii). The lack of timely information on develop tax control measures; ii) make sure that each the availability of credits hampers the quality of expendi- control institution develops, adopts, and implements ture, and can foster the emergence of irregular practices a training program for staff dedicated to controls and among the managers, for fear of a risk of a credit freeze. audits; iii) organize the accounting in order to avoid This is a high financial risk for the government, which frequently observed differences between the status of tax 150 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) and customs administrations with those of the Treasury; project loans disbursements is ensured satisfactory, in iv) regularly produce reconciliation statements and terms of reliability and time, by the CCA and services eliminate the risk of accumulation of arrears recovery; of the ministry of in charge of planning. In contrast, the v) increase the number of financial controllers to reduce monitoring of projects financed from grants continues their workload; vi) issue, at least annually, a report on to be unsatisfactory. Finally, donors do not yet apply domestic debt; vii) ensure a follow-up by the Parliament national procedures (circuit expenditure, procurement, of its recommendations to the government; viii) develop controls, and so on) for their project support. and implement a staffing plan for the benefit of the The quality of financial information provided by supervisory institutions (IGE, IGF, CCDB), in con- donors for budgeting project aid and assistance pro- junction with the Ministries in charge of Finance and in grams is good although it deteriorated recently. The charge of public service; and ix) establish an all-supervi- number of technical and financial partners who finance sory-bodies consultation framework to coordinate their investment projects (grants or loans) has been reduced. intervention programs and thus cover a larger number of These projects are monitored comprehensively by the projects In addition, put in place a system of oversight ministry in charge of planning and included in full in functions that is consistent in its entirety by eliminating the draft budget, according to the nomenclature used overlaps that lead to a dilution of responsibility. for projects financed from own resources. In addition, the frequency and coverage of reporting by donors on 6.6 Donor Practices actual flows in support of projects is good. In fact, the CCA has the information on disbursements of projects The Republic of Congo receives only project support, financed from loans in a relatively short time (less than which is listed in the State budget, regardless of the one month). Loans represent the largest share of external mode of financing (loans or grants). The monitoring of resources for project finance (over 76 percent in 2013). Review of Public Financial Management 151 Public Procurement Issues 7 C ongo’s Public Procurement System has undergone a reform process that was started by an interim assessment (Country Procurement Issue Paper – CPIP) carried out in June 2006 by the World Bank in close collaboration with the Government. The CPIP assessment found the Congolese national procurement system is very weak and was deemed non-compliant with the OECD/DAC standard. Since then, Congo has made significant progress through the implementation of the CPIP Action Plan, which has already achieved some results. Currently, the quality of the public procurement system of Congo is evaluated at 51.3 percent satisfactory, slightly above average of the OECD/DAC rating scale, which is a sub- stantial improvement compared to 2006. The country introduced a new procurement code through Decree No. 2009–156 of May 20, 2009 and its implementing regulations. The Code is modern and state-of-the-art. Its main provisions include: i) broad coverage of ministries, organs of the State and public enterprises, local government authorities, and use of public funds (also defined in a comprehensive manner) by these procuring organizations; ii) decentralization of procurement responsibilities to the procuring organizations which comprise Procurement Units (CGMP); iii) the creation of a Public Procurement Regulatory Authority (ARMP) with respon- sibilities over drafting of regulations, monitoring and evaluation including post reviews, capacity building, review and adjudication of complaints filed by bidders; and iv) the creation of a Public Procurement Directorate for Controls (DGCMP) which is given oversight responsibilities over procurement transactions carried out by the procuring organizations, including ex ante approvals. The results are noteworthy. The Congolese legislative and regulatory framework is strong (76.3 percent substantially achieved) and is in accordance with international standards. Moreover, regulations and their documentations including Standard Bidding documents for different types of contracts are in place and are of excellent quality and made accessible to contracting entities and suppliers. The institutional framework has improved substantially. The procurement system in place promotes the separation of execution, regulation, and control responsibilities, which are well identified in the procurement code and allocated to specific institutions. This reform also includes institutions helping to further transparency and integrity. Meanwhile, this improvement is not yet enough to bring the Congolese system to the level of many SSA countries. In fact, significant shortcomings remain. The legislative and regulatory framework is still incomplete. Widespread weak management capacity at contracting 153 authorities and private sector levels negatively affects Consequently, the national system was deemed non- the quality of procurement operations and market compliant with a completion rate of 16 percent for the practices. The Congolese public procurement system four pillars of the OECD/DAC methodology. is poorly integrated and incorporated into the public The review helped to develop a series of recommen- sector governance system. In addition, procurement dations for each of the four pillars of a procurement system: plans remain seriously compromised by delays in budget i) legislative and regulatory framework; ii) institutional preparation, launching of tenders and evaluation, issu- and management capacity; iii) procurement operations ing no-objection by the DGCMP, approval and signing and market practices; and iv) integrity and transparency of contracts. Moreover, there are burdens in the circuit of public procurement system. A summary of key rec- of the expenditures and delays in settling holders. ommendations for each these pillars is provided below. Based on these findings the government should: For legislative and regulatory framework (Pillar i) adopt all implementing provisions currently missing I), the review recommended the following actions: in the public procurement code; ii) extend the scope of i) develop a new procurement code; ii) draft new regu- the legal framework for public procurement to (Public- lations; iii) draft key template documents and manuals Private Partnership) PPPs and to defense and national that correspond to generally accepted good practices; security procurements; iii) develop a specific conduct and and iv) provide a standard format procurement plan. ethics code in public procurement; iv) take measures to For institutional and management capacity avoid participation of ARMP in bid opening sessions; (Pillar II), the following recommendations were for- v) provide sustainable financial and technical support to mulated: i) put in place a system to be able to ensure ARMP in order to enable it to carry out regular annual the procurement planning with a five-year investment audits of public procurement and to facilitate the imple- plan; ii) implement computerized procurement pro- mentation of the strategic plan for capacity building.; gramming tools; iii) set up a regulatory agency for public vi) improve access to and dissemination of information procurement to ensure the implementation of govern- on public procurement; and vii) adopt legislation impos- ment policy development in the sector; iv) develop a ing specific requirements to ensure the availability of national strategy for capacity building in the field of budget before the launch tendering process. procurement for both public and private sectors; and v) ensure separation of decision-making positions in 7.1 Context and Overview procurement from those of regulation, supervision, and handling of complaints. Prior to 2009, the Congolese national procurement For procurement operations and market prac- system was very weak, as it was deemed non-compli- tices (Pillar III) the review recommended the fol- ant with the OECD/DAC standard. In fact, in 2006, lowing actions: i) establish the internal and external the World Bank conducted an analytical review of control mechanisms to ensure compliance with proce- Congolese Procurement System based on the legislative dures including the application of a code of conduct, the and regulatory framework of the period dating back to separation of responsibilities as a balance mechanism, 1982. The resulting Country Procurement Issues Paper and control authority; ii) train procurement staff on bid (CPIP) dated June 2006 helped highlight significant evaluation and contract management; iii) ensure that risks to the execution of public investment programs in bidders have the experience and technical, financial, and particular: i) insufficient quality of procurement opera- human resources to enforce contracts; iv) devote open tions at all stages of the procurement cycle, ii) lack of bidding as the default procurement method; v) make transparency of decisions relating to public procure- publication of procurement plans, advertisements, and ment; and iii) lack of accountability of contractors and contract award decisions compulsory; and vi) provide for awarding of decisions independent of the control system. arbitration mechanisms and conflict resolution. 154 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) For integrity and transparency of public procure- 7.2.2 Status of the Institutional ment system (Pillar IV) the following recommendations Framework and Capacity were formulated: i) require the publication of all steps of Management the procurement process, transmission, and archiving of procurement documentation; ii) create an effective and Institutionally, the current procurement code has independent complaints mechanism; iii) establish ex-ante established separation of executive functions of pro- and ex-post controls based on thresholds set in the Code, curement operations and of control and regulation. and conduct external audits; and iv) establish and enforce The ARMP72 has the the responsibility of regulating the sanctions in the code, the responsibilities and penalties to system whereas DGCMP is responsible for monitoring better fight against fraud and corruption, including the procurement operations implemented by the CGMP publication of decisions in respect of infringements and within contracting authorities. The DGGT was reor- the list of sanctioned companies. ganized and is currently acting as a delegated contract management partner of the contracting authorities above 7.2 Government’s 2009-Reform a certain threshold established by the Code. Moreover, specific obligations are set by the current Since 2009, by and large, most of the recommenda- code to contracting authorities regarding the prepara- tions included in the 2006 CPIP action plan have been tion of procurement plans. Article 23 of the Code also implemented or are under consideration. Accordingly requires the ARMP to ensure their publication. Besides, significant progress has been made through the imple- a strategic capacity development plan has been developed mentation of the procurement reform. and on a regular basis implemented for contracting authorities, the private sector, and other stakeholders. 7.2.1 Status of the Legislative and However, some shortcomings remain . For Regulatory Framework instance no electronic tools for data collection of pro- curement transactions has been developed to improve Congo has introduced a new procurement code procurement planning reviews and to ensure the trace- through Decree No. 2009-156 of May 20, 2009 and ability of operations throughout the procurement cycle. its implementing regulations. The new regulatory In addition, although the ARMP has taken initiatives framework resulting from the reform covers the different to create a unique identification card for each contract, types of procurements including concession agreements there is still a very low level of procurement registration, for works and services. In general, it incorporates the which is mainly due to a misinterpretation of the texts requirements of generally accepted good practices inter- by companies about the authority between ARMP and nationally. Standard bidding documents for different DGCMP to assume this responsibility. Thus, in 2012, types of procurement and a procurement plan template of a total of 1,071 contracts awarded, only 436 (43.6 have been developed. percent) were registered to the ARMP. However, the legislative and regulatory frame- work does not yet cover public-private partnership 7.2.3 Status of the Procurement (PPP) contracts nor defense and national security Operations and Market Practices contracts. In addition, all the implementing regulations of the Code have not yet been developed in particular The 2009 procurement code helps to account for those relating to the full functioning of procurement some key recommendations related to procurement management units (Cellule de Gestion des Marchés Publics (CGMP))71 including top-up allowances of its 71 Public Procurement Management Unit. members. 72 Regulation of the Public Procurement Agency. Public Procurement Issues 155 operations and market practices. It establishes the open However, it is to be noted that the lack of tender as the procurement procedure by default. It also resources, capacity constraint, and inefficient coordi- provides for specific rules and thresholds for the a priori nation between actors of the system—combined with controls. The code also requires contracting authorities low commitment and resistance for reform—heavily to ensure that procurement plans, procurement notices, affect data collection and management of market and contract awards are published in local newspapers practices. As a result, the obligation to conduct regular and on ARMP’s website. On the recommendation of independent audits is not met. In fact, since the adop- the 2006 CPIP to develop alternative dispute resolu- tion of the procurement code in 2009, the only audit tion mechanisms, the code provides for the possibility of the procurement system that was done concerns of resolving complaints amicably, including through financial years 2011 and 2012 and it is not yet released arbitration (Articles 144 and 145). to a broader audience (neither publicly disseminated However, the procurement operations and nor published on ARMP’s website) and did not include market practices remain far from being efficient. For high value contracts (above XAF1,000 billion (about example: i) the procurement actors have poorly mastered US$2 million)). In addition, the effectiveness of anti- procedures and are not very familiar with the standard corruption system remains affected by several factors, in bidding documents; ii) the publication of all essential particular: i) lack of prosecution of and sanctions against procurement information is not routinely provided, the perpetrators; ii) lack of anonymous reporting mecha- including contract award decisions; and iii) the list nisms; iii) the non-publication of decisions relating to of sanctioned bidders and statistics on the number of fraud and corruption; and iv) lack of sufficient resources awarded contracts with their respective amounts is still to enable the institutions responsible for the fight against missing. Overall, information on performance reviews corruption to properly carry out their missions. of the system is irregular. 7.3 Assessment of the Public 7.2.4 Status of Integrity and Procurement System Transparency of the System The quality of the public procurement system of Procurement reform, including the new procurement Congo is evaluated slightly above average of the code, helped to improve the integrity and transpar- OECD/DAC rating scale, which is a substantial ency of the procurement system in a number of improvement compared to 2006. Overall, the 2014 dimensions. The code includes provisions to: i) ensure MAPS73 rating of Congolese procurement process scores the publication of information of the procurement 1.54/3 and an overall completion rate of the core indi- transactions; ii) set up an independent administrative cators OECD/DAC is 51.3 percent (see Table 7.1 and appeals mechanism which is consistent with inter- Figure 7.1). This score is a sharp improvement from national best practice and which includes a tripartite 2006, where the overall score was 0.48/3 and a comple- and equal representation of civil society, private sector, tion rate of 16 percent. and pubic administration; and iii) establish an a priori Although all pillars experienced important monitoring system. Finally, the new code has fulfilled improvement compared to 2006, this improvement many requirements for integrity such as the new offense has been unequal, the most beneficiary pillar been provisions, conflict of interest requirements, and penal- Legislative and regulatory framework. As illustrated ties applicable to bidders and public authorities. These in Figure 7.1, which shows the aggregate rating of the are supplemented by Law No. 31-2012 of October 11, 2012 establishing the offenses and penalties relating to contracts award and management. 73 MAPS (Methodology of Assessment of Procurement Systems). 156 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) TABLE 7.1: State of Completion of the Pillars of the FIGURE 7.2: Selected Countries – Public Public Procurement System Procurement Aggregated Score 2006 2014 3.0 Legislative and regulatory framework 14.0 76.3 2.5 Institutional framework and management capacity 14.0 55.7 2.0 Procurement operations and market practices 20.0 36.3 1.5 Integrity and transparency in public procurement 16.0 37.0 system 1.0 Overall completion rate of the core indicators 16.0 51.3 0.5 OECD/DAC 0 Source: CPIP 2006 and 2014. Senegal Cape Verde Moldova Niger Sierra-Leone Ghana Cote D'Ivoire Cameroon Congo Rep. Benin Guinea Bisseau FIGURE 7.1: Republic of Congo – Public Procurement Aggregated Score by Sources: Niger PEMFAR 2008 and Republic Congo MAPS 2014. OECD/DAC Pillars Legislative and regulatory framework countries that have assessed their procurement system 3 2.29 on the basis of the OECD methodology/CAD, Congo with an average score of 1.54/3, ranks slightly above the Integrity and 0.42 Institutional Guinea Bissau (1.2/3) and Benin (1.4/3) but slightly transparency in 3 1.11 0.48 0.42 1.67 3 framework and public procurement management below Cameroon (1.68/3) and Cote d’Ivoire (1.7/3). 0.60 system 1.09 capacity However, Senegal, and Cape Verde with a score of 2.5 and 2.1 respectively, show that Congo is still far behind 3 some regional peers (see Figure 7.2). Procurement operations At the institutional level, the separation of and market practices executive functions of procurement operations, 2014 score 2006 score Optimal score monitoring, and control system is an important step Sources: CPIP 2006 and 2014 MAPS. forward. ARMP is entrusted the mission of supervi- sion and regulation of the system while the DGCMP ensures an ex-ante reviews of procedures implemented four pillars, the legislative and regulatory framework by the CGMP of Contracting Authorities. Although represents the largest component of the system with the operationalization of many institutions of public the average score of 2.29/3, which is above the average procurement has undergone significant difficulties and (1.5/3) of the OECD/DAC rating scale. The institutional delays, the institutional framework of the code has been framework gets a score of 1.67/3 just above average. The widely implemented. Upon entry into force of the Code operational management capabilities and the integrity in 2009, ARMP quickly seized its missions by i) ensuring and transparency of the procurement system represent the the full dissemination of the new texts, and ii) coaching weakest parts of the system, each with scores of 1.09/3 and training key players including the private sector and and 1.11/3 respectively, which are below average. civil society, which are also represented in the regulatory Meanwhile, this improvement is not yet enough Board and the complaints review board (CRD). to bring the Congolese system up to the level of Significant progress has been made on the three many SSA countries. In comparison with some African other pillars (1, 3, and 4). Public Procurement Issues 157 FIGURE 7.3: 2014 MAPS 3.0 2.5 2.0 1.5 1.0 0.5 0 Regulatory legislative framework for awarding public contracts comply with the … Regulations of existence and documentation Award of well-integrated markets to public sector governance Country with a normative/regulatory body functional Existence of institutional development capacity Efficiency of activities and procurement practices Functionality acquisitions market Contract management arrangements and dispute resolution Country with effective control mechanisms and audits Effectiveness of the mechanism Degree of access to information Promotion of ethics and fight against corruption PI PII PIII PIV Source: Congo Rep. 2014 MAPS. For the legislative and regulatory framework, the specific ethics’ code; iii) the exclusion of foreign bid- significant progress has been made, such as the adop- ders, except for CEMAC bidders, to participate in bid- tion of: i) modern new procurement code and imple- ding process for contracts financed under the national menting regulations; ii) national standard bidding budget; and iv) insufficient guarantees of confidential- documents that comply with international standards; ity of information and security documents during the iii) a procurement plans template; and iv) publication process of bids evaluation. of information including the creation of the ARMP On the institutional framework and manage- website and the review of public procurement. The ment capacity many gaps remain. Gaps include insuffi- procurement system is supplemented by a dispute cient integration of procurement into the public financial settlement mechanism during the procurement process management system and inefficient procurement plan- and execution of contracts similar to the one in place ning. Moreover, the rules on advertising are not fully in WAEMU countries. respected due to the non-systematic publication of pro- However, there are still many challenges as evi- curement notices and procurement plans. Similarly, the denced by results of the evaluation of the national pro- implementation of procurement plans are generally not curement system shown in Figure 7.3. The following respected because of existing delays and bottlenecks in paragraphs describe the main shortcomings and weak- the various phases of the procurement process. nesses identified by the evaluation in each of the four Specifically, the institutional framework presents six pillars of the OECD/DAC methodology. crucial bottlenecks as shown in Box 7.1. The legislative and regulatory framework still has weaknesses, in particular: i) the absence of specific i. Preparation of bidding: the CGMPs are experi- regulations on public-private partnership (PPP) con- encing many difficulties in preparing good quality tracts, on defense and national security contracts (special of bidding documents (BD), because prior studies considerations); ii) the lack of further implementing of projects are not always prepared well in advance regulations, specifically those concerning powers and and are sometimes immature. In addition, proj- procedures of the CGMP, allowances for their staff, and ect managers and technical experts are not always 158 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Box 7.1: Procurement Process Activity Budget Draft Validation and Preparation of Identification of Confirmation Registration Procurement Publication of Bidding Documents Needs/Activity paper of the Activity Plan PP (BD) No objection Advertisement of the Award of Bid Opening- No objection on on Contract Specific Procurement Notice Contract Evaluation Bidding Documents Award and Issuance of BD Contract’s Notification Contract’s Contract Contract Signature and final of Award Finalization Approval Execution Notification Normal procedure Payment Payment Visa for Payment Request Bottleneck Sources: Congolese Authorities and World Bank Staff. associated with the preparation of procurements efficiency of the procurement system and the documents. As a result, a large number of cases competitiveness of the private sector. According to were dismissed by the DGCMP, thus affecting the statistics provided by the ARMP, in 2012 only 20 level of implementation of the budget. According to percent of contracts were approved within the statu- data provided, from the 3316 contracts registered in tory period of 30 days. the 2012 procurement plans, only 1,071 BD were v. Notification and publication of contract award validated by DGCMP, equivalent to 30 percent of decision: Several contracts awarded in 2012 were all planned contracts. not notified or when they were, the publication of ii. Publication, receipt, and processing of tenders: the award decisions was not conducted in accor- According to the 2012 ARMP annual report, very dance with appropriate rules. Similarly, the unsuc- few procurement notices were published by official cessful bidders are not systematically informed of channels of communication. This is due to the lack the rejection of their bids. of publication of BOAMP and irregular updates of vi. The procurement payment system: The payment the website. Moreover, cases of retention of Bidding system is affected by a range of factors such as: Documents by contracting authorities and late dis- i) additional checks by the DGCB; ii) insufficient tribution were reported by the ARMP. This has led control of the financial management process by ARMP to organize specific training and monitoring the contracting authorities in particular because missions for bid opening sessions. of job mobility observed at the CGMPs; and iii. A priori control procedures: Contracting authori- iii) the absence of an electronic system to ensure ties frequently submit non-objection requests to the link between procurement process and financial DGCMP for post reviews contracts. Thus has been management. found to slow and unnecessarily extend the procure- ment process. Widespread weak management capacity at iv. Approval of contracts: Major delays were reported the contracting authorities and at the private sec- in contract approval, which seriously affects the tor negatively affects the quality of procurement Public Procurement Issues 159 operations and market practices. The level of knowl- 7.3.1 Legislative and Regulatory edge of the code remains low despite the training Framework (L&RF) undertaken by ARMP.74 In addition, ARMP lacks sufficient resources to ensure continuous implemen- The Congolese legislative and regulatory framework tation of the strategic plan for capacity building. The is strong and consistent with international standards. data collection system and archiving of procurement Thanks to the 2009 procurement code and related regu- files data are also very weak, therefore not allowing lations, Congo had undergone a strong reshaping of its for effective performance assessment of the system. procurement legislative regulatory framework. Using In addition, the CGMP lacks enough resources to the OECD/DAC MAPS,75 the legislative and regulatory ensure data collection on supervision of public works framework has been granted an overall score of 2.3/3. contracts. Moreover, there are significant delays in This score compares favorably to best performing devel- the payment of contracts that affect the credibility of oping countries peers (see Table 7.2 and Figure 7.4). In the state vis-à-vis the private sector and involve risks fact, Congo’s L&RF is as good as Senegal, Cote d’Ivoire, of integrity due to the direct intervention of entrepre- Ghana, and Moldova. neurs with Treasury. The monitoring system does not provide effec- The Congolese legislative and regulatory framework tive integrity and transparency of the procurement for public procurement is in accordance with agreed system. There is no effective internal control system of standards and it fulfills the obligations in force. procurement activities within the contracting authorities. The procurement legislative and regulatory frame- The external control system of procurement is inefficient work is well structured and codified, it promotes and independent procurement audits are not regularly fairness and competition with the open tendering conducted (the first audit of 2011–2012 budget has established as the default procurement method, it not been exhaustive, only contracts below XAF 1 bil- has a wide scope, and it applies to all public enti- lion have been audited). The audit by the IGF is very ties. In 2009, Congo adopted a new procurement limited and almost inoperative due to lack of technical code as well as modern application texts by the Decree capacity and resources. The CCDB, the IGE, and the parliament do not exercise specific controls in the field 74 Findings from the Survey of governance in Congo FTHM of public procurement. In addition, proceedings against conducted by International Agency & Capsule in 2011, only 22.1 offenders are not consistently implemented and sanctions percent of civil servants and 9 percent of respondents believe they are not applied, which severely affects the effectiveness have sufficient knowledge on the new procurement code public. In addition, 78 percent of companies believe that the code is not applied. of policies against corruption. 75 Methodology of Assessment of Procurement Systems. TABLE 7.2: Selected Countries – Procurement System Assessment Cote Congo Sierra- Niger d’Ivoire Senegal Benin Rep. Ghana Leone Moldova Legislative and regulatory framework 2.3 2.2 2.5 1.1 2.3 2.3 2.4 2.1 Institutional framework and management capacity 1.7 1.7 2.6 1.5 1.7 1.4 1.7 2.0 Procurement operations and market practices 1.5 1.8 2.4 1.2 1.2 1.8 1.3 1.9 Integrity and transparency in public procurement system 1.6 1 2.4 1.6 1.1 1.6 1.8 2.0 Overall 1.8 1.7 2.5 1.4 1.6 1.8 1.8 2.0 Sources: Latest CPAR of selected countries and 2014 MAPS of the Republic of Congo. 160 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) FIGURE 7.4: Selected Countries – Legislative and procurement legal frameworks be established by law. In Regulatory Framework addition, not all of the implementing regulations have 3.0 been adopted yet. 2.5 Moreover, it contains gaps, which prevent it from being fully aligned to the international stan- 2.0 dards, in particular: i) restrictive eligibility requirements 1.5 regarding foreign suppliers76 participation in national 1.0 competitive bidding processes when the contracts are financed under the national budget; ii) insufficient 0.5 provisions regarding the use of international com- 0 Regulatory legislative Regulations of petitive bidding procedures (minimum time frames, framework for awarding existence and advertising, etc.); iii) lack of specific requirements with public contracts comply documentation with the standards respect to the security of bids and the confidentially of Congo Rep. Niger Ghana Sierra-Leone Moldova bidding information and; iv) inappropriate use of the Sources: Selected countries CPAR and Congo Rep. 2014 MAPS. pre-qualification procedure. In addition, the publication of information on public procurement is not effectively ensured, in particular because the ARMP website is not No 156-2009 of May 20, 2009, which was revised in regularly updated. 2011. The Code enshrines the fundamental principles of public procurement and implements control instru- Many of the regulations and their documentations ments, remedies, and a regulator of the procurement are in place and are of excellent quality system. The other major innovation concerns the In Congo, modern standard bidding documents for separation of procurement operations, controls, and different types of contracts have been developed and regulation. The open tendering is the default mode of made accessible to contracting entities and suppli- procurement and negotiation is generally prohibited ers. In general, there are statutory instruments that except as expressly permitted by the Code. In addition, complement the provisions of the Decree on public unethical behaviors are clearly described and punished. procurement. For this dimension Congo is doing as In general, the legislative and regulatory framework well as other countries that undertook a CPAR recently is coherent, structured, and is consistent with inter- (see Figure 7.4). national best practices. It applies to all contracts for However, all regulations have not yet been goods, works, and services, including consultancy adopted and some important requirements are still services. It also covers works and services’ concession optional: i) the decree fixing the allowances of CGMPs’ contracts. Finally, the Code well defines the different members and the decree fixing their composition, procurement methods and uses the prequalification responsibilities, and operating procedures, ii) the use of process for complex works or important equipment pre-qualification in works’ contracts or complex equip- although this is optional. ment is optional, and iii) the application of pass/fail type Nevertheless this procurement code and its of criteria is not specified in the Code. In addition, the implementing regulations contain some weaknesses. general conditions for different types of contracts con- For instance it does not provide specific rules for pub- tain restrictions for foreign bidders (except CEMAC lic-private partnership (PPP) contracts and contracts member countries) to access contracts financed by the for defense and national security (special contracts). national budget. Additionally, it is established by a decree, contrary to international standards that recommend that public 76 Except for CEMAC member countries. Public Procurement Issues 161 Regulatory risk is high for the Congolese and iv) adopt legislation to ensure prior availability of procurement system the budget before the launch of any tender or before Regulatory risk is mainly the result of weaknesses contract signing. in the procurement Code as well as implementing regulations. Specifically, the limited scope of the legal 7.3.2 Institutional Framework and framework for public procurement, which does not yet Management Capacity cover PPP and defense as well as national security pro- curement contracts. In addition, all the implementing The procurement system in place promotes the regulations of the Code have not yet been adopted, in separation of execution, regulation, and control particular those relating to the composition, respon- responsibilities, which are well identified in the pro- sibilities, and procedures including allowances of the curement code and allocated to specific institutions. CGMP members, and the code of conduct and ethics Procurement units within the contracting authorities in public procurement. Certain provisions of the Code manage procurement activities, while the DGCMP and have deficiencies or inaccuracies regarding prequalifica- ARMP respectively ensure the ex-ante control of the tion of bidders and the implementation modalities of the procurement activities and ex-post control including appeal procedure for international bids. There are also regulation and supervision of the overall system. There restrictions for foreign bidders to participate in national is an independent complaint and review mechanism competitive bids financed from the national budget, within ARMP, which is also responsible for developing which is contrary to international standards. Finally, and implementing the capacity building strategy across the Code does not provide for adequate safeguards for the procurement sector. confidentiality of bid evaluation processes. However, the planning of procurement activi- ties is not efficient. The procurement system is not Recommendations well integrated into the public financial management In the short term, the government should consider system. Compliance with annual procurement plans to take measures to: i) extend the scope of the legal is compromised by the frequent delays encountered framework for public procurement of PPPs and defense in the initiation of different stages of the procurement as well as national security procurements; ii) adopt all process. In addition, there are several bottlenecks in the the missing implementing regulations of the Code public expenditure process that considerably delay the of public procurement in particular those relating to payment of contracts and affect negatively, among other allowances of CGMP members and their composition, factors, the level of implementation of the public invest- responsibilities, and operating procedures; iii) develop ment projects. Furthermore, there are no specific digital specific conduct and ethics codes in public procure- management tools in place to ensure the proper link- ment; and iv) carry out a cleaning up of the procure- age between procurement operations and the financial ment code including provision for the mandatory use management processes. of pre-qualification procedures for works or complex equipment contracts. The Congolese public procurement system is poorly In the medium term, the government should take integrated and incorporated into the public sector measures to: i) remove discriminatory requirements governance system based on the nationality of bidders for national com- Progress has been made in procurement planning. petitive bidding under the national budget financing; Article 23 of the Code requires systematic preparation by ii) provide a minimum period for bid preparation of the contracting authorities of procurement plans consis- international competitive bidding; iii) strengthen confi- tent with the available budget allocations. According to dentiality requirements during the bid valuation process; figures provided by the ARMP, 78 percent of contracting 162 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) authorities have prepared compliant procurement plans FIGURE 7.5: Selected Countries – Institutional in 2012. Framework and Management Capacity However, procurement planning remains seri- 3.0 ously compromised by delays in budget preparation 2.5 and approval and therefore affects the subsequent 2.0 steps in the procurement process. As a result, many timeouts are recorded in all phases of the procurement 1.5 process and during the contract execution.77 In addi- 1.0 tion, huge delays were reported at the contract approval 0.5 process. According to figures provided by the ARMP, 0 only 20 percent of contracts were approved within the Award of well- Country with a Existence of statutory period of 30 days in 2012. Interviews with integrated markets normative/regulatory institutional to public sector body functional development contracting authorities have also reported some cases governance capacity where approval visas have been issued one or two years Congo Rep. Niger Ghana Sierra-Leone Moldova late. Overall, according to data provided by the ARMP, Sources: Selected countries CPAR and Congo Rep. 2014 MAPS. the level of implementation of procurement plans in 2012 is estimated at 30 percent. The factors behind the low level of contract execution include: i) insufficient Congo has a functional regulatory body, which is control by the contracting authorities of regulations among the best in SSA and procedures for the expenditure circuit; ii) additional The ARMP was created by a 2009 decree on public checks by the DGCB beyond the authorities that are procurement and in a very short period of time stated formally assigned by the regulations; and iii) low level of the dissemination of the reform agenda. ARMP’s main projects’ maturation which always results in uncontrolled tasks are the regulation and supervision of procurement contract amendments. operations, including the procurement disputes resolu- Moreover, there are burdens in the expenditure tion. To perform its role and responsibilities it is expected circuit. This pushes entrepreneurs to intervene directly that ARMP be independent. Currently it receives an with the Treasury in order to obtain payment, creating annual allocation from the State budget and has other significant risks for corruption. In addition, in 2012 in sources of financing provided by the Code. order to obtain payment of their bills, contractors sub- The regulatory body in Congo compares favor- mitted many requests for arbitration to ARMP. In fact, ably to developing country standards. In fact, with there is the lack of regulations demanding certification an overall grade of 2.75/3 the country is doing better of availability of funds prior to the launch of a procure- than any country that recently undertook a CPAR. For ment contract or contract signature; this is a potential instance, it is doing better than Ghana (1.5/3), Niger source of low disbursement. (2.2/3), Sierra-Leone, (1.75/3), and Moldova (2.7/3) (see Finally, in this dimension, Congo performed Figure 7.5). poorly compared to other countries that recently However, in 2012 the delayed disbursement of the undertook a CPAR. In fact, Congo underperformed allocated budgets did not allow ARMP to implement all compared to Niger, Sierra-Leone, and Moldova. Among the activities that were planned for the annual action the selected peer countries, only Ghana has the same plan. Specific measures are needed to quickly remedy performance as Congo (see Figure 7.5). this problem, which could affect its independence and effectiveness. In addition, a potential conflict of inter- 77 However, the mission could not obtain data and statistics to esti- est could arise from the participation of the ARMP mate the extent of delays. “as an observer” to the bid opening sessions to prevent Public Procurement Issues 163 irregularities observed at the level of some contracting The institutional risk is high for the Congolese authorities. procurement system There is a risk of conflict of interest and expertise due The institutional development capacity in the to the intervention of the ARMP as an “observer” in regulatory body of the procurement system is very public opening session bids. Its direct involvement weak in the delivery of regular training may also affect long- Although, the system for data collection and informa- term implementation of its main tasks of regulation and tion dissemination on public procurement is gradu- supervision of the overall operation of the procurement ally improving since 2013, its capacity development system. In addition, data collection systems and statis- remains too weak. Indeed, most CGMP visited during tics as well as the dissemination of information are not the evaluation mission do not have adequate IT tools efficient enough to facilitate traceability, analysis, and or office equipment. In addition, the obligations for the control of procurement activities. It would be useful systematic transmission of procurement information to to set up electronic tools of information management ARMP and DGCMP, including the preparation of prog- as Système Intégré de Gestion des Marchés Publics ress reports, are not followed. This greatly complicates (SIGMAP)79 and ensure its interconnection with the tracking and sharing of procurement information with public financial management system. other relevant authorities and the implementation of The payment system is another source of risk. audits and procurement performance reviews. As a result The contractors’ payment system is failing particularly data collection and monitoring statistics are currently because of numerous delays and bottlenecks existing in quite difficult. The audit report of procurement contract the spending circuit. All these factors combined with for years 2011 and 2012 also identifies this widespread the lack of capacity of contracting authorities and cum- lack of statistics and data archiving by CGMP as one of bersome controls significantly affect the achievement of the main weaknesses of the procurement system. public investment projects. So far the ARMP has been unable to evaluate staff performance and its training plan is not fully Recommendations operational. Although the Code entrusts the ARMP In the short term: i) ARMP should regularly update the to periodically evaluate staff performance and establish procurement information in the Website, update the quality standards, neither of these activities have taken capacity building program, and conduct regular perfor- place. Although there is a strategic training plan for mance reviews of the system—to that end, a value chain public procurement,78 the audit report found that it is analysis of the bottlenecks in the procurement process difficult to analyze the effectiveness of this training due should be conducted; ii) the government should con- to the unavailability of monitoring programs and cer- sider taking measures to anticipate procurement plan- tificates issued by the CGMP to staff. Moreover, there is ning earlier in the budget preparation stage; iii) while still no professional training or diploma for procurement waiting for the development of electronic tools, ARMP provided by any national institutions or private insti- should prepare templates for data collection and dis- tutes. The ARMP training should be limited to oversee- seminate to all contract authorities; iv) the Government ing the implementation of the strategic training plan for should take measures to ensure compliance with rules capacity building, since it is critical that ARMP focuses during the process of bid openings and therefore avoid on its main regulatory and supervisory missions of the procurement system. Finally, for capacity development 78 Congo underperformed compared to other developing ARMP organized (in collaboration with DGCMP) several train- ing sessions on the new regulations for contracting authorities and countries such as Niger, Moldova, Ghana, and Sierra- the private sector. Leone (see Figure 7.5). 79 Public Procurement Management Integrated System. 164 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) the intervention of the ARMP at this level, including equipment needed to properly perform their duties. In the appointment of independent observers. addition, the archive system is obsolete. All these factors In the medium term, the government should take seriously compromise the confidentiality and security of appropriate measures to: i) develop systems that could documents and information. Moreover, apart from the help to collect procurement data and statistics and dis- delegation of contract management to DGGT, delega- seminate reliable information, including ensuring that tion of authority to lower levels than the central govern- contracting authorities have necessary equipment and ment is not clearly defined in the public procurement software tools for data collection; ii) provide needed regulations. Finally, Congolese procurement practices support to ARMP to ensure the systematic publication are one of the least efficient even by developing coun- of all relevant procurement information on its website tries standard. According to Figure 7.6, with a grade of and in the public procurement newsletter; and iii) ana- 1.0/3, Congo is far behind Niger (1.3/3), Ghana (1.2/3), lyze ways to improve the performance by eliminating Sierra-Leone (1.7/3), and Moldova (2.0/3). existing bottlenecks. The business environment market is 7.3.3 Procurement Operations and completely dysfunctional Market Practices Several factors limit the private sector’s participation in public procurement competition. Indeed, there Overall procurement operations and market practices is still no sustainable partnership framework between in Congo present significant shortcomings and fall the government and the private sector to improve the below developing country standards. Procurement competitiveness of SMEs. In addition, weak capacity, practices are very inefficient. Moreover, the acquisi- lack of private sector institutions capable of influencing tion market is completely dysfunctional and is among public policy, the regulatory environment and busi- the lowest performing, of countries that have recently ness do not well facilitate SMEs’ access to procurement undertaken a CPAR. However, provisions on dispute opportunities. resolution mechanism are better. Meanwhile, public procurement regulations do not define in detail the conditions of use for the Operations and the country’s procurement practices are weak and are below SSA standard FIGURE 7.6: Selected Countries – Procurement There is a wide deficit of competence that hinders Operations and Market Practices proper implementation of procurement procedures. 2.5 Ad hoc training courses organized by the ARMP and 2.0 DGCMP do not sustainably improve the situation. These institutions should analyze the ways to implement 1.5 sustainable training programs and ensure the profes- 1.0 sionalization of public procurement function through the establishment of a special procurement cadre within 0.5 the civil service scheme. In addition the high mobility 0 of procurement staff in contracting, authorities are not Efficiency of activities Functionality Contract management and procurement acquisitions markets arrangements and helping to sustain capacity development. practices dispute resolution Procurement bodies lack operating resources Congo Rep. Niger Ghana Sierra-Leone Moldova that are essential to ensure the effectiveness of their Sources: Selected Countries CPAR and 2014 MAPS of the Republic of activities. Some CGMPs have neither an office nor office Congo. Public Procurement Issues 165 international bidding and restricts foreign bidders’ par- such as a lack of enabling frameworks for dialogue and ticipation in national tenders financed under the budget partnership between the government and private sector. of the state. Moreover, even for developing countries In addition, the local private sector is sorely lacking in standard, Congo procurement regulation on acquisi- capacity to prepare quality bids, which greatly limits its tions market is too dysfunctional. Figure 7.6 shows participation in public procurement. that with 0.7/3 Congo is far behind Niger, Ghana, Sierra-Leone, and Moldova, which all have a grade of Recommendations greater than 1.7/3. In the short term, the government should: i) take action to better support the implementation of the capac- Congo has an excellent dispute resolution ity development program for contracting authorities, mechanism but a poor contract private sector and civil society stakeholders; ii) explore management opportunities to join the New York Convention on the Currently, procurement regulation includes adequate Enforcement of Arbitration. procedures for dispute resolution, which provide rational In the medium term, the government should and fair processes that occur during the procurement pro- analyze ways and means to: i) develop competency cess. But the effective implementation is still a challenge. profiles and develop a specific career plan in public pro- However, control of the execution of works con- curement; ii) provide material support to contracting tracts fails particularly because of the lack of material authorities to help track and control works contracts resources to conduct inspections of construction sites and establish an effective coordination mechanism but also lack of professional rigor. In addition, significant between contracting authorities and DGGT in contract payment delays by the Treasury and non-application management; and iii) promote partnerships between of penalties for delay adversely affect the performance government and the private sector, reducing barriers to and competitiveness of the private sector. There are access to business opportunities to improve the com- also procedures to facilitate the enforcement of arbitral petitiveness of local SMEs. awards including those provided by the OHADA Treaty, which are directly applicable to the Congo. However, 7.3.4 Integrity and Transparency of the Congo has not ratified the New York Convention on Procurement System the Enforcement of International Arbitral 1 and there are many deficiencies in the application of provisions The implementation of the accountability mecha- relating to contracts management. nism and the fight against corruption policy are not efficient in general, especially in the public procure- Operational risk is very high in the ment sector. This is due to many reasons, specifically Congolese procurement system the lack of: i) adequate resources for the institutions in Operational risk is very high. It is mainly related to charge of fighting corruption (CNLCCF, OAC, etc.); the competence deficit in contracting authorities and ii) efficient coordination among the major stakehold- the private sector, and negatively affects the efficiency ers; and iii) involvement of the private sector and civil and quality of procurement procedures. The ARMP society. The internal and external control systems are not has no technical capacity and material resources sufficient efficient and need to be strengthened. In addition, the to ensure the implementation of the strategic plan for annual procurement audits are not regularly carried out. capacity building. The other identified major risk consists The first audit since the promulgation of the new code of the regulatory and business environment that is not in 2009 was conducted recently and the results are not conducive to better SME access to public procurement yet publicly disseminated. The information, statistics, contract, particularly due to many systemic constraints and archiving management systems are not efficient, 166 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) and negatively affect the diffusion and access to key conducted to date concerns the fiscal years 2011 and procurement data and information and the transpar- 2012 and did not cover high value contracts. There is ency of the system. no internal control mechanism clearly established at the However, the procurement Code contains specific level of contracting authorities. In addition, the findings provisions to ensure an effective fight against fraud and of the only audit of public procurement in Congo since corruption in public procurement. Furthermore, a law 2009 reveal the existence of numerous obstacles to the that defines applicable infractions and sanctions for implementation of controls, mainly due to the general the public procurement sector supplements the code. lack of data on procurement operations and the absence In addition, there is an institutional framework in of procurement activity reports. place dedicated to the fight against corruption includ- The Congolese mechanism for monitoring is ing in the public procurement sector especially the weak compared to developing countries standard. National Commission against Corruption and Fraud Figure 7.7 shows that among developing countries that (CNLCCF) and the Anti-Corruption Observatory recently undertook a CPAR, the Congolese mechanism is (OAC). Finally, ARMP makes endeavors to improve the one of the most poorly rated. In fact, with a grade of publication and dissemination of key information 0.4/3 the Congolese is far behind Niger (0.8/3), Ghana through its own website. (1.0/3), Sierra-Leone (1.2/3), and Moldova (1.4/3). The Congolese mechanism for monitoring The Congolese appeal mechanism and auditing is currently not performing well conforms to international standard Congo’s procurement monitoring and audit mecha- The complaint mechanism set up by the new procure- nism is not performing well. The prior review of pro- ment code compares favorably to international standards. curement transactions by DGCMP is not always effective However, it has not quite proven its effectiveness. In fact, because of delays reported in the issuance of non- bidders seem reluctant to initiate complaints, probably objection, which slow down the procurement process. due to lack of confidence in the system in place or for Meanwhile, in ARMP the recent audit of the 2011–2012 fear of reprisals from the government. budget has revealed inefficiencies in controls, internal audit, and anti-corruption mechanisms’ enforcement in addition to poor performance of market practices, weak FIGURE 7.7: Selected Countries – Integrity and contract management system, and insufficient access to Transparency of the Procurement procurement related information and data. The IGF was System established in 2012 but its operationalization has experi- 3.0 enced many difficulties and delays. It conducts random 2.5 checks on procurement activities and prescribes recom- 2.0 mendations. However, reports are not made public and its effectiveness is very limited due to the lack of capacity 1.5 and sufficient resources to ensure the monitoring and 1.0 implementation of its recommendations. The Court of 0.5 Auditors and the IGE are not involved specifically in the 0 area of procurement. Country with Effectiveness Degree of Promotion Moreover, the audit mechanism is experienc- effective control of the access to of ethics and mechanisms mechanism information fight against ing substantial difficulties. Since the entry into force and audits corruption of the new Code in 2009, public procurement audits Congo Rep. Niger Ghana Sierra-Leone Moldova have not been properly implemented. The only audit Sources: Selected countries CPAR and Congo Rep. 2014 MAPS. Public Procurement Issues 167 Access to public procurement information procurement, fraud and corruption remains a major in very weak in Congo concern, as the 2013 Transparency International ranks Although, the publication of information on public pro- Congo 154th out of 177 countries. The system of inter- curement is supposed to be ensured through the website nal and external control of procurement activities is also of the ARMP and the public procurement newspaper, very flawed and ineffective. Procurement audits are not the electronic portal is not regularly updated. Moreover, regularly conducted. some relevant information, including contract award The other major risk concerns the existence of decisions, is not systematically published. In addition, significant deficiencies in the dissemination and access the DGCMP and contracting authorities have no mod- to relevant procurement information for stakeholders as ern means of communication nor IT tools. Finally, the evidenced by the results of the audit report for the years activity reports of procurement bodies and DGCMP are 2011 and 2012. not easily accessible to the public. Recommendations The country has insufficient measures In the short term, the government should explore to promote ethics and fight against opportunities to: i) provide financial and technical corruption support to the ARMP in order to enable it to carry Congo has adopted ethics promotion measures through out regular annual audits of public procurement; and public procurement provisions of the procurement Code ii) improve access to and dissemination of informa- and a specific law establishing offenses and penalties spe- tion on public procurement, in particular the provision cific to public contracts. However, these efforts remain of electronic communications, and the development largely insufficient to curb the phenomenon of corruption and popularization of standard models of progress and unethical behavior. The main obstacles identified are reports to the ARMP, the DGCMP, and CGMP. In the the lack of: i) controls and audits, ii) the lack of prosecu- medium term, the government should take appropri- tion and implementation of sanctions by the ARMP; ate measures to: i) develop internal control procedures iii) lack of effectiveness of the overall strategy against cor- of procurement activities; ii) strengthen the external ruption and sufficient coordination between stakeholders; audit bodies in particular the IGF, the CNLCCF, and iv) sufficient involvement of civil society and the private OAC by providing technical support to enable them sector in the fight against corruption; and v) enforcement to effectively carry out their missions; iii) promote a of the existing laws, repression of non-ethical conducts, policy of zero tolerance against corruption in public and the absence of publication of the list of sanctioned procurement in particular through the implementa- firms and of an anonymous denunciation hotline. tion of mechanisms for prevention and repression; and iv) develop and provide codes of conduct and ethics The “integrity” risk is very high specific to public procurement. Despite the legal and regulatory provisions adopted by the government to strengthen integrity in public 168 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Matrix of Recommendations Overall recommendations Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Achieve a Set an entity with the relevant convenient Greater consistency of The government An entity Short term Average consistent power to oversee budget execution budget planning and budget execution execution Establish a monthly meeting of this entity Greater consistency of The government Number of Short term Low aligned with to be informed about the state of budget budget planning and meetings strategic execution and make decisions relevant to execution objectives solve issues that arise Make sure that all procurement contracts Greater transparency The government Number of Short term Average (done by Chinese companies, managed and consistency of procurement by DGTT, etc.) go through normal pro- budget planning and contracts out curement and disbursement procedures execution of the normal procedure Establish a framework where relevant Greater consistency of The government Number of Short term Low stakeholders meet to inquire about the budget planning and meetings state of PFM reform and make decisions execution to fix issues that arise Establish and implement inter-ministerial Greater consistency of The government An entity Short term Average coordinating entities of budget prepara- budget planning and tion, execution, and PFM issues in line execution ministries Improve the Move toward an electronic administration The government Short term Average strategic Set official emails for government and The government Short term Average management of senior administration official to help the State speed up the execution process Complete the computerization of all The government Medium Average budget and PFM operation at the central term level as well as in line ministries 169 Overall recommendations Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Strengthen staff Conduct a civil servant department The government A reform Medium High capacity on PFM reform to ensure that experts of PFM term issues and Budgeting issues are the only staff dealing with PFM issues. Develop and implement continued train- The government Short term Average ings and on-the-job training programs for staff already working in the Budgeting and PFM For every ministry, create a permanent Improve evidence- The government A decree on a Short term Low civil servant structure headed by a based decisions and new structure of “Secretaire General” to which a Director reduce rent seeking the ministry General of Budgetary and Financial affair behavior will report to. Move toward Complete the draft of the new program The Ministry in charge A decree Short term Average program based based budgeting framework currently of Finance budgeting under development 170 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Fiscal space Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Strengthen Increase the personal income tax (PIT) A better-functioning Ministry in charge of Ratio of PIT to Medium Low the collection personal income Finance government term of non-oil revenues revenues Implement the newly introduced property Collection of property Ministry in charge of Ratio of property Medium Average tax tax Finance tax to govern- term ment revenues Build capacity of the tax administration Strong human capital Ministry in charge of Number of Medium High and customs personnel in tax and customs civil servants well-trained term administration personnel Undertake a study on the type of taxation Higher non-oil tax Ministry in charge of A study Short term Average that the government should adopt and collection Finance implement Develop a toolkit and a protocol to fight Reduction of corrup- DGI and DGD A toolkit is Medium Average corruption and fraud in the tax and tion and fraud in this adopted term custom administrations administration Set a single window policy for taxpayers DGI and DGD A single window Medium Average is set term Improve the Build the capacity of staff in relevant min- Reliable forecast of oil Ministries in charge Precision of the Short term Average management istries on: i) the management of the oil production of hydrocarbon and of oil production of oil revenue sector; and ii) the analysis, negotiation, finance forecast volatility and follow up of oil sector contracts Provide staff of relevant ministries the Medium Average technology to oversee extractive indus- term tries operations Publish accounts of public enterprises Greater transparency Ministries in charge A website is Medium Low on the website of the ministry of oil and of oil sector of hydrocarbon and of created and term energy finance updated Publish oil contracts on the Société Greater transparency SNPC and Ministry in   Medium Low nationale des pétroles du Congo (SNPC) of oil sector charge of hydrocarbon term website Undertake periodic reliable independent Greater transparency Ministry in charge of   Medium Average audits of financial flows in the oil sector of oil sector hydrocarbon term and publish and disseminate audit reports to all stakeholders (public admin- istration, private sector, NGOs, etc.) Effectively implement a stabilization fund Ensure steady revenue Ministry in charge of   Medium Average to smooth international fluctuations of oil to the government Finance term prices resources budget Capture a Build the capacity of relevant staff   Ministries in charge of   Medium Average greater share ministries on the development of mining mining and of finance term of forthcoming sector policy mining Undertake periodic reliable independent Greater transparency Ministries in charge of   Medium Average exploitation audits of financial flows in the mining of the mining sector mining and of finance term sector Publish and disseminate audit reports to Greater transparency Ministries in charge of   Medium Average all stakeholders of mining sector mining and of finance term Matrix of Recommendations 171 Composition of public expenditure and key source of fiscal pressure Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Strengthen the Plan all investments for a typical time Improve public invest- Ministry in charge of A public invest- Short term Average budget planning frame; a period of five years or three ment planning Finance ment plan process and years could be set keep a link Adopt a public investment plan with Improve public invest- Ministry in charge of A public invest- Short term Average between many layers ment planning Finance ment plan planning and budgeting Involve and empower the team working Improve public invest- Ministry in charge of A ministerial Short term Average on budget planning in the entire budget- ment planning Finance decision is taken ing process Improve budget Draft the budget to enable the distinction Facilitate budget Ministry in charge of New spending Short term High presentation between directly productive sectors and analysis Finance item regrouping indirectly productive sectors in the budget Resume the budget presentation by func- Facilitation of spending Ministry in charge of   Short term High tion classification analysis Finance Achieve a Build the capacity of staff involved in Strengthen human Ministry in charge of Number of work Short term Low sustainable budget execution by on-the-job training resource of some line Finance and all line training budget ministries on public ministries execution Reorganize the administration such that finance issues Ministries in charge of A decision or a Medium Average staff involved in budget execution are civil servants and of decree term those who have the required expertise finance/The govern- ment Agree with relevant line ministries on Low use of special Ministry in charge of A calendar is Short term Low a calendar to regularize the OPPA and procedure in budget Finance adopted and ORPA execution implemented Set a condition to limit the ratio of OPPA Ministry in charge of Ratio of OPPA Short term Low and ORPA to total expenditure Finance and ORPA to total expenditure (excl. salaries) Improve the Increase resources to infrastructure Reduce inflation in Ministry in charge of   Short term Low equity and the that have a stronger growth and human public investment and Finance and planning efficiency of development impact a greater efficiency of government Take appropriate time to plan and public investment Ministry in charge of Inflation rate of Short term Low spending execute an investment Finance public invest- ment Provide a geographic coverage of the Better target of the Ministry in charge of A detail budget Short term Low budget by division or rural vs. urban poor divisions to im- Finance per division areas prove spending equity  Build capacity of staff in local administra- Ministry in charge of A training pro- Medium Average tion on budgetary processes Finance gram for staff term 172 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Public expenditure review in agriculture Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Ensure Provide line ministries with staff that is Strengthen the The government Ratio of Medium Average that limited experienced and trained on PFM issues capacity of sector line experienced term resources ministries on PFM and trained staff are used as issues. to total staff efficiently and involved in PFM effectively as issue possible Train staff already dealing with PFM The government   Short term Average issues in these ministries to improve their skills on PFM related issues Coordinate activities with other ministries Reduce budget wast- The government   Short term Low and donors age Take measures to make funding avail- Greater budget pre- The government   Medium Average able in time, especially given the strong dictability in the sector term seasonality of agriculture Cater to cash flow requirements Greater budget execu- MAE and MPA   Medium Average tion term Set up programs Create a formal land market with land Greater efficiency in The government   Medium High to increase title to allow agricultural activities on the agriculture sector term agricultural larger areas productivity Facilitate access to finance for farmers Greater efficiency in The government   Medium Average by providing a guarantee or collateral the agriculture sector term Develop the agriculture value chain from Greater efficiency in The government   Medium High farm product to industry production the agriculture sector term Help traditional farmers to modernize Greater efficiency in The government and   Medium High their farming methods the agriculture sector donors term Strengthen the capacity of the farmers in Greater efficiency in The government   Medium Average agri-business or modern farming the agriculture sector term Monitor and Create a results and performance based A strong base for The government A results-based Medium Average evaluate system monitoring and system term spending evaluating public expenditures Ensure that monitoring reports are used Greater budget control The government Publication Medium Average inside and outside of MAE and MPA to term reward good performance Strengthen Build the analytical capacities of the fund Better selection of The government A staffing plan Medium Average the agriculture program by the fund and training for term support fund project selection Stop providing access to ready-to-roll Better functioning agri- The government Number of ready Short term Low cassava plantation plots to new farmers culture support fund to-roll cassava plantation Take potential farmers through the selec- Better functioning agri- Agriculture support Proportion of Medium Average tion process of the fund to ensure the culture support fund fund potential farmers term sustainability of their project if they are to which went receive any financial support through this selection Matrix of Recommendations 173 Public expenditure review in education Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Re-prioritize Shift funding to secondary education, Greater quality of The government Relative share Short term Low and improve mainly in capital expenditures secondary education, of budget of this the allocative ministry and operational Increase the funding of the post-basic Greater equity in The government Relative share Short term Low efficiency of education in order to access and education of budget of this the education attainment ministry sector budget Reconsider the distribution of funds Better quality of The government Relative share Short term Low among expenditure categories within tertiary education of budget of this MES budget according to the main priori- ministry ties of the education strategy Align budget Increase funding to programs dedicated Greater efficiency The government Reduction of Medium Low allocations to repetition and drop out reduction of the budget in the repetition and term to strategic sector dropout rates education goals Remove ghost staff in the sector by Greater efficiency The government Ratio of ghost Short term Low carrying out a physical inventory of of the budget in the staff  education staff sector Realign budget to reduce the high ratio of Greater quality of The government Ratio of Medium Low administrative staff to teaching staff teaching administrators to term teaching staff Provide budget to recruit already trained Greater quality of The ministries in Ratio of trained Medium Average teaching staff, with a focus on the rural teaching charge of finances, teaching staff term area education, and civil servants Build decision- Produce and update a school map Greater planning tools Ministries in charges of A school map Medium Average making tools to manage budget in the Education sector term in the sector Produce a statistical yearbook the sector Ministries in charges of A yearbook Short term Low for budget the Education sector information and planning 174 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Public expenditure review in health Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Render Allocate a growing share of public financ- Bridge the gaps in The government Share of health Medium Low government ing to the poorest divisions in the country health status between budget to poor term health spending the poor and the divisions pro-poor non-poor Compensate public providers for the Bridge the gaps in The government Ratio of user-fee Short term Average user-fee income forgone as a result of health status between in health spend- their adoption of waivers for the poor and the poor and the ing vulnerable non-poor Increase government financing of health Bridge the gaps in The government Share of budget Medium Low health status between to health term the poor and the non-poor Expand and rationalize government Bridge the gaps in The government Share of health Medium High health spending and moving toward health status between care covered term universal health care the poor and the by government non-poor spending Render Evaluate the efficiency of national hos- Better services of hos- The government Ratio of hospital Short term Average government pitals that currently receive block grants pitals to the population evaluated health spending from the government more efficient Adopt a policy to progressively expand Better services of The government A policy Medium Average the share of public resources going to hospital/dispensaries term health dispensaries and health centers to the population Assess hospital occupancy, the reasons Lower unnecessary The government Number of as- Short term Average behind low occupancy rates, and the hospital spending is a sessment feasibility of closing some beds research priority Increase access Make treatment protocols available to Improve access to The government A protocol Medium Low to health health staff and train them in their use health facilities term services Revise the user-fee policy for government Improve access to The government A policy Medium Average providers facilities term Hire qualified health staff in all public Improve access to The government Ratio of qualified Medium Low facilities throughout the country good health care staff term Improve the Systematically support the production of Greater institutional The government Publication Short term Low evaluation of the statistical yearbook capacities in health of statistical the government management informa- yearbook spending tion system Produce data and maintain database Better health manage- The government Database Short term Low on indicators, budget, and spending on ment information health system Train staff involved in data collection and Greater institutional The government Training program Short term Low reporting, and supply computers and capacities in health other equipment required to operate such management informa- a system tion system Matrix of Recommendations 175 Public expenditure review in energy Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Strengthen Strengthen technical and human Strong national energy The government Ratio of trained Short term High the capacity resources planning planning staff of national Improve demand estimations for electric- Strong national energy The government   Medium Average and regional ity and forecasting planning term planning to formulate a Set a mandatory committee between Strong national energy The government A committee Short term Low strategy for DGGT and the MEH to plan, program, planning and greater resolving the and implement investment projects in the efficiency energy deficit energy sector Commit to a shared vision that takes Integrated energy plan The government/ An international Medium High advantage of regional synergies CEMAC energy plan is term adopted Improve SNE Develop control activities in order to iden- Well-functioning SNE SNE Number of con- Short term High operational tify problems of collection rate, technical trol activities performance losses, non-technical losses, and fraud. and restore Restructure the recovery department of Healthy financial bal- The government/SNE Collection rate Short term Average its financial SNE and render it more efficient in bill ance for SNE balance payment collection Promote and generalize the system of Simplified recovery SNE Ratio of prepaid Short term High prepaid meters, which allow customers management cost meters to total to better manage their consumption customer Implement a Develop measures of energy conserva- Greater efficiency of SNE   Short term Average DSM program tion to reduce the level of consumption. the energy network and improve Increase the performance of the power Greater efficiency of SNE   Short term Average the efficiency generation and distribution network the energy network of electrical systems Introduce a progressive tax on energy Empowered and SNE A tax is intro- Short term Average consumption. educated actors duced Introduce funding measures Greater diversification SNE   Short term Average of energy sources by industries Distribute Provide financial incentives to attract Greater private partici- The government A tax regime in Medium High financial risk private interests to build capacity in the pation is the risk of the the sector term among several sector sector operators Set a pricing system that is strongly Greater private partici- The government A price system Short term Average linked to project profitability pation is the risk of the sector Define explicitly specific commitments of Greater private partici- The government/pri-   Short term Average the government and private operators pation is the risk of the vate sector sector 176 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Planning system and budgetary process Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Improve the Accelerate the reform of the legal (RGCP, Effective implementa- Ministry in charge of Proportion of Short term High entire PFM NB, GFS, PC) and regulatory framework tion of decree no. Finance new regulation system of public accounting 2013-807 of Decem- adopted ber 30, 2013 Complete the modernization of SIDERE, Complete computer- Ministry in charge of Proportion of op- Short term Low with a complete payment compartment ization of the spending Finance erations entirely (treasury), integrating other systems channel computerized of financial authorities, for budgetary control authorizations and payments and automatic editing of the accounts and the overall balance of the State Strengthen staff capacity of parliament Better control of the Parliament   Medium Average so that it can exercise its powers in the budget process term control of fiscal sustainability and is able to conduct reviews and analyses of forthcoming annual performance reports of line ministries in accordance with CEMAC directives Design and implement an all-actors Increase government Ministry in charge of A training Medium High budget implementation training program capacity of PFM Finance program term including cash planning and imple- mentation of fiscal regulation, public procurement Improve budget Rigorously apply the budget schedule in Adopt budget on time Ministry in charge of Short term Low planning terms of respect of time, deadlines, and Finance milestones of activities Adopt budget schedule in accordance Adopt budget on time Ministry in charge of Month of budget Medium Low with different laws and budget calendar Finance promulgation term Systematize intra-sectoral trade-offs Better budget planning The government Number of com- Short term Average by forming an ad-hoc committee in in line ministries mittees each sector to prepare the “Budget d’Affectation Special” (Special Assign- ment Budget) and to define the proce- dures for its inclusion in the national budget. Update and strengthen the current MTEF Reduce delay and Ministry in charge of   Short term High mechanism rather than creating a new adaptation time Finance one from scratch Matrix of Recommendations 177 Planning system and budgetary process Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Improve budget Consolidate budget in parallel with the Budget execution Ministry in charge of Short term Low execution parliamentary approval effectiveness on Janu- Finance ary 1st Train DEPs and procurement cells (CPM) Better budget execu- Ministry in charge of Number of train- Short term Low staff on the preparation of investment tion in line ministries Finance ing sessions projects Train managers and credit managers to   Ministry in charge of     Average develop the MPAP and tender documents Finance upon transmission of the finance bill in parliament and finalize after the vote Deploy the delegates trained budget Better budget control Ministry in charge of Deployment Short term Low controller at all ministries and agencies Finance Render effective de-concentration of the Implementation of the Ministry in charge of   Short term Low authorizing officer of spending in favor of LORFE 2012 and fiscal Finance sector ministers and heads of institutions management focused on results Undertake the de-concentration of Better budget execu- Ministry in charge of Short term Low contract approval authority to ministers tion in line ministries Finance and heads of institutions Improve the Set performance targets to the treasury Reduction of delay in The government/DG Ratio of payment Short term Low treasury based on the percentage of actual pay- payment treasury of mandate management ment of mandate within three months within three prescribed months Improve the current accounting system Better treasury trans- DG treasury Production of Medium High through the development of technical and parency and reporting tables term functional capacities Introduce an integrated accounting Better treasury trans- DG treasury An accounting Medium High information system that would supple- parency and reporting system term ment the current shortcomings of SIDERE in the automation of administrative and management accounts Produce all balances of accounts of class Greater quality of the DG treasury Publication on Medium High 1 to 7 and 9 to input balances at January consolidated balance time term 1, and by observing the deadline of 15 of the treasury days of publication after the end of the month Include commitment accounting and Strong process of the DG treasury   Medium High investment operations in the administra- production of State term tive accounts and treasury operations accounts in bills settlement via the management accounts Implement strict internal control No arrears in revenue DG treasury   Medium Low mechanisms by periodic statements of collection term reconciliation 178 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Planning system and budgetary process Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Improve Develop a procedural manual for DGTCP, An effective cash DG treasury A manual Short term Average the cash then ensure the effective application of management management the rules, tools, and procedures in place for cash management Strengthen the systematic internal An effective cash DG treasury Number of Short term Low controls to ensure a proper application of management controls current accounting policies Develop and implement a technical and An effective cash DG treasury A framework Medium Average institutional framework of cash manage- management term ment Prepare and update cash plan according An effective cash DG treasury A plan Medium Average to a monthly budget and use for control management term purposes frequency Rigorously apply relevant procedures of An effective cash DG treasury   Short term Average the 2001 accounting instruction on a management cash basis Matrix of Recommendations 179 Review of public financial management Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Strengthen Put in place the new structure of the A complete PFM legal Ministry in charge of Regulation is Short term Low the legal PFM treasury system Finance adopted framework Give line ministries and other spending Empower line minis- The government Regulation is Medium Low entities the status of payment authoriza- tries in PFM adopted term tion bodies Adopt an action plan to integrate the pro- A complete PFM legal Ministry in charge of Law is adopted Medium High visions of the CEMAC guidelines into the system Finance term country’s regulations on public finance Reduce the Build staff and technological capacity to Reduce the volatility of Ministries in charge Forecast preci- Medium High gap between forecast oil and production of oil forecasted oil revenues of hydrocarbon and of sion term adopted and finance actual domestic Build staff and technological capacity in Greater ratio of non-oil DGCG, DGD, and DGI Ratio of the gap Medium Average revenues to revenue collection and compliance with tax revenues to non-oil term less than five tax and customs rules GDP percent Carry an inventory of revenues received Improve the ratio of Ministry in charge of Ratio of the gap Short term Average by ministries and not paid into the trea- non-oil tax revenues to Finance sury account, include them in the budget non-oil GDP and take steps to ensure their payment into public accounts Render budget Extend the timeline for line ministries High and stable budget Ministry in charge of An extension Short term Low execution less to at least four (4) weeks after budget execution rate Finance volatile ceilings are defined to prepare their proposals Involve line ministries in all steps of the High and stable budget Ministry in charge of   Short term Low process of simultaneous preparation of execution rate Finance current and investment budget estimates Strengthen the capacity of all actors in Higher and stable Ministry in charge of Percent of per- Short term Average charge of the execution of expenditures budget execution rate Finance sonnel involve in PFM who have PFM training Improve budget Include the stock of domestic payment More clarity of budget Ministry in charge of Debt in GFS Short term Low transparency arrears in public documentation as well Finance as in GFS Post fiscal information on the planned Better access to Ministry in charge of Budget on the Short term Average Ministry in charge of Finance website budget information Finance government website Rationalize Develop a program-based allocation Better allocation of The government A program is Medium Average budget mechanism for government transfers to government transfers adopted term allocation to territorial communities decentralized Improve the centralization of information Greater budget trans- Ministry in charge of   Medium Average administrations on the execution of territorial communi- parency Finance term ties’ budgets and ensure its consolida- tion into an annual report to be publicly disclosed within 18 months after the end of the fiscal year 180 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Review of public financial management Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Improve Undertake, at least on a monthly basis, Lower level of errors DG of Treasury Percentage of Short term Low treasury within four (4) weeks after the end of the and fraud in revenues error and fraud practices month, the reconciliation of accounting management entries and bank statements Systematically clear the suspense ac- Lower level of errors DG of Treasury Percentage of Short term Low counts and regularize them in the general and fraud in revenues error and fraud accounting of the government management Systematically issue revenue collection Lower level of errors DG of Treasury Percentage of Medium Average orders corresponding to government and fraud revenues error and fraud term revenues whose amount are known in management advance Extend to all ministries, the inclusion of Lower level of errors DG of Treasury Percentage of Medium Low delegated credits in specific budget lines and fraud revenues error and fraud term and ensure sufficient control over the management release of resources to primary service delivery units Centralize accounting operations of de- Lower level of errors DG of Treasury Percentage of Medium Low centralized treasury offices every 15 days and fraud revenues error and fraud term management Establish the general account of the Lower level of errors DG of Treasury Percentage of Medium Average financial administration at end-of-year and fraud revenues error and fraud term management Improve budget On a quarterly basis, publish the budget Reliability of accounts DG of Treasury A publication Short term Low execution execution situation within a month after of the state and recording and the end of each quarter budget execution reporting statements Update the financial management infor- Reliability of accounts Ministry in charge of A new master Short term Average mation system master plan of the state and Finance plan budget execution statements Define and implement necessary actions Reliability of accounts Ministry in charge of   Medium  Average for the improvement of information so of the state and Finance term that it provides effective and transpar- budget execution ent management system spending and statements government revenues Make a quarterly production of budget Better monitoring the DG of Budget Statements Medium  Average execution statements and improve the financial implementa- term scope, quality, and format tion of projects Bring back to a semi-annual frequency Reliability of accounts DG of Planning and Publication Medium  Average output from the point of execution of of the state and Development term public investment projects and expand budget execution coverage to commitments and expenses statements payments Matrix of Recommendations 181 Review of public financial management Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Improve Disseminate the tax code   DGI and DGD Dissemination Short term Low the relation events between Provide taxpayers with better information   DGI and DGD   Short term Low revenue on possible avenues for administrative administrations and judicial appeal and taxpayers Improve Undertake a comprehensive monthly rec- Greater consistency of DGI, DGD, and DG Ratio of discrep- Short term Low revenue onciliation of the operations of revenue government accounts Treasury ancy in these spending administrations administrations management accounts between Strengthen the human capacities of the Better level of rev- DGI and DGD Ratio of staff Medium Average government DGI and the DGD enues collected and trained involved term agencies develop tax control in PFM measures Reorganize the accounting of DGI, DGD, Greater consistency of DGI, DGD, and DG of An harmonize Medium High and DG Treasury government accounts treasury accounting term framework Produce reconciliation statements and Greater consistency of DG of treasury Publication Medium Average eliminate the risk of accumulation of government accounts term arrears Improve the Involve beneficiary populations in the Better budget execu- Ministry in charge of   Short term Low quality of control process, where the nature of the tion control Finance internal and expenditure allows it external control Implement accounting of non-financial Better budget execu- Ministry in charge of   Short term High of budget assets in the credit managers services tion control Finance execution Increase financial resources to the IGE Greater capacity of Ministry in charge of Budget to these Short term Low and the IGF Controlling institutions Finance institutions Disseminate the IGE and IGF reports Greater transparency Ministry in charge of Dissemination Short term Low within six months after completion of Controlling institu- Finance events tions Adopt and implement a training program Great staff capacity in IGE and IGF A training Medium Average for staff dedicated to controls and audits controlling program term Increase the number of financial control- Reasonable workload Ministry in charge of Number of finan- Medium Low lers of financial controllers Finance cial controllers term Ensure a follow-up by the parliament of Better budget execu- Ministry in charge of   Medium Low its recommendations to the government tion control Finance term Develop and implement a staffing plan Great staff capacity in Minister in charge of A plan Medium High for the benefit of the supervisory institu- controlling finance and ministry term tions in charge of public service Put in place a system of oversight func- Great staff capacity in Minister in charge of A body is cre- Medium Average tions that is consistent in its entirety by controlling finance and ministry ated term eliminating overlaps that lead to a dilution in charge of public of responsibility service Establish an all supervisory bodies con- Better budget execu- Ministry in charge of A body is cre- Medium Average sultation framework to coordinate their tion control Finance ated term intervention programs and thus cover a larger number of projects 182 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Public procurement Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Render the Extend the scope of the legal framework Complete legal pro- The government/ARMP A decree Short term High legislative and for public procurement of PPPs and curement framework regulatory defense as well as national security framework fully procurements aligned with Adopt all the missing implementing regu- Better legal procure- The government/ARMP A regulation Short term Average international lations of the code of public procurement ment framework procurement in particular those relating to allowances standards of CGMP members and their composi- tion, responsibilities, and operating procedures Develop specific conduct and ethics Better legal procure- ARMP A code Short term High codes in public procurement ment framework Carry out a cleaning up of the procure- Better legal procure- ARMP  A revised code Short term High ment code including provision for the ment framework compulsory use of pre-qualification procedures for works or complex equip- ment contracts Provide a minimum period for bid prepa- Better legal procure- ARMP  A revised code Medium High ration of international competitive bidding ment framework term Strengthen confidentiality requirements Better legal procure- ARMP   Medium High during the bid valuation process ment framework term Adopt legislation to ensure prior avail- Better legal procure- ARMP/the government/ An executive Medium High ability of budget before the launch of any ment framework the parliament order term tender or before contract signing Improve Remove existing bottlenecks in the con-   Ministry in charge of High procurement tract approval procedure by the ministry Finance planning and of finance integration Increase the ex-ante control thresholds   Ministry in charge of     High into the public and reinforce the ex-post control Finance financial management Enhance the support provided to con- Better quality of pro- ARMP     High system tracting authorities curement operations Conduct a study on the procurement Better quality of pro- The government  A study Short term High Value Chain curement operations Reduce the Avoid the intervention of the ARMP such Greater integrity of The government/ARMP Zero par- Medium Low risk of conflict as the appointment of independent ARMP ticipation to such Term of interest for observers activity ARMP Matrix of Recommendations 183 Public procurement Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Set an efficient Develop systems to help collect procure- Better information and The government/ARMP A PMIS Medium Average communication, ment data and statistics and to dissemi- statistics on procure- term information, nate reliable information ment issues statistical, Provide needed support to ARMP to Better communication ARMP Publication Medium- Average and archiving ensure the systematic publication of all on procurement issues term system relevant procurement information on its website and in the public procurement newsletter Update the capacity building program Greater capacity to ARMP Medium Average and conduct further performance reviews produce statistics term of the system; to that end, a value chain on the procurement analysis of the procurement process system should be conducted Implement a Provide technical and financial support to Strong staff capacity ARMP/The government   Short Term High capacity-build- the ARMP to facilitate the implementation on procurement issue ing strategy and of the capacity-building strategy in ARMP development of Develop standard competency profiles Strong staff capacity The government A career plan Medium  High quality assur- and establish career development paths on procurement of Term ance tools for for the public procurement sector government public procure- ment sector Reduce system- Promote partnerships between the gov- Greater SMEs com- The government Proportion of Medium Average ic constraints ernment and the private sector to analyze petitiveness SMEs winning term impeding SMEs the ways and means for removing exist- procurement participation ing market entry barriers contract into public Take actions to better support the imple- Better staff capacity in The government A training Short term Average contracts op- mentation of the capacity development SMEs for procurement program portunities program for contracting authorities, pri- issues vate sector, and civil society stakeholders Remove major Provide technical support to contract- Better contract man- DGGT Reductions in Short term Low constraints ing authorities to help track and control agement delays in con- to contract works contracts and establish an effec- tract execution management tive coordination mechanism between and supervision contracting authorities and DGGT systems Develop competency profiles and develop Greater staff capacity The government A plan Short term Low a specific career plan in public procure- within the procure- ment ment system Explore opportunities to join the New   The government Yes or No Medium Low York convention on the enforcement of term arbitration 184 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Public procurement Operational Expected Main responsible Performance Need of objectives Actions outcomes authority indicators Term Assistance Render internal Provide financial and technical support Lower delay in the Government/ARMP   Short term High and external to the ARMP in order to enable it to procurement system control systems carry out regular and exhaustive annual efficient procurements audits Develop internal control procedures of Better procurement Government/ARMP Number of Medium High procurement activities control procedure term Strengthen the external audit bodies Better procurement Government/ARMP   Medium High in particular the IGF, the CNLCCF, and control term OAC by providing technical support to enable them to effectively carry out their missions Foster integrity Improve access and dissemination of Greater transparency The government/ Template of Short term Average and transpar- information on public procurement—in ARMP/DGCMP reports and ency of the particular the provision of electronic electronic tools procurement communications, the development system and dissemination of standard models of progress reports to the ARMP, the DGCMP, and CGMP Promote a policy of zero tolerance of Greater integrity The government A policy Medium High corruption in public procurement, in term particular through the implementation of mechanisms for the prevention and repression of such behavior Develop and provide codes of conduct Greater integrity The government A code of Medium High and ethics specific to public procurement conduct term Matrix of Recommendations 185 References ADE. 2014a. Cadre de Mesure de la Performance de la Gestion des Finances Publiques en République du Congo, PEFA. ADE. 2014b. Recommandations pour l’amélioration des notes des indicateurs du cadre PEFA pour la Mesure de la Performance de la Gestion des Finances Publiques en République du Congo, PEFA. African Development Bank. 2014a. “Revue des dépenses publiques dans le secteur Énergie: Elever les standards de l’investissement public dans le secteur Energie pour améliorer son efficacité et son impact en République du Congo, » Unpublished manuscript. African Development Bank. 2014b. “Recommandations pour l’amélioration des standards de l’investissement public, son efficacité et son impact dans le secteur Energie en Républic du Congo,» Unpublished manuscript. Alexeeva, V, G. Padam, and C. Queiroz. 2008. Monitoring Road Works Contracts and Unit Cost for Enhanced Governance in sub-Saharan Africa. The World Bank, Washington D.C. Briceno-Garmendia C. and V. Foster. 2009. “Republic of Congo: Priotizing Infrastructure Investments – A Spatial Approach.” Report No. 52430-CG, The World Bank, Washington DC. Burns, Andrew. 2014. “World Bank: macro econometric model: A non-technical brief overview of its main features.” http://rsb-vtest.worldbank.org/MFMod_Support/index.php. Dabla-Norris, Era, Jim Brumby, Annette Kyobe, Zac Mills, and Chris Papageorgiou. 2011. “Investing in Public Investment: An index of Public Investment Efficiency.” IMF Working paper, WP/11/37. IMF. 2014. Republic of Congo Article IV Consultation Report. IMF, Washington DC. N’cho-Oguie, C., F. Charlier, F. Tchana Tchana and J.P. Nkou. 2006. “Le Modele Pegase_II (RAMA_OGOOUE) pour le Cadrage Macroéconomique et Budgétaire de la Stratégie de Croissance et de Réduction de la Pauvreté: Module I: Description.” Unpublished manuscript. Pushak, N., and C. Briceno-Garmendia. 2011. “The Republic of Congo’s Infrastructure: A Continental Perspective.” World Bank Policy Research Working Paper, 5838. Rajaram, Minh Le, and Biletska (2008). A Diagnostic Framework for Assessing Public Investment Management. World Bank: Unpublished Background Paper for Development Committee. The World Bank. 2006. ROCKS - Road Costs Knowledge System – ROCKS Database – GLOBAL, Roads and Highways Thematic Group. 187 The World Bank. 2010a. Ghana – Assessment of The Word Bank. 2013. “Review of the use of national Stage 1 Use of Country Procurement Systems in public finance management system by the invest- Bank-Supported Operations: Proposed Piloting ment projects financed by the World Bank.” Program. Report No. 71821. The World Bank, The World Bank. 2014a. PER of the Social sector Washington DC. “Republic of Congo – Enhancing efficiency in The World Bank. 2010b. Republic of Congo – Public Education and Health public spending for improved Expenditure Review (PER) “Using Oil Wealth quality service delivery for all: A public expenditure Effectively to Accelerate and Diversify Growth.” review of the education and health sectors.” Report N°: 54734-CG. The World Bank. 2014b. Republic of Congo Economic The World Bank. 2010c. Republic of Moldova Country Update. First edition. Procurement Assessment Report. Operations Policy The World Bank. 2014c. “Évaluation de la gestion des and Services Unit, Report No. 61702-MD. investissements publics en République du Congo » The World Bank. 2011. “NIGER – Second Public Unpublished manuscript by Nicola Lokpe and Expenditure Management and Financial Bella Diallo Accountability Review (PEMFAR II): Volume I: The World Bank. 2014d. “République du Congo – Main Report.” “Report No. 50815-NE. Évaluation du Système de Passation des Marchés The World Bank. 2012. Sierra Leone Country Publics”, Rapport final provisoire, unpublished Procurement Assessment Report: Assessment of manuscript, by Jean-Claude Mabushi and Sidy Diop National Public Procurement System Based on The World Bank. 2014e. Republic of Congo--Public OECD/DAC Benchmarking Tool. Report no. Expenditure Review in the Agriculture sector, 71822. Unpublished manuscript by Gaston Gohou. 188 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Appendix TABLE A1.1: Republic of Congo – Selected Macroeconomic Indicators, 2010–2017 2014 2015 2016 2017 2010 2011 2012 2013 Est. Proj. GDP growth (constant prices, annual %) 8.7 3.4 3.8 3.4 6.4 4.3 4.8 7.2 GDP growth – oil (constant prices, annual %) 13.7 –4.8 –9.6 –10.0 3.1 3.5 6.5 10.0 GDP growth – non-oil (constant prices, annual %) 6.4 7.5 9.7 8.2 7.4 4.6 4.3 6.4 Private Consumption growth (current prices, annual %) 5.4 7.9 9.9 3.8 5.8 4.4 3.9 11.1 Gross Fixed Investment (current prices, % of GDP) 29.7 34.5 43.2 46.4 50.4 69.5 65.8 62.1 Gross Fixed Investment – Public (current prices, % of GDP) 7.9 11.7 18.8 25.8 28.5 38.5 35.7 33.3 Gross Fixed Investment – Private (current prices, % of GDP) 21.8 22.8 24.4 20.6 24.4 20.6 22.0 31.0 Inflation, consumer prices (annual %, end of year) 5.4 1.8 7.5 2.1 0.5 3.0 2.6 2.6 Inflation, consumer prices (annual %, period average) 5.0 1.8 5.0 4.6 0.8 3.0 2.9 2.8 GDP deflator (annual %, average) 26.9 11.0 –3.8 –8.8 –26.7 5.7 6.0 36.1 Nominal Exchange Rate (CFAF/US$, period average) 494.4 471.0 510.0 494.2 494.6 582.8 494.6 494.6 Real Effective Exchange Rate Index (2005=100) 108.7 107.9 106.4 112.3 … … … … Overall Fiscal Balance (commitment basis, incl. grants % of GDP) 16.5 16.7 6.1 8.2 1.8 –6.1 –9.3 –5.9 Overall Fiscal Balance (commitment basis, excl. grants % of GDP) 16.5 16.3 6.0 7.8 1.8 –6.1 –9.3 –5.9 Overall Fiscal Balance (commitment basis, incl. grants % of non-oil GDP) 54.5 56.3 18.5 22.2 4.6 –10.8 –16.7 –11.1 Primary Fiscal Balance (% of GDP) 17.9 19.4 10.0 15.6 5.2 5.1 3.1 5.9 Non-oil Primary Fiscal Balance (% of non-oil GDP) –36.3 –44.7 –68.4 –47.5 –58.0 –37.0 –36.5 –33.8 Total revenue (excl. grants, % of GDP) 36.6 40.9 41.8 44.1 40.9 43.9 40.1 40.3 Oil revenue (% of GDP) 28.9 32.7 32.6 32.5 28.6 26.1 23.3 24.1 Non-oil revenue (% of non-oil GDP) 25.5 27.8 27.9 31.4 30.4 31.6 30.4 30.4 Merchandise exports (fob, current US$ billions) 7.1 8.7 7.3 6.7 6.5 4.7 5.5 6.4 of which oil exports (current US$ billions) 6.4 7.9 6.5 5.8 5.6 3.8 4.5 5.3 Merchandise imports (fob, current US$ billions) 5.7 6.7 8.6 9.1 9.4 8.2 10.2 … of which oil exports (current US$ billions) 0.9 1.1 1.0 0.9 1.0 0.8 1.1 1.2 (continued on next page) 189 TABLE A1.1: Republic of Congo – Selected Macroeconomic Indicators, 2010–2017 (continued) 2014 2015 2016 2017 2010 2011 2012 2013 Est. Proj. Current account balance (incl. transfers, % of GDP) –0.1 –0.1 –0.3 –0.4 –0.5 –0.6 –0.6 –0.6 Foreign Direct Investment (net, current US$ billions) 3.0 3.3 2.0 4.6 5.1 5.5 3.9 18.1 of which oil sector (net, current US$ billions) 2.5 2.7 1.2 3.4 3.5 3.8 1.5 15.5 Population, total (millions) 4.0 4.1 4.3 4.4 4.5 4.7 4.8 4.9 Unemployment Rate … 6.9 … … … … … … Formal sector job creation (%, yoy) … … … … … … … … Poverty headcount ratio at national poverty line (% of population) … 46.5 … … … … … … Inequality – Income Gini … 0.4 … … … … … … Population Growth (annual %) 2.0 2.9 2.9 2.9 2.9 2.9 2.9 2.9 Life Expectancy … 51.6 … … … … … … Infant mortality rate (per 1,000 live births) 42.0 39.4 37.3 35.6 … … … … Sources: Congolese Authorities and The World Bank Staff. TABLE A2.1: Republic of Congo – Impact of Oil Price Decline on Government Revenue   2008–2013 2015 2016 2017 2018 2019 2020 Oil production 99.7 94.7 100.8 110.9 115.3 118.8 121.2 $/XAF 484.8 606.2 606.2 606.2 606.2 606.2 606.2 Scenario, June 2014 91.9 99.8 98.6 100.6 102.6 104.6 106.7 Oil revenue 1994.3 2622.9 2409.9 2701.1 2865.7 3010.7 3133.3 Share of GDP 78.4 34.9 29.9 30.1 29.3 29.0 28.7 Share of revenue 33.2 73.8 70.9 71.3 69.6 68.4 67.3 Optimistic scenario 91.9 67.7 72.8 78.2 83.8 89.7 90.1 Oil revenue 1994.3 1773.0 1769.3 2084.4 2324.6 2564.5 2627.8 Share of GDP 78.4 29.4 26.3 27.0 23.9 24.8 24.1 Share of revenue 33.2 65.1 64.1 65.6 63.7 63.8 62.2 World Bank scenario – MAC-Congo 91.9 53.2 56.9 60.8 65.0 69.4 74.1 Oil revenue 1994.3 1389.2 1379.8 1618.8 1802.8 1985.2 2166.5 Share of GDP 78.4 26.0 23.3 24.1 18.6 19.3 20.0 Share of revenue 33.2 59.2 58.1 59.6 56.4 56.5 56.7 World Bank scenario—MFM 91.9 53.2 56.9 60.8 65.0 69.4 74.1 Oil revenue 1994.3 2622.9 2409.9 2701.1 2865.7 3010.7 3133.3 Share of GDP 78.4 34.9 29.9 30.1 29.3 29.0 28.7 Share of revenue 33.2 73.8 70.9 71.3 69.6 68.4 67.3 Pessimistic scenario 91.9 50.0 50.0 50.0 50.0 50.0 50.0 Oil revenue 1994.3 1304.5 1211.6 1333.1 1387.1 1428.1 1456.9 Share of GDP 78.4 25.1 21.7 21.8 14.4 13.9 13.5 Share of revenue 33.2 57.6 54.8 54.9 48.9 47.2 45.6 Source: World Bank Staff simulations. 190 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Box A2.1: Mining prospect in Congo Since 2012, the prospect of mining exploitation in Congo is a recurrent issue, but delays have marked the process so that the beginning of the exploitation of these mining is still at stake in an environment of commodities price uncertainty. Congo possessed many type of ore mining including Potash and Iron, which are the most important. Potash mines are located in the Kouilou Division. Two companies MPC and Sintoukoula Potash are identified as main investors and are working with the government to secure a lease on the site. The total discovered reserves is 837 millions of tons, the investment needed from these two companies is US$2.8 billion, the peak of production will be 1.8 millions of tons per year and these companies could hire up to 750 workers. Iron is the most important mining ore in the country; it is present in many locations in the North as well as in the South. So far five fields have been identified and leases have been awarded to companies. The major field is in Zanaga accounting for about 45 percent of reserves; it is awarded to MPD. The second most important is Mayoko accounting for about 30 percent of total reserves. The total discovered reserve is 8919 millions of tons. In order to make this happen, companies should invest in total US$13 billion, at the peak these companies will produce 110 million of tons per year and will hire up to 5500 workers (see detail in Table A2.2). However, none of the iron ore projects are yet operational, and it is unlikely any of them will be over the next two to three years. The ones in the north are particularly problematic, as the will require a railway line through Cameroon to export the iron ore. The US$3 billion needed to construct the railway line has yet to be found. TABLE A2.2: Republic of Congo – Mining Potential Total Beginning Realistic Peak of Total Reserves Investment of Prod. Beginning of Prod. Prod. Jobs Million US$ Million Ore Fields Company Tons billions Year Year Tons Potash Mengo/Pointe Noire MPC 33.2 1.6 2015 2018 1.2 500 Potash Kouilou Sintoukoula Potash 804 1.2 2018 2018 0.6 250 Total Potash   837.2 2.8 1.8 750 Iron Zanaga/Lekoumou MPD 4000 6 2018 2018 45 2000 Iron Avima/Cuvette-Ouest Core Mining 1000 4 2016 After 2020 35 1500 Iron Nabemba/Banga/ Congo Iron 319 2 2018 After 2020 20 759 Souanké/Sangha Iron Mayoko/Lekoumou/ DMC 2600 0.5 2016 2018 5 500 Niari Iron Mayoko/Niari Congo Iron 1000 0.5 2016 2018 5 1005 Total Iron 8919 13 2015 110 5764 Source: Congolese Authorities, IMF reports. Appendix 191 TABLE A2.3: Republic of Congo – Impact of Mining Price on Government Revenue     2014 2015 2016 2017 2018 2019 2020 Potash Production, millions of tons Millions of tons 0.0 0.0 0.0 0.0 0.2 0.4 0.6 Iron Production, millions of tons Millions of tons 0.0 0.0 0.0 0.0 5.3 10.0 13.4 Gov. Share   40.0 40.0 40.0 40.0 40.0 40.0 40.0 Reference price scenario Price Potash, $/ton $US/ton 300.0 300.0 300.0 300.0 300.0 300.0 300.0 Price Iron, $/ton $US/ton 70.0 80.0 80.0 85.0 85.0 85.0 85.0 Gov. Rev. from mining   0.0 0.0 0.0 0.0 208.5 390.9 521.2 Share of Revenue 0.0 0.0 0.0 0.0 3.0 5.2 6.6 Ratio of GDP   0.0 0.0 0.0 0.0 1.1 1.9 2.5 Pessimistic price scenario Price Potash, $/ton $US/ton 300.0 300.0 200.0 200.0 200.0 200.0 200.0 Price Iron, $/ton $US/ton 70.0 60.0 40.0 40.0 40.0 40.0 40.0 Gov. Rev. from mining 0.0 0.0 0.0 0.0 103.4 193.8 258.4 Share of Revenue 0.0 0.0 0.0 0.0 1.6 2.8 3.4 Ratio of GDP   0.0 0.0 0.0 0.0 0.6 1.0 1.3 Optimistic price scenario Price Potash, $/ton $US/ton 300.0 300.0 400.0 400.0 400.0 400.0 400.0 Price Iron, $/ton $US/ton 70.0 80.0 100.0 100.0 100.0 100.0 100.0 Gov. Rev. from mining   0.0 0.0 0.0 0.0 249.5 467.8 623.7 Share of Revenue 0.0 0.0 0.0 0.0 3.6 6.0 7.4 Ratio of GDP   0.0 0.0 0.0 0.0 1.3 2.2 2.8 Reference price scenario with 20 percent of government share Price Potash, $/ton $US/ton 300.0 300.0 300.0 300.0 300.0 300.0 300.0 Price Iron, $/ton $US/ton 70.0 60.0 60.0 60.0 60.0 60.0 60.0 Gov. Share   20.0 20.0 20.0 20.0 20.0 20.0 20.0 Gov. Rev. from mining 0.0 0.0 0.0 0.0 77.5 145.4 193.8 Share of Revenue 0.0 0.0 0.0 0.0 3.5 3.4 3.2 Ratio of GDP   0.0 0.0 0.0 0.0 1.1 1.1 1.0 Source: World Bank Staff simulations. 192 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) TABLE A3.1: Functional Distribution of Actual Total Expenditures-Payment Basis 2008–2012 (2008 billion of CFA Franc) 2008–2009 2010–2012 Agriculture 17.2 34.4 Education 97.1 150.1 Health 74.6 114.1 Infrastructure 267.0 562.0 Source: Congolese authorities. TABLE A3.2: Republic of Congo – Budget of Lower Level of Government Ratio of allocation Fixed on Fixed allocation Variable allocation Total transfers Total Transfers Millions of XAF In percent Town 600 6820 7420 8.1 Brazzaville 100 1900 2000 5.0 Dolisie 100 980 1080 9.3 Mossendjo 100 790 890 11.2 Nkayi 100 790 890 11.2 Ouesso 100 790 890 11.2 Pointe-Noire 100 1570 1670 6.0 Divisions 22200 529 22729 97.7 Bouenza 1850 47 1897 97.5 Brazzaville 1850 0 1850 100.0 Cuvette 1850 30 1880 98.4 Cuvette Ouest 1850 59 1909 96.9 Kouilou 1850 85 1935 95.6 Lekoumou 1850 43 1893 97.7 Likouala 1850 64 1914 96.7 Niari 1850 64 1914 96.7 Plateaux 1850 30 1880 98.4 Pointe-Noire 1850 0 1850 100.0 Pool 1850 55 1905 97.1 Sangha 1850 52 1902 97.3 Total grants distributed 22800 7349 30149 75.6 Unallocated Additions 5710 5710 Total transfers to communities outside allocations 22800 13059 35859 63.6 for municipalisationaccélérée Reminder: Municipalisationaccélérée 16100 16100 Total transfers + municipalization 22800 29159 51959 43.9 Source: Republic of Congo PEFA, 2014. Appendix 193 Box A5.1: Summary of the budget preparation normative process Sequentially, the main steps to be considered in preparing the budget are: 1. Evaluation by line ministries and the Ministry of Finance of the implementation of the budget for year n-1, and review the implementation of the budget for year n; 2. Reviewing by Standing Committee of Macroeconomic and Budgetary Framework (SCMBF) of three-year macroeconomic framework (n+1 to n+ 3) and the medium-term fiscal framework (annual GFS n +1 to n +3); 3. Updating of sector MTEF of the global MTEF; 4. Preparation of the draft Fiscal Policy Document (FPD) and adoption of FPD by the Government; 5. Updating, if any, macroeconomic and budgetary frames to reflect the guidelines set by the Head of State in the FPD. Determining strategic envelopes (ceilings of operating expenses and capital expenditure determined for each department and declined in conjunction with the strategic thrusts and objectives of the NDP); 6. Drafting and releasing the Budgetary Framework Letter (BFL); preparing and releasing the guide of budget drafting of year n+ 1; communicating strategic shares; 7. Organizing the first phase of Budget Conferences; 8. Reviewing the priority investment program (PIP); reviewing tax and customs legislation; preparing the preliminary draft budget of the ministries; 9. Organizing the second phase of Budget Conferences; 10. Preparing the draft budget bill and the advice of the Supreme Court on this bill (in accordance with Article 118 of the Constitution); 11. Reviewing the draft bill by the Council of Ministers; 12. Revising the macroeconomic framework and the global MTEF; preparing budget schedules and other documents accompanying the submission of the budget bill to the Parliament; 13. Reviewing and voting on the finance bill by the Parliament; 14. Enacting the finance law; 15. Publishing in the Official Journal of the finance law. 194 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) Box A5.2: Republic of Congo — Examples of lack of detailed documentations in CCDB reports The 2008 Report, page 99: “Having noted the absence of a debt balance and to enable the Court of Auditors and Fiscal Discipline to give or to express an opinion on the relevant debt management, the Court invites the Minister in charge of finance to produce a debt balance.” The CCA and the DGT could work together to produce a consolidated treasury account that incorporates this information. The 2009 Report, page 74: “The audits of documents and information (bundles recipes, draft Regulation Act) reveal that the amount of refunds and rebates made in 2009 are not presented. This situation does not allow the budget house to express a relevant opinion on the dynamic of tax revenues.” Recording in net, budgetary operations do not fully appreciate the revenue collection in the broadest sense of the term. The 2010 Report, page 77: “The Court notes the absence of the administrative account of the investment budget for 2010 in the bundle of documents provided by the Government.”… “In order for the Court of Auditors to validate the amounts of the Forestry Fund operations and the Fund for the protection of the environment, the Court is asking the Minister in charge of finance to produce supporting documents for its operations.” The 2011 Report, page 22: “The absence of the financial statements of all of these State enterprises (SNE, SNDE, SOPECO, CONGO TELECOM CFCO, PABPS, and PAPN, etc.) did not allow the Court of Auditors and Fiscal Discipline to express an opinion.” The public industrial and commercial enterprises obey to the same rules of public accounting in administrative and management accounts. The 2012 Report, page 62: “The absence of these documents (administrative accounts, account management, and supporting documents) does not allow the Court of Auditors and Budgetary Discipline to formulate a relevant opinion on the financial management of supplementary budgets of the Agence Nationale de l’Artisanat, the Centre des Formalités Administratives des Entreprises, the Centre National d’Inventaire et d’Aménagement des Ressources Forestières et Fauniques, and the Service National de Reboisement.” The 2013 Report, pages 69, 78 and 79: “The non-production of the accounts by the managers of programs and projects did not allow the Court of Auditors and Fiscal Discipline to make financial audits of these programs in order to measure their impact on people. The operations on supplementary budgets and special accounts are planned, authorized, and executed according to the same principles of the general budget of the State. ... These operations must be traced in an administrative account and in a management account to produce to the Court of Auditors and Fiscal Discipline with supporting documents. .... The absence of these documents does not allow the Court of Auditors and Budgetary Discipline to formulate a relevant opinion on the financial management of these specific budgets and special accounts.” Since 2010, the CCDB restates this last observation. This could signal the inefficiency of CCDB to follow its recommendations. Source: Authors compilation from CCDB reports. Appendix 195 TABLE A7.1: Selected Countries – Latest CPIR Assessment     Congo Rep. Niger Ghana Sierra-Leone Moldova PI Regulatory legislative framework for awarding public contracts 2.15 2.20 2.13 2.00 2.38 comply with the standards Regulations of existence and documentation 2.50 2.30 2.40 2.83 1.83 PII Award of well-integrated markets to public sector governance 1.25 1.70 1.25 2.00 1.75 Country with a normative/regulatory body functional 2.75 2.20 1.50 1.75 2.75 Existence of institutional development capacity 1.00 1.00 1.50 1.25 1.50 PIII Efficiency of activities and procurement practices 1.00 1.30 1.25 1.75 2.00 Functionality acquisitions market 0.80 1.70 2.00 1.67 2.00 Contract management arrangements and dispute resolution 1.70 2.00 2.00 0.33 1.67 PIV Country with effective control mechanisms and audits 0.40 0.80 1.00 1.20 1.40 Effectiveness of the mechanism 2.25 1.90 1.20 1.60 2.80 Degree of access to information 1.00 2.00 2.00 2.00 2.00 Promotion of ethics and fight against corruption 0.85 1.55 2.29 2.29 1.86 Sources: Selected countries CPAR and Congo Rep. 2014 MAPS. 196 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) TABLE A8.1: List of People Consulted During PEMFAR Missions Names Institutions Functions Monsieur BOBASSA EBALE Pascal MEFPPPI/Cabinet du Ministre Délégué Directeur de Cabinet Monsieur Okandza Jean Crhristophe MEFPPPI/Direction Générale du Plan et du Développement Directeur Général Monsieur Niama Michel MEFPPPI/Direction Générale de l’Economie/ Directeur Général Madame Nzalankanzi Jacqueline MEFPPPI/Cabinet du Ministre Délégué Conseillère au plan et à la coopération au développement Madame Omporo Félécité MEFPPPI/Cabinet du Ministre d’Etat Conseillère aux relations financières interna- tionales Monsieur Atta Mwandza MEFPPPI/Cabinet du Ministre d’Etat Conseiller à l’Economie et à la Statistiques Monsieur Mavoungou Hilaire MEFPPPI/Cabinet du Ministre d’Etat Conseiller au Budget Monsieur Ngoulou Jean Noel MEFPPPI/Cabinet du Ministre d’Etat Conseiller au Trésor et à la Comptabilité publique Monsieur Bazebi Basile Jean Claude MEFPPPI/Direction des Finances et des Moyens Généraux Directeur Monsieur Malié Paul MEFPPPI/Direction des Etudes et de la Planification Directeur des Etudes et de la Planification Monsieur Galouo Sou Ted MEFPPPI/Direction des Ressources naturelles Directeur des ressources naturelles Monsieur Elongo Jean Didier MEFPPPI/Direction Générale de Contrôle des Marchés Publics Directeur Général Monsieur Balonga Moise MEFPPPI/Direction Générale de Contrôle des Marchés Publics Directeur de l’information et de l’assistance Monsieur Malanda Massengo Ephrem MEFPPPI/Direction Générale de Contrôle des Marchés Publics Chef de Service Monsieur Eckomband Bouya MEFPPPI/Direction Générale de Contrôle des Marchés Publics Chef de Service Madame Mboulou Monique MEFPPPI/Direction Générale du Trésor 1er Fondé de Pouvoir Monsieur Makosso Jean Jacques MEFPPPI/Direction Générale du Trésor 2ième Fondé de Pouvoir Monsieur Yandouma Honoré Noël MEFPPPI/Direction Générale du Trésor 3ième Fondé de Pouvoir Monsieur Ondongo Louis MEFPPPI/Direction Générale du Trésor Directeur des Etudes et de la Planification Monsieur Ntsingani Antoine MEFPPPI/Direction Générale du Trésor Directeur des titres Monsieur Kaba-Mboko MEFPPPI/Direction Générale du Trésor DAAF Monsieur Okandzo Nicolas MEFPPPI/Direction Générale du Budget Directeur général Monsieur Iwanga Jean Claude MEFPPPI/Direction Générale du Budget Directeur de la Prévision Monsieur Olingo Bruno Ludovic MEFPPPI/Direction Générale du Budget Directeur des Affaires Administratif et Finan- ciers (DAAF) Monsieur Mbaloula Alexandre MEFPPPI/Direction Générale du Centre des Etudes et Directeur Général d’Evaluation des Projets d’investissement Oniangue Louis MEFPPPI/Direction Générale du Centre des Etudes et Chargé d’Etudes d’Evaluation des Projets d’investissement Monsieur Molomba Léopold MEFPPPI/Direction Générale de Contrôle budgétaire Directeur Général Monsieur Akoli Emmanuel MEFPPPI/Direction Générale de Contrôle budgétaire DCG Madame Ngoulou Alima Kamara MEFPPPI/Direction Générale de Contrôle budgétaire DAFF Monsieur Obami David- Martin Présidence de la République/Autorité de Régulation des Directeur Général Marchés Publics Monsieur Kintekoto Jean Marie Présidence de la République/Autorité de Régulation des Directeur des Statistiques et de la Diffusion Marchés Publics (continued on next page) Appendix 197 TABLE A8.1: List of People Consulted During PEMFAR Missions (continued) Names Institutions Functions Monsieur Audrey Alban Mapithy Présidence de la République/Autorité de Régulation des Directeur de la Réglementation et des Affaires Marchés Publics Juridiques Monsieur Kiamba Germain Présidence de la République/Inspection Général d’Etat Contrôleur Général Monsieur Miekoumoutima Auguste Présidence de la République/Inspection Général d’Etat Inspecteur Kayindou Jean François Présidence de la République/Inspection Général d’Etat Inspecteur Monsieur Opomba Ngondo Leopold Présidence de la République/Inspection Général d’Etat Inspecteur Monsieur Matsoumbou Benjamin Présidence de la République/Inspection Général d’Etat Inspecteur Monsieur Baya Mathurin Présidence de la République/Inspection Général d’Etat DAF Monsieur Charles Emile Apesse Cours des Comptes et de Disciplines Budgétaire (CCDB) Premier Président Monsieur Kamba Emmanuel Cours des Comptes et de Disciplines Budgétaire Conseiller Vénérable Nicéphore Fylla de Saint-Eudes Sénat/Commission Economie et Finances Président Honorable Mavoungou Maurice Assemblée nationale/Commission Economie et Finances Président Honorable Bopoumbou Jean Marie Assemblée nationale/Commission Economie et Finances Membre Monsieur Mokoko Guillaume MEFPPPI/Inspection Générale des Finances Inspecteur des finances chargé des interven- tions Monsieur Mboungou Antoine MEFPPPI/Inspection Générale des Finances Inspecteur Général chargé des enquêtes et synthèses Monsieur Ngayouma Jean Marie MEFPPPI/Inspection Générale des Finances DAF Monsieur Kemeni Ouandzi MEFPPPI/Inspection Générale des Finances Chef de service Secrétariat Monsieur Mouangou Fulgence Ministère de l’Agriculture et de l’Elevage Directeur de Cabinet Monsieur Itoua Apollinaire MAE/Fonds de Soutien à l’Agriculture Directeur Général Monsieur Savou Dieudonné Simon MAE/Direction Générale de l’Agriculture Directeur Général Monsieur Ossibi Joseph Ministère de l’Agriculture et de l’Elevage/Direction des Etudes et Directeur des Etudes et de la Planification de la Planification Monsieur Mouhirou Dieudonné Direction Générale Agriculture/DAAF Gestionnaire de crédit Monsieur J. P. Mpoussa Yobard Direction Générale de la Pêche maritime Directeur Général Monsieur Ngouembé Apollinaire Direction Générale de la Pêche continentale Directeur Général Monsieur Mpadou Pierre Ministère Pêche et Aquaculture/Direction des Etudes et de la Directeur des Etudes et de la Planification Planification Monsieur Milandou Jean Albert Direction Générale Pêche Continentale DAAF Monsieur Amona Arsène Ministère de l’Enseignement Technique, Professionnelle de la Directeur de Cabinet formation qualifiante et de l’emploi Monsieur Monka Marcel Ministère de l’Enseignement Technique, Professionnelle de la Directeur des Etudes et de la Planification formation qualifiante et de l’emploi/Direction des Etudes et de la Planification Monsieur Aloumba Alexandre Ministère de l’Enseignement Supérieur/Cabinet Directeur de Cabinet Monsieur Ounounou Marcel Ministère de l’Enseignement Primaire et Secondaire et de Directeur de Cabinet l’Alphabétisation Monsieur Diassonama Jonas Ministère de l’Enseignement Primaire et Secondaire et de Directeur des Etudes et de la Planification l’Alphabétisation/DEP (continued on next page) 198 Republic of Congo – Public Expenditure Management and Financial Accountability Review (PEMFAR) TABLE A8.1: List of People Consulted During PEMFAR Missions (continued) Names Institutions Functions Monsieur Kouengo Billa Ministère de l’Enseignement Primaire et Secondaire et de DAAF l’Alphabétisation Monsieur Ngoulou Boniface Ministère de l’Enseignement Primaire et Secondaire et de Conseiller aux finances et Projets l’Alphabétisation Monsieur Kouoto Jean Ministère de l’Enseignement Primaire et Secondaire et de DAA/DGEB l’Alphabétisation Monsieur Adzama Georges Ministère de l’Energie et de l’Hydraulique Directeur de Cabinet Monsieur Owonda Ministère de l’Energie et de l’Hydraulique/DEP Directeur des Etudes et de la Planification Monsieur Ngakosso Jean Philippe Ministère de la Santé et de la Population Directeur de Cabinet Monsieur Bolanda Jean Daniel Ministère de la Santé et de la Population/DEP Chef de Service Monsieur Kanda Ejan Fenehr Ministère de la Santé et de la Population/DEP Chef de Service Monsieur Moutedika Xavier Ministère de l’Equipement et des Travaux publics/Direction des Directeur des Etudes et de la planification Etudes et de la Planification Monsieur N’Zoussi Joseph Ministère de l’Equipement et des Travaux publics Directeur de la Coopération Monsieur Kombo Bonza Omer Ministère de l’Equipement et des Travaux publics/DEP Chef de Service DEP Monsieur Bokassa Bertrand Cellule de Gestion des marchés publics Responsable CGMP Appendix 199 1818 18 818 181188 H Street, Stree S reet, Str NW t N W Washing Washi Wash Washington, shington shingt ingto ngton, gton,n, D on, 20433 DC 20433 USA Telephon Te Te Telephone: ele lep le ephone: ephhone: 1 202 e: +1 02 202 473 100 1000 73 1000 nter nte Internet: nternet: er rn net et: et et t: www www.worldbank. w ww www.worldbank www.worldbank.org ww ww.worldbank.org .worldb worldban rldb dbank.org b bankk.org org rg