34148 A W O R L D B A N K C O U N T R Y S T U D Y Public Expenditure Management and Financial Accountability in Niger THE WORLD BANK A W O R L D B A N K C O U N T R Y S T U D Y Public Expenditure Management and Financial Accountability in Niger THE WORLD BANK Washington, D.C. Copyright © 2005 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First Printing: October 2005 printed on recycled paper 1 2 3 4 5 07 06 05 World Bank Country Studies are among the many reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and to facilitate its dialogs with the governments. 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All other queries on rights and licenses,including subsidiary rights,should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, Fax: 202-522-2422, email: pubrights@worldbank.org. ISBN-10: 0-8213-6366-2 ISBN-13: 978-0-8213-6366-9 eISBN: 0-8213-6367-0 ISSN: 0253-2123 DOI: 10.1596/978-0-8213-6366-9 Cover photographs from the website www.agadez-niger.com, courtesy of Samuel Gaze. Library of Congress Cataloging-in-Publication Data has been requested. In memory of our dear friend and colleague Jacques Bernard Christien. Contents Acknowledgments ix Acronyms and Abbreviations xi Executive Summary xv Introduction 1 Recent Reform Achievements 2 Rationale for PEMFAR 2 Objectives, Scope and Structure 3 1. Macroeconomic Context 5 Structure of Niger's Economy and of Public Finance 6 Economic Performance 2000­2003 15 Macroeconomic Outlook and Financing Requirements 2004­2007 18 Solvency and Fiscal Sustainability Analysis 21 2. Public Expenditure Review 25 Objectives of the Public Expenditure Review 25 Scope of Analysis and Data Constraints 26 Analysis of Public Expenditure Structure 27 Spending Targets for Priority Sectors 27 Analysis of Public Expenditure by Functional Classification 28 Actual Expenditures Compared to PRSP Spending Targets 30 International Comparisons of Functional Distribution of Public Expenditure 31 Factors Determining the Structure of Public Expenditure 32 Economic Composition of Public Expenditures 36 Impact of Budget Execution on Budget Outcomes 40 Geographical Distribution of Public Expenditures and their Poverty Impact 44 Sector Expenditure Reviews 47 Education 47 Health 53 Road Transport 58 Rural Development 63 3. Assessment of Public Finance Management Systems 67 Budget Preparation 68 Budget Execution 71 v vi Contents The Budget Execution Process 71 Externally Financed Development Expenditures 74 Processing Delegated Budget Credits (credits délégués) 75 Public Accounting and Treasury Management 76 Government Accounts 77 Reporting (Treasury Accounts and Budget Review Law) 78 Treasury System 78 Cash Management 79 Internal and External Controls 80 Ex-Ante Controls 81 Internal Audit 81 External Audit 82 Political Control (National Assembly) 83 Non Financial Assets, Monitoring of Parastatals and Debt Management 84 Non-Financial Assets (Comptabilité Matière) 84 Monitoring of Parastatals 85 Debt Management 86 Institutional and Organizational Reforms and Human Resources Management 87 Institutional and Organizational Reforms 88 Human Resource Management 89 Appendixes 91 Appendix A: Macroeconomic and Government Finance Tables 93 Appendix A.1: Financing of Government Overall Fiscal Deficits 94 Appendix A.2: Sources of Net Official Development Assistance, 1997­2001 95 Appendix A.3: Selected Economic and Financial Indicators, 2004­2007 96 Appendix B: Public Expenditure Data 97 Appendix B.1: Total Public Expenditures 97 Appendix B.2: Domestically-financed Public Expenditures 101 Appendix C: Methodology of Public Expenditure Reclassification Exercise 107 Appendix C.1: Objectives and Main Tasks 107 Appendix C.2: List of Reclassifications and Explanations 108 Appendix C.3: Synthesized Table of Reclassifications 112 References 117 Contents vii LIST OF TABLES 1: Priority Action Plan xxii 1-1: Nominal and Real GDP and Growth Rates, 1997­2003 6 1-2: Niger and WAEMU Convergence Criteria, 1997­2003 9 1-3: Composition of Government Revenue, 1997­2003 9 1-4: Composition of Government Expenditures, 1997­2003 accrual terms 10 1-5: Composition of Government Expenditures, 1997­2003 11 1-6: Overall Fiscal Balance, 1997­2003 12 1-7: Projected HIPC Assistance to Niger after Completion Point 14 1-8: Change in Domestic Arrears (net), 1999­2003 17 1-9: Financial Operations of the Central Government, 2004­2007 Projections of revenues and expenditures 20 1-10: Financial Operations of the Central Government, 2004­2007 Projections of overall balance and financing 21 1-11: Public Sector Solvency and Sustainability in Niger 22 2-1: Quantitative Targets for Priority Sector Spending 28 2-2: Functional Distribution of Public Spending (total expenditures) 29 2-3: Functional Distribution of Public Spending (Recurrent Expenditure) 31 2-4: Medium Term Projections of Priority Sector Expenditures, 2004­2007 33 2-5: Regional Comparison of Spending on Priority Sectors 33 2-6: Importance of Donor Financing for Public Expenditures 33 2-7: Economic Structure of Total Expenditures 37 2-8: Payroll and Wage Bill 2000­2003 38 2-9: Ratio of Recurrent to Capital Expenditures 39 2-10: Ratio of Budget Allocation to Execution by Expenditure Category 41 2-11: Execution Rates by Budget Execution Stage 43 2-12: Primary Education Indicators 48 2-13: Education Sector--Recurrent Expenditures by Subsector 49 2-14: Cost of Contract Teachers 49 2-15: Unit Costs by Subsector 50 2-16: Economic Classification of Education Expenditures 51 2-17: Health Indicators 53 2-18: Economic Classification of Health Expenditures 54 2-19: Health Sector--Recurrent Expenditures by Level 56 2-20: Ratios of Health Workers to Population by Region (2000) 56 2-21: Public Expenditures for Transport and Civil Works 59 2-22: Budget Allocations for Road Maintenance and Actual Expenditures 61 viii Contents 2-23: Yields of Cereal Production in Niger--Comparison with other Countries in the Sub-Region 64 2-24: Public Expenditures in the Rural Sector 65 3-1: Niger's Budget Execution Process 72 LIST OF CHARTS 1-1: Real Output Growth 6 1-2: Evolution of Net ODA to Niger 13 1-3: Government Revenue 17 2-1: Evolution of Public Expenditure by Functional Classification 29 2-2: Evolution of Recurrent Expenditure by Functional Classification 30 2-3: Comparison Total Expenditures--PRSP Spending Targets 32 2-4: Comparison Recurrent Expenditures--PRSP Spending Targets 32 2-5: Sectoral Distribution of Capital Expenditures by Source of Financing 34 2-6: Use of HIPC Resources, 2001­2003 35 2-7: Economic Structure of Total Expenditure 37 2-8: Execution Rates by Sectors 41 2-9: Quarterly Fluctuations in Spending on Goods and Services 42 2-10: Per Capita Levels of Regionally Administered Expenditures by Region 46 2-11: Per Capita Distribution of Spending in the Special Program of the President 46 LIST OF BOXES 1: WAEMU Convergence Criteria 8 2: Revenue-Enhancing Measures Introduced since 2001 16 3: Rationale for and Impact of Niger's Cash Management System 44 4: Inter-sectoral Expenditure Structure--Main Recommendations 47 5: Education--Main Recommendations 52 6: Health Sector--Main Recommendations 58 7: Road Transport--Main Recommendations 63 8: Rural Development Sector--Main Recommendations 66 9: Budget Preparation--Main Recommendations 70 10: Exceptional Procedures 73 11: Budget Execution--Main Recommendations 76 12: Accounting and Treasury Management--Main Recommendations 80 13: Internal and External Controls--Main Recommendations 84 14: Non-financial Assets, Monitoring of Parastatals and Debt Management-- Main Recommendations 88 15: Institutional and Organizational Reforms and Human Resources Management--Main Recommendations 90 Acknowledgments T his is the final report of the Niger Public Expenditure Management and Financial Accountability Review (PEMFAR) undertaken by the World Bank in close partnership with the Government of Niger and the European Commission (EC). On the Government side, Adamou Kane (Ministry of Economy and Finance) was responsible for the overall coordination. The Government team consisted of a core group in the Ministry of Finance and Economy (MEF) led by Moumouni Saidou and Saadou Bakoye, and four sectoral task forces. The coordinators of the task forces were: Tari Bako (Road Transport), Adamou Soumana (Education),Djika Garba (Health),andAdamou Maiguiya (Rural Development). Members of GAGE (Government group conducting technical work on economic management) provided key inputs to the macroeconomic analysis. The analytical work of this report is based on a main mission conducted in November 2003 jointly by the Government, the EC and the Bank. A first draft was discussed in a two- day workshop in June 2004, organized by the Government in Niamey, Niger. The Minister of Economy and Finance,Mr.Lamine Zeine,presided over the workshop.Participants in the workshop included representatives from several Government ministries, donor organiza- tions, private sector and civil society organizations. The workshop was led by the following officials: Djibir Abdoua (MEF), Yacouba Abou (MEF), Rabo Fatchima (MEF), Ibrahim Garba (MEF), Gani Hamado (MEF), Ibrahim Mamane (Chamber of Accounts), Ibrahim Samaila (Ministry of Civil Service and Labor),Yaye Seidou (MEF),Abdou Soumana (MEF), and Kambèye Zabeirou (MEF). Under the direction of Hinh Dinh (Lead Economist), the World Bank team was led by Peter Siegenthaler and Amadou Ibrahim (Task Managers, AFTP3). The authors of this report are Emmanuel Pinto Moreira (AFTP3),Macroeconomic Context,Peter Siegenthaler (AFTP3),Public Expenditure Review,and Emile Finateu (AFTFM),Public Finance Manage- ment Systems.Xavier de la Renaudiere (consultant) played a key role in the drafting process. The World Bank team also included Amadou Alassane (AFTS3), Jacques Bernard Christien (AFTFM), Quy-Toan Do (DECRG), Soukeyna Kane (AFTFM), Djibrilla Karamoko (AFTH2),AnneMondoloni(AFTFM),PeterOsei(AFTP3),RachidiRadji(AFTH2),Andreas Schliessler (AFTTP), Mamadou Yaro (AFTFM), Ali Zafar (AFTP3). Contributions were made by World Bank consultants Charles N'Cho, Koffi Ekanmian, Jacqueline Freitas, Stan Manikowski, and Michel Populus. The European Commission team participating in the PEMFAR was headed by Guy Samzun (EC, Niamey) and consisted of Xavier le Mounier and Bibata Dille (both EC, Niamey).EC consultants Lydia Montalti,Claude Boursoit,Jean Petit,and M'hamed Cherif contributed to the report.Yves Huart from the French Treasury participated as consultant in the exercise. Other donors, in particular the IMF, UNDP, French Cooperation and AFD, provided valuable inputs.The PEMFAR process received financial assistance from the Pub- lic Expenditure and Financial Accountability Program (PEFA) and the UNDP. ix x Acknowledgments Peter Moll (AFTP1), Jean Luc Bernasconi (ECSPE), and Moussa Yaya (IMF) were peer reviewers. The team benefited from the support and guidance of Cadman Mills (Sector ManagerAFTP3),Iraj Talai (AFTM),Vincent Turbat (Country Manager Niger),PedroAlba (Country Director, AFC13), and Antoinette Sayeh (former Country Director, AFC13). Abiodun Olusegun Aina, Maude Jean-Baptiste and Josiane Luchmun (AFTP3) assisted in the preparation of the report. Acronyms and Abbreviations AfDB African Development Bank BCEAO Banque Centrale des Etats de l'Afrique de l'Ouest (Central Bank of West African States) CAADIE Centre Autonome d'Amortissement de la Dette Intérieure de l'Etat (Central Executing Agency of Domestic Arrears Settlement) CAFER Caisse Autonome pour le Financement de l'Entretien Routier (Autonomous Road Maintenance Fund) CAS Country Assistance Strategy CFAA Country Financial Accountability Assessment CET Common External Tariff COGES Comité de Gestion des Etablissements Scolaires (School Management Committee) CWIQ Core Welfare Indicator Questionnaire DAF Direction des Affaires Administratives et Financières (Financial and Administrative Affairs Directorate) DCE Direction du Contentieux de l'Etat (Public Dispute Settlement Directorate) DCF Direction du Contrôle Financier (Financial Control Directorate) DEPP Direction des Entreprises Publiques et Parapubliques (Directorate of Public and Parastatal Enterprises) DFI Direction du Financement de l'Investissement (Investment Finance Directorate) DGB Direction Générale du Budget (General Budget Directorate) DGIF Direction Générale de l' Inspection des Finances (General Directorate for Financial Inspection) DGTP Direction Générale des Travaux Publics (General Public Works Directorate) DO Direction de l'Ordonnancement (Payment Order Directorate) DPP Direction des Programmes et du Plan (Planning and Programming Directorate) DSA Debt Sustainability Analysis EC European Commission EDS Enquête Démographique et de Santé (Demographic and Health Survey) EFA-FTI Education for All, Fast Track Initiative EPA Etablissements Publics à Caractère Administratif (Administrative Public Enterprises) EPIC Etablissements Publics à Caractère Industriel et Commercial (Industrial and Commercial Public Enterprises) EU European Union FCFA Franc de la Communauté Française de l'Afrique (Franc of the French Community of Africa) FMIS Financial Management Information System GAGE Groupe d'Appui à la Gestion Economique (Economic Management Consulting Group) GDP Gross Domestic Product HDI Human Development Index xi xii Acronyms and Abbreviations HIPC Heavily Indebted Poor Countries IDA International Development Association IGAT Inspection Générale de l'Administration Territoriale (General Inspectorate for Territorial Administration) IGE Inspection Générale d'Etat (General Public Inspectorate) IMF International Monetary Fund INRAN Institut National de Recherches Agronomiques du Niger (National Agronomic Research Institute of Niger) I-PRSP Interim Poverty Reduction Strategy IsDB Islamic Development Bank MEAT Ministère de l'Equipement et de l'Aménagement du Territoire (Equipment and Territorial Management Ministry) MEBA Ministère de l'Education de Base et de l'Alphabétisation (Basic Education and Alphabetization Ministry) MEF Ministry of Economy and Finance MFP/T Ministère de la Fonction Publique et du Travail (Public Service and Labor Ministry) MSP Ministère de la Santé Publique (Public Health Ministry) MTEF Medium-Term Expenditure Framework NGO Non-Governmental Organization NIGELEC Société Nigérienne d'Électricité (Nigerien Electricity Company) NPV Net Present Value ODA Overseas Development Aid OECD Organization for Economic Cooperation and Development OPEC Organization of Petroleum Exporting Countries OPVN Office des Produits Vivriers du Niger (National Cereals' Marketing Board) PDDE Programme Décennal pour le Développement de l'Education (Ten-Year Education Development Program) PEAC Public Expenditure Adjustment Credit PEMFAR Public Expenditure Management and Financial Accountability Review PER Public Expenditure Review PETS Public Expenditure Tracking Survey PREM Poverty Reduction and Economic Management Network (World Bank) PRGF Poverty Reduction and Growth Facility PRS Poverty Reduction Strategy PRSC Poverty Reduction Strategy Credit PRSP Poverty Reduction Strategy Paper PSOP Paiement sans Ordonnancement Préalable (Payment without preceding Payment Order) RDS Rural Development Strategy SONIDEP Société Nigérienne des Produits Pétroliers (Nigerien Petrol Product Company) SNIS Système National de l'Information Sanitaire (National Health Information System) TOFE Table of Government Financial Operations UNDP United Nations Development Program Acronyms and Abbreviations xiii UNICEF United Nations Children Fund VAT Value Added Tax WAEMU West African Economic and Monetary Union WFP World Food Program WHO World Health Organization FISCALYEAR OF BUDGET January 1­December 31 CURRENCY EQUIVALENTS Currency unit: Franc CFA (FCFA) US$1 = 544 (Exchange rate effective August 2, 2004) WEIGHT AND MEASURES Metric system Executive Summary Introduction and Macroeconomic Context The civilian Government elected in 2000 has made a significant effort to improve Niger's fiscal and economic management. Sound macroeconomic and public finance policies have produced good results. Real GDP growth rates averaged 5.1 percent per annum over 2001­2003 and the basic budget deficit1 was reduced from 3 percent of GDP in 2000 to 1.8 percent in 2003. The falling deficit reflected an increase in Government revenue from 8.0 to 9.7 percent of GDP, and a reduction in recurrent expenditures from 11.2 to 10 per- cent of GDP, largely due to more effective control of the Government's wage bill. In addi- tion, the Government successfully reached the Completion Point of the Enhanced Highly Indebted Poor Countries (HIPC) Initiative in early 2004 giving Niger access to a major external debt relief program. The Government also carried out fundamental reforms aimed at restructuring public expenditures and making public finance management more effective and transparent. In 2002, following extensive consultations with civil society, the Government adopted a Poverty Reduction Strategy (PRS),the first step towards implementation of a coherent eco- nomic and social development program. While these are very positive steps, additional efforts are needed to promote rapid growth and sustainable development and achieve significant poverty reduction. I Niger'seconomyisstilldominatedbysubsistenceagricultureandremainsextremely vulnerable to exogenous factors, especially erratic rainfall patterns. I AccesstobasicsocialservicesisinadequateandNiger'shumandevelopmentindi- cators are very poor. Improving health and education is therefore one of the main goals of the country's poverty reduction strategy. In a situation characterized by extreme scarcity of domestic resources, efficient and effec- tive public expenditures programs are critical to the successful implementation of the country's poverty reduction strategy and achievement of the Millennium Development Goals (MDGs). The PRS identified policy priorities in key sectors, but in most of these sectors, with the exception of basic education, little progress has been made in translat- ing PRS priorities into detailed operational programs. The Public Expenditure Manage- ment and Financial Accountability Review (PEMFAR) has been prepared in this context and includes a detailed analysis of patterns of public expenditures and public finance management practices. PEMFAR findings and recommendations are designed to serve as the basis for a budg- etary and public finance reform program and action plan to be implemented by the Gov- ernment with the support of the donor community. 1. Basic fiscal deficit defined as total revenue minus grants, minus total expenditure, excluding foreign-financed investment outlays. xv xvi Executive Summary Structure of Public Expenditures Public Expenditures in Priority Sectors The PEMFAR report reviews Niger's public expenditures in the four priority sectors iden- tified by the PRS: education, health, rural development, and roads. The findings of the PEMFAR can be summarized as follows: I Theshareoftheprioritysectorsintotalpublicexpendituresincreasedfrom66.3to 69.1 percent between 2000 and 2002, despite a marked reduction in the share of health from 16.5 to 14.4 percent. However, recurrent expenditures declined from 50 to 47 percent over the 2000­2003 period. I TheGovernmentfocuseditsattentiononexpandingbasiceducation,akeyobjective of the poverty reduction program. The share of basic education in total education expenditureswasincreasedfrom44.5percentin1998to58.7percentin2002.Increas- ingenrollmentrequiredamajorexpansioninthenumberof teachers.However,costs of increasing the teaching cadre were held down by recruiting a large number of teachers outside the civil service (contract teachers).Major efforts are still required to improveteachingquality,reduceinequalitiesbetweenruralandurbanareas,andcor- rect gender imbalances. The Government also needs to develop a global education strategy covering primary, secondary and higher education, and vocational training. I Thehealthsectorcontinuestofacecomplexpolicyandmanagerialissues.TheGov- ernment needs to improve access to and utilization of basic health services and address behavioral and living conditions issues, including access to safe drinking water and sanitation.In 2002,the Government adopted a health sector policy state- ment based on the PRS. Significant, lasting improvements in the performance of the health sector will require formulation and implementation of a more detailed action program. In this context, the Government has launched the preparation of a Health Development Plan for 2005­2009. I Theruraldevelopmentsector,whichismanagedbyfourministriesandincludesa multitude of externally-financed projects, faces formidable challenges: (i) increas- ing productivity by modernizing traditional cultivation and cattle-raising practices; (ii) expanding irrigation to reduce vulnerability to erratic rainfall; and (iii) creat- ing an environment conducive to sustainable development.The Government needs to expand its cooperation in rural development with stakeholders and development partners. I Considerable resources have been invested to create a national road network but funding maintenance has been inadequate, resulting in serious degradation of the road network. The Government and its partners need to review the priorities of their transport sector programs, in particular the ratio of recurrent to investment expenditures, and agree on an effective road maintenance funding mechanism. Common Issues Adjusting and expanding public expenditures in the four priority sectors to meet the new poverty reduction objectives poses a common problem--the narrowness of Niger's revenue base and the rigidity of its expenditure structure. Executive Summary xvii I Niger's domestic resource base is exceedingly narrow as in 2003 Government rev- enue accounted for only 9.9 percent of GDP. This was much below the ratio of Benin, Mali or Burkina Faso (above 14 percent) or the West African Economic and Monetary Union (WAEMU) convergence criterion (17 percent). Taxes on foreign trade, customs and import duties, account for a major share of Government rev- enue. Increasing domestic revenues has proven to be extremely difficult because subsistence agriculture and informal activities account for a high percentage of eco- nomic activity. I Niger is heavily dependent on foreign aid,with donors funding more than half of public expenditures through project financing and budget support. In 2000­2002 development assistance financed on average over 70 percent of total investment expenditures. Budget support often carries with it conditions involving the struc- ture and management of public expenditures. As a result much of the country's public investment decisions and many budget choices reflect donor preferences. I Developmentassistancehashadapositiveinfluenceontheoverallstructureofpub- lic expenditures, but has also distorted the investment/recurrent cost ratio. Donors allocate a high proportion of their funds to high-priority sectors, but mainly for investment. In the transport and rural development sectors in particular, they finance large investment projects but do not make sufficient provisions for the recurrent costs of their operations. I Thereisalackof flexibilityof budgetallocationsasoutlaysforpersonnelanddebt service account for almost half of total expenditures. Allocations for wages and salaries are difficult to adjust: there is little flexibility in civil service management to rotate staff or move positions to reflect changing priorities. Investments, compris- ing another third of total expenditures, are dominated by donor preferences. Thus, only about 20 percent of total public spending (recurrent expenditure minus wages and salaries) is under the full control of the Government. I Bothdomesticrevenuesandbudgetsupporttendtobevolatile,complicatingfiscal management. To achieve its fiscal objectives despite revenue shortfalls, the Govern- ment introduced a cash management system in 1999.This system helped strengthen the country's fiscal position but had a negative impact on the structure of public expenditures, as evidenced by significant differences in spending patterns between voted and executed budgets.With the exception of education,execution rates in pri- ority sectors have been significantly lower than in other sectors. The Way Forward The constraints outlined above have limited the ability of the Government to restructure public spending in support of priority sectors and to achieve the desired "input mix," including the balance between recurrent and investment expenditures. The following measures could, over the long run, bring more flexibility to the management of the coun- try's public finances: I Study ways to broaden the tax base with the least impact on the poor.In coopera- tion with the IMF, the Government is studying ways and means of increasing tax receipts, a difficult objective that can be achieved only by broadening the tax base xviii Executive Summary and improving tax collection. The study should not only focus on the revenue gen- erating capacity of alternative tax systems but also on their impact on the poor and other social groups. I Improve budgeting, making it both more realistic and conservative. The shift to programmatic budgeting, on which the Government has embarked, should lead to a significant improvement. Programmatic budgeting should ensure that there is strong link between sector strategies and hence better take into account strategic priorities and absorptive capacity. I Strengthen the cash management system and increase its transparency in order to prevent and better manage severe liquidity problems. Budget regulation and treas- ury management should identify and systematically protect high-priority public expenditures such as key social services and road maintenance, in line with the pri- orities of the poverty reduction strategy. I Control the growth of fixed and quasi-fixed expenditures (wages and salaries and debt service) by continuing the policy of hiring some new education and health workers outside the regular civil service. Controlling the growth of wage and salary outlays while increasing the number of primary school teachers and health work- ers is critical to achieving the objectives of the Poverty Reduction Strategy (PRS). Contractual and decentralized (local) recruitment of primary school teachers has facilitated increased school enrollment while reducing the unit costs of primary education. The Ministry of Public Health has also begun to recruit contract work- ers for some local health center positions. The policy of hiring teachers and health workers outside the normal civil service structure has been a good temporary solu- tion to the tradeoff between the need to overcome the acute shortage of personnel and the need to control the wage bill.However,the benefit of this policy will depend on salary levels for contract workers not increasing substantially. In the long term, a comprehensive and far-reaching civil service reform will be needed. I Strictlylimitforeignborrowinginvolumeandonlycontractloansonhighlyconces- sional terms and strengthen coordination of development assistance to make it more coherent and more flexible,and increase donor contributions to high-priority recur- rent expenditures in key sectors: I In several high-priority sectors, more external funding for recurrent costs would help improve the efficiency of the public expenditures program.Although develop- ment assistance has had a positive influence on the structure of public expenditures, it has distorted the investment/recurrent cost ratio. Donors allocate a high propor- tion of their funds to high-priority sectors, but mainly for investment. In transport and rural development in particular,neither donors nor the Government make suf- ficient provision for the recurrent cost implications of their operations (external project financing does contain some funds to cover recurrent project costs).2 (a) Additional budget support, in part through a shift from project to program- matic financing,is a possible response to the need for donor financing of recur- rent expenditures. In 2000­2002, budget support already financed more than 30 percent of current expenditures. However, the effectiveness of budget sup- 2. External project financing is systematically classified as development/investment funding, even if it covers recurrent costs; this makes it very difficult for budgeting authorities to identify and monitor these costs. Executive Summary xix port depends on the quality of the country's public expenditures programs and the predictability of donor assistance. Budget support should be provided in the context of more stable medium-and long-term commitments carefully monitored by more efficient national institutions. (b) Niger's creditors will provide debt relief amounting to US$1.2 billion in nom- inal terms, equivalent to US$520.6 million in net present value (NPV) terms, plus "topping up" assistance equivalent to US$142 million in NPV terms, as a result of Niger having achieved the HIPC Completion Point (when donors commit irrevocably to deliver debt relief) in early 2004. Resources made avail- able by debt relief under the HIPC initiative are allocated to pro-poor expen- diture programs outlined in PRS through the President's Special Program. HIPC funds should finance activities that are fully integrated in sectoral pro- grams. An optimal use would consist in financing high-priority recurrent expenditures that merit protection in case of liquidity shortfalls. Public Finance Management Systems Modernization of Niger's financial management system is underway.Niger's public finance management system, which was based on the French model in place before independence, has been reformed to comply with the 1999 Constitution and the WAEMU directives. In 2003 the budget laws were reformed and new public accounting regulations, budget clas- sifications and chart of accounts were introduced. These changes should make budget exe- cution more efficient and improve the transparency and accountability of public finance management. The report has identified a number of areas where additional steps need to be taken to strengthen existing institutions and/or accelerate the reform process.These include (i) budget preparation and execution; (ii) computerized financial information systems; (iii) cash man- agement;(iv)domesticdebtmanagement;and(v)internalandexternalexpenditurecontrols. Three main budget preparation and execution issues that must be addressed are in- adequate budget preparation,overly centralized execution,and inefficient financial controls: I Despiterecentimprovements,thebudgetpreparationprocessremainsinadequate. The budget should be based on a sound macroeconomic framework,projections of Government revenue consistent with that framework,a medium-term expenditure framework and multi-year sectoral allocations reflecting the Government's strate- gic objectives and PRS priorities.The budget should include all Government expen- ditures, including externally-financed investment projects. I ThebudgetexecutionprocessiscumbersomeandoverlycentralizedintheMinistry of Economy and Finance (MEF). The length and complexity of the commitment process is an incentive for Government officials and suppliers to use exceptional pro- cedures, mainly cash advances and direct payment orders. The Government should explore with the WAEMU means of simplifying the chain of expenditures. Sub- sequently, more authority on spending decisions should be delegated to spending ministries. This would render them more accountable for the quality and effective- ness of their expenditures programs. xx Executive Summary I Ex-antefinancialcontrolsshouldbemodernizedandgivenmoreautonomy.Finan- cial controllers should have access to MEF's information system but should not report to the General Budget Directorate (DGB). Financial Management Information System (FMIS) The development of a computerized FMIS was a major achievement,but key actors includ- ing financial controllers and credit managers in sectoral ministries have not yet been inte- grated into the system. A fully integrated system would reduce the length and complexity of budget execution and facilitate timely production of reliable data (including on Gov- ernment revenue,if the system were to include customs and tax departments).This Report recommends the creation of an information technology department within the MEF, responsible for coordinating the development of a more comprehensive financial man- agement information system. Cash Management To cope with revenue shortfalls,the Government has put in place a cash management system consistingof budgetregulations(libérationdescrédits)andtreasuryplans(plansdetrésorerie). This system regulates the flow of expenditure in view of limiting expenditure allocations to actual receipts.These controls have helped improve the country's overall fiscal performance, but have led to large differences between voted and executed budgeted expenditures in pri- ority sectors. In fact, the system seems to work against priority sectors, as execution rates in these sectors (actual compared to budgeted expenditures) were below the average for all sec- tors over 2000­2003, with the exception of the education sector. Moreover, the cash man- agement system lacks transparency, as information on cash management plans, spending authorizations and actual payments is not widely shared within the Government. Internal Arrears In 1999, the Government created an institution responsible for managing domestic debt and launched a program aimed at clearing internal arrears. Although some progress has been achieved, the PEMFAR recommends a new comprehensive inventory of domestic debt and implementation of a new debt and arrears settlement program. External Controls (Audits) External controls are exercised by the Public Audit Office of the Supreme Court (Chambre des comptes),the National Assembly,and its Finance Committee.The Chambre des comptes is a young institution, which does not have the resources and capacity to perform indepth evaluations of Government accounts and institutional performance. It should be given more resources and more autonomy. The National Assembly and its Finance Commission do not have access to information on revenue and expenditures during budget execution and the Budget Review Law (Loi de règlement) is based on incomplete data on public accounts. The Finance Committee needs to be better informed and should receive techni- cal support. The National Assembly would greatly benefit from direct contacts with the Public Audit Office. Executive Summary xxi Main Priorities of Reform Agenda Improving Niger's public finance management is a long-term reform, which should be implemented in phases and requires the full support of the Government and the donor com- munity. Table 1 presents a list of essential reforms that should be taken over the next three years and beyond to improve the structure of public expenditures and strengthen fiduciary standards. This is, in essence, a summary of the key recommendations of the PEMFAR. xxii Table 1. Priority Action Plan Executi Year Implementing Objectives Actions 2004 2005 2006 2007 Long term Agencies ve 1. Strengthen links between 1. Starting with the 2005 exercise, base Budget Law on global X X X X X MEF Summar budget allocations and MTEF's defining multi-annual sectoral allocations consistent Government priorities with priorities of the poverty reduction strategy. defined in PSRP and 2. Continue and intensify ongoing efforts to develop sectoral X X X X X MEF y sectoral strategies. MTEFs and gradually extend the process to all ministries. 3. Submit documents accompanying Budget Law to the X X X X X MEF National Assembly highlighting the consistency of budget proposals with the poverty reduction strategy. 4. Prepare (in consultation with stakeholders, including MEF donors), approve and implement sectoral strategies and action plans as a basis for future program budgets: · For primary education X MEB/A · For the education sector as a whole X MESST · For the health sector X MSP/LCE · For rural development X MDA, MRA, MHE/LCD · For the transport sector X ME/AT 5. Prepare program budgets: MEF · For primary education (2005 Budget) X X X X X MEB/A · For the education sector as a whole (2008 Budget) X X X MESST, · For the health sector (2006 Budget) X X X X MSP/LCE · For the transport sector (2006 Budget) X X X X ME/AT, · For the rural development sector (2007 Budget) X X X MDA, MRA, MHE/LCD 6. Allocate HIPC funds to finance recurrent expenditures in X X X X MEF priority sectors consistent with the PRSP. 7. Adopt and implement a program to broaden the tax base X X X X MEF (especially extension to the informal sectors). 8. Gradually increase funds allocated to road maintenance X X X X X MEF/MEAT in accordance to the national transport plan to be adopted. Introduce a financing mechanism aimed at securing long term availability of these funds. 2. Identify alternative 9. Design and implement a plan to tap domestic and regional X MEF mechanisms for financing market savings (notably to deal with short-term cash the Treasury and the Gov- management problems). ernment budget. 3. Improve budget execu- 10. Define in each key sector and rank vital expenditures that X X X X MEF tion, reduce disparities need special protection. Define and implement budget between voted and exe- regulations and cash management plans that will effec- cuted budgets, and pro- tively protect these priority expenditures, taking into tect priority expenditures. account the seasonality of specific activities. 4. Simplify and rationalize 11. Strengthen the role of financial controllers and simplify X X MEF the chain of budget execution by eliminating redundant controls and expenditures. relocating Treasury controls to the accounting phase. 5. Prepare for decentraliza- 12. Initiate the delegation of the spending authority to X X tion process through selected central ministries on a pilot basis. deconcentration. 13. Improve the management of crédits délégués by extending X X X the computerized financial management system for both authorizing officers and accountants. Reduce delays for the settlement of these credits. Executi (continued) ve Summar y xxiii xxiv Table 1. Priority Action Plan (Continued ) Year Executi Implementing Objectives Actions 2004 2005 2006 2007 Long term Agencies ve 6. Improve transparency 14. Complete the computerized integrated financial manage- MEF Summar and information sys- ment system taking into account the certification phase tems. Prepare for dele- and extend this system gradually as follows: gation of commitment · DGB, Treasury with an accounting interface. X X y authority to line ministries. · Directorate of financial control. X X · Access to a salle d'informatique within MEF on a pilot basis. X · Customs, tax administration and debt. X X · Prepare a plan in 2005 for extending access to all line X ministries in 2006 and following years. · Extend the system to DGF and the investment program. X X · Computerize operations of the Pairies and Centres de X X X Sous-ordonnancement. 7. Gradually integrate 15. Collect and transmit to the DGB on a timely basis compre- X X X X MEF/Project externally-financed hensive data on externally-financed expenditures. Donors managers/ expenditures into the should ensure that their financial information is provided Donors chain of expenditures. to DGF. 8. Modernize and restruc- 16. Modify the structure of the Treasury in accordance with X X MEF ture the Treasury. the Organic Law on budget laws. Separate normative and accounting functions. 9. Improve accounting 17. Reactivate the work of the committee to establish open- X MEF practices to provide an ing balances. accurate picture of Gov- 18. Integrate opening accounts into Treasury balances. X MEF ernment financial and non-financial assets. 19. Integrate transactions that are not handled by public X MEF, develop- accountants, notably externally-financed investment ment part- expenditures into Treasury operations. ners 20. Gradually reduce the use of suspense accounts for future X X regularization of budget transactions. MEF 21. Use class 1 and 2 accounts for debt and investment goods. X TG, DB, DGB 22. Implement WAEMU directives concerning the journée X X X X TG, DGB complémentaire. 23. Implement article 104 of Public Accounting Regulations X X TG, DGB providing for an arrêté or directive concerning modalities for preparing "comptes de gestion." 10. Strengthen and 24. Anchor the preparation of budget laws in the DGB. Prepare X X TG, DGB improve procedures for a manual of procedures for the preparation of budget laws. closing accounts and 25. Carry out a study of the organizational structure of the X X TG, DGB preparing final Govern- MEF with a view to improving the overall coordination ment accounts. and effectiveness of public expenditure planning and management, producing accounts on a timely basis, and optimizing the use of human resources. 11. Strengthen internal 26. Implement the action plan for control by TG, DGB bodies, X X X MFP/T, MEF and external audits. stipulated in December 22, 2003 decision 096 of the Prime Minister. 27. Strengthen the capacity of the Chamber of Accounts by X X X recruiting and training of judges/auditors, and providing manuals of procedures and audit guidelines. 12. Strengthen monitoring 28. Integrate all external debt transactions into Government X MEF and payment of exter- accounts. nal debt and improve 29. Organize an external audit of domestic debt which would X MEF settlement of domestic include sound criteria for verifying, validating, or reject- debt. ing claims. Reactivate on that basis the domestic debt set- tlement process. Executi (continued) ve Summar y xxv xxvi Executi ve Summar Table 1. Priority Action Plan (Continued ) y Year Implementing Objectives Actions 2004 2005 2006 2007 Long term Agencies 13. Continue efforts to con- 30. Reconcile payroll and wages/salary payments: MFP/T, MEF trol civil service size · Adopt a coherent nomenclature and appropriate software. X and cost of salaries and wages. · Conduct a through inventory of Government employees. X 14. Develop and introduce 31. Adapt laws to ensure that regulations concerning the X X MEF accounting instruments management of Government non-financial assets are con- for non-financial assets sistent with WAEMU directives. to obtain an accurate picture of Government real estate and other assets. 15. Monitor and evaluate 32. Organize public expenditure reviews by MEF and key sec- X X X X MEF/Sectoral budget outcomes. toral ministries by the end of each fiscal year. Ministries and PRSP Secretariat. Introduction iger is one of the world's poorest countries. Poverty is pervasive. Based on the 1993 N household survey the income of nearly two-thirds of the population is below the poverty line, and a third is considered extremely poor. The UNDP's Human Devel- opment Indicators ranked Niger 174th of 175 countries. It is a landlocked Sahelian country located on the southwestern edge of the Sahara Desert. Only 13 percent of the land area is cropped and only 1.5 percent is irrigated. Nevertheless, agriculture generates 40 percent of GDP. Lack of natural resources and skilled manpower seriously hamper economic perfor- mance. The economy is dominated by subsistence agriculture and is highly vulnerable to exogenous factors, especially unpredictable rainfall patterns. Ongoing desertification has reduced Niger's arable land by half since 1965 pushing the population southward. As a result, 85 percent of the population now lives in a 100-150 km wide corridor north of the border with Nigeria. Eighty percent of the country's 11.4 million people live in rural areas, making it difficult to bring them necessary social and economic services and to collect taxes. The service sectors account for 43 percent of GDP and industry, mostly mining, 17 percent. The country's economic structure makes it difficult to develop a robust tax base, and revenues range between 9 and 11 percent of GDP over 1999­2003, compared to 19 percent for Sub-Saharan Africa (excluding Nigeria and South Africa). Niger is highly dependent on foreign grants and loans, which have on average been roughly equal to domestic fiscal revenue. However, because of domestic political instability, external financing has been volatile, ranging from a low of 4.5 percent of GDP in 1999 to a high of 17.9 percent in 2000. The country's development has been hampered by military and civilian unrest. Niger's civilian Government was overthrown by the military in April 1974 and military rule lasted until about 1990. During 1990­91 various groups began agitating for civilian rule and a national conference in 1991 led to establishment of the first multiparty constitution and Government, but the resulting Governments were generally ineffectual and there was almost 1 2 A World Bank Country Study continuous political unrest and military agitation. Finally, in 1999 a transition regime con- trolled by the military handed power over to a civilian Government following free and open presidential and legislative elections in December 1999. Recent Reform Achievements The new civilian Government took office and immediately began restoring financial order and reinvigorating the reform program. It took action to bring the fiscal situation under control. It adopted a cash rationing system to control expenditures, while ensuring full payment of salaries, avoiding accumulation of payments arrears, and allowing for orderly servicing external debt. Sound macroeconomic and public finance policies led to stabi- lization of the economy and contributed to an increase in growth. Real GDP growth rates averaged 5.1 percent over 2001­2003 and inflation remained subdued. Several structural measures were taken to improve public expenditures and financial management. A revised Budget Law was enacted in May 2000 that corrected unrealistic revenue projections and several important actions were taken to strengthen fiscal discipline and accountability, including the regular and timely closing of fiscal accounts, introduc- tion of a new budget classification and chart of accounts, making accrual and cash accounts fully compatible. Computerization of budget management was initiated with the installa- tion of a Financial Management Information System (FMIS) at selected stages of the budget process. A decree on budget preparation introduced a more structured budget preparation process, allowing for more intra-Governmental consultation and facilitating medium-term programming. The merger of the Planning and Finance Ministries into a Ministry of Economy and Finance (MEF) has laid the basis for a full integration of the investment and recurrent budget processes. Parliamentary and judicial oversight has been restored with the authorities resuming the production of budget review laws and treasury accounts and the Chamber of Accounts and Budget Discipline starting the audit of Gov- ernment accounts. Perhaps the most important achievement has been the adoption of a Poverty Reduc- tion Strategy Paper (PRSP) in early 2002. The PRSP provides a framework for coordinat- ing Government and donors' policies and sets strategic directions for resource allocation. It was also a critical element in Niger reaching the Completion Point of the enhanced HIPC initiative in early 2004, which granted the country access to major external debt relief. Rationale for PEMFAR Niger clearly needs high and sustained economic growth to significantly reduce poverty and attain its Millennium Development Goals. Successful implementation of its PRS is therefore critical. This will, in the first instance, require strengthening domestic revenue mobilization and management of scarce public resources. The Government and its main donors have recognized this challenge. There is a consensus about the need for improving management of public finances for the success of reform efforts over the coming years. This consensus between the authorities and the donors is important: Niger faces a structural financing gap, arising from its weak Public Expenditure Management and Financial Accountability in Niger 3 domestic resource mobilization capacity and enormous needs for public spending for pro- vision of basic social services and critical infrastructure. Even if much needed measures to enhance domestic mobilization are put in place, the country will still need large, depend- able inflows of donor assistance for the foreseeable future. Large inflows of external funding come with the risk of undermining national owner- shipandleadership.ThisriskcanbemitigatedbybuildingtheGovernment'scapacitytoplan and manage its development programs. The Government and donors have jointly agreed on a strategy of moving from financing individual projects, with their unpredictable effects on overall aid flows, to coordinated donor support for programs embedded in the PRSP frame- work.Inits2003CountryAssistanceStrategy(CAS),theBankhascommitteditselftoagrad- ual shift in the bulk of its financing from individual investment projects toward consolidated programmatic support in the form of Poverty Reduction Support Credits (PRSCs). Since budgetary funds are fungible, the Bank and other donors must be assured that the overall budgetisconsistentwithasoundmacroeconomicframeworkandmeetsthecountry'sdevel- opment needs and, more specifically, the objective of the PRSP. Moving to programmatic assistance or consolidated program financing will therefore require improved management ofpublicfinances(strengthenedcapacityforbudgetpreparation,execution,reporting,mon- itoring, and supervision, and establishment of appropriate fiduciary standards). Past public finance reforms efforts have been constrained by a lack of a detailed diagnosis of existing systems and institutional capacity. In fact, a Public Expenditure Review (PER) process initiated in 1997 that led to the production of several sectoral PERs, most of them focusing on health and education, had lost momentum after 2000. Therefore the Government, the EU and the Bank decided in 2002 to undertake a com- prehensive assessment of Niger's public financial management systems and capacities, through a PEMFAR. The Government intends to update and revise PERs in key sectors on an annual or bi- ennial basis, taking into account findings of the annual PRSP progress reports. This will enable a close monitoring of allocation and execution of budgetary resources in PRSP pri- ority sectors and an assessment of their impact on poverty. Similarly, all partners have agreed to periodic updates of the Priority Action Plan (see Table 1), taking into account progress in implementation of reform and other significant developments. New full PEM- FAR exercises will be conducted periodically. Objectives, Scope, and Structure The main objectives of the PEMFAR are to assess existing systems and capacities for public finance management, examine past budget outcomes and glean lessons learned from pre- vious reform efforts. The findings would be translated into a proposed action plan for reform of public expenditure and financial management to be adopted by the Government and donors. The plan would prioritize and sequence the proposed measures and coordinate the actions and interventions of the various actors. The PEMFAR format (a standard World Bank format) was used because it would allow combining the assessment of budget results through a Public Expenditure Review (PER) with an assessment of public financial accountability through a Country Financial Accountability Assessment (CFAA). These two chapters of the report are complemented 4 A World Bank Country Study by an analysis of the macroeconomic and fiscal context. Each component of the report intended to focus on a key question: I Chapter 1 (macroeconomic context): Are Niger's fiscal policies sustainable in the context of the recurrent and projected macroeconomic framework? I Chapter2(PER):Areallocationsofpublicexpendituresandtheirexecutioninline with strategic (PRSP) objectives? I Chapter3(CFAA):Areminimalfiduciarystandardsmetatdifferentstagesofthe expenditure process? The structure of the report reflects this design. Chapter 1 presents the analysis of the macroeconomic context. Chapter 2 focuses on the analysis of the expenditure structure (inter-sectoral analysis), as well as on sector expenditure reviews covering the four PRSP priority sectors--education, health, road transport and rural development. Chapter 3 assesses key components of Niger's public finance management systems, such as budget preparation and execution, accounting, controls as well as structural, organizational and human resources management issues. Certain important aspects have been omitted due to time and resource constraints. Particularly, it was decided to forgo an in-depth analysis of revenue mobilization and man- agement, because the IMF had already initiated analytical work on this topic. Since improvements in revenue mobilization are a sine qua non for improving public finances in Niger, the PEMFAR will incorporate findings from IMF studies as they become avail- able. Similarly, since the Bank had just completed a Country Procurement Assessment Review (CPAR), procurement was excluded from the analysis. While the scope of the PEMFAR is limited for practical reasons, all partners agreed that the document and in par- ticular the priority action plan emerging from it would be revised periodically and new ele- ments added when available. This would also enable gradual elaboration of an action plan that encompasses all key dimensions of public finance management. CHAPTER 1 Macroeconomic Context T his chapter of this Report analyzes the structure of Niger's economy, describes recent developments, and evaluates economic prospects and estimates financing requirements. Three principal factors have influenced Niger's past economic performance: (i) the col- lapse of the global market for uranium, a major export, in the 1980s; (ii) the vulnerability of agriculture, which accounts for 40 percent of GDP to periodic droughts and progressive desertification, and (iii) long periods of political instability and ineffectual governance that depresses domestic economic activity and discourages donor assistance. Since the election of a civilian Government in 1999, there have been signs of improved governance and economic progress. The Government that took office in 2000 after free and open election in 1999, moved quickly to restore fiscal order and to set forth a poverty reduction strategy. There has been a notable improvement both in terms of economic growth and fiscal performance. Real GDP growth rates averaged 5.1 percent in 2001­2003. A modest increase in Government revenue and a slight decline in public expenditures reduced Government deficits. Increased donor confidence and the resumption of external assistance helped finance a significant increase in capital expenditures. Nevertheless, Niger's structural problems remain considerable. A more diversified agricultural sector and economic base, and major efforts to develop human resources are essential for sus- tainable growth and poverty reduction, the Government's overarching objectives. More effective use of domestic resources and external assistance will be essential to meet the country's formidable challenges and create the conditions for a long-term economic recov- ery and improvement of social sector services critical to the success of the country's poverty reduction strategy. 5 6 A World Bank Country Study Structure of Niger's Economy and of Public Finance Economic Structure, Growth, and Poverty Niger is essentially a rural and agrarian economy: agriculture employs more than 80 per- cent of the economically active population and generates more than 40 percent of GDP. It is highly vulnerable to periodic drought and progressive desertification. Most of the food produced is used for domestic consumption. The service sector accounts for 41 percent of GDP and employs little over 10 percent of the workforce. Activities in this sector are largely concentrated in retail and wholesale trading, re-exports and basic public services. The industrial sector, which comprises mainly mining, small-scale local manufacturing and brewing, and construction, accounts for the remaining 18 percent. Due to a brief boom in uranium prices, mining made a significant contribution to GDP in the 1970s and 1980s. However, the uranium sector has since then been on a declining trend. Growth performance is very volatile, as year-to-year changes in Niger's growth rates are caused largely by weather conditions and their effect on agricultural output. For exam- ple, high growth rates were observed during 1998, 2001, and 2003, reflecting exceptional weather conditions and strong agriculture production (see Chart 1-1 and Table 1-1). Ensuring strong and sustainable growth to reduce widespread poverty and improve social conditions is therefore the critical issue facing Niger. Diversifying the economy away from agricultural production and finding new sources of growth is crucial. This will be a formi- dable challenge, given the country's scarce human and physical capital. Chart 1-1. Real Output Growth, 1997­2002 (in percent) 50 GDP growth Agricultural output growth 40 30 20 10 0 -10 1997 1998 1999 2000 2001 2002 -20 Source: Ministry of Economy and Finance (MEF). Table 1-1. Nominal and Real GDP and Growth Rates, 1997­2003 1997 1998 1999 2000 2001 2002 2003 Nominal GDP (in FCFA billion) 1077.2 1225.2 1242.6 1280.8 1426.0 1512.8 1587.5/a Real GDP (in FCFA billion) 788.0 870.1 865.2 853.1 913.6 941.0 990.9/a Real GDP Growth (in percent) 10.4 -0.6 -1.4 7.1 3.0 5.3/a /aEstimate of May 2004. Source: MEF. Public Expenditure Management and Financial Accountability in Niger 7 Poverty is widespread, as according to the latest household survey (1992­93), almost two-thirds (63 percent) of the population lives below the poverty line and about a third (34 percent) is considered extremely poor. Despite recent progress, the infant mortality rate is high, 156 deaths per 1,000 births, and the average life expectancy at birth is only 46 years. Barely 60 percent of the population has access to potable water, only 5 percent of the rural population has access to sanitation facilities, and less than half of the population has access to health services. It is difficult to conceive of significant inroads in poverty reduction in coming years without a slow-down in population growth. At 3.2 percent, Niger has one of the world's highest population growth rates. Recent GDP growth rates (5.1 percent on average for 2001­03) and projected rates (4.2 percent for 2004­07) would result in only a very mod- est increase in per capita living standards. Regional Integration and Its Implications on Public Finance Management Niger is a member of the WAEMU and, as such, shares a common currency (the CFA franc, FCFA) and a common central bank with seven other West African countries (Banque Cen- trale des Etats de l'Afrique de l'Ouest, BCEAO). The BCEAO monetary policy is mainly geared toward a fixed exchange rate. For an individual country, the burden of adjustment to shocks needs to be borne by fiscal policies. Fiscal management was tightened under the Regional Pact of Convergence, Stability, Growth, and Solidarity, adopted by the Conference of Heads of States of WAEMU in December 1999.3 In this context, Niger's fiscal objectives are determined by the need to meet the regional fiscal convergence criteria (see Box 1). Niger has been making progress toward meeting the WAEMU convergence criteria, since 2000, in particular those related to fiscal performance. By 2003, Niger had reduced the number of unmet criteria to four4 (see Table 1-3). WAEMU and BCEAO membership have important implications for Niger's fiscal sit- uation. The recent elimination of the statutory rule allowing national treasuries to access central bank overdraft facilities (statutory advances) has left Niger with an estimated FCFA 8 billion in debt owed to BCEAO at end-2003. In addition, the shift of the financing of Gov- ernment fiscal deficits from central bank direct advances to the issuance of securities in the regional capital market has added an additional constraint on Niger's fiscal framework. The effectiveness of the issuance of Government securities to finance fiscal deficits will depend much on the demand for these securities and the absorptive capacity of the regional capital market. The success of such issues of securities is hard to predict, as Niger has not yet conducted such an operation. Regional integration and WAEMU membership have also led to the implementation of trade liberalization policies, including the adoption of a common external tariff (CET) 3. The Regional Pact of Convergence, Stability, Growth, and Solidarity is a formal agreement among the member of countries of WAEMU to strengthen the convergence of their economies, reinforce macro- economic stability, accelerate economic growth, and enhance solidarity among the member countries. 4. In particular, criteria pertaining to change in domestic arrears, change in external arrears, and the ratio of capital expenditure domestically financed-to-fiscal revenue were met. Criteria related to the rate of inflation was also met while criteria pertaining to the basic fiscal balance, wages and salaries-to-fiscal revenue, fiscal revenue-to-GDP, external recurrent account balance, excluding grants-to-GDP were missed. 8 A World Bank Country Study Box 1. WAEMU Convergence Criteria The Regional Pact of Convergence, Stability, Growth, and Solidarity, adopted in December 1999, is a formal agreement among the member states of the WAEMU. The Pact has four main objec- tives: (i) strengthen the convergence of WAEMU economies; (ii) reinforce macroeconomic stabil- ity; (iii) accelerate economic growth; and (iv) enhance solidarity among the member countries. To this end, the Pact defines two sets of convergence criteria (primary and secondary criteria) that member states of the WAEMU must comply with. The five primary criteria are: · The ratio of the basic fiscal balance to nominal GDP must be in balance or in surplus (key criterion). · The ratio of outstanding domestic and external debt to nominal GDP must not exceed 70 percent. · The average annual inflation rate must not surpass 3 percent. · The variation on the stock of domestic payment arrears must not be positive. · The variation on the stock of external payment arrears must not be positive. The five secondary criteria are: · The ratio of the wage bill to tax revenue must not exceed 35 percent. · The ratio of domestically financed public investment to tax revenue must exceed 20 percent. · The ratio of the external recurrent account deficit, excluding grants, to nominal GDP must not exceed 5 percent. · The tax-to-GDP ratio must be higher than 17 percent. The pact defines a convergence phase (2000­2002), at the end of which member countries were expected to have been in compliance with both sets of convergence criteria and a stability phase from 2003 onward. in 2000 and the progressive harmonization of regulations in other areas such as public finance. The WAEMU CET agreement includes a compensatory facility to cover revenue losses from the implementation of the CET. However, the FCFA 10 billion owed to Niger in compensation for the implementation of the CET has not yet been transferred.5 In any case, these compensatory payments are temporary and will be phased out by 2007. Political and economic instability in Niger's two major regional trading partners, Côte d'Ivoire and Nigeria, constitutes risks for its income growth and poverty reduction. The unstable political and economic situation in Nigeria strongly affects the demand for Niger- ien exports, especially cattle. Niger also depends on Nigeria for most of its electricity and fuel. However, the impact of the recent political crisis in Côte d'Ivoire on Niger appears to have been relatively minor. Public Finance Structure Government Revenues. More than 90 percent of Niger's total Government revenues are derived from taxes, shared roughly equally between taxes on international trade and taxes on domestic activity (taxes on goods and services and income taxes). The tax base is very 5. Government's estimate in May 2004 (not confirmed by WAEMU). Public Expenditure Management and Financial Accountability in Niger 9 Table 1-2. Niger and WAEMU Convergence Criteria, 1997­2003 Status in 1997 1998 1999 2000 2001 2002 2003/a 2003 First-order criteria Basic fiscal balance/GDP (=0%)/b -3.0 -3.3 -4.8 -3.0 -3.4 -1.8 -1.8 Not met Average consumer price inflation (=3%) 2.9 4.5 -2.3 2.9 4.0 2.7 -0.7 Met Total debt/GDP (=70%) 85.5 77.9 79.5 94.5 91.7 81.0 57.6 Met Change in domestic arrears (=0) -13.8 -19.3 23.6 3.6 -17.0 -33.4 -18.0 Met Change in external arrears (=0) 1.9 14.7 25.6 -115.6 0.0 0.0 0.0 Met Second order criteria Wages and salaries/fiscal revenue (= 35%) 56.6 46.5 50.3 50.4 40.1 38.3 35.7 Not met Domestically financed capital expenditure/fiscal revenue (= 20%) 7.3 10.0 17.0 7.9 20.0 18.8 20.2 Met External recurrent account balance, excl. grants/GDP (= -5%) -9.6 -10.0 -8.1 -8.6 -7.7 -10.1 -10.4 Not met Fiscal revenue/GDP (= 17%) 7.2 7.9 8.1 8.0 8.8 9.6 9.7 Not met Number of criteria violated 7 8 8 7 6 6 4 4 a/ IMF staff estimate. b/Total revenue, excluding grants, minus total expenditures, excluding foreign-financed investment outlays Fiscal revenue includes tax revenue and non-tax revenue only. Source: IMF (2004a). narrow, as two-thirds of the economy is informal and escapes the formal tax system. Annual changes in revenues tend to reflect international trade, in particular import and re-export activities with regional partners. Economic and political conditions in neighboring Nigeria and Côte d'Ivoire as well as changes in the US dollar exchange rate play key role in Niger's revenue performance. Table 1-3. Composition of Government Revenue, 1997­2003 (in FCFA billion) Averages 1998­ 2001­ 1997 1998 1999 2000 2001 2002 2003/a 2000 2003 Total revenue 90.8 111.8 109.6 110.1 132.8 160.9 156.7 110.5 150.1 Tax revenue 78.1 97.0 100.6 102.8 125.5 144.6 152.1 100.2 140.7 Nontax revenue 7.4 10.1 3.9 3.8 4.1 3.8 1.2 5.9 3.0 Settlement of reciprocal debts . . . . . . . . . 0.0 0.0 8.4 0.0 0.0 2.8 Budget annexes/special accounts 5.3 4.7 5.1 3.5 3.2 4.1 3.4 4.4 3.6 Total revenue in % of GDP 8.4 8.9 8.8 8.6 9.3 10.6 9.9 8.8 9.9 a/ Government and IMF estimates, April 2004. Source: MEF, World Bank and IMF. 10 A World Bank Country Study Achieving the WAEMU convergence criterion, raising fiscal revenue from its present level of approximately 10 percent of GDP to 17 percent (Table 1-2) will be extremely dif- ficult. Revenue-enhancing measures introduced since 1994 have resulted in only a modest increase in the ratio. Further increase in revenue would depend on the ability of the author- ities to tackle the issues of weak tax collection and excessive granting of tax exemptions and a narrow tax base. Expanding the tax base will require the "re-fiscalization" of agriculture, that is, finding ways of bringing agriculture into the fiscal net. Government Expenditures. Although the Government has made efforts to contain recur- rent expenditures, they still accounted for 60 percent of total expenditures over 2000­2003 (see Table 1-5). Wages and salaries accounted for more than one-third of recurrent expen- diture and interest payments on foreign debt were 13 percent of recurrent expenditure over 2000­2003.6 Subsidies and transfers have been rising since 1999 reflecting subsidies on some agricultural imports and increasing welfare obligations of the Government, and amounted to for 20 percent on average over 2000­2003. Table 1-4. Composition of Government Expenditures, 1997­2003 accrual terms (in FCFA billion) Averages 1998­ 2001­ 1997 1998 1999 2000 2001 2002 2003/a 2000 2003 Total expenditure and net lending 171.8 211.9 233.0 214.3 245.6 278.1 276.0 219.7 266.5 Total recurrent expenditure 120.1 142.5 154.1 143.8 157.4 161.8 160.5 146.8 159.9 Budgetary expenditure 115.8 134.4 147.1 138.5 147.1 153.7 151.9 140.0 150.9 Wages and salaries 44.2 45.1 50.6 51.8 50.4 55.3 57.1 49.2 54.3 Goods and services 40.8 45.3 59.6 41.1 43.2 45.5 39.5 48.7 42.7 Subsidies and transfers 14.4 24.8 17.1 24.0 28.1 30.3 37.9 22.0 32.1 Interest, scheduled 16.5 19.2 19.7 21.6 25.4 22.6 17.4 20.2 21.8 External debt 15.9 17.8 18.5 19.6 24.1 21.2 16.1 18.6 20.4 Domestic debt 0.7 1.4 1.3 2.0 1.3 1.5 1.3 1.5 1.4 Annexed budget/ special accounts 4.3 8.1 7.0 5.3 10.3 8.1 8.6 6.8 9.0 Capital expenditure and net lending 51.7 69.5 78.9 70.5 88.1 116.3 115.5 72.9 106.6 Capital expenditure 54.7 69.9 80.3 73.6 89.0 116.5 115.5 74.6 107.0 Domestically financed 5.7 9.7 17.1 8.1 25.1 27.1 28.5 11.6 26.9 Externally financed 49.0 60.1 63.2 65.5 63.9 89.4 87.0 62.9 80.1 Net lending -3.0 -0.4 -1.4 -3.1 -0.8 -0.2 0.0 -1.6 -0.4 a/Government, World Bank and IMF estimates, April 2004. Sources: MEF, World Bank and IMF. 6. Wages and salaries accounted for 34 percent of total recurrent expenditure on average over 2000­2003. Meanwhile, interest payments on external debt have declined since 2001, reflecting the impact of debt relief under the HIPC Initiative. Public Expenditure Management and Financial Accountability in Niger 11 Table 1-5. Composition of Government Expenditures, 1997­2003 (in percent of GDP) 1997 1998 1999 2000 2001 2002 2003a/ Total expenditure and net lending 16.0 17.3 18.7 16.7 17.2 18.4 17.3 Total recurrent expenditure 11.1 11.6 12.4 11.2 11.0 10.7 10.0 Budgetary expenditure 10.8 11.0 11.8 10.8 10.3 10.2 9.5 Wages and salaries 4.1 3.7 4.1 4.0 3.5 3.7 3.6 Goods and services 3.8 3.7 4.8 3.2 3.0 3.0 2.5 Subsidies and transfers 1.3 2.0 1.4 1.9 2.0 2.0 2.3 Interest payments 1.5 1.6 1.6 1.7 1.8 1.5 1.1 Annexed budgets/special accounts 0.4 0.7 0.6 0.4 0.7 0.5 0.5 Capital expenditure and net lending 5.1 5.7 6.5 5.7 6.2 7.7 7.3 Domestically financed 0.5 0.8 1.4 0.6 1.8 1.8 1.8 Externally financed 4.6 4.9 5.1 5.1 4.5 5.9 5.5 Of which: HIPC resources . . . . . . . . . . . . 0.6 0.6 0.8 a/Government, World Bank and IMF estimates, April 2004. Sources: MEF, World Bank and IMF. Capital expenditures are dominated by externally financed expenditures. Over 70 per- cent of capital expenditures during 2000­2003 were financed by foreign assistance. External Financing. The rules of the CFA zone limit the use the banking sector to finance fiscal deficit and the underdeveloped state on Niger's non-banking sector limit its capac- ity to serve as a source of finance to Government. Over 2000­2003, 95 percent of the fiscal deficit was covered by donor loans and grants (see Appendix A). Securing sufficient and timely budget support is, therefore critical to ensure financing of expenditures. Given the low revenue-to-GDP ratio, and constraints on monetizing fiscal deficits, the Government suffers from severe cash constraints when expected disbursements are delayed. The need to improve aid predictability and avoid delays in disbursements is therefore critical to ensuring proper execution of the budget. The Government must strengthen revenue pro- jections underlying budget preparation and the cash management system. It should con- sider establishing precautionary cash balances that could be used as bridge financing in case of delays in disbursement of budget support. The lack of predictability in aid flows is not only the result of problems on the donor side. Strengthening domestic management of aid operations, including rigorous monitoring of implementation of policy reforms, could help ensure that disbursements are made on schedule. Over 2000­2003, 41.7 percent of external finance received by Niger was in the form of grants, 38.4 percent was in loans and 19.8 percent was debt relief. In order to ensure debt sustainability, Niger needs to encourage a mix of new financing with a higher proportion of grants. The DSA baseline scenario of the HIPC Completion Point assumes that 60 per- cent of total external assistance in the coming years will be provided in the form of grants and the remaining 40 percent in highly concessional loans. However, mobilizing this proportion of assistance in grants will be difficult, given the limited availability of this form of donor support. 12 A World Bank Country Study Table 1-6. Overall Fiscal Balance, 1997­2003 (in FCFA billion) Averages 1998­ 2001­ 1997 1998 1999 2000 2001 2002 2003/a 2000 2003 Overall Balance -81.0 -100.1 -123.4 -104.2 -112.8 -117.2 -119.3 -109.2 -116.4 (commitment basis excl. grants) Change in -11.9 -4.6 49.1 -112.0 -17.0 -33.4 -12.2 -22.5 -20.9 Payment Arrears Domestic -13.8 -19.3 23.6 3.6 -17.0 -33.4 -12.2 2.6 -20.9 Arrears (nt) External 1.9 14.7 25.6 -115.6 0.0 0.0 0.0 -25.1 -20.9 Arrears (net) Overall -92.9 -104.7 -74.3 -216.2 -129.8 -150.6 -131.5 -131.7 -137.3 Balance (cash basis, excl. grants) /aGovernment, World Bank and IMF Estimates, April 2004. Source: MEF, World Bank and IMF. The External Sector Trade and Recurrent Account Balance. Trade liberalization within the context of WAEMU and IMF agreements has led to a very open trade regime. It is one of the most open within the region and its IMF trade restrictiveness rating is 1 (on a scale of 1 to 10).7 The follow- ing trade liberalization measures have been implemented: I NigerhasadoptedSections2,3,and4oftheIMF'sArticleVIIIagreementandthus does not engage in multiple exchange practices. I The currency exchange system is free from restrictions on payments and transfers on recurrent transactions. I Niger has adopted the largely open WAEMU common trade policy, has disman- tled tariff barriers to intra-WAEMU, and has adopted the new rules of origin for industrial products.8 I Niger adopted the WAEMU four rate common external tariff (CET) in January 2000. 7. A value of 1 means that the economy is fully open to foreign trade. A value of 10 indicates that the country has the most restricted trade regime. In general, open trade regime ranges between 1­4, moder- ate between 5­6, and restrictive between 7­10. 8. With a view to promote trade of industrial products within the region, the WAEMU countries have adopted new rules of origin to simplify the procedures of certification of eligible industrial products. The new rules of origin indicate that a product will be eligible when it changes its tariff position follow- ing processing. In addition, the input content and the value added have been set at 60 percent and 40 per- cent, respectively. Public Expenditure Management and Financial Accountability in Niger 13 Despite the openness of the trade regime, there has been little trade diversification. Niger's main trading partners are France and Nigeria, which account about 50 percent and 33 per- cent of Niger's exports in 2002, respectively. Niger's trade and recurrent account deficits are structural and are not expected to be sig- nificantly reduced in the near future. Its trade deficit reflects the country's narrow range of exports, erratic domestic demand for food imports, and its strong dependence on the import of capital goods. Two products (uranium and cattle) accounted for more than 50 percent of total exports over 1999­2002. The 1994 devaluation of the FCFA improved Niger's compet- itivenessandledtoareboundofexports,whileimportsdeclinedastheybecamemoreexpen- sive. As a result, the trade deficit narrowed from FCFA 21 billion in 1994 to FCFA 2.3 billion in1996.However,thebenefitsofthedevaluationwereshort-livedanditspositiveeffectswere quickly reversed. The trade deficit has widened since then. Despite recent improvements in termsoftrade,thetradedeficitstoodatFCFA72.3billionin2003(4.5percentofGDP).Niger has consistently run a balance of payments current account deficit, even during the uranium boomofthe1970s,reflectingthecountry'simportofcapitalgoodsfinancedbyaidflows.The current account deficit has recently further widened due to a significant rise in imports of capital goods. The deficit (excluding grants for budget support) stood at 7.8 percent of GDP in 2003 compared with 6.5 percent in 2001. External Assistance. Aid flows, provided by a limited number of donors, tend to be volatile. Net Official Development Assistance (ODA) declined during the 1990s due to unstable political conditions in Niger. Although ODA has recovered since 2000, it remains far lower than its levels in the 1980s and 1990s and continues to be volatile and unpredictable. Dur- ing 1997­2001, Niger received US$256 million of ODA per year on average (of which US$206 million or about 80 percent was in the form of grants and the rest in loans on con- cessional terms). Bilateralandmultilateralaidflowswereroughlyofthesamemagnitudeover1999­2001. Multilateral assistance to Niger was largely provided by IDA and the EU which together Chart 1-2. Evolution of Net ODA to Niger, 1997­2001 (in US$ million) 350 Total Bilateral Multilateral 300 250 200 150 100 50 0 1997 1998 1999 2000 2001 Source: MEF. 14 A World Bank Country Study accounted for more than three-fourths (77 percent) of multilateral ODA to Niger. France andtoalesserextentJapan,GermanyandBelgiumwerethemajorbilateralprovidersofODA over 1997­2001, altogether accounting for nearly 70 percent. Niger does not attract significant inflows of foreign direct investment. Net direct invest- ment totaled barely FCFA 46.4 billion over 1997­2002 (US$86 million) or FCFA 5.8 billion annually (US$10 million) on average. The current account deficit is generally financed through long-term loans (on concessional terms), grants, and debt relief. By the end of 2002, Niger's nominal stock of external debt reached US$1,757.7 million. 75.6 percent of the total nominal debt was owed to multilateral creditors. IDA was the largest creditor, accounting for nearly half (49.6 percent) of total outstanding debt at end-2002. IDA disbursements accounted for about 69 percent of total disbursements between end-1999 and end-2002. Debt Relief. In the context of the Enhanced HIPC Initiative, Niger was granted debt relief at the Decision Point9 estimated at US$1.2 billion in nominal terms or US$520.6 million in NPV terms at end-1999, which reduced the level of the debt to a sustainable 150 per- cent debt to export ratio.10 Total cumulative interim assistance from the Decision Point up to end-2002 amounted to US$57.1 million, of which US$29.2 million (51 percent of total interim relief) was provided by IDA. At the Completion Point, Niger was granted exceptional debt relief ("topping-up") of US$142.5 million in NPV terms to compen- sate for exogenous factors that fundamentally changed Niger's debt sustainability, rais- ing the debt to exports ratio at the end of 2002 substantially above the 150 percent target set out in the enhanced HIPC framework. In addition, several Paris Club members have Table 1-7. Projected HIPC Assistance to Niger after Completion Point (in US$ million) Total 2003 2004 2005 2006 2007 2008 2003­2022 Nominal assistance under 43.7 68.1 68.4 67.7 66.6 61.0 843 the enhanced HIPC initiative/a Nominal assistance beyond 4.8 1.3 1.3 1.3 1.4 1.4 5 HIPC initiative assistance Nominal assistance from 0.0 4.0 9.1 10.5 11.6 11.4 206 topping up/b Total assistance 48.5 73.4 78.8 79.5 79.6 73.8 1054 /aComputed as difference between debt service due after the application of traditional debt relief granted on arrears rescheduled. /bComputed as difference between debt service due after bilateral debt relief beyond HIPC Initia- tive assistance and debt-service due after topping up at the Completion Point. Source: HIPC Completion Point Document. 9. Niger reached the Decision Point and the Completion Point under the Enhanced HIPC Initiative in December 2000 and April 2004, respectively. 10. Within the framework of the Enhanced HIPC Initiative, the level of indebtedness is considered unsustainable when the NPV of debt to exports of goods and services is above 150 percent. Public Expenditure Management and Financial Accountability in Niger 15 indicated their intention to provide additional relief beyond the HIPC Initiative and three are already providing complementary relief. Resources made available by debt relief under the HIPC initiative are being allocated to pro-poor expenditure programs outlined in the PRSP. Foreign Reserves and the Exchange Rate. Niger's foreign reserves have fluctuated widely over the past decade reflecting export performance and variations in aid inflows. How- ever, increased macroeconomic stability over the past three years has resulted in a build- up of foreign reserves. At end-2003, foreign reserves (excluding gold and SDRs) amounted to around two months' of imports. Since Niger belongs to the CFA Zone, it shares a com- mon pool of reserves with all WAEMU countries at the regional central bank (BCEAO), in an account in the French Treasury, which guarantees the convertibility of the FCFA against the Euro. From 1948 until January 1994, the CFA franc was pegged to the French franc (FF) at a rate of FCFA 50 to 1 FF. The overvaluation11 of the FCFA and its implications for exter- nal competitiveness of major CFA zone countries led to a 50 percent devaluation of the CFA franc on January 12, 1994. The FCFA is currently pegged to the Euro. Niger's exter- nal competitiveness has suffered from the appreciation of the Euro against the dollar. The appreciation of the Euro against the dollar resulted in an appreciation of the FCFA from an average exchange rate of FCFA 733 per US$1 in 2001 to FCFA 697 per US$1 in 2002. The appreciation has continued throughout 2003 and the first half of 2004. The exchange rate stood at around FCFA 520 per US$1 in early June 2004. Economic Performance 2000­2003 Macroeconomic Performance in 2000­2003 The democratically elected Government that took office in late-1999 initiated an economic recovery and reform program supported by the Bank and the IMF. This involved macro- economic stabilization, revitalization of economic activity, and improving management of public finances. Despite an unfavorable environment generated by the recurrence of domestic and regional socio-political tensions, and difficulties in securing timely and adequate external assistance, overall macroeconomic performance has improved since 2000. Real GDP has grown at an annual average of 5.1 percent over 2001­2003, with a strong recovery of 7.1 per- cent in 2001 compared to a 1.0 percent average annual average decline over 1999­2000. The strong growth performance from 2001 onwards reflected not only favorable weather condi- tions but was also due to a number of positive measures to promote growth, including improvement of fiscal management and performance, and increases capital expenditures on infrastructure. On a 12-month basis, inflation fell from 4.0 at end-2001 to a negative 1.6 per- cent at end-2003 as a result of continued prudent BCEAO monetary policies, sound fiscal policies, and better output growth performance. 11. The real exchange rate in Niger was estimated to be overvalued by 25­30 percent in 1991. 16 A World Bank Country Study Fiscal Performance in 2000­2003 The Government successfully implemented fiscal adjustment policies and structural mea- sures over the past three years, aimed at ensuring a sustainable fiscal position and com- plying gradually with the convergence criteria of the WAEMU. As a result, the basic budget deficit (excluding grants for budgetary assistance and foreign-financed capital expendi- ture) was reduced from 3.0 percent of GDP in 2000 to 2.0 percent in 2003, despite expen- diture pressures in a context of sociopolitical tensions, smaller revenue transfers from WAEMU Commission, and shortfalls in external financing. Government revenue (excluding grants) has increased from 8.8 percent of GDP in 2000 to 10.6 percent in 2002, as a result of a series of revenue-enhancing measures (See Box 2). However, Niger's revenue performance remains weak and its revenue-to-GDP ratio is the lowest within the WAEMU region. In 2002, it stood at 10.6 percent of GDP, 5 percentage points lower than the WAEMU average and 7 percentage points lower than that of Benin or Mali. The revenue to GDP ratio declined to 9.7 percent in 2003 due to lower revenue trans- fers from WAEMU as a result of the Ivorian crisis, prolonged closing of the Nigerian bor- der, and lower-than-expected tax revenues on foreign-financed capital expenditure. Box 2. Revenue-Enhancing Measures Introduced since 2001 1) Introduced Petroleum tax reform in August 2001. 2) Strengthened tax and customs directorate strengthened. 3) Introduced measures in the 2002 budget law to improve tax collection and to broaden the tax base: · Strengthening provisions for pre-payments of the industrial and commercial profits tax; · Reviewing the small business license taxes (patentes synthétiques) to take account of tax payers' ability to pay and to better distribute the tax burden; · Broadening of the tax base for revenue stamps and revision of the percentage rates, which have remained unchanged for over a decade; · Reincorporating of press agencies into the ordinary tax law system; and · Enhancing of collection of miscellaneous revenue items, particularly non-fiscal receipts col- lected by legal clerks and bailiffs, forestry offices, law enforcement agencies, state police, and the mining and geological service. 4) Exercised stricter control over the granting of tax exonerations and thoroughly reviewed tax incentives under the investment code. 5) Introduced new revenue-enhancing measures to cope with the revenue-gap observed end- 2003 and in the first quarter 2004. These measures include: · Enhancing control and monitoring of the fiscal agencies. · Posting of resident experts at the Tax Directorate and Customs. · Imposing a 19% VAT on cooking oil, in addition to the existing excise tax of 15%; · Introducing a 12% excise tax on tea and suspending tax-free imports of rice for re-export. · Increasing the domestic tax on premium fuel by FCFA 7/liter (a 5% increase). · Nominating a Deputy Finance Minister in charge of informal sector taxation issues and changes in key personnel within the Ministry of Economy and Finance, especially in the fis- cal agencies. Source: MEF. Public Expenditure Management and Financial Accountability in Niger 17 Chart 1-3. Government Revenue, 2000­2002 (in percent of GDP) 20 2000 2001 2002 15 10 5 0 Niger WAEMU Benin Burkina Faso Mali Source: IMF, African Department Database. Revenue performance continued to be lower than expected in 2004, with a gap esti- mated at CFA 13.1 billion in the first quarter. The authorities are undertaking remedial measures, including enhanced control and monitoring of the fiscal agencies, and the post- ing of resident experts at the Tax Directorates and Customs (See Box 1-2). Recurrent expenditure declined from 11.2 percent of GDP in 2000 to 10.7 percent in 2002, partly due to a strict control of the wage bill. The ratio of wages and salaries to fiscal revenues declined steadily over the period 2000­2003, from 50.4 percent to 35.7 percent in 2002, just above the WAEMU convergence criterion (35 percent). The Government made significant efforts to shift public expenditure away from recur- rent expenditure to capital expenditure. Capital expenditure increased from 5.7 percent of GDP in 2000 to 7.3 percent in 2003, in part reflecting additional resources for infrastruc- ture freed by debt relief under the HIPC Initiative. The ratio of domestically financed cap- ital expenditure to fiscal revenue tripled from 7.9 percent in 2000 to 20.2 percent in 2002, just above the WAEMU convergence criteria of 20 percent.12 The Government has also made progress toward clearing past domestic payment arrears mostly accumulated in 1999­2000. FCFA 50 billion (38 percent) was cleared in 2001­2002, equivalent to 1.7 percent of GDP (Table 1-8), as a result of the implementa- tion of an arrears clearance program and Niger has avoided accumulating new arrears since Table 1-8. Change in Domestic Arrears (net), 1999­2003 (in FCFA billion) Average Change 1999 2000 2001 2002 2003/q 1998­2000 2001­2003 23.6 3.6 -17.0 -33.4 -12.2 2.6 -20.9 /q Government, World Bank and IMF Estimates, April 2004. Source: MEF, World Bank and IMF. 12. As discussed in Chapter 2, the volume of capital expenditure is most likely over-estimated in Niger. Over70percentofcapitalexpendituresfinancedthroughforeignprojectfunding.Thisfundingconcealssize- able amounts of recurrent expenditure, allocated to cover administrative costs of project implementation. 18 A World Bank Country Study then. A further FCFA 12.2 billion was cleared in 2003, but the target of FCFA 18 billion for end December 2003 was not met, mainly due to the shortfall in revenue. However, as shown in Chapter 2 below, the settlement of arrears has not been fully transparent. Macroeconomic Outlook and Financing Requirements 2004­2007 Economic Outlook for 2004 The Government's economic policy program for 2004 is geared to preserving macro- economic stability and continuing the implementation of the reform agenda. The 2004 Budget Law aims at reducing the basic budget deficit (excluding grants) by increasing rev- enue from 9.9 percent of GDP in 2003 to 10.3 percent in 2004, while holding the line on expenditures other than externally financed investment outlays. Measures designed to enhancerevenuesareoutlinedinBox2above.Recurrentexpenditureisprojectedtoincrease by 0.2 percent of GDP, mainly on account of a budgetary allocation of FCFA 9 billion to finance local, parliamentary and presidential elections and a 3.5 percent increase in the wage bill.13Capitalexpendituresareexpectedtoincreasebymorethan20percent,mainlyfinanced byforeignaid.InlinewiththePRSPobjectives,totalspendingonhealthandeducationwould increase to 5.6 percent of GDP from 5.2 percent in 2003. Domestic payments arrears would be reduced by an additional FCFA 18.5 billion (1.1 percent of GDP).14 Assuming the continuation of good weather and prudent financial policies, real GDP is projected to grow at 4.1 percent in 2004. Growth would be driven both by agricultural production and non-agricultural sectors (mainly manufacturing and construction), the latter expected to grow by 4.3 percent.15 Inflation would remain subdued, with an end-year rate projected at 1.8 percent. The current account deficit is expected to decline by 1.1 per- centage point of GDP to a projected 7.7 percent of GDP. Medium-Term Macroeconomic Projections Medium-term Macroeconomic Framework. The medium-term macroeconomic framework maintains the thrust of the baseline scenario presented in Niger's PRSP (2002) and the HIPC Completion Point Document (2004). It projects Niger's progression toward com- plying with WAEMU convergence criteria. It takes into account recent economic devel- opments, including higher than expected real GDP growth, additional debt relief granted to Niger at the HIPC Completion Point, and the coming on stream of new gold mining and export activities over the next seven years. The medium-term macro-framework fur- ther relies on the following assumptions: I ConclusionofanewPRGFprogramwiththeIMFbeforeend-2004. I Goodweatherconditionsandtimelyexternalassistance. 13. The wage bill will be limited to FCFA 59 billion in 2004, or 36.3 percent of fiscal revenue, only slightly above the WAEMU convergence criterion. 14. This includes a portion of unsettled claims from FY 2003. 15. Construction activity is expected to boost growth through the building of additional schools, health centers, mini-damns and other basic social infrastructure in the rural areas in the context of the President Special Program. In addition, the 2005 Francophone games will invigorate construction activ- ity with the building of sports infrastructure. Public Expenditure Management and Financial Accountability in Niger 19 I Pursuit of prudent financing policy seeking external aid in form of grants and loans on highly concessional terms. Under this scenario, real GDP growth would increase to an annual average of 4.2 percent over 2004­2007. Growth would be supported by an increase in investment and a strength- ening of non-mining activities, particularly agriculture and services (commerce, trans- portation, and tourism). New gold mining activities would temporarily boost economic growth over the period. Improvement in economic policies of Niger's regional partners, in particular Nigeria, would further support economic growth. Gross investment would increase from 14.2 percent in 2003 of GDP to 16.3 percent in 2007. Gross national savings would also increase from an average of 6.4 percent over 2001­2003 to 9.3 percent of GDP over 2004­2007 as a result on increases in both public and private savings. Inflation (annual average) would remain contained at an average of 1.6 percent dur- ing 2004­2007. This reflects prudent monetary policy at the regional level, a stable real exchange rate, and strong and sustainable economic growth. The external current account deficit (excluding grants for budgetary assistance) would decline slightly from an estimated 7.8 percent of GDP in 2003 to 5.1 percent of GDP in 2007 (an annual average of 6.5 percent over 2004­2007). The improvement of the current account during the next two years would mainly reflect export growth driven by agricul- tural products and livestock, services and gold.16 Government Finance Outlook. The macroeconomic framework assumes a continued improvement of the fiscal stance. In 2004­2007, total revenue is projected to increase from FCFA 172 billion (10.3 percent of GDP) to FCFA 239 billion (11.9 percent). Total expen- diture and net lending is projected to reach FCFA 354 billion at the end of the period, from FCFA 310 billion in 2004. This represents a drop in percentage of GDP terms from 18.6 to 17.7 percent. This would result in a reduction of the overall fiscal balance (commitment basis excl. grants) from 8.6 to 5.7 percent of GDP. Risks to the Macroeconomic Framework. The scenario presented above should be regarded as a "best case." It should be recalled that Niger has a record of volatile growth. There is, therefore, a major risk that the assumptions underlying the economic growth and fiscal pro- jections might not materialize. First and most important, the exceptionally favorable weather conditions that have underpinned favorable growth performance since 2000 might not continue. Droughts tend to reappear in Niger every four or five years. History shows that a strong drought reduces growth by several percentage points. Second, delays in imple- menting critical structural reforms, in particular the privatization program, could com- promise the expected increase in private sector investment. Third, the failure to mobilize domestic resources and shortfalls in domestic revenues could impair fiscal performance. Fourth,delaysinmobilizingexternalfinancingforthepublicexpenditureprogramandinvest- ment projects and in implementing them could jeopardize achievement of the PRSP growth rates. Finally, debt sustainability remains a major concern. Although Niger reached the Com- pletion Point and was granted an additional and exceptional debt relief (Topping-Up), recent preliminary estimates reveal that the debt situation (measured by the NPV of the 16. Gold exports are estimated at 0.6 percent of GDP in 2004­2007, yet reserves are expected to be depleted by 2007­2008. 20 A World Bank Country Study Table 1-9. Financial Operations of the Central Government, 2004­2007 Projections of revenues and expenditures (in FCFA billion) Average Projections Projections 2004 2005 2006 2007 2004­2007 Total revenue 10.3% 10.9% 11.4% 11.9% 11.1% Tax revenue 9.7% 10.4% 10.8% 11.3% 10.6% Non-tax revenue 0.7% 0.2% 0.3% 0.3% 0.4% Budget annexes/special accts. 0.1% 0.3% 0.3% 0.3% 0.3% Total expenditure and net lending 18.6% 17.9% 18.2% 17.7% 18.1% Total recurrent expenditure 9.9% 9.6% 9.4% 9.3% 9.5% Budgetary expenditure 9.5% 9.1% 8.9% 8.8% 9.1% Wages and salaries 3.5% 3.5% 3.4% 3.4% 3.5% Goods and services 2.6% 2.6% 2.5% 2.5% 2.5% Subsidies and transfers 2.8% 2.5% 2.4% 2.4% 2.5% Interest scheduled 0.6% 0.6% 0.6% 0.6% 0.6% Budget annexes/special accts. 0.4% 0.5% 0.4% 0.4% 0.4% Capital expenditure and net lending 8.7% 8.3% 8.8% 8.4% 8.6% Capital expenditure 8.7% 8.3% 8.8% 8.4% 8.6% Domestically financed 1.8% 1.6% 1.6% 1.4% 1.6% Externally financed 6.9% 6.8% 7.2% 7.0% 7.0% Net lending 0.0% 0.0% 0.0% 0.0% 0.0% Source: MEF, World Bank and IMF. debt/exports ratio) remains unsustainable, reaching a level above 180 percent at end-2003. This might restrict Niger's ability to attract foreign financing. Financing Requirements and Pledged Assistance Based on the assumptions of the medium-term macroeconomic framework, the total financing gap for 2004­2007 is estimated at FCFA 172 billion. This corresponds to an annual average of FCFA 43.0 billion. Aid pledges for 2004 fell short of projected requirements. The financing gap is esti- mated at FCFA 58.3 billion (3.5 percent of GDP) while pledges received so far from major donors total FCFA 49.1 billion (See Table 1-10). A large share of loans for budget support is expected to be provided by IDA, with FCFA 13.2 billion provided by the second tranche of PEAC II, while AfDB assistance would amount to FCFA 3.0 billion. Grants for budget support provided by the EU would amount to FCFA 17.9 billion while other bilateral donors would provide total grant financing of FCFA 16.4 billion.17 Domestic financing 17. In 2004, IDA budgetary assistance would consist of the second tranche of PEAC II (US$25 mil- lion) expected for disbursement by end-July. EU grant financing consists of two tranches: a fix tranche of Euros 19 million and a variable tranche of maximum Euros 10 million. The key condition for the release Public Expenditure Management and Financial Accountability in Niger 21 Table 1-10. Financial Operations of the Central Government, 2004­2007 Projections of overall balance and financing (in percent of GDP) Average Projections Projections 2004 2005 2006 2007 2004­2007 Overall balance (commitment basis excl. grants) -8.3% -7.0% -6.8% -5.7% -7.0% Change in payments arrears -1.1% -1.0% -0.8% -0.5% -0.9% Overall balance (cash basis excl. grants) -9.4% -8.0% -7.6% -6.2% -7.8% Financing 9.4% 8.0% 7.6% 6.2% 7.8% 5.9% 5.1% 5.5% 5.3% 5.4% 0.1% 0.2% 0.1% -0.3% 0.0% Financing gap (+) 3.5% 2.8% 1.9% 1.3% 2.4% Financing assurances 3.1% . . . . . . . . . 0.8% Residual financing 0.4% 2.8% 1.9% 1.3% 1.6% Source: MEF, World Bank and IMF Staff. would be FCFA 1.2 billion.18 A residual financing gap of FCFA 8.0 billion (0.4 percent of GDP) would remain. This could be covered by additional bilateral and other assistance in the second half of the year.19 The financing gap for 2005 is estimated at FCFA 49.5 billion. The EU indicated that it would provide a maximum of FCFA 23 billion while France would be providing FCFA 6 bil- lion in budget support. The IDA commitment under the CAS base case scenario amounts to US$40 million, equivalent to FCFA 21 billion.20 Solvency and Fiscal Sustainability Analysis21 Is Niger's current fiscal stance sustainable? If not, how much additional fiscal reduction is needed? How will these fiscal adjustments be affected by external shocks? This section addresses these questions by summarizing the analytical results of solvency and sustain- ability analysis conducted on Niger's fiscal deficit. of the fix tranche, expected in the third quarter, is the conclusion of the IMF 6th review of the PRGF program. The release of the variable tranche, expected in the fourth quarter, is conditional upon the adoption of an action plan to strengthen budgetary and financial management following the PEM- FAR exercise and based on performance indicators. France grant assistance in the amount of Euros 10 million will be provided by the end of the second quarter (end-June) and in the fourth quarter (November­December). 18. Net borrowing from the banking sector will contribute to FCFA 4.3 billion to domestic financing while net borrowing from the non-banking sector will turn negative at -3.1 in line with the Government policy of clearing domestic arrears. 19. France has indicated that it will provide Euros 3 million for budgetary assistance by the end of the year. It is also expected that the conclusion of a new PRGF-program with the IMF will result in a dis- bursement by the Fund during the fourth quarter of 2004. 20. Financing assurances regarding IDA provision of a new loan for budgetary assistance (PEAC III) to Niger will depend on the outcomes of Board discussion of the CAS progress report. 21. This section follows Dinh (1999). 22 A World Bank Country Study Withalevelofbasicbudgetdeficit(excludinggrantsforbudgetaryassistanceandforeign- financed capital expenditure) at 1.8 percent of GDP in 2002, Niger's fiscal stance appears to be sustainable. However, the conventional practice of scrutinizing only the budget deficit to assess fiscal efforts and the sustainability of a fiscal stance is often inadequate because fiscal policy is an integral part of the overall policy framework and cannot be assessed indepen- dently. In Niger, a deficit level may be adequate one year but not the next depending on such factors as economic growth and policies to achieve external and internal balance. The appropriateness of a particular fiscal deficit target depends on targets for growth, inflation, and external and internal debt, because of the strong linkages among fiscal, mon- etary, and other macroeconomic policies. In the context of Niger, the obligation to adhere to WAEMU convergence criteria add an additional level of complexity, as Niger's budgetary policy depends to a large extent to macroeconomic policies determined at the regional level. Unless these linkages are brought out explicitly, conventional fiscal measures (such as the deficit to GDP ratio or the government debt service to revenues ratio) shed little light on the appropriate level of the fiscal deficit and consequently on the appropriate speed of fiscal adjustment. Solvency and sustainability analysis addresses these shortcomings of conven- tional analysis by incorporating the debt dynamics and other macroeconomic targets of growth, inflation, and external and internal debt. According to this analysis, a public sector is solvent when its discounted revenues are sufficient to cover the public sector debt (includ- ing external and domestic debt); it is sustainable if this debt can be serviced without incur- ring new debt. In order to evaluate Niger's fiscal stance, the level of the primary deficit that would make the public sector solvent was first determined, given the stock of public debt at the end of the previous period, the real interest rate, and the real revenue growth rate.22 This Table 1-11. Public Sector Solvency and Sustainability in Niger (in percent of GDP) 2002 2003 Solvency Primary balance -6.3 -6.4 Real GDP growth 7.0 4.7 Domestic debt 3.5 3.6 External debt outstanding and disbursed 90.0 73.4 Primary balance for solvency 5.5 6.2 Central government solvency adjustment 11.7 12.6 Sustainability Grants 4.9 4.7 Sustainable primary balance 6.8 5.4 Actual central government primary balance -6.3 -6.4 Central government sustainability adjustment 13.0 11.9 Source: World Bank staff calculations. 22. Both the real interest rate and the real revenue growth rate were assumed to be constant through- out the period. Public Expenditure Management and Financial Accountability in Niger 23 solvent primary deficit was then compared with the actual (or expected) primary deficit to find the adjustment needed to obtain public sector solvency. For fiscal sustainability, the primary deficit needed to achieve debt sustainability (that is, to maintain the ratio of debt to GDP at the same level) was first calculated. In a second step, the required adjustment is calculated by comparing this sustainable primary deficit with the actual (or expected) pri- mary deficit. All variables and resulting measures (in percent of GDP) are presented in Table 1-11. The results of the analysis reveal that, as of the end of 2003, Niger's fiscal balance remained far from the level required for solvency and sustainability. If grants were excluded and Niger was to borrow at non-concessional rates, it would have needed to adjust its deficit by 12.6 percent. Past international experience indicates that an annual fiscal adjust- ment of more than 3 percent would be difficult for any country to achieve. It is neither fea- sible nor desirable for Niger to bear the burden of an adjustment of such magnitude by expenditure cuts and/or revenue-enhancing measures. This underlines the challenging and fragile nature of Niger's public finance situation. Niger will depend on concessional financing in the form of grants (about 5 percent of GDP) and highly concessionary external borrowing for the foreseeable future. CHAPTER 2 Public Expenditure Review Objectives of the Public Expenditure Review The principal objective of the Public Expenditure Review (PER) is to assess the extent to which the observed public expenditure patterns during 2000­2003 reflect the priorities of Niger'spovertyreductionstrategy.Inaddition,thePERassessesthefunctionalandeconomic composition of public expenditure in terms of standard criteria used for reviewing public expenditure choices:23 I Aretheyefficient(dotheycorrectmarketfailures)? I Aretheyequitable(dotheycorrectsociallyundesirabledistributionalconsequences of market outcomes)? I Aretheyrealistic(dotheytakeintoaccountthecapacityofGovernmenttodeliver goods and services)? The analysis of public expenditures centers on whether sufficient resources are being allo- cated to implement programs in priority sectors. It then tries to explain differences between actual public expenditure choices and PRSP spending targets by looking at the following factors: I theimpactofHIPCresourcesandexternalfinancingonfunctionaldistributionof public expenditures; 23. See Stiglitz (2000, p. 249) for a discussion of the rationale for public programs according to pub- lic expenditure theory. 25 26 A World Bank Country Study I theeconomiccompositionofexpenditures,inparticulartheinfluenceoffixedor quasi fixed expenditures such as wages and salaries or debt service, on public expenditure choices; and I the impact of public expenditure management practices, notably budget regula- tion and cash management, on budget outcomes and differences between bud- geted and actual expenditure levels. The analysis of public expenditure structure is complemented by an analysis of spending in the priority sectors--education, health, road infrastructure and rural development--to determine whether allocation and use of public resources has been consistent with the PRSP and sector strategies. It also reviews the internal and external efficiency of public programs in the sectors and their impact on the poor. The scope of sectoral analysis was limited, how- ever, by the short timeframe, lack of experience of line ministry staff involved in the exer- cise and insufficient support. The analysis in these sectors will have to be deepened in future rounds of PERs. Finally, the analysis also compares observed expenditure patterns in Niger with those of other countries in the region and assesses the geographical distribution of spending in Niger with the incidence of poverty. Scope of Analysis and Data Constraints This PER covers the period 2000­2003. The year 2000 marks the beginning of the ongoing public finance reform and is also the year of adoption of the I-PRSP. In addition, the most recent sectoral PERs for health, education and rural development cover up to 1999. A number of data constraints have limited the scope and depth of the PERs, the most important ones being: I Anewbudgetclassificationsystemwasintroducedwiththe2003budget(seeChap- ter3formoredetails)anditisdifficulttoanalyzebudgetaryallocationsandoutcomes using the pre-2003 budget classification system. A complicated reclassification exer- cise had to be conducted in order to convert the administrative classification into a functional classification and to make it comparable with the new budget classifica- tion.24 Even after reclassification, certain data could not be extracted (expenditure by region). The new classification has corrected many of these limitations, using soft- ware that facilitates compilation of budgetary data by sector, type, and location of expenditure items. I Incompatibilitybetweentheoldbudgetclassificationandthechartofaccountshas made it difficult to reconcile accrual data (budgetary accounts) with cash data at the payment stage (treasury accounts).25 The analysis of budget execution in this PER is 24. See Appendix C.1 and C.2 for a presentation of the reclassification exercise. 25. The incompatibility between the (old) budget classification and the chart of accounts is a key rea- son for the backlog in producing budget review laws (loi de règlement). The latest available budget review law dates back to the 2000 budget year. However, the introduction of the new budget classification and charter of accounts in the 2003 budget year has corrected this shortcoming, with the two instruments being completely compatible with each other (see Chapter 3 for more details on this issue). Public Expenditure Management and Financial Accountability in Niger 27 based on payment order (ordonnancement) data from the Budget Directorate's elec- tronic database (situation des crédits), which is not reconciled with treasury data on payments. The experience of the 2000 budget review law (loi de règlement) exercise shows that there can be considerable discrepancies between budget data at the pay- ment order and the payment stage. I The magnitude of directly executed donor projects is probably underestimated. The PER has tried to integrate all externally financed capital expenditures by using data of the Department for Investment Financing (DFI) of the MEF.26 However, monitoring of extra-budgetary projects is handled manually by DFI and there are doubts about the accuracy and comprehensiveness of these data. In addition, all donor-financed project outlays are recorded as capital expenditure, while a sizeable portion is probably used for recurrent spending. I Withtheexceptionoftheeducationsector,scopeandreliabilityofdataonexpen- diture allocation and use within sectors is weak. Most line ministries do not sys- tematically collect expenditure data. For the purpose of this exercise, the four priority sectors carried out expenditure data searches through their regional offices. The resulting data sets differed greatly from those of Budget Directorate's electronic database. As a consequence, sector PERs are based on DGB data. The data collec- tion and analysis capacity of line ministries will need to be strengthened in support of future PER exercises. Analysis of Public Expenditure Structure Spending Targets for Priority Sectors The process of preparation and approval of the I-PRSP (2000) and PRSP (2002), created a strategic basis for Government action that enjoys a broad consensus among stakeholders. The I-PRSP set the directions for the reform program, which was initiated in late 1999 with theaimoffosteringeconomicgrowthandreducingpoverty.TheGovernmentthenstrength- ened and consolidated the strategy through a series of consultations with a wide array of stakeholders and adopted a full PRSP in early 2002.27 Since then, a number of sector strategies (basic education, rural development strategy, health policy statement) have been elaborated, refining and complementing the PRSP. The PRSP emphasized the importance of increasing resources made available to pri- ority sectors.28 For this purpose it outlined an indicative medium term expenditure frame- work (MTEF), which set a number of spending targets for priority sectors. These spending 26. According to DFI, directly executed projects amounted to FCFA 30 billion in 2000­2002--about 11 percent of total capital outlays. 27. The PRSP confirms the Government's commitment to reducing the proportion of the population living in poverty by half by 2015. It is built on four strategic pillars: (i) creation of a macroeconomic envi- ronment that promotes strong and sustainable economic growth; (ii) development of the productive sec- tors, especially in rural areas, to reduce vulnerability and increase income generation, (iii) improvement of access of the poor to quality social services, and (iv) strengthening of institutional and individual capac- ity for good governance (World Bank 2002). 28. PRSP (World Bank 2002, p. 103): "to reflect the Government's priority to poverty reduction, its public spending policies will emphasize tighter control of expenditures with increased allocations to essen- tial sectors." 28 A World Bank Country Study targets were a refinement of a similar set of targets set by the I-PRSP for 2000­2005 (World Bank 2000). The targets were derived from a rough estimate of the funds needed to deliver a minimum level of public services in priority sectors. The PER uses these targets and oth- ers defined in sectoral strategies as basis for assessing the functional distribution of public expenditures (see Table 2-1). Table 2-1. Quantitative Targets for Priority Sector Spending Sector Targets Source Education 20 % of total public spending PDDE*, 2002 Of which: basic education 50 % of public spending on education PDDE 2002 Health 17 % of total public spending PRSP 2002 Of which: basic health 66 % of public spending on health I-PRSP 2000 Rural Development 12 % of total public spending PRSP 2002 Road infrastructure 12 % of total revenues PRSP 2002 Water 3.3% of total public spending PRSP 2002 *Plan décennal du développement de l'éducation (PDDE). Analysis of Public Expenditure by Functional Classification Public spending for PRSP priority sectors accounted for about two thirds of total expendi- ture (recurrent and capital, excluding debt service) and has benefited from a slight increase in its share over 2000­2002.29 The steady decrease in the share of the health sector in total expenditures is a notable and worrying exception. Chart 2-1 and Table 2-2 summarize the main findings of the inter-sectoral analysis of public expenditure by functional classification: I InnominalFCFAamounts,prioritysectorsreceived46percentmoreresourcesin 2002 than in 2000, which is marginally higher than the increase experienced in total expenditures (40 percent). Consequently, the share of the priority sectors has increased slightly (from 66.3 to 69.1 percent), at the expense of other expenditure categories, notably the "sovereignty" expenditures (general public services, public order and defense). I Spendingonruraldevelopmentandwaterandenvironmenthadthehighestgrowth rates of all sectors in 2000­2002. Nominal expenditures in these two sectors almost doubled and the share of rural development in total expenditures increased from 8.4 to 11.4 percent and water and environment rose from 7.6 to 10.4 percent. I After a marked drop in 2001 (from 9 percent in 2000 to 4 percent) the share of the equipmentandtransportsectorintotalexpendituresregaineditsinitiallevelin2002. I The education sector absorbs the highest share of public resources among the pri- ority sectors. Nominal spending on education increased by 42 percent in 2000­2002 and its share of total expenditures has remained stable at around 23 percent. 29. Due to a lack of final data on 2003 expenditures, this year is not taken into account in the analysis. Public Expenditure Management and Financial Accountability in Niger 29 Chart 2-1. Evolution of Public Expenditure by Functional Classification, 2000­2003 Total expenditures (payment order stage), in FCFA billion 70 F C F A billion 2000 60 2001 2002 2003 50 40 30 20 10 0 General public Rural Development Water and Equipment and Health Education Social Development Others services, public Environment Transport expenditures order and defense Note: All figures include extra-budgetary capital expenditures, exclude debt service; fig- ures for 2003 are projected on the basis of end-September data. Source: MEF, World Bank, EC. Table 2-2. Functional Distribution of Public Spending (Total Expenditures) Actual expenditures--payment order stage (in FCFA billion) Average Share 2000 2001 2002 2003/a 2000­2002 General Public Services, Public Order and Defense 39.47 47.14 47.67 51.11 22% PRSP Priority Sectors 115.39 136.47 168.52 88.62 67% Rural Development 14.55 27.62 27.75 9.19 11% Water and Environment 13.28 19.34 25.34 6.77 9% Equipment and Transport 16.21 8.06 21.47 4.53 7% Health 28.78 33.39 35.08 20.96 16% Education 40.23 42.97 57.14 45.77 23% Social Development 2.34 4.59 1.75 1.40 1% Other Expenditures 19.34 24.11 27.70 24.83 11% TOTAL (excluding Debt Service) 174.2 207.72 243.89 164.56 100% Note: All figures include extra-budgetary capital expenditures. /aFigures for 2003 are projected on the basis of end-September data. Source: MEF, World Bank, EC. 30 A World Bank Country Study I Healthistheonlyprioritysectorthatexperiencedadeclineinitsshareintotalexpen- ditures. In nominal terms, public spending on health increased by 23 percent, but its share in total expenditures fell from 17 to 14 percent. The share of recurrent expenditures on priority sectors declined from 50 percent of total expenditures in 2000 to 47 percent in 2003. They were dominated by education outlays, which accounted for over 60 percent of recurrent expenditures on priority sectors. Their share of total expenditures increased from 28 to 33 percent in 2000­2003 (see Chart 2-2 and Table 2-3). Nominal recurrent outlays on health were the second largest category, but the share of the sector declined from 12 to 9 percent of total recurrent expenditures.30 Chart 2-2. Evolution of Recurrent Expenditure by Functional Classification Recurrent expenditures (payment order stage), in FCFA billion 60 2000 FCFA Billion 2001 50 2002 40 2003 30 20 10 0 General public Rural Development Water and Equipment and Health Education Social Development Others services, public Environment Transport order and defense Note: Excludes interest payments. Source: MEF; World Bank and EC staff calculations. Actual Expenditures Compared to PRSP Spending Targets Measured by total expenditures (including recurrent and all capital expenditures), spend- ing on priority sectors has shown positive trends in relation to PRSP targets since 2000 (see Chart 2-3). The health sector is an exception, with large and increasing gaps between actual and targeted expenditure. This indicates either that the sector has not received high prior- ity in budget allocation decisions and/or suffers from poor execution rates. Levels of spend- ing on rural development, equipment and transport31 and particularly on water and environment fared relatively well against their PRSP targets. A comparison of actual recurrent expenditures with PRSP targets32 reveals a trouble- some picture (see Chart 2-4). Only the education sector consistently achieved its recurrent 30. The different patterns emerging from the analysis of recurrent and total expenditure point to a strong impact of donor-financed investments. Often, the launch of a single large investment project can lead to doubling total outlays in one specific sector. 31. The level of actual expenditure relative to PRSP targets in the equipment and transport is expected to be overestimated, as the target only refers to road infrastructure. 32. PRSP targets are calculated as percentage targets (taken from Table 2-7) times the total budget envelope of the year in question. Public Expenditure Management and Financial Accountability in Niger 31 Table 2-3. Functional Distribution of Public Spending (Recurrent Expenditure), 2000­2003 Actual expenditures, payment order stage (in FCFA billion) Average share 2000 2001 2002 2003/a 2000­2003 General public services, public order and defense 36.41 40.94 41.69 53.51 33% PRSP priority sectors 50.10 58.94 68.87 79.56 50% Rural development 3.01 4.83 5.15 7.52 4% Water and environment 1.91 4.28 2.25 2.55 2% Equipment and transport 1.04 2.48 3.42 3.82 2% Health 10.35 13.74 15.17 15.46 11% Education 33.29 33.00 42.20 49.48 31% Social development 0.50 0.60 0.69 0.73 <0.5% Other expenditures 14.07 17.24 20.28 33.70 17% TOTAL 100.58 117.12 130.84 166.77 100% Note: Excludes interest payments. /aEstimates as of June 2004. Source: MEF; World Bank and EC staff calculations. expenditure targets. Recurrent expenditures for water and environment were close to targets, but there was significant and persistent under-spending on health, rural devel- opment and transport compared to the targets. The fact that availability of resources for priority sectors is better at the total than at the recurrent expenditure level points to the key role of capital expenditure, to a large extent financed by donors, in funding of priority sector activities. This phenomenon is discussed in more detail in the following sections. The authorities intend to further increase the share of spending on priority sectors, particularly health and education in the coming years' MTEFs (see Table 2-4). This signals the Government's commitment to implementing the SRP. The success of this approach will also depend on the Government's ability to increase absorptive capacities and enhance resource management in the sectors. ThereisaneedtorevisethePRSPspendingtargets.Educationtargetscouldbeincreased, buttheconsistentunder-spendingonhealthmightindicatethatitsspendingtargetshavenot been realistic. While revising the targets, the authorities should not only take into account its policy priorities, but also the absorptive capacities of the sectors. The revised sectoral targets could be presented in the second full PRSP to be adopted in 2005. International Comparisons of Functional Distribution of Public Expenditure In terms of resources allocated to the education and health sectors, Niger appears to fare relatively well in comparison to selected countries in the region (see Table 2-5). Allocations for rural development also appear relatively high, while the transport and equipment sec- tor received rather low levels of resources. However, these comparisons need to be treated with caution, as expenditure categories may be defined differently in these countries. 32 A World Bank Country Study Chart 2-3. Comparison Total Expenditures--PRSP Spending Targets, 2000­2002 Payment order stage (in FCFA billion) 30 Education Health 25 Equipment and transport 20 Rural development Water and environment 15 10 5 0 2000 2001 2002 -5 -10 Chart 2-4. Comparison Recurrent Expenditures--PRSP Spending Targets, 2000­2002 Payment order stage (in FCFA billion) 30 Education Health 25 Equipment and transport 20 Rural development Water and environment 15 10 5 2000 2001 2002 0 -5 -10 -15 -20 Note: Bars refer to difference between PRSP spending targets (normative targets from Table 2-7 times total budget envelope in a given year) and actual expenditure amount per sector. Figures include extra-budgetary capital expenditure, but do not include debt service. Sources: PRSP, MEF, World Bank staff calculations. Factors Determining the Structure of Public Expenditure Influence of External Financing. External financing has a strong impact on the structure of expenditures since more than 50% of Niger's total public expenditure and more than 70 percent of its capital expenditures in 2000­2002 (see Table 2-6) were financed by exter- nal assistance. The strong preference donors have for financing projects and programs in Public Expenditure Management and Financial Accountability in Niger 33 Table 2-4. Medium Term Projections of Priority Sector Expenditures, 2004­2007 In FCFA billion 2004 2005 2006 2007 Education 49.8 56.0 63.1 71.3 Health 22.6 27.1 32.7 39.8 Agriculture 36.7 38.8 41.1 43.6 Equipment 25.8 27.7 29.5 31.5 In % of total expenditures Education 14.2 14.6 15.3 16.1 Health 6.4 7.1 7.9 9.0 Agriculture 10.4 10.1 10.0 9.9 Equipment 7.3 7.2 7.2 7.1 Source: MEF (MTEF calculations). Administrative classification, excludes transfers and subsidies. Table 2-5. Regional Comparison of Spending on Priority Sectors In percent of total budget allocations (excluding debt service) Niger Burkina Faso/a Benin Uganda 2000­2003 1999­2002 2001­2004 2001­2002 Education 22.4 23.8 20.8 19.4 Health 15.7 11.3 9.3 10.8 Rural Development 11.0 N/A 6.7 4.4 Transport and Equipment 7.3 N/A 10.5 13.7 /aBudget execution data. Source: National authorities, Fund and Bank databases. Table 2-6. Importance of Donor Financing for Public Expenditures Key ratios regarding donor financing (average 2000­2002) · External project financing/capital expenditure = 72 percent · External project financing/total expenditure (excluding debt service) = 32 percent · Budget support (loans and grants)/recurrent expenditure (including debt service) = 31 percent · Share of externally financed expenditure in total expenditure (including debt service) = 54 percent Source: MEF. priority sectors, as seen in Chart 2-5, has a positive effect on the share of priority sectors in total public expenditure. Heavy reliance of Niger on external budget support, which has amounted to around 30 percent of recurrent expenditure each year during 2000­2002, reinforces the outside influence on expenditure choices. Both tied and, to a lesser extent, untied budget sup- port require the Government to earmark budget resources for specific sectors and/or types of expenditures. In the case of tied financing (for instance donor support to road maintenance), this link is direct. Yet even untied budget support operations are usually 34 A World Bank Country Study Chart 2-5. Sectoral Distribution of Capital Expenditures by Source of Financing, 2000­2002 Aggregated total expenditures, payment order stage (in FCFA billion) FCFA bio. HIPC funded (investm. only) 70 internally financed externally financed 60 50 40 30 20 10 0 Gen. public Rural Dev. Water and Env. Equipm. and Health Education Social Dev. Other services, defense, Transport public order Note: Includes extra-budgetary capital expenditures. Internally financed capital expenditure con- sists of counterpart funds, investments of own resources and tax compensations of project costs. Source: MEF. based on an agreement between the authorities and the donor to earmark a certain share of this support to specific sectors. In the context of World Bank-budget support opera- tions,33 for instance, the Government agreed to ensure budgetary financing for key items of the education and health reform program, such as the salaries of contract teachers and health workers. There are clear indications that the strong influence of donor financing on expenditure choices has not been offset by a "fungibility effect" (that is, by a reallocation of the Govern- ment's own funding to non-priority sectors, as donor financing for priority sectors became available).34 An analysis of the fungibility of external financing and domestic resources reveals that the possibility of externally funding expenditures crowding out expenditures that are traditionally financed from domestic sources is limited. External project financing accounts for almost three quarters of Niger's investment budget. In addition, counterpart funding to external projects constitutes a large share of the domestic contribution to the investment budget. The scope for external projects to replace existing domestic investments is therefore very low. 33. World Bank-budget support, in the form of adjustment credits, accounted for around 40 percent of total budget support in 2000­2002. 34. See World Bank (1998) for a discussion of fungibility of foreign aid. Full fungibility would mean that if a donor would provide funding for a project in a specific sector, the Government would spend the same amount of money on this sector as it would if the donor had provided general budget support instead. Public Expenditure Management and Financial Accountability in Niger 35 The large share of donor financing of Niger's budget has resulted in a lack of auton- omy in decision-making by the authorities and a strong vulnerability of spending in these sectors to fluctuations in external financing. The Government has recognized this and has launched a process of enhanced coordination with and among donors within the frame- work of PRSP implementation. A PRSP-forum was held in July 2003 for this purpose. However, before Government and donors can jointly adopt medium-term spending pri- orities and integrate their funding, a serious effort toward improving the budget prepara- tion process will need to be made, in particular to eliminate the dichotomy in the formulation of the recurrent and investment budgets (see Chapter 3 for more details on this). Experiences in other countries (for example, Uganda) has shown that it takes a long time and concerted efforts to fully integrate all funds from different domestic and external sources in the budgeting process. Use of HIPC Resources. To facil- itate effective use of HIPC re- Chart 2-6. Use of HIPC Resources, 2001­2003 sources for additional spending Actual expenditures (payment on PRSP priority sectors, the order stage), in percent of total authoritieshaveadoptedastream- HIPC resources lined spending mechanism, the PRSP "President's Special Program for Microcredits preparation Poverty Reduction." The aim of for women 6% Classroom the Special Program is to enhance 4% construction 21% existing poverty reduction pro- grams through a quick disbursing mechanism for investment pro- Small dams Community 33% jects,suchasconstructionofclass- health center construction rooms and local health centers. 28% As Chart 2-6 indicates, HIPC re- Pastoral wells sourceshavebeenusedexclusively 8% for construction of infrastructure Source: MEF. in priority sectors, primarily con- struction and equipment of class- rooms (21 percent) and community health centers (28 percent) and construction of small dams (33 percent). The volume of HIPC resources so far has been too limited to have a major impact on the inter-sectoral distribution of expenditure. In the 2001­2003 period, the share of HIPC expenditures in the total budget allocations (excluding debt service) averaged only 4.3 per- cent. These resources will, however, increase significantly as a result of Niger having achieved the HIPC Completion Point in early 2004. Total amounts of HIPC resources will rise from an annual average of about FCFA 13 billion in 2001­2003 to FCFA 30.4 billion in 2004 and FCFA 40.6 billion in 2005. Thereafter, they will remain at a high level for a number of years before starting to decline and phase out by 2022. It is probably not desirable to continue using HIPC funds exclusively for infrastructure investments, since this makes it more difficult to balance recurrent and capital expenditures. Instead HIPC resources could also help ensure adequate funding of priority recurrent expenditures like road maintenance or salaries of contract education and health workers. 36 A World Bank Country Study The Government started to move into this direction in the 2004 Budget Law, as some HIPC resources were allocated for financing of contract teacher salaries, which in earlier years were financed through budgetary resources. Some important lessons can be drawn from implementation of the President's Special Program. First, although most of the physical and financial targets of the Program activi- ties have been met,35 the authorities have identified a number of problems in planning and execution. These include insufficient integration of infrastructure built as part of the Spe- cial Program with mainstream development programs in the different sectors. These prob- lems are thought to have had a negative impact on the quality of the infrastructure constructed and in making it operational.36 The Government has therefore launched an independent evaluation of the Special Program, which was scheduled to be completed by mid-2004. One of the benefits of the evaluation will be to indicate whether sufficient bud- getary resources were made available for operating and maintaining installations financed through this program. In conclusion, HIPC funds should be progressively allocated to financing activities that are fully integrated in sectoral programs. An optimal use of HIPC funds would consist of financing of a core set of expenditures in priority sectors that merit protection in case of rev- enue shortfalls. Positive features of the President's Special Program, such as streamlined exe- cution procedures and involvement of local communities in designing and implementing public programs, could be replicated on a larger scale. Economic Composition of Public Expenditures37 The High Share of Fixed or Quasi-fixed Expenditures. Analysis of the economic structure of public expenditures in Niger in 2000­2002 reveals a high share of expenditures that are fixed over the near term, including outlays such as civil service remuneration and external debt service, where the Government has little or no room for maneuver in allocating public resources in the annual budget preparation process. Chart 2-10 shows that about 80 percent of budgetary outlays are fixed or quasi-fixed. The Government has little room to adjust the size and remunerations of the civil service from year to year (they account for 22 percent of total expenditures).38 Debt service (24 percent) is fixed. Capital expenditures (34 percent) are largely determined by donor preferences. The scope for adjustment during the budget execution process is also constrained by the priority treatment of debt service and wage pay- ments, which are centrally administered and treated as priorities in the cash management system. 35. Average budget execution rates (payment orders/allocations) for 2001­2002 were 96.6 percent for community health centers, 98 percent for small dams and 99.5 percent for classrooms. 36. See Niger PRSP Annual Progress Report and Joint Staff Assessment 2003 (p. 15) for details regard- ing achievements in physical execution of the Special Program of the President. The authorities cite prob- lemslikethelackoftechnicalfeasibilitystudiespriortoconstructions,insufficientinvolvementofbeneficiary population and a lack of horizontal (between ministries) and vertical (between territorial levels) coordina- tion in planning and execution of the works. 37. See Tables 1-4 and 1-5 in Chapter 1 for a detailed set of data on the evolution of the economic composition of public expenditures. 38. This includes spending on contract Government workers, contrary to the Government's practice of excluding their salary costs in calculating the wage bill. Public Expenditure Management and Financial Accountability in Niger 37 Table 2-7. Economic Structure of Total Expenditures, 2000­2002 Excluding debt service and externally financed expenditures Average Indicators 2000 2001 2002 2000­2002 Wages and salaries/goods and services (allocated) 120 % 114 % 115 % 117 % Wages and salaries/goods and services (executed) 185 % 144 % 170 % 166 % Wages and salaries/total expenditures (allocated) 36 % 36 % 35 % 35 % Wages and salaries/total expenditures (executed) 53 % 40 % 42 % 45 % Source: MEF. Wage and salary payments are protected in budget execution, in spite of persistent rev- enue shortfalls, while other expenditures are cut. As a consequence, the ratio of salary and wagerelatedexpendituresincreasesfrom35percentofthetotalexpendituresbudgeted(allo- cated) for 2000­2002 to 45 percent actually spent (executed). This is illustrated Table 2-7. Similarly, the ratio of wage and salary outlays actually executed to those for goods and ser- vices rises from 117 percent to 166 percent for the same period. This seems to corroborate claims of officials in line ministries about under funding for goods and services (IT, office material, fuel, etc) needed to support their work. Two key measures are needed to introduce more flexibility in the Government's expen- diture policies: (i) improving the overall fiscal situation by augmenting domestic revenues to increase the volume of available resources, and controlling expenditures, particularly wages and salaries; and (ii) moving towards program-oriented budgeting with the aim of bet- ter informing the Government about how to translate policy priorities into budget requirements and strengthening the Government's ability to shift resources within the budget. There are, in addition, spe- cific measures that would enable Chart 2-7. Economic Structure of the Government to increase its Total Expenditure control over debt service as well Internally financed expenditures only (payment order stage), average as wage and salary payments. The 2000­2002 Government should continue its policy of only contracting loans Wages and with a grant element over 60 per- Debt service Salaries 24% 22% cent. For better control of wage andsalaryoutlays,itshouldmain- tain its restrictive policy on new recruitment with the objective of reaching and sustaining the Operations and Maintenance WAEMUconvergencecriterionof 13% a Government wage bill lower than 35 percent of fiscal revenues Transfers and Capital subsidies expenditures by 2007. At the same time, a more 7% 34% flexible human resource policy Source: MEF. should be adopted that would 38 A World Bank Country Study allow the Government to better and more quickly adjust positions and staff to policy priorities.39 Evolution of Wage and Salary Expenditure. Responding to targets set by the IMF-supported PRGF, the Government has been implementing a policy of zero-net recruitment over the past few years. This policy was successful in reducing the ratio of public sector wages to fis- cal revenues from 50.4 percent in 1999 to 35.7 percent in 2003, just short of the WAEMU criterion.40 This strict wage bill policy has a cost, though, curtailing the Government's capa- bility to replace experienced retiring staff. Table 2-8. Payroll and Wage Bill 2000­2003 Variation 2000 2001 2002 2003/b 2000/2003 Payroll (source Civil Service Ministry/a) Civil servants 32,379 32,375 32,193 31,765 -614 Auxiliary staff 7,128 6,879 6,648 6,538 -590 Total Payroll 39,507 39,254 38,841 38,303 -1,204 Wage bill (source DGB, in FCFA billion) Civil servants and auxiliary staff 55. 5 56. 9 61.3 51.5 -3.98 Others 1.1 0.4 0.7 3.7 +2.6 Total 56.6 57.3 62.0 55.2 -1.4 /aIncludes unpaid agents; does not includes certain paid Government employees like the republi- can guards and the judges. /bProjected amount on the basis of 10 (out of 12) months of salary payments in 2003. Sources: MFP, Sectoral Ministries, MEF, World Bank staff calculations. The total wage bill has remained virtually unchanged from 2000 to 2003 (see Table 2-8). This is the combined effect of savings from retirements (between 300 to 500 new retirees per year) and costs from new recruitments and the effects of a first series of promotions (breaking a policy of promotion freeze) in 2002, increasing the wage bill by about FCFA 4.5 billion. A simulation conducted in the context of the PEMFAR on the evolution of the wage bill (civil servants only) over the next 5 years revealed that, barring new recruitments, the wage bill would increase modestly as a result of automatic promotions under current rules. Given the current age profile of the civil service and the current retirement rules (50 years old or 30 years of service), 4,613 civil servants (14.5 percent of total civil ser- vants active in 2003) will be retiring during 2004­2008. This would result in savings of FCFA 6.7 billion in the wage bill. During the same period, the application of the reign- 39. Chapter 3 will discuss this issue and suggest solutions for enhancing human resource management in Niger. 40. See Chapter 1 of the report for more details on this. Public Expenditure Management and Financial Accountability in Niger 39 ing promotion policy to the existing payroll profile will lead to an additional wage bill of FCFA 6.9 billion. Relationship of Recurrent and Capital Expenditures. There has been a substantial shift in the balance between recurrent and capital expenditures in recent years, reflecting a strong trend towards increasing capital expenditures in priority sectors. I Capitaloutlayshaveincreasedatasubstantiallyhigherrate(54percentfrom2000 to 2002) than recurrent expenditures (30 percent). This can to a large extent be attributed to an increasing availability of external project financing (up 53.6 per- cent over the period) and, in a small way, to the increasing use of HIPC resources for capital expenditure. I Withtheexceptionoftheeducationsector,theshareofcapitalintotalexpenditures is higher in priority sectors than in other sectors. Most priority sectors are capital- intensive by nature, with the exception of education. This is a main factor explaining the low ratio of recurrent to capital expenditure in most sectors. Nevertheless, this ratio might also be the result of what officials in the health and equipment ministries claim to be a massive under-funding for operations and maintenance expenditure in their domains. I The ratio of recurrent to capital expenditure decreased at a higher rate in prior- ity sectors compared to the budget as a whole over 2000­2002 (see Table 2-9). The rising share of capital expenditure in priority sectors can be understood as a sign of renewed interest of Government and external partners in strengthening infra- structure and equipment in these sectors. However, given the lack of coordination in programming and execution of public programs within the Government and between donors and Government, there are some concerns about how far these additional capital outlays are accompanied by sufficient funds for operation and maintenance. Table 2-9. Ratio of Recurrent to Capital Expenditures, 2000­2002 by sector--payment order stage Sectors Average Ratio Growth Variance Total expenditures 1.27 0.77 Priority sectors 0.74 0.55 Education 3.64 1.11 Health 0.67 3.27 Equipment and transport 0.23 0.83 Rural development 0.23 0.19 Water and environment 0.18 0.03 Other sectors 5.05 2.26 Note: Growth variance is calculated as increase (%) in recurrent expenditures in 2000­2002 divided by increase in capital expenditure in the same period. Sources: MEF, World Bank staff calculations. 40 A World Bank Country Study I Theratioofrecurrentexpenditurestocapitalexpenditureschangedsignificantly between allocation and execution stage (from 101 percent to 141 percent).41 This is mainly a result of the protection of wage and salary payments in the budget execution process. The data underlying this analysis needs to be regarded with some caution, since in Niger all donor-financed expenditures are classified as capital expenditure. While large shares of donor resources are used for investment purposes, there is a certain amount of recurrent charges related to project execution that are financed with donor funds. Some regional and local administrative units rely on projects for funding part of their operating expenses.42 This leads to an overestimation of capital expenditures and makes it difficult to assess whether recurrent cost implications have been taken into account adequately in the yearly planning of the public investment program. Impact of Budget Execution on Budget Outcomes Budget Execution Rates. Budget outturn as measured by executed expenditures (payment orders) in recent years reveals a picture that is substantially different from the originally voted budget. This implies that the budget execution process has strongly distorted public expenditures choices made in the budget preparation process within the Government and subsequently adopted by the National Assembly.43 The distortions have affected both the functional and economic composition of expenditures. This problem is particularly serious as, with the exception of education, the execution rates for priority sectors are significantly lower than those in other sectors. As a consequence, the budget at the execution stage is generally less consistent with PRSP priorities than at the allocationstage.Chart2-8depictsaverageexecutionratesbysectorfor2000­2002.Theaver- age execution rate was 92 percent. Only two sectors surpassed this: general public services anddefense(105percent)andeducation(103percent).Prioritysectors--ruraldevelopment (82 percent), water and environment (80 percent) and health (75 percent)--were well below average and equipment and transport (43 percent) fell short as well.44 Differentexecutionratesalsoaffectedtheeconomiccompositionofpublicexpenditures. Wage and salary expenses and debt service are better protected in the budget execution processthanotherexpenditurecategories.Table2-10showsthattheshareofwagesandsalary payments in total expenditures was 29 percent at the payment order stage, as compared to 41. Execution rates of capital expenditures need to be regarded with caution, as a number of factors could distort these rates. Extra-budgetary projects are by definition not captured by budget allocation data, while financial transactions for their execution are (partly) recorded by the DFI. Furthermore, projects for which a convention was signed are usually captured in the investment budget, while it usually takes a long time from the convention to the start of implementation, due to procedural and bureaucratic delays. 42. As related to a World Bank mission by local officials in the Tillabery District in June 2003. 43. The distortion relates to the differences between executed budget (payment order stage) and ini- tial budget (Loi de finance). A part of these differences has been formalized through the adoption (in 2000, 2001 and 2002) of Budget Revision Laws (Lois de finance rectificatifs) by the National Assembly. There are likely to be further distortions between the payment order and the payment stage, yet these could not be measured due to a lack of comparable data (different classifications). 44. The low level of execution in the equipment and transport sectors is explained to a large extent by the non-execution of the budgeted funds for road maintenance in 2000. Public Expenditure Management and Financial Accountability in Niger 41 Chart 2-8. Execution Rates by Sectors, 2000­2002 Recurrent expenditures only--ratios of payment orders to initial budget allocations 120% 2000 2001 100% 2002 80% 60% 40% 20% 0% Education Health Rural Transport Water and Gen. public TOTAL (excl. development environment services, debt service) defense, public order Source: MEF. 20.5 percent at the budget allocation stage. On the other hand, expenditures for operations and maintenance in the health and education sectors only reached average execution rates of 75 and 79 percent, respectively over 2000­2002. Analysis of budget execution also indicates that with the exception of wages and salaries levels of spending on priority sectors vary considerably from quarter to quarter (see Charts 2-9 and 2-10). The spending rhythm by quarters shows a catch-up effect at the end of the year. In 2002 and 2003, for instance, less than 10 percent of budget credits for main- tenance and operation payments and for subsidies and transfers were executed during the first quarter. This phenomenon is a key factor behind the low execution rates: a slow start in budget execution that is not compensated later on in the year. It has also a negative effect on service delivery and implementation of investment programs, which both require reg- ular flow of budgetary funds. Factors Explaining Low Execution Rates. Two factors can cause underutilization of budget allocations by line ministries: (i) cancellation of budget line allocations or delays in granting of spending authorizations as a result of the budget regulation policy (régulation budgétaire), and/or (ii) inability of spending agencies to absorb available budgetary funds. It is difficult to quantify the relative impact of these. Table 2-11 shows the effects of limitations on spend- Table 2-10. Ratio of Budget Allocation to Execution by Expenditure Category Total expenditures (excluding debt service) Indicators Averages 2000­2002 Wages and salaries/operations and maintenance payments (allocations) 117 % Wages and salaries/operations and maintenance payments (executions) 166 % Wages and salaries/total expenditures (allocations) 21 % Wages and salaries/total expenditures (executions) 29 % Source: MEF. 42 A World Bank Country Study Chart 2-9. Quarterly Fluctuations in Spending on Goods and Services, 2002­2003 On payment order basis (in FCFA thousand) 7,000 In FCFA '000 Basic education - quarterly budget execution 6,000 Q1 2002 5,000 Q2 2002 Q3 2002 4,000 Q4 2002 Q1 2003 3,000 Q2 2003 Jul-Nov 2003 2,000 1,000 0 Wages and salaries Goods and services Transfers and subsidies 4,000 FCFA '000 Public health - quarterly budget execution Q1 2002 3,500 Q2 2002 Q3 2002 3,000 Q4 2002 Q1 2003 2,500 Q2 2003 Jul-Nov 2003 2,000 1,500 1,000 500 0 Wages and salaries Goods and services Transfers and subsidies Note: 2002 figures include reclassified HIPC expenditures, 2003 figures exclude them. Source: MEF. ing authorizations (budget credit releases/initial credits) and total execution rates by min- istry and economic category (payment orders/initial credits). It demonstrates that most categories and ministries were affected, although not strongly, by credit cancellations as result of the budget regulation policy. In general, Table 2-11 confirms the worrying find- ing of weak execution rates in priority sectors. Basic education is the only priority sector that has achieved execution rates as high as defense and interior. Allocations for wages and salaries are strongly protected at both stages of the execution process, resulting in average execution rate of at least 100 percent in the years observed. In contrast, expenditures on goods and services as well as transfers and subsidies suffer from relatively low execution rates, with average rates of 78 and 73 percent respectively over the period. Public Expenditure Management and Financial Accountability in Niger 43 Table 2-11. Execution Rates by Budget Execution Stage, 2000­2003 Average ratios Budget credit releases/ Payment orders/ initial credits/a initial credits Administrative classification (selected ministries) Basic Education 98 % 93 % Secondary and higher education 100 % 79 % Public health 96 % 67 % Agricultural development 98 % 66 % Equipment 95 % 44 % Water and environment 94 % 66 % Defense 99 % 93 % Interior 96 % 91 % Economic classification Personnel 100 % 103 % Goods and services 97 % 78 % Transfers 95 % 73 % TOTAL 98 % 78 % a/Open budget credits refer to the amounts by budget lines for which the line ministries received spending authorizations; initial credits refer to budget allocations in the revised budget laws. Source: MEF. There are strong indications that from 2002 onwards budget regulation was a major fac- tor behind low execution rates in PRSP priority sectors (see Box 3). To mitigate the impact of serious shortfalls in domestic revenues and/or delays in disbursement of budget support, the MEF uses a budget regulation mechanism, which controls the release of allocations to each ministry. Whenever the mobilization of domestic revenues and external funds is on schedule, the budget regulation mechanism tends to release automatically 25 percent of budget allocations for each quarter. When the MEF expects a possible shortage of cash, bud- get regulation gives priority to specific expenditure categories, mostly wages and salaries and external debt service payments. In the first few months of 2003, the budget regulation policy had a particularly severe impact on budget execution. In response to lower than expected domestic revenues and delays in donor disbursements, the Government strictly limited spending authorizations.45 Many line ministry officials reported not having received any spending authorizations for goods and services before May.46 According to them, this strongly disrupted their ability to implement their programs. 45. This is not reflected by budget data (situation des crédits), which shows a full release of all budget line allocations already at the first quarter. However, this is unlikely to be an accurate picture of the reality of cash releases in early 2003 and raises general doubts about the quality of the 2003 budget data. 46. Another reason for this delay was the delay in adoption of the 2003 Financial Law by the National Assembly, due to procedural and formal problems with the initial submission of the Law. 44 A World Bank Country Study Box 3. Rationale for and Impact of Niger's Cash Management System Niger's narrow domestic resource base has resulted in a structural gap between government expenditures and government revenues. Although significant efforts have been made to sta- bilize expenditures, enhance revenues and reduce the gap, the country remains highly dependent on donor assistance. Niger's fiscal and cash position is therefore vulnerable to possible shortfalls in domestic revenue and external funds. The final outcome may be par- tial insolvency (inability to finance planned expenditures in a given financial year) or liquid- ity problems (lack of cash resources at a given time during the fiscal year). Policy tools available to handle these problems are limited. First the government needs to main- tain strict fiscal discipline to meet its obligations vis-à-vis providers of budget support, satisfy PRGF performance benchmarks and achieve WAEMU's convergence criterion. Second, because monetary and exchange rate policies have been delegated to BCEAO, the monetization of the fis- cal deficit is impossible. Third, Niger and Guinea Bissau are the only countries in the sub-region that have not tapped regional capital markets to bridge short- and medium-term liquidity prob- lems. Fourth, Niger's external financing requirements must be met by grants and highly con- cessional loans but access to these resources is limited as demand largely exceeds supply. To maintain fiscal discipline and prevent accumulation of arrears, as in the 1990s, the gov- ernment has opted for a strict cash management system based on two types of measures. First, the budget regulation mechanism, introduced in 1998, regulates spending authoriza- tions by budget lines (libération des crédits) at the beginning of the budget execution process (commitment stage). Second, a treasury management mechanism, introduced in 2001, regu- lates cash payments at the end of the process through treasury plans (plans de trésorerie). Mixed results have been obtained. Measured by its original objective of tightly controlling expen- diture levels and being able to flexibly and quickly adjust to revenue shortfalls, the cash man- agement system has achieved mixed results. Since its introduction in the late 1990s, the country's fiscal performance has improved, with the overall fiscal deficit decreasing from 5.2 percent of GDP in 1999 to 2.3 percent in 2002. On the other hand, the release of spending autho- rizations, which is centralized in the Ministry of Finance and the Prime Minister's office, lacks transparency and had a negative impact on budgetary outcomes, notably availability of goods and services critical to support the operations of priority sectors and ministries. Geographical Distribution of Public Expenditures and Their Poverty Impact Ultimately, the performance of public expenditure management in Niger would have to be judged by its impact on poverty. However, data limitations allow only for an approxi- mate assessment of whether public expenditures are targeted toward areas with a relatively high incidence of poverty. There are three major limitations on the ability to assess the impact of public spend- ing on poverty in Niger: (i) a lack of comprehensive and updated poverty data; (ii) a lack of systematic assessments of the link between public spending and poverty; and (iii) a lack of data on geographical destination of budgetary funds. In order to re-direct public resources to the poorest groups of society and to make sure that these resources are used to have the strongest possible impact on the poor, it is critical to build a strong data basis for analysis of the impact of public spending on poverty. A new baseline of household data would have to be constructed as the last household survey dates Public Expenditure Management and Financial Accountability in Niger 45 back to 1993.47 At the same time, the knowledge gap on poverty impact of public spending would need to be addressed through analytical work aimed at informing policy makers about the actual impact of public expenditure in Niger.48 At this stage, the public expendi- ture review limits itself to an approximate assessment of the regional distribution of public expenditure and comparing it with the relative poverty incidence in Niger's eight regions (départements). Given Niger's highly centralized budget management system and insufficient geograph- ical budget data, it is difficult to identify the regional distribution of public expenditure. Data on geographical destination of public expenditures are available only for regionally admin- istered expenditures (crédits délégués),49 and for HIPC-financed expenditure within the Spe- cial Program of the President. No data on geographical destination of public funds are available for the remainder of the budget, even though the new budget classification should make it possible to gather such data. This seriously limits the budget programming, moni- toring and evaluation process. In the context of the ongoing reform of budget preparation, ministries should be instructed to systematically include geographical information for all items in their budget proposals, as some already do. Regional and local (de-concentrated) budget appropriations and HIPC-financed expenditures make up only about 15 percent of total expenditures. It is therefore not pos- sible to derive definite conclusions about the geographical distribution of public expendi- tures from such limited data. However, Charts 2-10 and 2-11 reveal the following: I The most developed regions (as measured by the UNDP Human Development Index) benefit most from expenditure de-concentration, as their per capita levels of regionally administered expenditures are higher than those of other regions. This can be caused by a number of factors, but the most plausible explanation is regional differences in absorptive capacity. I The region of Niamey is an urban commune with a special status and receives the highest per capita allocation of de-concentrated expenditure. This is because of its proximity to the institutions of the central Government50 and the availability of a relatively strong human and institutional capacity. 47. A Core Welfare Indicator Questionnaire (CWIQ) survey has recently been launched in the context of an ongoing poverty assessment led by the Bank. This CWIQ will allow updating poverty and social indi- cators within the next year. However, to produce comparable data on consumption and income poverty, the CWIQ will have to be complemented by a more ambitious year-round integrated household survey. 48. For this purpose, two analytical tasks, which have figured on the Government's reform agenda for sometimenowcouldbeimplemented:(a)aBeneficiaryIncidenceAnalysisinthehealthsector,whichwould provideinsightsonthewelfareimpactofspecificitemsofGovernmentspendingondifferentincomegroups and (b) a Public Expenditure Tracking Survey (PETS) in the education sector, which would examine the flowofpublicfundsfrombudgetallocationstoactualdeliveryofspecificgoodsandservices.ThePETScould reveal, for instance, the percentage of non-salary education expenditure that actually reaches the schools. 49. This low level of de-concentrated budget appropriations constitutes an obstacle to effective bud- get execution, as it involves complex procedures between regional and central administrative units. With the adoption in 2002 of a legal framework that delineates a decentralized administrative and political sys- tem, Niger has started a process, which will ultimately lead to a much more decentralized budget man- agement system. However, due to the low levels of human and institutional capacity in the country and the lack of resources in general, it will take many years for the transition from the current highly central- ized system to be concluded. 50. Payments for de-concentrated expenditures incurred in Niamey are processed by the national treasury, while those in all other regions pass through the local treasury satellites (paieries). 46 A World Bank Country Study I HIPCfinancedexpenditurewithintheSpecialProgramofthePresidentisequally distributed across regions, in per capita terms, with the exception of relatively high levels of funding for the two sparsely populated regions Diffa and Agadez. I TheongoingexternalevaluationoftheSpecialProgramofthePresidentshouldassess whether this scheme is channeling resources to the poorer areas of the country. Chart 2-10. Per Capita Levels of Regionally Administered Expenditures by Region, 2000­2002 Cumulated "regularized" payment orders (apurements) In FCFA HDI 7,000 rank 6,000 5,000 4,000 3,000 2,000 1,000 0 Tillabery Dosso Maradi Zinder Tahoua Diffa Agadez Niamey Note: Expenditure data correspond to payment orders "regularized" by the central adminis- tration (apurements). Source: MEF, World Bank, and EC staff calculations; Human development index (HDI) from the 1999 Niger Human Development Report (UNDP). Chart 2-11. Per Capita Distribution of Spending in the Special Program of the President, 2001­2003 Payment order stage FCFA 9,000 HDI 8,000 rank 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 TILLABERI DOSSO MARADI ZINDER TAHOUA DIFFA AGADEZ NIAMEY Note: Covers the first (2001­2002) and parts of the second phase (2003­2004) of the Special Program. Source: PRSP Progress Report (World Bank, 2003a). Public Expenditure Management and Financial Accountability in Niger 47 Box 4. Inter-sectoral Expenditure Structure--Main Recommendations · Prepare and update annually a global MTEF to ensure consistency between budget alloca- tions to priority sectors and PRSP spending targets. · Progressively increase the share of priority sectors, notably education, health and road maintenance, in total expenditures in future Budget Laws. · Revise spending targets as part of the new full PRSP to be adopted in 2005, on the basis of sectoral strategies, taking into account relative absorptive capacity of respective ministries. · Control the growth of fixed and quasi-fixed expenditures, a) by following a prudent borrowing policy and b) by continuing a restrictive recruitment policy aimed at controlling the wage bill. · Conduct a study of the appropriate ratio between recurrent and capital expenditures for each priority sector. · Define for all priority sectors a minimum package of essential recurrent expenditure items to be protected in the budget preparation process and during budget execution (particu- larly in budget regulation and treasury management). · Fully integrate HIPC funds into sectoral programs and reallocate gradually these funds for financing recurrent expenditures in priority sectors. · Improve knowledge about the impact of public expenditures on poverty by conducting: (i) a new household survey, (ii) beneficiary incidence analysis on public expenditures in the health sector; and (iii) public expenditure tracking survey in the education sector. Sector Expenditure Reviews Education Background and Objectives. Despite progress achieved over the past five years,51 Niger's pri- mary school enrollment rates are much lower than the average for Sub-Saharan Africa and far behind the MDG targets. Regional and gender disparities are considerable, as school enrollment rates for girls and in rural areas are much lower than the national average. With persistently high drop out and repeater rates, the education system is inefficient. Developing the education sector and making primary education more accessible to the poor are main priorities of the PRSP. To achieve this, the country's poverty reduction strategy envisages a major expansion in education expenditures to 4 percent of GDP by 2005. Thus, in 2002, the Government approved a ten-year plan for education (Programme décennal pour le développement de l'éducation, PDDE), the cost of which is estimated at US$300 million. The PDDE gives priority to primary education. Its goal is to raise gross school enrollment rates to 59 percent overall and 43 percent for girls by the end of the plan's first phase in 2007. In addi- tion, the PDDE includes measures aimed at: (i) increasing the efficiency and improving the quality of primary education by reducing repeater and drop out rates, (ii) reducing regional disparities to the benefit of the less developed areas, and (iii) encouraging a greater involve- ment of local communities in the management of their schools. Niger's main development partners have agreed to support implementation of the PDDE in the context of the Education for All-Fast Track Initiative (EFA-FTI). 51. Primary school enrollment rates increased from 32.2 percent in 1998­1999 to 45.4 percent in 2002­2003. 48 A World Bank Country Study Table 2-12. Primary Education Indicators 1993 1997 2002 Sub-saharan Africa (2000) Gross Enrollment Rate (in %) Combined 27.8 30.1 41.7 77 Boys 34.4 38.7 50.1 N/a Girls 21.0 22.2 33.3 N/a Completion Rates (in %) Combined N/a 21.6 24.2 51 Boys N/a 27.1 29.6 56 Girls N/a 16.2 18.6 46 Sources: Education for All--Fast Track Initiative Request (République du Niger, 2002d); Burns, A. Mingat and R. Rakotomala (2003). Structure of Education Expenditures. Public spending is the main instrument for imple- mentingNiger'seducationpolicies.About88percentofeducationexpendituresarefinanced throughthebudget.Thebalanceisfinancedbydonorprojects(11percent)andlocalauthor- ities (1 percent).52 The public expenditure review shows that during 2000­2002 the share of educationremainedstableat23percentoftotalpublicexpenditures(excludingdebtservice). Education spending accounts for about 2.9 percent of GDP. This is lower than the average for Sub-saharan Africa (3.4 percent) and far below the PRSP objective (4 percent), but com- pares favorably with the ratio in other poor Sahelian countries. Increased availability of resources for the subsector and lower costs for delivery of ser- vices have enabled the Government to undertake a major school construction, expansion, and rehabilitation program and rapidly increase the number of teachers. This is regarded as the main factor behind recent improvements in primary school enrollment rates. The following important measures taken by the Government made this possible: I The share of primary education in the sector's recurrent expenditures increased from 44.5 percent in 1998 to 58.7 percent in 2002. In addition, the donor commu- nity increased its project support to primary education. As a result the share of pri- mary education in total public expenditures increased from 13.4 percent in 2000 to 15.1 percent in 2002. I Since the 1998/99 school year, the Government has recruited almost 13,000 pri- mary school teachers on contracts. These teachers have limited term contracts without benefits and at salaries about half those of civil service teachers. This sub- stantially reduced the unit cost of primary education and facilitated a rapid expan- sion of teacher corps without increasing the number of civil servants.53 Formally, the growing number of contract teachers does not increase the wage bill, since their financing is (wrongly) classified as transfers. 52. Excluding contributions from households in cash or in kind. It should also be noted that donor- financed projects are not the only source of external financing for education. Budget support accounts for a significant percentage of donor financing for the sector, yet is counted as budgetary expenditure here. 53. In the context of its economic stabilization program, the Government has adopted a restrictive recruitment policy for the civil service. This policy helped restore fiscal balance but penalizes high prior- ity social sectors, including education, whose development largely depends on staff expansion. See Chap- ter 3 of the report for more details on this. Public Expenditure Management and Financial Accountability in Niger 49 Table 2-13. Education Sector--Recurrent Expenditures by Subsector, 1998 and 2002 1998 2002 Total in In % of education Total in In % of education Subsector FCFA billion expenditures FCFA billion expenditures Pre-School Education 0.6 1.7% 0.8 1.9% Primary Education 17.2 51.2% 24.8 58.7% Literacy Training -- -- 0.6 1.4% Secondary Education 8.0 24.0% 10.1 24.0% Technical Education & Vocational Training 0.6 1.7% 1.0 2.4% Higher Education 7.2 21.4% 4.9 11.6% TOTAL 33.6 100% 42.2 100% Note: All estimates are based on commitment data (ordonnancements). Sources: MEBA (PER for 1998) and MEF (2002). Main Issues in Education Expenditure Management. Whilerecognizingtheprogressachieved in education over the past few years, a number of critical public expenditure management issues need to be addressed. The growth of primary education expenditures in recent years was to a certain extent at the expense of other education subsectors, which experienced declinesinfundingoverthesameperiod.Whiletheshareofsecondaryeducationintotalsec- tor expenditures remained stable at approximately 24 percent over 1998­2002, as did sec- ondaryschoolenrollmentrates(at13percent),theshareofhighereducationfellsharplyfrom 21.4 percent of education expenditures to 11.6 percent (see Table 2-13). Very few other West African countries have been able to control the growth of higher education expendi- tures for the benefit of primary education. However, it will be difficult to continue squeez- ing secondary and higher education, as they will need to absorb some of the growing number of primary school graduates. It is therefore critical to consider strategic priorities for the edu- cationsectorasawhole,asrecommendedbythe2000EducationPER.ABank-financedstudy on post-primary education is well advanced and in early 2004 the Government created a committee responsible for preparing a strategy for post-primary education. Once this post-primary strategy is in place, it should be integrated with the PDDE to form an all- encompassing education sector strategy. A comprehensive education strat- egy will have to reflect the comparative Table 2-14. Cost of Contract Teachers advantages and relative costs of alterna- (in FCFA million) tive programs in different subsectors. Subsector (year) Unit costs Estimatesofunitcostsinpastyearsshow Primary education (1998) 36,972 remarkable differences between differ- Primary education (2002) 31,552 ent levels of the education systems: costs Secondary education (2002) 119,950 per student in secondary, higher, and technical education were respectively Technical education (2002) 1,232,049 four,twenty three, and thirty nine times Higher education (2002) 722,197 higher than in primary education (see Sources: MEF, Statistical Yearbooks on Education, Table 2-14). World Bank staff calculations. 50 A World Bank Country Study Even in primary schools, special efforts are needed to moderate cost increases. In the 2002/03 school year, the cost of contract teachers had already reached FCFA 4.3 billion (see Table 2-15). To further improve school enrollment rates in coming years, the Govern- ment plans to recruit 2500 new contract teachers every year for the first cycle of primary edu- cation. This, by itself, would increase the cost of contract teachers to FCFA 9.6 billion in 2008. In September 2003, a Government decree redefined the status of contract teachers and granted them a 31 percent increase in salaries and benefits. Consequently, the total cost of contract teachers is now likely to reach FCFA 12.6 billion by 2008. The main advantage of the contract teacher policy (quick and substantial increase in the teacher force without exorbitant cost implications) would be lost if union pressures were to lead to further salary and benefit increases, while a full integration of contract teachers into the civil service would completely erode this advantage. The authorities must remain vigilant about the quality of education provided by con- tract teachers. The first generation of contract teachers employed for the first cycle of pri- mary school was composed of high school graduates without training in pedagogical skills. Since the 2002/03 school year, all contract teachers are supposed to undergo a short intro- ductory course at a teachers' college. Although quality of teaching by contract teachers remains a major concern, studies of teacher performance in Niger have revealed that civil servant teachers do not perform significantly better than contract teachers. To improve the access of the poor to education services, a number of key issues will need to be addressed: I Administrative costs need to be reduced. They account for a high percentage of expenditures: 23 percent in primary education and close to 50 percent in secondary education. Many of the experienced teachers currently in administrative positions should return to teaching. I Schoollocationsandthestructureofprimaryeducationexpendituresarestillbiasedin favor of urban centers and the most developed regions. Spending per child of school age is 2.5 times higher in Niamey than in Tillabery and Tahoua.54 The regions where Table 2-15. Unit Costs by Subsector By school year (in FCFA million) 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 Number of contract teachers 10,267 12,767 15,267 17,767 20,267 22,767 Initial total salary costs/a 4,312 5,362 6,412 7,462 8,512 9,562 Actual total salary costs/b 4,928 6,128 7,328 8,528 9,728 10,928 Actual salary plus benefits/b 5,687 7,072 8,457 9,841 11,226 12,611 Impact of salary increase 1,375 1,710 2,045 2,379 2,740 3,081 /aBased on average initial (i.e. before the September 2003 decree) salaries of contract teachers (FCFA 35,000 for first cycle and FCFA 50,000 for second cycle teachers). /bBased on average actual salaries of contract teachers (FCFA 40,000 for first cycle and FCFA 60,000 for second cycle teachers). Sources: MEBA, World Bank staff calculations. 54. This ratio is affected by demand for schooling, though. One could assume that less resources are allocated to regions with low demand (and hence low enrolment rates) than to regions with high demand. Public Expenditure Management and Financial Accountability in Niger 51 this ratio is lowest are at the same time the ones that have obtained the weakest test results in recent years. Similarly, the geographical distribution of school infra- structure (number of schools per child of school age) is very unequal. I Thecashmanagementsystemhasledtomajordistortionsinthestructureofexpendi- tures in the sector. Wages and salaries are usually not affected by cash rationing, and actual expenditures often exceed initial allocations (see Table 2-5), but budget reg- ulation and cash management plans do not adequately protect other recurrent expenditures. In 2001 for instance, only 16 percent of allocations for school sup- plies were spent, with serious implications for the effectiveness of education pro- grams. Poor children are the most affected since their families cannot afford to buy school books and other supplies. I Budgetexecutionratesareparticularlylowinhighereducation.Onlyone-thirdofini- tialallocationshavebeeneffectivelytransferredtotheAbdouMoumouniUniversity. Such large differences between voted and executed expenditures may be due to un- realistic budget goals and major absorptive capacity constraints. They also point to the need to clarify the Government's strategic priorities for higher education. I Fellowshipsandotherwelfareactivitiesaccountedforahighproportion,about50per- cent, of higher education expenditures (in 2002). This contrasts with outlays for per- sonnel (27 percent of total) and other administrative costs (16 percent). In addition, about two-thirds of fellowships are for 3,111 students studying abroad (2002). Developing a strategy for higher education should include a review the structure of subsector expenditures and a comparison of the costs and benefits of alternative pro- grams and activities. Table 2-16. Economic Classification of Education Expenditures (in FCFA billion) 2000 2001 2002 Execution Rates Recurrent Expenditures 33.3 33.0 42.2 103% Salaries 24.8 23.79 29.8 112% Other Goods & Services 5.5 6.49 6.1 79% Transfers & Subsidies 3.0 2.72 4.3 109% Capital Expenditures 6.9 9.97 15.0 94% Total 40.2 42.97 57.2 100% Source: MEF. Challenges Ahead. In spite of the relative stagnation of the share of education in total public expenditures, Niger has achieved significant progress in basic education, the key subsector for poverty reduction. The increases in the share of basic education in total edu- cation spending and the reduction of unit costs have facilitated large increases in primary school enrollment. Nevertheless, there are still important challenges for expenditure man- agement in the education sector: I The policy of using contract teachers for primary education should be continued as long as it retains its cost advantage. 52 A World Bank Country Study I Increasingprimaryenrollmentrates,reflectingthe3.3percentpopulationgrowth rate will require a major sustained increase in investment and recurrent expendi- tures to finance school construction, recruitment, and training of teachers, and operational expenditures. It will also require continued efforts to reduce unit costs. I There is scope to increase the efficiency in the use of existing resources and their impact on the poor through re-allocations within the education sector. Three areas are particularly promising in this respect: (i) a significant reduction in administra- tive expenditures in favor of activities directly related to schooling, such as rede- ployment of experienced teachers from administrative to teaching positions; (ii) a review of the fellowship program in higher education; and (iii) a redistribution of resources in favor of the poorest population groups and regions. Budget regulation and cash management plans should give priority to operational expenditures, including textbooks and other school supplies. I An overall education strategy is needed, which would continue to emphasize pri- mary education but would also consider the priority needs of other subsectors. I Issuingthreeyearrollingprogrambudgetforprimaryeducationbudgetfor2005­ 2007 should be feasible. The PDDE contains most of the data, analysis, and cost estimates necessary for developing a sound three year rolling program budget for primaryeducation.Itshouldbeinlinewiththemedium-termexpenditureframework forthesubsector,whichisnowunderpreparation.Similarbudget-programmingexer- cises should be undertaken for the other subsectors following the formulation of appropriate strategies. I Improvedaidcoordinationbasedonsoundsectorstrategiesshouldhelpmobilize additional donor funding for school construction and high-priority recurrent expenditures and ensure its sustainability. This is critical to successful implemen- tation of the PDDE. The primary education sector should also benefit from the increased volumes of HIPC funds available in the coming years.55 Box 5. Education--Main Recommendations · Develop a 2005­2007 program budget for primary education, on the basis of the existing PDDE and consistent with a MTEF under preparation. · Prepare strategies for the other subsectors, including higher education, as a basis for the design of future MTEFs and program budgets. · Improve the structure of education expenditures for the benefit of poor regions and vul- nerable groups. · Control unit costs. Resist pressure for adjusting salaries of contract teachers. · Reduce administrative expenditures. Redeploy experienced teachers towards teaching positions. · Increase allocations for critical operational expenditures and protect them against major cuts in the context of cash management. Use HIPC resources to contribute to the funding of these expenditures. · Evaluate the comparative advantages of fellowships for studies in Niger and in foreign uni- versities. Increase cost recovery. 55. In the 2004 Budget Law, the Government started financing salaries of contract teachers with HIPC resources. Public Expenditure Management and Financial Accountability in Niger 53 Health Background and Objectives. During the 1990s, the Government launched an ambitious reform program for the health sector, with the main objective of improving access to basic health care. Significant results have been obtained in terms of better access to health ser- vices and availability of essential drugs in health centers. Access rates (percentage of pop- ulation living less than 5 kilometers from a health facility) increased from 32 percent in 1994 to 47 percent in 2003. However, regional disparities have not disappeared. About 70 percent of the urban population but only 28 percent of rural people have access to health services (World Bank 2004f). Health indicators have improved over the past ten years but remain poor (see Table 2-17). Child malnutrition is high and infant and child mortality rates are among the high- est in the region. The following factors are behind Niger's poor health indicators: Table 2-17. Health Indicators Sub-Saharan Africa 1992 2000 (2001) Infant mortality (per 1000) 135 126 107 Mortality of children under 5 (per 1000) 326 280 173 Maternal mortality (per 100,000 live births) -- 700 822 Fertility (per woman 15­49) 7.5 7.5 5.4 Life expectancy at birth (years) -- 48 49 Chronic child malnutrition (% of children under 5) 36 39.6 31 Sources: EDS 1992; UNICEF (2001). I High incidence of infectious and parasitic diseases: Meningitis, rubella, and other pediatric diseases are widespread. The incidence of malaria and tuberculosis is par- ticularly high among the poor. According to a 2002 survey, the HIV prevalence rate is low at below 1 percent, but the pandemic is expanding. I Highfertilityrate:ThefertilityrateofNigerienwomen,oneofthehighestintheworld, is largely responsible for high maternal and infant mortality. Proper medical assis- tancecouldpreventmanydeathsoccurringduringpregnancyanddelivery,butaccess ofwomentofamilyplanningandreproductivehealthcareislimited.Healthcareser- vices for infants and children are underutilized. Immunization programs are becom- ing more effective but mainly in urban centers. I Poor living environment and behavioral factors: Many health problems could be avoided if people lived healthier lives. Inadequate access to safe water and sanita- tion is a major factor behind the rapid spread of infectious diseases. Child malnu- trition is due to inadequate food intake and unbalanced diet. Low literacy and school enrollment rates, notably among women, affect the efficiency of programs aimed at improving health-related behavior. 54 A World Bank Country Study An integrated approach to health development is required to improve health conditions, reduce regional and gender disparities and achieve the MDGs. In 2002, the Government adopted a ten-year health policy strategy for 2002­2011 (République du Niger 2002c). Its main objectives are to further improve access to health services (from 47 percent in 2000 to 80 percent in 2011) and to reduce the incidence of infectious diseases, by pro- moting new approaches, including preventive action. In order to operationalize this objective, the Government has initiated the preparation of a five-year development plan for the sector. Structure of Health Expenditures. Health expenditures have increased over the past few years (from FCFA 10.4 billion in 2000 to 15.2 billion in 2002), but less rapidly than public expen- ditures in other priority sectors. As a result, the share of health in total public expenditures has declined significantly, from 16.5 percent in 2000 to 14.4 percent in 2002. The budget law for 2004 further reduced the share of the sector and the draft medium-term expenditure framework for 2005­2007 provides for only a modest increase (see Table 2-4). Absorptive capacity problems and low execution rates are among the factors behind the slow expansion of health expenditures. As shown in Table 2-18, the sector utilized only 75 percent of its initial budget allocations in 2000­2002. Actual expenditures for wages and salaries exceeded initial allocations but for other recurrent expenditures, including drugs and supplies for health centers, only 58 percent of initial allocations were utilized. This indicates that budget regulation and cash management plans are not sufficiently protect- ing these high priority expenditures. Data on sources of financing for health programs are incomplete and outdated and the formulation of a health development plan would benefit from a detailed assessment on sources of financing for health services. For this purpose, the Government plans to update the national health accounts (the last edition dates back to 1999). The main sources of financing for the sector are the national budget, donor funds, NGOs, Social Security (Caisse nationale de sécurité sociale), and households (cost recovery). Table 2-18. Economic Classification of Health Expenditures (in FCFA billion) Execution Rates 2000 2001 2002 (Averages) Recurrent expenditures 10.4 13.7 15.2 75% Wages and Salaries 4.9 5.0 5.2 102% Goods and Services 3.3 5.3 5.5 58% Transfers and Subsidies 2.2 3.5 4.4 74% Capital expenditures 18.4 19.7 19.9 94% Total 28.8 33.4 35.1 85% Share in Total Expenditures 16.5% 16.1% 14.4% (exc. debt service) Source: MEF; World Bank and EC Staff Calculations. Public Expenditure Management and Financial Accountability in Niger 55 Donors finance more than half of Niger's health expenditures, but donor contribu- tions to the health sector are declining (by 17 percent from 2000 to 2002).56 Because of the closing of a large Bank-financed project (Health 2) in 2003, the budget law for 2004 pro- jects a sharp decrease in donor-financed capital expenditures. This illustrates how strongly the functioning of the sector depends on external financing. Cost recovery mechanisms have been extended to health centers during the 1990s and now represent a significant source of financing. The new cost recovery policy has produced mixed results. According to the World Bank (2004b) report on Health and Poverty in Niger, cost recovery levels have increased from FCFA 0.8 billion in 1998 to 1.7 billion in 2001. This represents more than 10 percent of recurrent public expenditures (in 2001). It suggests that basic health services outside of the urban centers depend more and more on financing throughcostrecovery.Thereportstatesthatincreasedusercontributions(andthelackoffee structurestakingintoaccountincomelevelsofpatients)havelimitedthedemandofthepoor for health care, while available health centers remain underutilized. The cost recovery policy has also provided local health officials with an incentive to promote those services that gen- erate user fees. This tends to favor curative over prevention activities. Main Issues in Resource Management in the Health Sector. The ongoing elaboration of the Health Development Plan (plan de développement sanitaire 2005­2009) offers an opportu- nity to review the expenditure structure in the sector and to enhance efficiency in resource use. At this stage, lack of detailed data on public spending by health programs and of a com- prehensive strategy makes it difficult to judge the consistency of public expenditure allo- cation with sectoral priorities. Nevertheless, a number of critical issues emerge from the analysis. I Existingdataongeographicaldistributionofresourcessuggestthatcriteriasuchashealth conditions, population density, and incidence of poverty are not sufficiently taken into account in the allocation of health expenditures. The urban population enjoys better access to health services (including private facilities) and per capita health expendi- tures are much higher in cities than in rural areas, where mortality and morbidity rates are particularly high. Only 37 percent of health staff works in rural areas where more than 84 percent of the population lives. I Themanagementofhealthresourcesisheavilycentralized.Inthe2000­2002period, 82 percentofrecurrentpublicexpenditureswerecentrallymanaged(seeTable2-19). This concerns not only personnel expenditures and transfers to hospitals, but also salaries and supplies for local health structures. This is in spite of a de-concentration policy initiated during the 1990s that provided for the creation of health districts (districts sanitaires), which contributed to improving access to health services. I Theshortageofhealthpersonnelanditsunevendistributionisakeyprobleminresource management in the sector. As in the education sector, restricted recruitment of civil servants is a major obstacle to increasing staff and improving distribution. Niger has only one physician for 46,290 people, while the WHO norm is one for 10,000. A similardeficitexistsformidwives,whileavailabilityofnursesisbetter(seeTable2-20). 56. Including HIPC contributions. 56 A World Bank Country Study Table 2-19. Health Sector--Recurrent Expenditures by Level Actual expenditures in FCFA billion--payment order stage LEVEL 2000 2001 2002 TOTAL 10.4 13.7 15.2 Other Ministries 0.5 0.6 0.6 Central Level 8.0 10.1 11.7 Of which: transfers to parastatals 2.2 3.5 3.9 Delegated Expenditures 1.7 2.6 2.7 Tillaberi 0.2 0.3 3.3 Dosso 0.2 0.3 0.3 Maradi 0.2 0.4 4.0 Zinder 0.3 0.3 0.4 Tahoua 0.3 0.4 0.4 Diffa 0.2 0.2 0.2 Agadez 0.1 0.3 0.3 Niamey 0.3 0.4 0.3 Source: MSP, MEF; World Bank and EC Staff Calculations. These ratios are significantly worse in poor and rural areas than in richer urban areas. Niameystandsoutwithasurplusofphysicians,midwivesandnursesmeasuredagainst theWHOnorms.Niameyandtoalesserextentotherurbancentersattracthealthpro- fessionals with better opportunities for additional income and career growth and bet- ter living conditions than rural areas. Additional incentives would need to be created for health workers to take up positions in poor rural areas and remain there. Table 2-20. Ratios of Health Workers to Population by Region (2000) Ratio of WHO norms57 to actual number of health workers, regions ranked according to poverty incidence (poorest to richest) Physicians Midwives Nurses 1. Tillaberi 17.7 10.0 3.0 2. Dosso 8.5 9.0 2.4 3. Maradi 11.1 13.6 3.2 4. Zinder 8.8 12.3 2.2 5. Tahoua 7.4 11.8 3.0 6. Diffa 1.8 3.6 0.7 7. Agadez 3.2 3.7 1.2 8. Niamey 0.7 0.8 0.5 Niger total 5.1 5.9 1.9 Source: World Bank (2004b), poverty incidence according to the World Bank's poverty assessment (World Bank 1996). 57. WHO norms are 1 physician per 10,000 inhabitants and 1 midwife and nurse per 5,000 inhabitants. Public Expenditure Management and Financial Accountability in Niger 57 Although the de-concentration policy helped significantly improve the availability of medicines in health facilities since the early 1990s, this remains one of the key problems in Niger's health system. With the exception of the two richest regions (Niamey and Agadez) and Zinder, all other regions experienced relatively frequent stock interruptions in 2000 and 2001 (World Bank 2004b). Challenges Ahead. Four main priorities need to be addressed to enhance the management of the health sector: (i) improving the programming of future resources and activities; (ii)decentralizingthemanagementofthesectorandreducingregionaldisparitiesinresource availability; (iii) increasing numbers and enhancing quality of staffing of health facilities; and (iv) reforming the structure of the Health Ministry and other key sector institutions. A five-year development plan is currently being prepared by the Government, in coop- eration with the main donors involved in the sector. To serve as a sound basis for pro- gramming and monitoring the use of resources in the health sector, this plan would need to include: (i) a detailed description of sectoral priorities; (ii) a review of the performance of past programs, in particular the absorptive capacity problems that have affected the exe- cution rates; (iii) detailed implementation programs with realistic cost estimates and per- formance indicators; and (iv) a sustainable financing strategy. In order to serve as strategic framework for the sector as a whole, the plan would have to be built through an extensive consultation process involving all stakeholders, including donors, communities and private health service providers. Given the precarious data situation in the health sector, the formulation of the devel- opment plan would have to be accompanied by the production and analysis of data on ser- vice provision and demand, and financial data. This would require strengthening the National Health Information System (Système national d'information sanitaire--SNIS) by making it more user-friendly. It would also require producing a new set of national health accounts (2000­2003), to provide data on financing of health activities. Once the development plan is in place, it would have to be translated into a program budget and sector MTEF for operationalization through the national budget. Further efforts towards gradual de-concentration and decentralization of resource management need to be made to improve access to health services and reduce regional dis- parities. This reform would ultimately lead to a full delegation of authority over program- ming and management of resources for local health facilities to local authorities, with active participation of the local population. The decentralization process could start with insti- tuting local management committees (Comités de gestion) comprised of health officials and representatives of local communities. The strengthening of the role of local health administrations (Districts sanitaires) in pro- gramming of health activities is a promising first step in the de-concentration reform. The districts sanitaires have begun to prepare annual health programs, which include an estima- tion of costs and reports of activities in the previous year. In addition, the Government is preparing a pilot program involving the direct allocation of funds to districts sanitaires on the basis of agreed performance contracts. First results of this pilot program may provide useful lessons for the design and implementation of the de-concentration/decentralization reform of the sector. An all-encompassing reform of staff recruitment, training and deployment of policies is required for a lasting solution of the staffing problem of the health sector. The five-year 58 A World Bank Country Study development plan should lay the basis for such a reform. In particular, solutions to the dearth of qualified health personnel in poor and remote areas will need to be found. In this respect, the authorities should further explore the use of contract health workers (health staff on limited term contracts with lower salaries and fewer benefits). This would enable the expansion of the health workforce, due to the lower unit costs of this solution.58 The Government considers the structure and the management of the Public Health Ministry and other health sector institutions as inappropriate for the challenges the sector is recurrently facing. An organizational audit is envisaged, which would produce the ele- ments of a restructuring program. Box 6. Health Sector--Main Recommendations · Review and approve a five-year development plan for the health sector. The plan should include an analysis of the absorptive capacity constraints of the sector, detailed programs, and cost estimates and the definition of a sound strategy for financing the sector. · On the basis of the five-year development plan, prepare and improve gradually MTEF and program budgets for the health sector. · Include in the development plan plans for reallocating services, activities and staff on the basis of appropriate criteria, including local health conditions, poverty and population density. · Prepare and implement a global reform of health staff recruitment, training, and deploy- ment policies. · Increase the share of health sector expenditures allocated to basic health services, includ- ing maternal and child health care. · To reduce unit costs, recruit contract health workers while minimizing possible negative impact on quality. Consider HIPC financing for contract health workers. · Verify that incentive systems are able to encourage a redeployment of health personnel in poor, remote, and underdeveloped areas. · Improve production and dissemination of health information. Prepare national accounts for the health sector. Integrate financial data and information on hospitals in the National Health Information System (SNIS). · Identify a package of high-priority expenditures, including drugs and recurrent costs of health centers, for special protection in the context of budget regulation and cash man- agement plans. · Undertake an organizational audit of the Ministry of Health and other key health institutions. Road Transport Background and Objectives. In the absence of a railroad or a significant river navigation system, road transport provides for 90 percent of Niger's domestic and regional transport needs. During the first 35 years of the country's independence, a major road construction program multiplied the length of the road network fivefold from 3,000 to 15,000 kilome- 58. This policy was already introduced in 2002, when over 900 health contract teachers were hired, mainly nurses and mid-wives. However, procedural errors and political pressure by unions led to a Supreme Court ruling in favor of incorporation of these contract teachers in the civil service. This has blocked the recruitment of contract teachers in the sector in the past months. Public Expenditure Management and Financial Accountability in Niger 59 ters and expanded the network of paved roads from 100 to 3,800 kilometers. Nevertheless, the density of Niger's road network remains low compared to most of the other countries in the sub-region. Clearly, Niger's long-term economic and social development will require a major road construction, rehabilitation, and maintenance program. The degradation of road infrastructure resulting from insufficient resources dedicated toroadmaintenanceconstitutesthemainchallengefortheroadtransportsector.Thisthreat- enstocauselarge-scaledamagethatcanonlyberepairedthroughcostlyrehabilitationworks. To avert this crisis, corrective measures will need to be taken to expand and improve main- tenance of the road network. Road transport, particularly the expansion and improvement of the rural road net- work, occupies a prominent position among the strategic priorities of Niger's poverty reduction strategy. The PRS sees the creation of a viable road network as critical for stim- ulating production and marketing of food surpluses by connecting Niger's agricultural production areas with the primary roads that serve the main urban centers. This would lead to improving food security and increasing the income of rural poor. A National Road Transport Strategy (Stratégie nationale du transport routier), which includesanInvestmentPlanforthesubsector,iscurrentlybeingpreparedandwasscheduled for adoption in July 2004. Its draft outlines the following priorities for the sector: (i) road constructioninruralareas;(ii)involvinglocalauthoritiesandlocalcommunitiesinplanning and executing rural roads projects; (iii) strengthening the Road Maintenance Fund (Caisse autonome du financement de l'entretien routier, CAFER) and increasing resources allocated to road maintenance; and (iv) reviewing the scope of the overall road maintenance program in line with realistic projections of available resources. Structure of Public Expenditure on Road Transport. The PRS envisaged that 8 percent of total public expenditures would be allocated to the road sector. In 2000­2002, transport and other civil works expenditures of the Ministry of Equipment (Ministère de l'équipement et de l'aménagement du territoire, MEAT) averaged FCFA 15.3 billion a year--7.3 percent of total public expenditures (see Table 2-21). Road expenditures are by far the most impor- tant component of the MEAT budget and the share of the road subsector in total public Table 2-21. Public Expenditures for Transport and Civil Works Transport and civil works expenditures 2000 2001 2002 Average Initial budget allocations (in FCFA billion) 46.5 33.0 37.7 39.0 Execution (in FCFA billion, on a commitment/ 16.2 8.1 21.5 15.3 ordonnancement basis) In % of total expendituresa/ 9.3% 3.3% 8.8% 7.3% Execution rates 34.9% 24.5% 57.1% 39.1% Recurrent expenditures in FCFA billion 1.0 2.5 3.4 2.3 Capital expenditures in FCFA billion 15.2 5.6 18.1 12.9 Ratio recurrent/capital expenditures 6.8% 44.5% 18.9% 17.8% a/Total expenditures, excluding debt service. Capital expenditures include expenditures outside the State Investment Budget (BIE). Source: MEF; World Bank and EC staff calculations. 60 A World Bank Country Study expenditures is estimated at close to 7 percent, just short of the PRSP objective. Most of the subsector's capital expenditures were externally funded. Most of the road sector expenditures are for externally financed investments and the transport and public works sector has the lowest recurrent/capital expenditures ratio (23.4 percent in 2000­2002) of all priority sectors. However, in Niger's budget, capital expenditures include not only road construction, rehabilitation and periodic mainte- nance, but also routine maintenance.59 This partly explains the large share of capital expen- ditures in this subsector. The lack of funding for road maintenance is the main problem of the road sector today. The Government estimates that a minimum annual budget of FCFA 9 billion should be spent on routine and periodic road maintenance. As shown in Table 2-22, budget allo- cations for road maintenance increased from an average of FCFA 3.7 billion in 1997­1999 to FCFA 5.2 billion in 2000­2002. However, execution rates, which were close to 100 per- cent in 1997­99 fell to 44 percent in 2000­2002 and actual road maintenance expenditures decreased to an average of FCFA 2.5 billion during the period. Execution Modalities and Financing Road Maintenance. In 1999, the Government under- took a sector reform aimed at expanding and improving road maintenance. The reform provided for the privatization of periodic and routine road maintenance and the cre- ation of CAFER. Under this arrangement, road maintenance was to be financed mainly through road user fees, which were to be levied as part of a tax on petroleum products (redevance pétrolière). The original idea was to make CAFER a second generation road maintenance fund, directly financed by user fees, with no allocation from the national budget. Other fees, including tolls were to contribute (in a small way) to CAFER's financ- ing. However, after CAFER assumed its operations in 2001, a different funding mech- anism was instituted. All receipts from road taxes were transferred to the national budget, which therefore contained allocations to CAFER, independent of the levels of tax receipts. However, budget allocations for road maintenance in 2000­2002 remained at levels considerably below estimated requirements for road maintenance and low execution rates reduced the actual level of available resources even further (see Table 2-22). In 2003, for instance, the Government's budget allocated FCFA 5.4 billion to road maintenance, but by the end of June 2003, only FCFA 800 million (15 percent of the initial allocation) had been transferred to CAFER. In fact, it was funding from the French Development Agency (Agence française de développement) that provided a significant share of CAFER's resources in 2001­2003. As a consequence, the road maintenance reform has failed in its main objective: road maintenance expenditures have remained grossly inadequate, leading to rapid deteriora- tion of high-priority roads that will need to be rehabilitated at a much greater cost. Niger therefore did not derive the benefits expected from the privatization of road maintenance. Without a stable and secure source of funds, CAFER was unable to adequately conduct the 59. Transfers to CAFER for road maintenance are classified as investment expenditures. This violates the common practice of classifying outlays on routine road maintenance as recurrent expenditures (peri- odic maintenance is usually classified as capital expenditures). In addition, road projects financed by donors often include financing for road maintenance. Public Expenditure Management and Financial Accountability in Niger 61 Table 2-22. Budget Allocations for Road Maintenance and Actual Expenditures (in FCFA billion) Year Budget allocations Actual expenditures Execution rates 1991 2.8 2.0 72.6 % 1993 3.1 3.0 96.2 % 1995 2.5 2.5 99.9 % 1997 3.1 3.1 100 % 1998 3.7 3.7 99.9 % 1999 4.4 4.4 99.9 % 2000 4.2 0.1 2.8 % 2001a/ 5.7 4.4 77.1 % 2002 5.6 2.9 51.2 % TOTAL 44.7 35.2 78.8 % a/First year of CAFER operation. Source: MEF. bidding and contracting processes and was often unable to pay contractors on time for work completed, building up substantial amount of arrears. This rendered it difficult to promote business development of small local contractors who could have become the main beneficiaries of road maintenance contracts. Challenges Ahead. Niger's past road construction and rehabilitation program has created a road network, which the Government seems unable to maintain. While the national road system has not been significantly expanded in recent years, as there has been no new con- struction of major roads, large amounts of (donor) resources have been dedicated to reha- bilitation programs. To enhance allocation and management of resources in the road sector, three main challenges need to be tackled: (i) establishing a reliable funding mechanism for road main- tenance; (ii) creating a better balance between different categories of expenditures in the sector; and (iii) strengthening capacities for managing resources. (i) Reform road maintenance financing Twotypesofsolutionscanbeenvisagedtosecuresufficientfinancingforroadmain- tenance: the establishment of a second generation road fund that receives funding directlyfromuserfeereceipts(off-budgetsolution)orfundingofroadmaintenance through the budget as currently practiced, yet fully protecting these expenditures in the budget execution process (on-budget solution). I Theoff-budgetsolutionwouldprovideforadirecttransferofapre-determined share of the proceeds of the tax on petroleum products (and other user fees) to CAFER.Thiswouldhavetheadvantageofmakingthetransferquasi-automatic. However, it goes against the principle of the budget unity. I Thein-budgetsolutionwouldrequiretheGovernmenttoearmarkinthebud- get a fixed share of petroleum tax proceeds plus additional resources from 62 A World Bank Country Study other sources for road maintenance and transfer it to CAFER. These transfers would then be protected in budget execution by receiving high priority status in budget regulation and cash management plans. In any case, resources available from the recurrent financing sources for CAFER (petrol tax, road tolls, and concessions) are far from sufficient to cover the esti- mated requirement of FCFA 9 billion for periodic and routine road maintenance. Therefore, further financing sources need to be tapped, such as HIPC funds and donor financing. Once a viable solution for CAFER is adopted, the Government could also approach donors to help clear CAFER's arrears with contractors and establish a revolving fund to avoid future arrears. (ii) Review and reform the road transport investment program A sensible solution would seem to be to reduce the investment program, to give top priority to the projects with the highest return in terms of economic growth and povertyreduction,andtoreallocatealargerpercentageofdonorfundstowardsroad maintenance. This would need to be done until the mobilization of additional domestic resources would enable the Government to assume full responsibility for financing and implementing an appropriate maintenance program. The forthcom- ing Investment Plan should therefore aim at improving the balance between invest- ment (new constructions, rehabilitation, and periodic maintenance) and routine maintenance expenditures. (iii) Strengthen capacity for managing resources in the road sector The decision made in 1999 to privatize road maintenance implied a major change intheroleoftheservicesresponsibleforroadmaintenance,particularlytheDepart- ment of Public Works (Direction générale des travaux publics, DGTP). The DGTP had to reorient itself from direct execution of road works to planning and monitor- ing works performed by the private sector. This necessitated significant changes in thestructureandstaffingofthedepartment.Thisrestructuringexercisehasnotpro- gressed much, though, for a number of reasons. In this context, the DGTP would need to be equipped with an information system that enables effective planning and monitoring of road construction and maintenance projects. Such a system would produce information on conditions of the road network, progress of works and data on the cost and financing of road construction and maintenance activities. A central road sector information system (Banque de données routières) has been estab- lished for this purpose and its database was updated in 2003. However, the staff of the department has not been trained to collect and update the data required to evaluate road rehabilitation and maintenance priorities. Privatization of road maintenance would be very beneficial to the Nigerien economy if medium-sized enterprises and small local contractors could participate actively in these pro- grams. As noted earlier, this was not possible due to insufficient resources made available for roadmaintenanceanddelaysinpaymentstocontractors.RestructuringCAFERandimprov- ing its performance would therefore in itself be an important element of an economic devel- opment strategy with a significant poverty reduction component. This would have to be complemented by appropriate technical support to local contractors through existing pro- fessional organizations. Public Expenditure Management and Financial Accountability in Niger 63 Box 7. Road Transport--Main Recommendations · Select and implement one of the recommended options for improving funding of road maintenance: direct transfer to CAFER of growing amounts of user fees, or transfers through the Treasury, protected by reforms of future cash management plans. · Settle arrears to contractors and establish a revolving fund to reduce vulnerability of the program to the ups and downs of CAFER funding. Mobilize donor financing for CAFER and the revolving fund. · Review and revise the road investment program on the basis of the road maintenance capacity of the Government. Consider re-allocating some of the domestic and donor funds to high-priority maintenance activities. · Strengthen the capacity of the ministry and the Direction Générale des Travaux Publics, notably its capacity to collect, update and process data on road conditions for effective planning of road construction and maintenance. · Provide technical support to small and medium-sized local enterprises through their pro- fessional organizations. Rural Development Background and Objectives. Although the development of agriculture, livestock, and other rural activities60 is one of the key priorities of Niger's poverty reduction strategy, the per- formance of the rural sector in past years has been unsatisfactory. Its rate of growth aver- aged less than 2 percent over the past 40 years, significantly less than the population growth rate of more than 3 percent (SDR 2003). Traditional cultivation methods dominate and growth of agricultural output is less the result of improved productivity than of expand- ing area under cultivation. Yields per hectare have actually declined over the past years and are significantly below the average in neighboring countries with similar climatic condi- tions. Livestock production is based on traditional methods and revenues from domestic sales and exports of livestock products have also declined. Finally, Niger faces major envi- ronmental problems. Wood consumption has quadrupled in 40 years and the forest cover continues to shrink. Poor rainfall and overexploitation of land resources accelerate the desertification process. Niger's agricultural potential is not insignificant and improving cultivation practices and appropriately using fertilizers could increase yields. There are substantial water resources that could be harvested for multiplying the area under irrigation. The main pri- ority at this stage is to create the appropriate incentives for farmers to take advantage of a variety of development and market opportunities within the region. This would help them modernize and intensify their production. In this context, it is important to promote rural savings and micro-finance operations to increase productivity and help farmers better manage climatic risks and economic uncertainties. The public sector should focus on cre- ating an environment favorable to private development by improving roads and other infrastructure as well as strengthening institutions. 60. The rural sector contributes about 40 percent to GDP. Agricultural production accounts for about 52 percent of rural sector output, livestock for 30 percent and forestry and fishing for 18 percent. 64 A World Bank Country Study Table 2-23. Yields of Cereal Production in Niger--Comparison with other Countries in the Sub-region, 1992­2001 Average yields, in kg/hectare Millet Sorghum Groundnuts Niger 410 180 390 Mauritania 300 570 N/A Senegal 600 760 860 Mali 700 900 91 Chad 410 580 910 Burkina Faso 680 821 850 Source: FAOSTAT. The Rural Development Strategy (RDS). In November 2003, the Government adopted a rural development strategy (RDS), aimed at reducing rural poverty from 66 to 52 percent by 2015. This strategy covers the sector as a whole and was jointly prepared by the four ministries in charge of rural development.61 The preparation of the strategy followed a con- sultative process involving the main donors and other key stakeholders. A major strength of the RDS is its description of the respective role of the main actors in the sector notably that of the Government, which should create conditions conducive to pri- vate sector development. The strategic priorities determined by the RDS are to: (i) support economic growth through better access of the rural population to commercial opportuni- ties; (ii) promote food security and environmental protection; and (iii) strengthen public institutions and build capacity of farmers' organizations. To achieve these objectives, the strategy relies on a variety of initiatives including structural reforms (programmes struc- turants)aimedatcreatinganenablingenvironmentandhigh-priorityprograms(programmes sectoriels prioritaires) aimed at promoting the development of certain subsectors. The RDS is a sound policy document, which is viewed by the Government as the first phase of a more comprehensive strategic exercise. In order to serve as a basis for making strategic decisions about allocating resources within the sector, the Government has recently engaged in preparing a series of action plans. Structure of Public Expenditures in the Rural Sector. Lack of a comprehensive set of expen- diture data on rural development programs and subsectors makes an analysis of the struc- ture of public expenditures in the sector difficult. This is an important limitation for the preparation of the RDS actions plan, as it does not allow for an evaluation of the economic justification and potential poverty reduction impact of ongoing and planned investments. Despite these constraints, available public expenditure data have provided some useful indications about past Government activities in the rural sector (see Table 2-24). 61. These are the following: Ministry for Agricultural Development (Ministère du développement agri- cole), Ministry for Livestock (Ministère des ressources animales), Ministry for Water, Environment and Fight against Desertification (Ministère de l'hydraulique, de l'environement et de la lutte contre la désertifi- cation (MHE/LCD)) and Ministry for Community Development (Ministère du Développement commu- nautaire). Public Expenditure Management and Financial Accountability in Niger 65 I The share of the rural sector in total public expenditures declined considerably from 20 percent at the beginning of the 1990s to 11 percent in 2000­2002. This is slightly below the PRS objective, which sets a target of 12 percent for the share of the rural sector in total public expenditures. I Investment expenditures averaged FCFA 22 billion during the 1990, fell to FCFA 11.5 billion in 2000, but rose again in 2001 (close to the 1990­1999 average). Two factors are behind the recent increase: (i) the implementation of a number of large rural development projects that began in 2001, and (ii) the allocation of a sizeable share of HIPC funds to investments in the rural sector. I The recurrent/investment expenditures ratio is relatively low (21­26 percent in 2000­2002)comparedtootherprioritysectors.Wagesandsalariesaccountforalarge share of recurrent expenditures. More than 30 percent of staff of the rural develop- ment ministries is employed in the central administration. This share was consider- ably lower in the early 1990s (around 15 percent).62 The trend of concentrating the staffinthecentraladministrationisworrisome,asthereisaneedtoincreasefieldstaff that can provide direct technical support to farmers. I Execution rates have varied strongly from year to year during 2000­2002. On average, they reached 67.7 percent, much below the average execution rate for the budget as a whole. Execution rates are high for personnel expenditures (more than 100 percent on average for 2000­2002) but very low for investments and other operational activities. Challenges Ahead. In order to determine the required level of resources for rural develop- ment and the optimal intra-sectoral allocation of these resources, the authorities will have Table 2-24. Public Expenditures in the Rural Sector (in FCFA billion) Average 2000 2001 2002 2000­2002 Budget allocations (voted budget) 31.5 29.6 43.6 34.9 Actual expenditures (payment orders) 14.6 27.6 27.8 23.3 Recurrent expenditures 3.0 4.8 5.2 4.3 Wages and salaries 2.1 2.2 2.1 2.1 Goods and services 0.56 0.6 1.5 0.9 Transfers and subsidies 0.4 2.1 1.6 1.3 Capital expenditures 11.54 22.8 22.6 18.9 Share of rural development in total 8.4% 13.3% 11.4% 11.0% public expenditures Execution rates 46.2% 93.2% 63.7% 67.7% Ratio recurrent/capital expenditures 26.1% 21.2% 22.8% 23.3% Source: MEF; World Bank and EC staff calculations. 62. Based on the previous Rural Development PER (2001) and numbers provided by the rural devel- opment ministries. 66 A World Bank Country Study to complete the operationalization of the RDS. For this purpose, the ongoing preparation of action plans should be completed and the plans subsequently translated into a rolling budget program and sectoral MTEF. The RDS action plans should: I Takeintoaccountlessonslearnedfrommanyyearsofimplementationofruraldevelop- ment programs. This would help assess the probable impact of planned programs on productive activities (such as on production and export volumes or productivity). For this purpose an evaluation of past and ongoing programs should be conducted. I Maintain the consensus around the RDS built among stakeholders. This would be maintained by basing the sectoral MTEF on detailed consultations with stakehold- ers, in particular key donors, who will be the main financiers of the implementa- tion of the action plans. I Include in the RDS a detailed description of sector programs, including objectives, quantitative targets, and output and outcome indicators for monitoring progress. I FullycosttheRDSthroughanMTEFandpresentafeasiblefinancingstrategy. Box 8. Rural Development Sector--Main Recommendations · Complete preparation of a set of action plans based on the objectives of the rural devel- opment strategy. The action plans should include: (i) an evaluation of ongoing programs; (ii) a detailed analysis of future programs (including cost estimates and performance objec- tives); and (iii) a financing strategy. · Following appropriate consultations with all stakeholders, including donors, the action plans should lead to the preparation of realistic medium-term program budgets based on appropriate performance and result indicators. CHAPTER 3 Assessment of Public Finance Management Systems E ffective, transparent budget management and accounting instruments are essential to allow Government officials to make the right spending decisions, monitor budget implementation, evaluate the cash position of the Government, and adjust spend- ing levels to available resources as needed. This section of the Report summarizes the detailed comments and recommendations provided in the full Country Financial Account- ability Assessment (CFAA) report on the strengths and weaknesses of Niger's public finance management system. Niger's public finance management system is highly centralized, with the Ministry of EconomyandFinancemakingorcontrollingmostofthedecisionsconcerningthesize,struc- tureandimplementationofsectoralbudgets.Atthesametime,itusesawidevarietyofexcep- tional procedures and inappropriate accounting systems which make it very difficult for Governmentofficialsandoutsiderstomonitorbudgetexecutionandassessthecashposition of the Government at any given time. The Government has recognized these problems and has begun to modernize its bud- get management and accounting procedures. The reform process will be difficult and con- tinuous efforts will be needed to correct major deficiencies and pave the way for radical improvements in the country's public finance management practices. The first section of this chapter reviews the budget preparation process; the second section deals with budget execution; the third section is about accounting and cash man- agement; the fourth section evaluates internal and external controls; the fifth section deals with debt management, accounting of non-financial assets and the monitoring of public enterprises; and finally the sixth section addresses institutional and human resources management issues. 67 68 A World Bank Country Study Budget Preparation Niger's budgets have largely reflected allocations of previous years with minor adjustments. Strategic considerations have played only a small role in the budget preparation process and are seldom addressed in the budget debates in the National Assembly. Sectoral programs are notbasedonclearsectoralobjectives,realisticestimatesofinstitutionalcapacity,monitorable performance, or result indicators. In the past, sectoral ministries were only given a few weeks to prepare their budget proposals, which were not always taken into consideration by the Ministry of Economy and Finance when finalizing its draft Budget Law (Loi de Finances). Efforts to improve budget preparation should aim at making budgets more realistic and more strategic. Budgets should be based on better estimates of domestic and external resources,andabsorptivecapacityconstraints.Theyshouldalsosupportunifiedmulti-annual investment and recurrent expenditure programs reflecting the priorities of the country's poverty reduction and sectoral strategies. Over the past few years, a number of important measures have been taken to improve the budget programming process, marking the beginning of a long-term reform process: I Recent estimates of tax receipts and other domestic revenue are reasonably accu- rate but the projection of external resources is more difficult. The Government should enhance collaboration with donors in view of better coordinating develop- ment assistance and improve its monitoring of budget support operations. I In 2002, the Government adopted a new classification of public expenditures (nomenclature budgetaire) inspired by recent WAEMU directives. The introduction ofthenewnomenclaturehasbeenaccompaniedbystafftrainingandthepreparation of an operational manual. However, the harmonization process is not complete and many disparities remain between Niger's practices and WAEMU directives. One of themainadvantagesofthenewnomenclatureoveritspredecessoristhatitintegrates recurrent expenditures and investment. However, the integration process is not yet complete. Planning for domestic and externally-financed activities is still performed separately within the Ministry of Economy and Finance (DGB and DFI) and the sec- tor ministries (DAFs and DPPs).63 The coherence of the two main components of Niger's budget is therefore not ensured. In several priority sectors, there are indica- tionsthattheinvestmentprogramsaretoolargeforthemaintenanceandoperational capacity of sectoral institutions (see Chapter 2). I In the context of the elaboration of the 2002 PRSP the Government began prepa- ration of three-year Medium Term Expenditure Frameworks (MTEF). 63. The Budget Directorate (Direction générale du budget, DGB) is traditionally responsible for prepa- ration and monitoring of the Government budget, which contains all domestically-financed expenditures, including recurrent expenditure and domestically financed capital expenditure. The Investment Finance Directorate (Direction du financement des investissements, DFI) is traditionally responsible for preparation and monitoring of the Public Investment Program, which contains all foreign-financed projects and domestic counterpart expenditures. The Financial and Administrative Affaires Directorates (Directions des Affaires administratives et financières, DAF) and the Planning and Programming Directorates (Direc- tions des programmes et du plan, DPP) play the equivalent role to DGB and DFI, respectively at the sector ministry level. Public Expenditure Management and Financial Accountability in Niger 69 I InSeptember2003,anarrêtéministerielmodifiedandstructuredthebudgetprepa- ration process and gave more time to sectoral ministries to prepare budget propos- als. The arrêté also introduced the concept of medium-term program budgets. The preparation of program budgets could become a useful instrument for developing and monitoring sectoral programs based on strategic objectives. It may also be a good way to make budget support more predictable and to enhance the capacity of national institutions to progress toward full integration of recurrent and investment expenditures in budget planning. The preparation of program budgets will require extensive consultations between DAFs and DPPs in line ministries, and between DGB and DFI at the central level. Detailed program budgets will also give the National Assembly the data and analysis nec- essary for sound political judgments on the relevance and priority of proposed public expenditure programs. For most line ministries, the preparation of sound program budgets is likely to be a slow and difficult process. The quality of future program budgets will depend on three fac- tors: (i) the quality of sectoral strategies and action plans prepared and adopted by sectoral institutions and the Government (ii) the extent of cooperation with the main stakehold- ers, and (iii) the endorsement and support of the main donors involved in the financing of the sectors. Several line ministries have already begun to develop strategies, action plans, sectoral MTEFs, and program budgets: I Most advanced in this regard is the Ministry of Basic Education, which has pre- pared a ten-year development plan for primary education (the PDDE endorsed by the donor community, and a sectoral MTEF). The Ministry should now be able to develop a series of sound program budgets for 2005­2007 and the following years. The next steps should be: (i) the preparation by the other education ministries of a strategy for post-primary education to be integrated into the PDDE, and (ii) the design of program budgets for the education sector as a whole. I Agriculture, Livestock and Water, Environment and Fight against Desertification have prepared a rural development strategy in close consultation with stakehold- ers and donors. The strategy focuses on key policy issues but does not provide the elements of a multi-year sector program with cost estimates and clear priorities. A set of more detailed action plans is under preparation. Depending on the quality of the action plans, the Government may be able to initiate the preparation of a series of program budgets in the not too distant future. Future sector programs and pro- gram budgets should also be based on realistic evaluations of the relevance, eco- nomic justification, and possible success of the multitude of ongoing and planned donor-financed programs and projects which absorb most of the resources allo- cated to the sector. I The Ministry of Health has initiated the preparation of a five-year health devel- opment plan, which has not yet been discussed with stakeholders and donors. A sound program for the health sector should not only define priorities but also address the absorptive capacity constraints that have led to low execution rates and a significant reduction in the share of the sector in total public expenditures. 70 A World Bank Country Study To conclude, a gradual approach is recommended to the introduction of program-based budgeting in Niger: I TheGovernmentcouldencouragetheuseoftheprogrambudgetingasministrycapa- bilities increase. The MEF should be responsible for coordinating the process, with external technical support. Education and perhaps the road sector would seem to be ready for that approach. The preparation of a program budget for the road sec- tor should focus on road maintenance but should also be based on a review of the priorities of the large number of road construction and rehabilitation projects under consideration. I Inmostothersectors,priorityshouldbegiventothedesignofsoundsectoralstrategies, before embarking on more complex program budgeting exercises. In most cases, rapid progress towards the development of high-quality program budgets should not be expected. Learning by doing will be critical. A few ministries may be able to prepare increasingly focused and detailed sectoral programs and program budgets based on sound objectives and realistic cost estimates in the not too distant future. As some of the first ministries begin to master the budget-programming instrument, their experience will serve as a model for other ministries and agencies. However, exten- sive technical support by donors will often be essential to accelerate and improve the process. I Animportantcomponentoffutureprogrambudgetsshouldbetheidentificationofpri- ority expenditures that require special protection in the context of budget regulation and cash management plans aimed at mitigating the impact of severe revenue shortfalls. I Inordertoensurebroad-basedsupportforthestrategicshifttoprogram-basedbudget- ing, the Government could prepare a detailed implementation plan, which would lay out a timetable and describe capacity building needs. Joint adoption of this implementa- tion plan by all ministries and by donors would be crucial. The example of Rwanda hasshownthataconcertedefforttoachievefullconsensusonthedesirabilityofmov- ing towards program-based budgeting is important for its success. Box 9. Budget Preparation--Main Recommendations · Eliminate remaining disparities between WAEMU directives, the new budget nomenclature, and present classification of expenditures. · Continue preparing annually global MTEFs with sectoral allocations in line with the prior- ities of the country's poverty reduction strategy. · Prepare sectoral MTEFs and program budgets for primary education. Prepare a strategy for post-primary education that will provide the elements for a strategy and a series of pro- gram budgets for the education sector as a whole. · Deepen the analysis of sectoral priorities, in consultation with stakeholders and the main donors financing the sector, as a basis for eventual preparation of program budgets. · Improve the presentation of draft budget laws submitted to the National Assembly. Justify main budget choices in the context of sectoral programs and the poverty reduction strategy. As they become available, program budgets could be attached to the draft budget laws. Public Expenditure Management and Financial Accountability in Niger 71 Budget Execution Three major budget execution issues stand out: I Thebudgetexecutionprocessiscumbersomeandhighlycentralizedunderthecon- trol of the DGB. I Execution of externally-financed expenditures is largely managed by donors and project managers, loosely monitored by the DFI, and not formally integrated in the expenditure chain. I Processing of funds delegated to regional agencies (crédits délégués) is extremely slow and poses an important fiduciary risk due to low capacity of regional and local agencies. This will affect the success of the ongoing deconcentration and decen- tralization process. The Budget Execution Process64 Niger's budget execution process is cumbersome and slow due to multiple ex-ante controls and a high degree of centralization in the MEF. An assessment of actual practices in budget execution reveals a number of problems. The most prominent are the systematic use of exceptional procedures and the issuance of commitments and payment orders beyond the end of the fiscal year for a significant percentage of budget allocations. Niger's budget execution procedures, which are based on WAEMU directives, con- tain multiple ex-ante controls on spending commitments, mainly conducted by units of the DGB.65 This makes the process very cumbersome and slows down budget execution. Table 3-1 describes the administrative phase (commitment, liquidation, and payment order) of the budget execution process. Tests undertaken in the context of the PEMFAR mission in November 2003 revealed that it takes on average 33 days to complete the admin- istrative phase. Niger's budget execution process is highly centralized. The final authority on issuing payment orders (ordonnancement) rests solely with the Minister of Finance, executed through the Financial Control and Payment Order Directorates. The authority of spend- ing ministries in managing budget execution is further curtailed by MEF controls at virtu- ally every step of the budget execution and by the cash management system, also controlled by the MEF, which limits spending authorizations in times of expected revenue shortfalls (see Box 3 in Chapter 2). Any advantage of multiple ex-ante controls is defeated by the systematic use of excep- tional procedures and other irregularities obscuring the transparency of the budget process. ItislikelythatthemultiplicityofcontrolsintheformalexpenditureprocessencouragesGov- ernmentofficialsandsupplierstouseexceptionalprocedures.AsshowninBox10below,close to half of domestically financed expenditures in 2003 were estimated to have been paid 64. For a detailed description of the expenditure process in Sub-Saharan Francophone Africa, see Bouley, Fournel, and Leruth (2002). 65. The DGB intervenes four times during the administrative phase: (i) financial controllers verify commitment proposals; (ii) the accounting center of the DGB validates the decisions; (iii) the Payment Order Directorate intervenes twice first at the liquidation stage and then before ordonnancement. 72 A World Bank Country Study Table 3-1. Niger's Budget Execution Process Average processing Phase and sub-phase Description time ADMINISTRATIVE PHASE (largely controlled by the DGB) 33 days Commitment sub-phase Credit managers in line ministries initiate the 18 days (Engagement) commitment process. Their proposals are verified by the financial controllers, who are posted in line ministries but report to the DGB, and then validated by the accounting division (Centre comptable) of the DGB. The commitment process ends with the credit manager notifying the supplier and placing the order. Liquidation sub-phase The liquidation process begins with the credit man- 12 days (Liquidation) ager receiving and verifying the supplier's invoice, which is then verified by the accounting division of the payment order department (Direction de l'ordon- nancement, DO) within DGB, and again by the expen- diture division of the Treasury. Payment order sub-phase The DGB (DO) certifies the validity of the claim and 3 days (Ordonnancement) sends a payment order (ordonnancement) to the Treasury. PAYMENT PHASE Payment of claims by the treasury after verifications. (controlled by the Treasury) Note: Average processing time estimated through compliance tests conducted during the CFAA exercise. Source: Groupe 2 AC (2003).66 through cash advances and direct payments without payment orders (PSOPs), not subject to reviewbyfinancialcontrollers.PSOPshavebeenusedtoprocessavarietyofexpendituresfor which exceptional procedures are not really justified. The large volume of PSOPs makes it verydifficulttomonitorthepublicfinanceperformanceoftheGovernmentandevaluatethe structure of public expenditures. In periods of revenue shortfalls, large volumes of PSOPs processedoutsideregularbudgetregulationandcashmanagementplansmayexacerbateliq- uidity problems experienced by the Treasury. Commitments and payment orders for a significant percentage of budget allocations are effected after the close of the fiscal year. In principle, no commitment on budget alloca- tions for a given fiscal year should be initiated after the end of that year. A supplementary period (until February 28) is then used to process and pay outstanding commitments of the previous year. This deadline is not respected in practice: commitments and payment orders for supplementary expenditures equivalent to 11.3 percent of 2002 budget estimates were effected during January 1-November 17 of 2003. Such practices delay and complicate prepa- ration of budget execution reports and make it difficult to monitor fiscal performance and the structure of public expenditures. Until these practices are stopped, data and reports pre- 66. The EC financed organizational and technical audit of Niger's control structures and systems pro- vides a detailed description of all the stages and a schematic presentation (Table 2.2, page 37). The Niger CFAA (World Bank 2004a, Table 8) provides a summary of all the stages and responsibilities. Public Expenditure Management and Financial Accountability in Niger 73 Box 10. Exceptional Procedures To expedite the commitment and payment process and avoid some of the controls applica- ble to the administrative phase, Government officials and suppliers often use exceptional procedures, essentially cash advances (Régies d'avances) and direct payments (Paiement sans ordonnancement préalable, PSOP). · Régies d'avances have been created to pay for small expenditures. When the funds deposited in the Régie d'avances are depleted, the manager asks for the replenishment of the Régie and provides the supporting documents needed to justify and regularize past expenditures. · PSOPs are expected to be used for emergencies and mandatory expenditures such as debt service and wages and salaries. The problem in Niger and other West African countries is that cash advances and PSOPs are often used for a variety of other recurrent expenditures. In 2003, about 46 percent of domes- tically-financed expenditures were processed through exceptional procedures (34 percent through PSOPs and 12 percent through Régies d'avances). pared at the end of each fiscal year cannot provide a complete and accurate view of the coun- try's public finance situation.67 Niger's shift to program-based budgeting will have to be accompanied by the devolu- tion of decision-making authority in budget execution to line ministries and sub-national administrative units. It will require giving line ministries the authority to take spending deci- sions by making them ordonnateurs. Such a change will have to be conducted in close consultation with the WAEMU and its member countries. It would significantly increase the autonomy and responsibility of spending ministries, reducing ex ante controls by MEF. The increased responsibility of spending ministries for their budget execution should increase efficiency and transparency in budget management and accountability. It would streamline the budget execution process by simplifying procedures and would give spending ministries stronger incentives and better capacity to manage their budgets. The devolution of spending authority to line ministries would also increase their accountability for managing their part of national budget. In the short and medium-term, a number of technical and organizational measures can be taken to strengthen existing procedures and correct irregular practices and prepare for the deeper reform described above. Measures can be taken to shorten the length and reduce the complexity of the administrative phase. These could include reducing the num- ber of interventions by financial controllers and eliminating the verification of payment orders by the Treasury. A full computerization of the expenditure process is a prerequisite for simplifying and streamlining the administrative phase and improving its interface with the payment phase.ComputerizationhasalreadybegunwiththeintroductionofaFinancialManagement 67. While managers of Régies d'avances need to regularize expenditures from time to time to obtain the replenishment of their Régie, there is no incentive for users of PSOPs to regularize payments. Sys- tematic use of PSOPs is largely responsible for the large amounts of transactions recorded in suspense accounts pending regularization. 74 A World Bank Country Study Information System (FMIS) in 1999. So far, the scope of the system is limited to the com- mitment and payment order sub-phase. An interface with the treasury IT system was introduced but is not yet functional. This hampers efforts to reconcile cash and accrual data, despite the fact that the new budget nomenclature and chart of accounts are now fully compatible. In order to tap the full potential of the FMIS for improved recording, reporting, and safety (tracking) and eventually simplification of the expenditure process, access to the sys- tem should be gradually extended. This would first lead to completing the computerization of the administrative phase of the expenditure process, by integrating the liquidation sub- phase and financial control (visa du controleur financier) in the FMIS. In a second phase, externally-financed expenditure would be integrated in the computerized expenditure process. Finally, access to the FMIS would be granted to the sectoral ministries to facilitate the deconcentration of the expenditure process. The Government should regulate and monitor the use of exceptional procedures and require strict implementation of existing rules on the closing of accounts and the length of the supplementary period. Ministries might be less inclined to extend the commitment process beyond the end of the fiscal year if less complex procedures and more effective bud- get regulation plans enabled them to accelerate budget execution and commit their alloca- tions before the end of the year. Therefore, measures aimed at improving the administrative phase of the chain of expenditures (simplified procedures and access to computerized financial information systems) should also reduce the need for exceptional procedures and delayed commitments. Externally Financed Development Expenditures Full integration of externally financed expenditures into the budget execution process is important for Niger's public finance reform: (i) to respond to the gradual integration of donor funds in the budget preparation process as part of the move to program-based bud- geting; and (ii) to enhance transparency in budget execution. In contrast to the proliferation of controls on domestically financed expenditures, no standard procedures regulate the processing of externally financed investments. The department responsible for financing investments (DFI) is expected to project and monitor the flows of external assistance and submit its reports to DGB for integra- tion into budget execution reports. In fact, the DFI does not have the means to provide comprehensive and accurate reports on a timely basis. Clearly, full integration of recur- rent and investment spending at the budget execution stage will take considerable time and effort. Several factors affect the capacity of DFI to monitor investment spending: I A large proportion of project assistance is executed by donors (46 percent of pro- ject grants). Most of the data on these projects are not readily available to the DFI. I Even for projects executed by national agencies, project managers do not always provide appropriate execution reports on a timely basis. As a result, the DFI reports come too late for the production of consolidated statements covering both recurrent and investment expenditures by DGB. In 2002, only 70­80 per- Public Expenditure Management and Financial Accountability in Niger 75 cent of the data on externally financed expenditures were included in DGB's con- solidated statements. I Finally,theDFIisnotconnectedtothecomputerizedfinancialinformationsystem managed by the DGB. Most of the data collected by the department are processed manually and, as a result, subject to substantial delays and errors. The weak capacity of the DFI has serious consequences on the performance of investment projects. It contributes to the inability of project managers and the DFI to project and mon- itor externally-financed activities. Inadequate cooperation between the DGB and the DFI means that counterpart funds may not be identified as priority expenditures in budget reg- ulation and cash management plans of the Treasury. The shortage of counterpart funds is one of the main factors behind slow implementation of investment projects and slow disbursement of foreign assistance. The Government needs to strengthen cooperation between project managers, the DFI and the DGB to improve data collection and the mobilization of counterpart funds, in addition to measures aimed at enhancing the capacity of the DFI (training programs, equipment, and direct access to the computerized financial information system). The Gov- ernment should also discuss with donors ways and means of obtaining adequate informa- tion on donor-executed projects on a timely basis. Processing Delegated Budget Credits (credits délégués) Existing procedures for execution of public expenditures managed by regional and local agencies (crédits délégués) lack clarity and need to be streamlined and modernized. Often the DGB does not make the transfer (release) of funds allocated to these agencies on time and thus delays implementation of the programs. Also, the circulation of accounts and supporting documents between regional agencies and the DGB is extremely slow and delays completion of the administrative and payment phase of the chain of expenditures. In 2000, with the help of the IMF, the Government created payment order sub-centers (Centres de sous-ordonnancement) in the Regions to perform many of the control func- tions that used to be performed by the payment order department within DGB. Despite this sound initiative, the process remains slow and cumbersome. In 2003, more than ten months after the closing of the 2002 fiscal year, about FCFA 1.45 billion in crédits délégués had not yet been processed. So far, budget lines managed at the regional and local levels account for only about 10 percent of total public expenditures. This, however, will change as the Government begins to move towards de-concentrated delivery of public services in the context of the forthcoming decentralization reform. The success of that policy will require significant reforms in the management and pro- cessing of crédits délégués and new guidelines are being prepared that should clarify applica- bleprocedures.Theinstitutionsresponsibleforcontrollingandexecutingtheseexpenditures, the Centres de Sous-Ordonnancement and local treasury offices (Paieries Départemen- tales) should be strengthened and connected to the computerized financial information sys- tem managed by the DGB. Ideally, the processing of regional expenditures should be carried out in the regions (without any DGB intervention). 76 A World Bank Country Study Box 11. Budget Execution--Main Recommendations Domestically financed expenditures · Devise a plan for de-concentrating budget execution, in consultation with WAEMU, by devolving spending decision authority (ordonnancement) to line ministries. · Streamline the administrative phase of the budget execution process by reducing inter- ventions of financial controllers in the administrative phase and removing the verification of payment orders by the treasury. · Limit the use of exceptional procedures to specific, well-defined circumstances and set quantitative (maximum) targets. · Strictly implement rules concerning the closing of accounts and the length of the supple- mentary period. Externally financed investments · Strengthen the capacity of DFI (training, equipment, and computerization). · Strengthen coordination between project managers, DFI and DGB to improve data collec- tion and the mobilization of counterpart funds. · Discuss with donors ways and means of obtaining data on donor-executed projects on a timely basis. Crédits délégués · Clarify procedures applicable to crédits délégués. · Accelerate the release of funds to regional agencies; strengthen, modernize and comput- erize regional agencies; and organize in the regions the processing of crédits délégués. Other reforms · Gradually extend the FMIS, to fully computerize the expenditure process and to connect DFI, line ministries, and managers of crédits délégués. Public Accounting and Treasury Management The main challenges in the area of public accounting and treasury management are: I Important deficiencies remain in public accounting practices, undermining the benefits of newly introduced accounting procedures. I Budget outcome reporting will have to be improved in terms of quality and dis- semination, despite important progress in resuming the preparation of Budget Review Laws and reconciling them with Treasury Accounts. I Niger'streasurysysteminitscurrentformneitherconformstoPublicAccounting Regulations nor WAEMU guidelines. There is no clear separation of normative and accounting functions and the highly centralized structure is not conducive to the envisaged decentralization and de-concentration reforms. I Cash management consisting of budget regulation at the commitment stage and treasury management at the payment stage of budget execution has often been inconsistent with the Government's strategic objectives and lacks transparency. Public Expenditure Management and Financial Accountability in Niger 77 Government Accounts A new Chart of Accounts based on WAEMU directives was completed in January 2003. Although rather complex, the new format has the merit of being fully consistent with the new budget nomenclature. Adoption of the new chart of accounts has not been accompanied by significant improvements in accounting practices because of three main deficiencies identified in the CFAA report: (i) inadequate monitoring of the cash position of the Government, (ii) in- adequate recording of arrears, and (iii) large volume of transactions in suspense accounts pending regularization. I Contrary to Niger's own Public Accounting Regulations (Réglement général de la comptabilité publique)ofJanuary2003,theclosingbalancesforthepreviousfiscalyear arenotcarriedforwardintoopeningbalancesforthefollowingfiscalyear.ThusTrea- sury accounts record the transactions of the recurrent fiscal year, but do not ade- quately reflect the cash position of the Government at any given time. This makes it very difficult for the Government to monitor its cash position and adapt its budget regulation and cash management plans accordingly. It also makes it impossible for the Government and the Chamber of Accounts to review and verify cash manage- ment accounts (Comptes de gestion) produced by the Treasury. I Government accountants record expenditures only when paid and not at the pay- ment order stage. This practice is not consistent with WAEMU directives and com- plicates the identification of possible arrears. Arrears are recorded manually by the Treasuryoutsideregularaccountingsystems.68InNovember2003,paymentofabout FCFA 2.2 billion for expenditures committed during the 1999­2002 period was still pending. In 2003, serious liquidity problems increased the volume of arrears. I Because of excessive use of exceptional budget procedures, suspense accounts record a large number of budget transactions that are not yet regularized. For 2002, transactions in suspense accounts, mainly PSOPs, accounted for 25 percent of total budget expenditures. These three issues need to be addressed urgently as they constitute a major fiduciary risk. The Government should adopt an arrêté ministériel on the preparation and publication of consolidated monthly balances, which should be fully consistent with the country's Pub- lic Accounting Regulations. Opening accounts should be integrated into general Treasury balances and the deadline for producing monthly Treasury balances should be shortened to less than 30 days. Two other issues should also be addressed in the near future to improve public accounting in Niger: I First,theGovernmentshouldreviewthejustificationsforspecialaccounts(comptes spéciaux du Trésor) and correspondent accounts (comptes de correspondants) that show abnormal debit balances, notably those of decentralized agencies. 68. Every three months, the Treasury produces a report on arrears, based on a list of outstanding ordonnancements. 78 A World Bank Country Study I Second,Treasuryaccountsshouldbecomemorecomprehensive.Financialtransac- tions concerning externally-financed investment expenditures that are not recorded by Government accountants should be integrated into Treasury operations. Reporting (Treasury Accounts and Budget Review Law) Formal reconciliation of the whole budget for a complete financial year through the prepa- ration of a Budget Review Law (Loi de règlement) and compilation of Treasury Accounts (Comptes de gestion) to the Chamber of Accounts was completed in 2000 for the first time in 15 years. Since then, the MEF has made a valuable effort to reduce the backlog in pro- ducing budget review laws. As of end 2003, the National Assembly had adopted Budget Review Laws up to the financial year 2001. This constitutes important progress in public finance management and should be sustained. Budgetary outcomes presented in the Bud- get Review Laws are based on payment order data. They reveal a substantial gap between budget execution and allocation, as found in the analysis of public expenditure structure in Chapter 2 of this report. Notwithstanding the important progress achieved in budget reporting in recent years, quality and dissemination will have to be significantly strengthened in coming years. The process of preparing draft Budget Review Law should be formalized within the DGB. Currently, an ad hoc committee is responsible for its preparation. In order to facilitate an indepth discussion of budget outcomes, the draft Budget Review Law should be presented to the National Assembly together with the draft Finance Law. However, knowledge of members of the National Assembly on public finance will have to be strengthened in order to enhance their capacity to appraise budgetary outcomes. To increase the value of the reconciliation of Budget Review Law and the Treasury Accounts, the following two limitations will need to be addressed: (i) Treasury Accounts of the years 1998­2001 have not yet been sanctioned by the Chamber of Accounts; and (ii) as mentioned above, previous years' closing balances are not carried forward into opening balances for the following year. Treasury System A network of public accountants under the authority of the General Treasury (Trésorerie générale, TG) is responsible for public accounting. This network comprises of 45 public accountants: one TG, eight regional public payment officers (Paieries) and 36 local public payment offices (Perceptions). The Treasury system is heavily centralized: the accounts of peripheral treasury offices and tax and customs administrations are consolidated on a monthly basis in the accounts of the TG. In the current system, the TG has two main functions: (i) a normative function, through which the treasurer sets the rules for public accounting; and (ii) the management of public funds, including accounting, col- lection and payment, as well as monitoring and managing the cash position of the Government. Restructuring the Treasury is a key priority of Niger's public finance reform in the coming years. The Treasury's current structure is not conducive to its proper functioning Public Expenditure Management and Financial Accountability in Niger 79 nor does it conform to the new Public Accounting Regulations or to WAEMU guidelines. Restructuring should lead to the following improvements: I StrictseparationofthenormativeandaccountingfunctionswithintheTG. I De-concentrationofthestructureoftheTG,toadaptittotheproposedreforms leading to de-concentration of public service delivery and decentralization of policy decisions. I Repositioning the expenditure verifications by the treasury from the administra- tive to the accounting phase of the budget execution process. I Strengthening the Treasury Inspectorate through capacity building and decen- tralization. I TheageprofileofthepresentTreasurystaffindicatesthatalargeshareofitsskilled and experienced personnel will retire in the coming years. This could jeopardize the implementation of the structural reform of the Treasury. It is therefore neces- sary to prepare and implement a staff renewal plan for the Treasury. Cash Management Cash management (described in Box 3 in Chapter 2) was introduced at the end of the 1990s with the aim of tightly controlling expenditures in order to avoid liquidity and solvency prob- lems.Niger'scashmanagementsystemconsistsofabudgetregulationmechanism(régulation budgétaire) and a treasury management mechanism (plans de trésorerie). The budget regula- tion mechanism, introduced in 1998, controls spending authorizations at the commitment stage of the budget execution process. The treasury management mechanism, introduced in 2001 regulates cash payments at the payment stage. Both mechanisms protect important expenditure items in the following order of priority: wages and salaries, external debt service, HIPC financed expenditures and other PRSP priorities (mainly social sector spending). As shown in Chapter 2, cash management, while contributing to improved fiscal stabil- ity, has been partly responsible for the disparities between voted and executed budgets and inadequateexecutionofpriorityactivitiesinprioritysectors.Moreimportant,pastbudgetreg- ulation practices and cash management plans have not fully reflected the priorities of sectoral programsandthePRSP.Inaddition,decisionsrelatedtocashmanagementhavenotfollowed a fully transparent process and excluded important actors, in particular representatives from line ministries. In case of treasury management, an inter-ministerial committee has been createdtohelpprepareandmonitorcashplans.Sofarthiscommitteehasbeenmeetinginfre- quently and had therefore virtually no influence on decisions made by the Treasury. The lack of automatic determination of the cash position of the Government constitutes a further obstacle to the preparation and implementation of effective cash management plans.ThecashpositionoftheGovernmentisestablishedmanuallyonthebasisofdailystate- ments of the Treasury account at the Central Bank (BCEAO). The balances of the treasury accounts are only reconciled once a month with the Treasury account at the BCEAO. Increasing budget realism at the budget preparation stage is a prerequisite for strength- ening cash management. This requires improving the quality of revenue projections and taking a conservative view of the expected available resources. Ensuring liquidity will require measures to compensate for seasonal fluctuations in resource availability. This 80 A World Bank Country Study could include introducing the issue of Treasury bills to bridge liquidity bottlenecks by establishing adequate cash balances.69 It would also require enhancing coordination with donors to ensure appropriate spacing of disbursements. The authorities recognize the need to reform the cash management system, in particu- larincreasingtransparencyofdecisionmakingandprotectingpriorityexpenditures.In2003, the Government undertook a review of its cash management plans with a view to strength- ening the links with agreed macroeconomic and sectoral priorities. The reform should also provide for more transparency in decision making by giving the inter-ministerial committee a more systematic role. A similar reform should then be undertaken for the budget regula- tion mechanism. Box 12. Accounting and Treasury Management--Main Recommendations Government accounts · Integrate opening accounts into Treasury balances. · Produce daily statements of Treasury accounts and reconcile them with the Treasury's BCEAO account. · Adopt an Arrêté ministériel defining conditions for the preparation and publication of con- solidated monthly Treasury balances fully consistent with Public Accounting Regulations. · Shorten the deadline for producing consolidated monthly Treasury balances to less than 30 days. Treasury system · Initiate a treasury system reform to make it compatible with the new public accounting regulation. Cash management · Improve projections of available resources. Consult with major donors to improve the plan- ning and disbursement of budget support. · Consider the feasibility of issuing Treasury bills to cope with major liquidity crises. · Implement the new cash plans envisaged by MEF, including periodic meetings with the inter-ministerial supervision committee. Internal and External Controls Niger uses a wide variety of internal, external, and political controls, but the agencies exer- cising these control functions lack institutional autonomy, as well as sufficient resources and capacities. The Government, with the help of the EU, has prepared a comprehensive report on financial and administrative controls. The findings and conclusions of that report and its action plan were adopted by the Government in December 2003. They are reflected in the formulation of the PEMFAR and the CFAA.70 69. It should be avoided, however, that Treasury bills would be used for financing budget deficit. 70. See also Groupe 2 AC (2003). Public Expenditure Management and Financial Accountability in Niger 81 Ex-Ante Controls Financial controllers are responsible for ex-ante controls. Nineteen financial controllers posted in line ministries and other Government agencies verify spending commitments pro- posed by credit managers. However, the effectiveness of these controls is limited because: I FinancialcontrollersreporttotheDirectorateofFinancialControl(Directionducon- trole financier, DCF), which does not have the necessary autonomy as it reports to the DGB (since 1999). This is not consistent with WAEMU directives; I Resources available to the DCF are insufficient. Many financial controllers work only part-time. In addition, the DCF and its controllers do not have access to the computerized financial information system managed by the DGB. I Mostimportant,PSOPsandotherexpenditureshandledthroughexceptionalproce- dures are never reviewed by financial controllers, even when payments are eventually regularized. As of September 30, 2003, about 42 percent of public expenditures for the ongoing fiscal year had not been reviewed by financial controllers. The review of commitment proposals by financial controllers should remain the main instrument of the Government for controlling public expenditures. At the same time, the number of ex-ante controls at other stages of the administrative phase should be reduced in order to streamline the budget execution process. In addition, ex-ante controls should be reinforced through institutional and operational measures: I The DCF should regain its autonomy and should have access to DGB's informa- tion system; I StaffandotherresourcesavailabletotheDCFshouldbeincreased;and I Theuseofexceptionalproceduresshouldberegulatedandlimitedtowell-defined circumstances. Internal Audit Three main institutions are in charge of conducting internal audits of public finance man- agement: I The General Directorate for Financial Inspections (Direction Générale de l'Inspec- tion des Finances, DGIF) audits implementation of public finance regulations and the use of public funds. The DGIF has a staff of ten inspectors and operates on the basis of a work program defined by the Minister of Economy and Finance, to whom it is accountable. So far, its reports have addressed mainly non-compliance issues (activities inconsistent with existing regulations). However, a proposal is under consideration for DGIF to also review the overall operational and financial perfor- mance of Government agencies and make recommendations on structure and management of these agencies. I The General Public Inspectorate (Inspection Générale de l'Etat, IGE) performs inspections on request of the Presidency. IGE was created in 1997 with a rather broad mandate. Operating within the President's Office, it is empowered to review 82 A World Bank Country Study compliance with laws and regulations, financial and administrative, in all Govern- ment agencies. It is also mandated to comment on institutional structures and operational efficiency. IGE reports directly to the President and its reports are not circulated outside the President's Office. Its staff of fourteen inspectors does not benefit from a special status. I The Public Dispute Settlement Directorate (Direction du Contentieux de l'Etat, DCE) reviews audits from different control institutions and investigates actions that may justify criminal proceedings. In addition, there are a number of specialized audit institutions, like those with a specific mandate to audit MEF units (treasury, tax and customs inspectorates) and line ministries. The role of the General Inspectorate for Territorial Administration (Inspection Générale de l'Administration Territoriale, IGAT) will become more important once the decentraliza- tion reform starts taking shape. All inspection units are limited in the exercise of their role by a lack of qualified staff and material resources (cars, computers, and so forth) as well as by the absence of a homogenous legal status of inspectors and controllers in the administration. In general, there is little har- monization of practices and procedures and limited coordination between the different inspectorates. Only a few inspectorates (DGIF, Customs service inspectorate) work on the basis of procedure manuals and formal work programs are rarely used, as most of the inspection missions are undertaken upon discretionary requests. In most cases, the reports produced by the inspectors do not take into account the viewpoint of the investigated administrative units. The reports also lack standardization as their format and dissemina- tion practices vary considerably from inspectorate to inspectorate. Inspection reports are often not properly followed up and their recommendations and sanctions not applied. This would be necessary for the Government to fight corruption effectively and create transparency in the management of public institutions. In 2000, the Government decided to give the DCE the additional responsibility of reviewing inspection reports.71 To enhance its role in following-up on audits, a draft decree clarifying the func- tions of the DCE was prepared but has not yet been adopted. DCE reports, which should be published, should make recommendations for improving the management of Govern- ment agencies. The authorities have recognized the importance of internal audits for transparency and good governance, as evidenced by several measures initiated in recent years aimed at strengthening inspections. The DGIF has recently benefited from an increase of its resources and introduction in 2001 of a manual of procedures to guide the work of the inspectors. The Government has also prepared a bill to grant finance inspectors a special status (Corps d'inspecteurs des finances) and enhance their hierarchical position in the administration. External Audit Niger has a Chamber of Accounts and Budget Discipline (Chambre des comptes et de la dis- cipline budgétaire), which is institutionally attached to the Supreme Court. Its main respon- 71. The DCE's original mandate is to handle assurance issues related to traffic accidents and litiga- tions against the Government. Public Expenditure Management and Financial Accountability in Niger 83 sibilities are auditing Government accounts, evaluating institutions that manage public funds and assisting the National Assembly in overseeing the execution of the budget. In recent years, the Chamber has mainly focused on the annual audit of budget review laws (Lois de réglement). However, due to capacity constraints and the limitations of public accounts. The Chamber has not been able to audit Government accounts for the 1998­2001 period. Neither has it been able to perform its role of evaluation of institutions nor assist- ing the National Assembly. The effectiveness of the Chamber of Accounts and Budget Discipline in acting as a high level control institution is limited due to the institutional, staffing and resource constraints it faces. To improve its functioning, the Chamber has to be staffed with competent judges that can act independently. These judges should be assisted by full-time auditors. At present, several auditors are staff members of the MEF who work only part-time for the Cham- ber. The Chamber's staff should be trained and operational guidelines and a manual of procedures should be produced to guide their work. Finally, the Chamber's indepen- dence from the Supreme Court should be increased, by providing the Chamber with its own operating budget. Draft legislation (Loi organique) has been prepared to strengthen the status of the Chamber by transforming it into a more independent Court of Accounts and extend- ing its control to all agencies and institutions using public funds, including pub- lic enterprises and development projects. The creation of a Court of Accounts is con- sistent with WAEMU directives. The Government should therefore revise and reacti- vate the proposed legislation.72 In addition, the authorities might consider submitting Government accounts to the WAEMU's Court of Accounts as provided by the revised WAEMU treaty. Political Control (National Assembly) The National Assembly is entitled to review all the main public finance policy and man- agement issues, mainly through the discussion of the draft Loi de Finances and the approval of the budget review law (Loi de Réglement). However, its capacity is too limited to perform this role effectively. I TimeconstraintslimittheAssembly'soversightcapacity.TheAssemblymeetseach year in two sessions each of two months. I Staff constraints are important. The Assembly's Finance Committee, which helps it perform its public finance control functions, has 16 members assisted by an adviser and three staff. To be more effective, members of the Committee and their staff need additional training and technical support. I A strengthened Chamber or Court of Accounts could also provide technical sup- port to the Assembly and its Finance Committee. So far, however, the possibility of requesting the Chamber's assistance, which is granted by Article 97 of the consti- tution, has never been considered by the Assembly. 72. See Groupe 2 AC (2003, p. 119) for recommendations to strengthen the proposed law. 84 A World Bank Country Study Box 13. Internal and External Controls--Main Recommendations Financial controllers · Reestablish the independence of DCF and post it outside the DGB. · Increase staff and resources of DCF Give financial controllers access to the computerized financial information system, first through the creation of a salle d'informatique and then through direct access to the system. · Limit use of exceptional procedures which exclude the review of commitment proposals by financial controllers. Other internal controls · Adopt the draft legislation defining the status of the Corps d'Inspecteurs des Finances. · Adopt the draft decree defining the functions of the Direction du Contentieux de l'Etat. External audits · Create a corps of financial judges recruited for their competence and capacity to act inde- pendently. · Provide technical support to the Chamber of Accounts (training and manuals). · Involve the Chamber in the review of critical public finance issues (exceptional procedures). Political controls · Strengthen the Finance Committee of the National Assembly. Activate technical support by the Chamber of Accounts. · Institutionalize systematic information of the Finance Committee of progress of budget exe- cution, including intra-budgetary transfers. I The National Assembly and its Finance Committee should be kept informed of progress and problems in the budget execution process. Information about intra-budgetary transfers during the fiscal year should be systematically pro- vided to the Committee. Non-Financial Assets, Monitoring of Parastatals, and Debt Management The CFAA report identifies a number of other public finance management and accounting issues: deficiencies in accounting of non-financial assets, monitoring of public enterprises and managing public debt that will need to be addressed over the next few years. Non-Financial Assets (Comptabilité Matière) TheDirectorateofPublicAssets,(DirectionGénéraleduPatrimoinedel'Etat)isresponsiblefor managing Government buildings, furniture, equipment, vehicles, and other non-financial assets. Within line ministries, the DAF is expected to keep and update an inventory of these assets. The new budget classification contains accounting categories for public assets. There is an increasing awareness in the administration about the importance of accounting for non-financial assets, but information presently available on Government Public Expenditure Management and Financial Accountability in Niger 85 owned real estate and other physical assets is scarce and unreliable. For instance, no inven- tory has been made of Government-owned vehicles since 1995. The maintenance of these assets is also inadequate. The CFAA identified five main factors behind the weak capacity of the Government in this field: I Obsoleteprocedures. I Inadequatebudgetallocationsformaintenance. I Acuteshortageofstaffforkeepingrecordsandmanagingassets. I LackofequipmentandITresourcestoefficientlyconductpublicassetaccounting. I LackofcoordinationbetweensectoralministriesandtheDGPE. A system should be put in place to centralize and disseminate information on physical assets (comptabilité matière), based on periodic inventories organized at the central and local levels. Furthermore, measures should be devised to strengthen the capacity of central and local agencies responsible for managing the State's non-financial assets (additional resources, staff training, computerization of information systems, and so forth). Monitoring of Parastatals Privatization policies have reduced the size of the parastatal sector and its relevance for the economy. Subsidies to public enterprises averaged FCFA 12­13 billion a year in 2003 and 2004 (a modest 3 percent of total public expenditures). However, it is difficult to evaluate the full impact of the parastatal sector on the country's public finance performance since the MEF is not equipped to monitor the management and performance of public enterprises effectively. Within MEF, the Department of Public and Parastatal Enterprises (Direction des entre- prises publiques et parapubliques, DEPP) is responsible for monitoring the sector, including evaluation of cross-debts between the Government and parastatal enterprises. The DEPP depends on the enterprises to provide the data and analysis it needs to perform its monitor- ingfunction.However,fewenterprisesprovidethisinformationinatimelyfashion,anddata providedtoDEPPareoftennotreliable.DEPP'sestimatesofcross-debtsaresignificantlydif- ferent from the estimates found in financial statements of public enterprises. The CFAA reviewed the performance of four public enterprises involved in trade and manufacturing activities (Etablissements publics à caractère industriel et commercial, EPIC)73 and three entities performing administrative and social functions (Etablissements publics à caractère administratif, EPA).74 It found that: I EPICsproducemorereliablereportsandfinancialstatementsthanEPAs.Threeofthe EPICS analyzed by the mission used appropriate operational and financial tools to manage their programs and monitor their financial performance. The fourth, the National Cereals Marketing Board (OPVN) seems to have major organizational 73. NIGELEC (power distribution), SONIDEP (petroleum products), SPEN (water supply), and OPVN (food products). 74. INRAN (National Agronomic Research Institute), Hôpital National, and the Abdou Moumouni University. 86 A World Bank Country Study and managerial problems which could affect its long-term viability. I ThecommitmentandpaymentproceduresofEPAsareinlinewithGovernmentreg- ulations. This is not surprising since most of the accountants working for EPAs are public accountants seconded by the Government. However, at the time of the CFAA mission, the University was the only EPA that had submitted its financial statements for the 2002 fiscal year. INRAN's most recent financial statements date back to 1998. In order to strengthen the monitoring of the parastatal sector, the CFAA recommends first, that the Government work with the enterprises, mainly EPAs, to improve their capacity to monitor and manage financial performance. Second, the Government should introduce a standard reporting mechanism that would enable the DEPP to receive reports and finan- cial statements from all the enterprises on a timely basis. Finally, the DEPP should conduct an inventory of cross-debts and reconcile data provided by the enterprises with Govern- ment accounts. Debt Management Niger's public debt remains high and the Government should be vigilant to avoid the recur- rence of debt service problems. This is despite past Government efforts to settle part of the domestic debt and the recent external debt relief measures agreed by the donor community. Domestic Debt. In 1999, the Government performed an inventory of its domestic debt which, as of December 31, 1999, was estimated at FCFA 296 billion. This included debt to private and public suppliers (44 percent), salary arrears (23 percent), debt to the financial sector (18 percent), and debt to Treasury correspondents (15 percent). In 2000, the Government created the Autonomous Center for Repayment of the Domestic Public Debt (Centre Autonome d'Amortissement de la Dette Intérieure de l'Etat, CAADIE), to manage the domestic debt and implement a settlement program financed by transfers from the Treasury. In addition, the allocation of Government-owned land to Gov- ernment employees was used for the settlement of salary arrears. As a result of the settlement program, Niger's domestic debt declined by 21 percent from FCFA 296 billion in 1999 to 233 billion by the end of 2002. Settlement of salary arrears through transfers of land was not transparent as it was not based on well-defined criteria for estimating land values. Only 18 percent of the debt to suppliers and banks was settled and the debt to Treasury correspondents was not reduced. The CFAA recommends three types of measures to improve the management and settlement of Niger's domestic debt: I Undertake a new, independent evaluation of the domestic debt to determine the validity of claims on Government agencies and decentralized institutions and pro- vide accurate estimates of cross-debts between Government and public enterprises. I Prepareanew,comprehensivesettlementplanbasedonclearcertificationandval- idation criteria on the basis of this evaluation, I ReconcileGovernmentaccountsandenterprisestatementsannuallyfollowingthe inventory of cross debts. External Debt. Debt relief in the context of the HIPC initiative has reduced total indebt- Public Expenditure Management and Financial Accountability in Niger 87 edness and drastically reduced present and projected debt service ratios (see Table 1-7 in Chapter 1). Government debt policy is sound (no borrowing with a grant element lower than 60 percent), but the debt situation needs to be carefully monitored in view of the structural vulnerability of the Nigerien economy to climatic and other external factors. For this purpose, debt transactions have been computerized. The number of agencies involved in debt management is in itself a problem. Five MEF departments--Public Debt (DDP), Financing of Investment (DFI), Payment Order (DO), the Treasury (TG), and the Program Directorate (DGP)--are involved in the manage- ment of external debt. In addition, the Public Debt Department, the main actor, is unable to monitor and report accurately changes in the external debt position of the country. This is due to the deficiencies in the processing and accounting of debt-related transactions: I The Treasury records transactions only when the debt is repaid, not when it is incurred.75 Its monitoring of external debt is performed manually, on a parallel basis, outside regular accounting systems. Information on payments of maturities by the Treasury is not automatically available to DPP. I The DFI also records loan draw-downs manually, outside regular accounting sys- tems, and does not project future loan disbursements. I Externally-financed expenditures are not integrated into monthly Treasury bal- ances and are not systematically controlled and monitored by the DFI.76 I DataonguaranteeddebtarestoredinaseparatecomputerfileandtheDDPisnot connected to the computerized financial information system of the DGB. A major effort is needed to reorganize the debt management process (loan draw-downs and externally-financed expenditures) and improve the circulation of information among the agencies concerned. This effort should be accompanied by the preparation of manuals on the management of external debt and the financing of Government investments. Institutional and Organizational Reforms and Human Resources Management The implementation of budget management reforms and, in a broader sense, of the country's povertyreductionstrategywillonlybesuccessfulifaccompaniedbyfar-reachinginstitutional reform of the structure and organization of the Government, coordination of administra- tive units, and human resource management. Measures such as full integration of invest- ment and recurrent budgets in budgetary management, de-concentration of expenditure procedures and decentralization of provision of public services will require radical changes in the Government's structure and functions. 75. The Treasury does not have access to the debt data base. It cannot monitor the origination of the debt, nor control its repayment. 76. DFI prepares manually--outside accounting systems--estimates for the TOFE (Table of Gov- ernment Financial Operations). 88 A World Bank Country Study Box 14. Non-financial Assets, Monitoring of Parastatals and Debt Management--Main Recommendations Non-financial assets · Establish a mechanism to centralize information on non-financial assets. · Carry out periodic inventories. Public enterprises · Clarify reporting requirements. DEPP should produce periodic reports on cross-debts and rec- oncile data provided by public enterprises and Government accounts. · Launch a financial management capacity-building program for public enterprises (mainly EPAs) Domestic debt · Organize an external evaluation of domestic debt. · Prepare a realistic new settlement plan. · Suspend allocating land parcels until criteria for estimating land values have been defined. · Define and publicize criteria for verifying requests for payment of domestic debt. External debt · Complete the implementation of new software for debt management and connect it to the FMIS. · Improve the circulation of external debt data among all the departments concerned. Institutional and Organizational Reforms The merger of the planning and finance wing of the Government into a single MEF in 2001 was a key step toward better coordinating budgeting and investment planning. It was a log- ical response to the Government's intention to move to a more programmatic approach to managing public program and a precondition to the fusion of the recurrent and investment budgets through the new budget classifications adopted in 2002. However, the present struc- ture of the MEF continues to reflect the dichotomy between the management of recurrent expenditures and development programs. A second round of restructuring in March 2004 has led to further integration.77 However, the integration remains incomplete as there is still some overlapping authority and responsibility of the former planning and finance units. The MEF has a crucial role in devising and implementing public finance management reforms. Adapting its structure and staff profile to the demands of efficient and transpar- ent governance is essential for the success of the reforms. A new, more comprehensive restructuring of the MEF is necessary to provide strengthened public finance management within the PRS framework. Institutional reforms are particularly important for strengthening internal and external control agencies. The directorate of financial control (DCF) should regain its autonomy and no longer report to the DGB. The legislation proposing the creation of a Corps d'Inspecteurs des Finances should be adopted. Finally the Government should resubmit to the National 77. Decree No. 2004-080/PRN/MEF of March 9, 2004. Public Expenditure Management and Financial Accountability in Niger 89 Assembly the draft Loi Organique aimed at transforming the Chamber of Accounts into a Court of Accounts. In the same vein, the normative and accounting functions of the Trea- sury should be separated. The dichotomy between management of recurrent expenditures and development pro- grams that persists in sectoral ministries will have to be overcome for a full integration of budget formulation and execution processes. There is also scope for rationalizing the struc- ture of ministries. The multiplicity of ministries dealing with the same sector, notably in education and rural development, does not facilitate the promotion of a strategic sector- wide approach to sector management. Improvement of the exchange of information between key departments within the MEF and between the MEF and other agencies (line ministries and decentralized institu- tions) is a key element of public finance reform. An urgent next step is to improve the com- puterized financial information system managed by the DGB and to make it accessible to DCF, DFI, DDP and other MEF departments. It should then be extended to line ministries and managers of crédits délégués. This could go a long way to accelerating the budget exe- cution process and improving the monitoring of the public finances Human Resource Management Two conflicting objectives complicate Government human resource management policies: the need to limit the size of the civil service to control recurrent expenditures and keep fis- cal deficits in check and the need to provide a public sector workforce of the size and qual- ity necessary to implement the Government's poverty reduction strategy. For example, increasing school enrollment rates and improving access to health services will require a substantial expansion in the number of teachers and health workers. To meet the first objective, the Government is currently only recruiting very limited numbers of civil service personnel, mainly to replace departing personnel. Its medium- term goal is to comply with WAEMU's convergence criterion, which limits wages and salaries to a ceiling of 35 percent of tax revenue. The freeze on recruitment has already reduced the number of civil servants from 39,597 in 2000 to 38,303 in 2003, and the Gov- ernment is very close to complying with WAEMU's convergence criteria. To meet the second objective, the Government has begun to recruit a number of lower-paid contract workers for the social sectors. The Government has been able to recruit 12,760 contract primary school teachers and 942 contract workers for basic health services. The use of contract staff has considerably reduced the unit costs of primary edu- cation and has facilitated the rapid increase in primary school enrollment over the past few years (see Chapter 2). One of the features of this policy is the direct contracting of teachers and health workers by local authorities and local management committees (COGES). This ensures that teachers and health professionals serve where they are most needed, including remote and underdeveloped regions. This policy involves certain risks. First, the Government may have to recruit under qualified candidates. This may strain the training and supervision capacity of the sector. Second, because of their number, contract teachers have acquired political leverage. This enabled them to obtain significant salary increases in 2003 and they will probably seek additional benefits over the next few years. The advantages of the contract teacher policy would rapidly erode if pressures for salary adjustments were to raise unit costs beyond the level reached following adjustments decided in 2003. 90 A World Bank Country Study This suggests the following strategy: I TheGovernmentshouldcontinuetorecruitcontractualworkers,whileimprovingtrain- ing and supervision, as long as it is possible to maintain the present cost advantage over regular civil servants. Should the salary levels of contractual workers be raised sub- stantially, the Government would have to reduce recruitment, which would proba- bly mean scaling down its objectives in terms of school enrollment and access to other social sector services. I Effortsshouldcontinuetobemadetocontrolthesizeandthecostofthecivilservice.The Government should undertake an inventory of all its employees to eliminate "ghost workers" from the payroll. To improve its monitoring of civil service staff, the Gov- ernment should develop a reliable staff management information system, which connects staff files kept by line ministries, files of the Ministry of Civil Service and Labor (Ministère de la Fonction Publique et du Travail, MFP/T) on payroll and MEF data on the payment of salaries and wages. I For the long-term, a major civil service reform is unavoidable. Its objective would be to control cost, increase productivity and improve the quality of public service through: (i) better planning of staff recruitment based on needs; (ii) improved selection procedures and matching recruitment with job profiles; and (iii) intro- ducing performance-based promotions and rewards systems and, eventually, developing a modern, cost-effective and results-oriented civil service and public administration system. Box 15. Institutional and Organizational Reforms and Human Resources Management-- Main Recommendations Institutional and organizational reforms · Conduct an organizational audit of MEF. Human resources management issues · Continue to control the size of civil service (through limited recruitments). · Continue implementing the contractualization policy for key social sector ministries. · Control the increase in cost of the contractualization policy (revise social sector objec- tives if necessary to take into account required staff reductions as a result of increases in unit costs). APPENDIXES APPENDIX A Macroeconomic and Government Finance Tables 93 94 A World Bank Country Study Appendix A.1: Financing of Government Overall Fiscal Deficits Cash basis (FCFA billion), 1995­2003 Average 1998­ 2001­ 1997 1998 1999 2000 2001 2002 2003/a 2000 2003 Financing 92.9 104.7 74.3 216.2 129.8 150.6 131.5 131.7 137.3 External financing 87.0 118.4 67.0 236.3 120.5 139.9 134.2 140.6 131.5 Grants 49.2 65.4 56.8 59.3 66.5 74.6 76.0 60.5 72.4 Budget financing 18.1 26.7 12.1 22.2 25.7 18.6 25.1 20.3 23.1 Project financing 31.1 38.7 44.7 37.1 32.7 45.8 39.4 40.2 39.3 HIPC Initiative . . . . . . . . . 0.1 8.1 10.3 11.5 0.1 10.0 Assistance Loans 42.1 52.0 26.6 54.7 53.7 78.0 68.4 44.4 66.7 Budget financing 24.2 30.5 8.1 26.3 30.4 44.2 32.8 21.6 35.8 Project financing 17.9 21.4 18.5 28.4 23.3 33.8 35.6 22.8 30.9 Amortization/b -18.5 -25.7 -23.8 -35.4 -41.3 -46.2 -38.6 -28.3 -42.0 Debt relief obtained 14.1 26.8 7.5 157.7 25.0 18.8 20.3 64.0 21.3 Recurrent debt 14.1 14.0 7.5 4.6 25.0 18.8 16.6 8.7 20.1 Arrears 0.0 12.7 0.0 153.1 0.0 0.0 0.0 55.3 0.0 HIPC Initiative . . . . . . 0.0 0.0 0.0 0.0 3.7 0.0 1.2 assistance/c Debt under discussion . . . . . . . . . . . . 16.6 14.7 8.1 . . . 13.1 Domestic financing 5.9 -13.7 7.2 -20.2 9.3 10.7 -2.7 -8.9 5.8 Banking sector 9.4 -11.0 7.8 -28.6 5.0 5.1 4.2 -10.6 4.7 Of which: . . . . . . -3.7 6.7 6.9 12.9 8.2 1.5 9.3 IMF (net) Non-banking sector -3.5 -4.0 -0.6 0.0 -0.7 8.6 -4.3 -1.5 1.2 Privatization 0.0 1.3 0.0 8.5 5.0 -3.0 -2.5 3.3 -0.2 receipts (net) Financing gap (+) 0.0 0.0 0.0 0.0 0.0 0.0 -0.1 0.0 0.0 /aGovernment, World Bank and IMF estimates, April 2004. /bIn 2001, includes payment of end-1999 external payment arrears vis-à-vis the African Develop- ment Bank (AfDB) and the OPEC Fund, as agreed in the rescheduling agreements. In 2002, includes payment of end-1999 external payments arrears vis-à-vis the OPEC Fund, Libya, the Saudi Fund for Development and a commercial bank. In 2003, includes payment of external arrears vis-à-vis the European Investment Bank. /cIncludes in the 2002 program assistance from IDA and the AfDB that are now classified as grants. For 2003, includes assistance provided through a rescheduling of recurrent maturities by Paris Club creditors (up to the completion point), China, and a portion of the relief from the Islamic Development Bank (IsDB), and the OPEC Fund. Sources: MEF, World Bank, and IMF. Public Expenditure Management and Financial Accountability in Niger 95 Appendix A.2: Sources of Net Official Development Assistance, 1997­2001 In US$ million 1997 1998 1999 2000 2001 Bilateral 181.2 144.6 120.2 105.8 113.6 France 94.6 66.1 44.9 41.3 37.0 Japan 13.6 11.4 15.9 15.0 13.0 Germany 17.4 20.5 17.7 11.6 15.7 Belgium 3.9 4.5 9.2 9.8 12.7 Switzerland 5.6 6.4 7.2 7.8 7.3 United States 16.0 10.8 6.5 5.3 8.0 Denmark 2.9 3.5 5.6 4.9 5.6 Multilateral 141.2 145.9 66.3 105.1 133.8 IDA 44.9 42.8 19.3 59.8 64.7 European Union 40.5 46.0 19.2 13.3 38.9 IMF 17.3 19.8 -4.1 9.4 9.5 UNDP 3.9 4.4 5.4 5.5 5.0 WFP 8.1 5.7 2.0 3.0 NA AfDB 17.9 14.9 12.3 0.1 5.0 Total incl. others 332.9 291.6 187.1 211.0 257.1 Out of which: grants 262.5 230.2 177.4 160.4 199.1 Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients (2003). 96 A World Bank Country Study Appendix A.3: Selected Economic and Financial Indicators, 2004­2007 Variables 2004 2005 2006 2007 National income and prices (Annual percentage change) GDP at constant prices 4.1 4.1 4.1 4.2 GDP deflator 1.1 2.0 2.0 2.0 Consumer price index Annual average 0.4 2.0 2.0 2.0 End of period 1.8 2.0 2.0 2.0 Government finances In percent of GDP Total revenue 10.3 10.9 11.4 11.9 Total expenditure and net lending, of which: 18.6 17.9 18.2 17.7 Recurrent expenditure 9.9 9.6 9.4 9.3 Capital expenditure 8.7 8.3 8.8 8.4 Primary budget balance/a -7.7 -6.4 -6.2 -5.2 Basic balance (excluding grants)/b -1.4 -0.2 0.4 1.2 Overall balance (commitment basis, excl. grants)/c -8.3 -7.0 -6.8 -5.7 Overall balance (commitment basis, incl. grants)/c -4.5 -3.6 -2.7 -1.6 Investment-Savings In percent of GDP Gross investment 16.1 15.9 16.6 16.3 Gross national savings 8.2 9.5 10.7 11.2 External recurrent account balance In percent of GDP Excluding grants for budgetary assistance -7.9 -6.4 -5.9 -5.1 Including grants for budgetary assistance -7.9 6.4 -5.9 -5.1 External public debt (end of period)/d 62.7 62.9 62.0 60.2 Debt service ratio (before debt relief) in % of: In percent Exports of goods and services 12.4 8.9 9.5 9.8 Government revenue 21.0 15.1 15.1 14.7 In billion of CFA francs GDP at recurrent market prices 1670.8 1774.1 1884.5 2003.6 Government payments arrears (reduction -), of which: -18.5 -18.4 -15.0 -10.0 Domestic -18.5 -18.4 -15.0 -10.0 External 0.0 0.0 0.0 0.0 Overall balance of payments/e -58.4 -32.4 -18.5 -7.8 /aTotal revenue, excluding grants, minus total expenditure, excluding interest payments. /bTotal revenue, excluding grants, minus total expenditure, excluding foreign-financed invest- ment projects. /cProjections include grants for projects and HIPC Initiative assistance. /dIncluding obligations to IMF. /eBefore debt relief (Projections include financing gap) Sources: IMF and World Bank Staff estimates and projections. APPENDIX B Public Expenditure Data Appendix B.1: Total Public Expenditures I Source: MEF, electronic budget database (situations des crédits), except for debt service (IMF). I Includesexternally-financedcapitalexpenditures(intra-andextra-budget). I AllfiguresinFCFAbillion. I Does not include 2003 data, as data on externally financed capital expenditure by sectors is not yet available (as of October 2004). 97 98 A World Bank Country Study Appendix B.1 a). Total Public Expenditures, 2000 Allocations (Budget Law) Recurrent expenditures Wages Goods Transfers and and and Capital Sectors salaries services subsidies TOTAL expenditures TOTAL General public services, 15.96 20.50 0.56 37.02 7.14 44.16 public order and defense Rural development 2.22 2.35 0.82 5.39 26.09 31.48 Water and environment 1.54 0.37 0.89 2.79 17.26 20.05 Equipment and transport 0.96 0.28 4.22 5.45 41.04 46.49 Health 5.08 7.56 4.56 17.20 19.24 36.44 Education 22.86 7.60 2.50 32.95 9.35 42.30 Social development 0.33 0.16 0.02 0.50 1.18 1.69 Other 4.85 5.90 14.02 24.77 15.76 40.53 TOTAL (excluding debt service) 53.79 44.72 27.58 126.08 137.06 263.15 TOTAL (including debt service) 177.02 314.09 Appendix B.1 b). Total Public Expenditures, 2000 Execution (Payment Orders) Recurrent expenditures Wages Goods Transfers and and and Capital Sectors salaries services subsidies TOTAL expenditures TOTAL General public services, 18.26 17.95 0.20 36.41 3.06 39.47 public order and defense Rural development 2.10 0.56 0.35 3.01 11.54 14.55 Water and environment 1.44 0.35 0.13 1.91 11.36 13.28 Equipment and transport 0.78 0.21 0.04 1.04 15.17 16.21 Health 4.88 3.30 2.17 10.35 18.43 28.78 Education 24.81 5.52 2.96 33.29 6.94 40.23 Social development 0.38 0.11 0.00 0.50 1.84 2.34 Other 4.62 2.99 6.46 14.07 5.26 19.34 TOTAL (excluding debt service) 57.27 31.00 12.31 100.58 73.62 174.20 TOTAL (including debt service) 157.58 231.20 Public Expenditure Management and Financial Accountability in Niger 99 Appendix B.1 c). Total Public Expenditures, 2001 Allocations (Budget Law) Recurrent expenditures Wages Goods Transfers and and and Capital Sectors salaries services subsidies TOTAL expenditures TOTAL General public services, 15.38 19.94 1.02 36.34 7.83 44.18 public order and defense Rural development 1.46 0.73 1.75 3.95 25.67 29.62 Water and environment 2.11 2.04 0.95 5.10 20.63 25.73 Equipment and transport 0.90 0.19 4.72 5.81 27.12 32.93 Health 4.83 8.28 4.33 17.44 19.78 37.22 Education 21.64 8.39 2.50 32.53 7.66 40.18 Social development 0.31 0.15 0.15 0.61 4.79 5.40 Other 4.31 4.88 9.04 18.22 10.95 29.18 TOTAL (excluding debt service) 50.95 44.60 24.46 120.01 124.44 244.45 TOTAL (including debt service) 313.33 Appendix B.1 d). Total Public Expenditures, 2001 Execution (Payment Orders) Recurrent expenditures Wages Goods Transfers and and and Capital Sectors salaries services subsidies TOTAL expenditures TOTAL General public services, 19.20 21.03 0.72 40.94 6.20 47.14 public order and defense Rural development 2.15 0.59 2.09 4.83 22.79 27.62 Water and environment 2.02 1.79 0.47 4.28 15.56 19.84 Equipment and transport 0.61 0.19 1.68 2.48 5.58 8.06 Health 4.98 5.28 3.48 13.74 19.65 33.39 Education 23.79 6.49 2.72 33.00 9.97 42.97 Social development 0.37 0.14 0.09 0.60 3.99 4.59 Other 4.30 4.26 8.67 17.24 6.88 24.11 TOTAL (excluding debt service) 57.43 39.76 19.93 117.12 90.61 207.73 TOTAL (including debt service) 183.82 274.43 100 A World Bank Country Study Appendix B.1 e). Total Public Expenditures, 2002 Allocations (Budget Law) Recurrent expenditures Wages Goods Transfers Wages and and and and Capital Sectors salaries services subsidies salaries expenditures TOTAL General public services, 16.40 21.96 1.37 39.73 6.51 46.24 public order and defense Rural development 2.11 2.15 3.33 7.59 35.96 43.55 Water and environment 1.45 0.50 0.64 2.59 21.18 23.77 Equipment and transport 0.90 0.18 4.00 5.08 32.52 37.60 Health 4.83 8.31 4.73 17.86 21.14 39.00 Education 25.42 9.44 4.30 39.16 19.20 58.36 Social development 0.32 0.18 0.25 0.74 1.33 2.07 Other 4.02 5.51 9.74 19.26 5.70 24.96 TOTAL (excluding 55.44 48.22 28.36 132.03 143.55 275.57 debt service) TOTAL (including 202.47 346.01 debt service) Appendix B.1 f). Total Public Expenditures, 2002 Execution (Payment Orders) Recurrent expenditures Wages Goods Transfers and and and Capital Sectors salaries services subsidies TOTAL expenditures TOTAL General public services, 21.67 19.14 0.88 41.69 5.98 47.67 public order and defense Rural development 2.11 1.49 1.55 5.15 22.60 27.75 Water and environment 1.47 0.37 0.41 2.25 23.09 25.34 Equipment and transport 0.72 0.15 2.55 3.42 18.05 21.47 Health 5.22 5.51 4.43 15.17 19.91 35.08 Education 29.80 8.12 4.27 42.20 14.95 57.14 Social development 0.39 0.14 0.16 0.69 1.06 1.75 Other 4.57 3.85 11.87 20.28 7.41 27.70 TOTAL (excluding debt service) 65.95 38.77 26.12 130.84 113.05 243.89 TOTAL (including debt service) 199.64 312.69 Public Expenditure Management and Financial Accountability in Niger 101 Appendix B.2. Domestically-financed Public Expenditures I Source: MEF, electronic budget database (situations des crédits), except for debt service (IMF). I Includesonlydomestically-financedcapitalexpenditures. I AllfiguresinFCFAbillion. I Doesinclude2003data. Appendix B.2 a). Domestically-financed Public Expenditures, 2000 Allocations (Budget Law) Recurrent expenditures Wages Goods Transfers Wages Capital and and and and expenditures Sectors salaries services subsidies salaries (domestic) TOTAL General public services, 15.96 20.50 0.56 37.02 3.81 40.83 public order and defense Rural development 2.22 2.35 0.82 5.39 2.96 8.35 Water and environment 1.54 0.37 0.89 2.79 1.86 4.65 Equipment and transport 0.96 0.28 4.22 5.45 4.97 10.42 Health 5.08 7.56 4.56 17.20 2.82 20.02 Education 22.86 7.60 2.50 32.95 2.61 35.56 Social development 0.33 0.16 0.02 0.50 0.34 0.84 Other 4.85 5.90 14.02 24.77 4.03 28.81 TOTAL (excluding 53.79 44.72 27.58 126.08 23.40 149.48 debt service) TOTAL (including 177.02 200.42 debt service) 102 A World Bank Country Study Appendix B.2 b). Domestically-financed Public Expenditures, 2000 Execution (Payment Orders) Recurrent expenditures Wages Goods Transfers and and and Capital Sectors salaries services subsidies TOTAL expenditures TOTAL General public services, 18.26 17.95 0.20 36.41 0.66 37.07 public order and defense Rural development 2.10 0.56 0.35 3.01 1.18 4.19 Water and environment 1.44 0.35 0.13 1.91 1.16 3.08 Equipment and transport 0.78 0.21 0.04 1.04 1.53 2.56 Health 4.88 3.30 2.17 10.35 1.85 12.20 Education 24.81 5.52 2.96 33.29 0.70 33.99 Social development 0.38 0.11 0.00 0.50 0.19 0.69 Other 4.62 2.99 6.46 14.07 0.88 14.96 TOTAL (excluding debt service) 57.27 31.00 12.31 100.58 8.15 108.73 TOTAL (including debt service) 157.58 165.73 Appendix B.2 c). Domestically-financed Public Expenditures, 2001 Allocations (Budget Law) Recurrent expenditures Wages Goods Transfers Wages and and and and Capital Sectors salaries services subsidies salaries expenditures TOTAL General public services, 15.38 19.94 1.02 36.34 3.90 40.24 public order and defense Rural development 1.46 0.73 1.75 3.95 3.37 7.32 Water and environment 2.11 2.04 0.95 5.10 2.16 7.26 Equipment and transport 0.90 0.19 4.72 5.81 3.20 9.02 Health 4.83 8.28 4.33 17.44 2.85 20.29 Education 21.64 8.39 2.50 32.53 2.43 34.96 Social development 0.31 0.15 0.15 0.61 0.90 1.52 Other 4.31 4.88 9.04 18.22 4.42 22.64 TOTAL (excluding 50.95 44.60 24.46 120.01 23.24 143.25 debt service) TOTAL (including 188.89 212.13 Public Expenditure Management and Financial Accountability in Niger 103 Appendix B.2 d). Domestically-financed Public Expenditures, 2001 Execution (Payment Orders) Recurrent expenditures Wages Goods Transfers and and and Capital Sectors salaries services subsidies TOTAL expenditures TOTAL General public services, 19.20 21.03 0.72 40.94 4.05 44.99 public order and defense Rural development 2.15 0.59 2.09 4.83 5.58 10.41 Water and environment 2.02 1.79 0.47 4.28 2.91 7.19 Equipment and transport 0.61 0.19 1.68 2.48 1.51 3.99 Health 4.98 5.28 3.48 13.74 4.43 18.18 Education 23.79 6.49 2.72 33.00 2.99 35.99 Social development 0.37 0.14 0.09 0.60 1.26 1.86 Other 4.30 4.26 8.67 17.24 4.02 21.26 TOTAL (excluding debt service) 57.43 39.76 19.93 117.12 26.75 143.86 TOTAL (including debt service) 183.82 210.56 Appendix B.2 e). Domestically-financed Public Expenditures, 2002 Allocations (Budget Law) Recurrent expenditures Wages Goods Transfers Wages and and and and Capital Sectors salaries services subsidies salaries expenditures TOTAL General public services, 16.40 21.96 1.37 39.73 4.39 44.13 public order and defense Rural development 2.11 2.15 3.33 7.59 4.32 11.91 Water and environment 1.45 0.50 0.64 2.59 2.11 4.70 Equipment and transport 0.90 0.18 4.00 5.08 3.65 8.72 Health 4.83 8.31 4.73 17.86 3.54 21.40 Education 25.42 9.44 4.30 39.16 5.37 44.54 Social development 0.32 0.18 0.25 0.74 0.29 1.03 Other 4.02 5.51 9.74 19.26 3.84 23.10 TOTAL (excluding 55.44 48.22 28.36 132.03 27.50 159.53 debt service) TOTAL (including 202.47 229.97 debt service) 104 A World Bank Country Study Appendix B.2 f). Domestically-financed Public Expenditures, 2002 Execution (Payment Orders) Recurrent expenditures Wages Goods Transfers Wages and and and and Capital Sectors salaries services subsidies salaries expenditures TOTAL General public services, 21.67 19.14 0.88 41.69 3.63 45.32 public order and defense Rural development 2.11 1.49 1.55 5.15 3.78 8.93 Water and environment 1.47 0.37 0.41 2.25 3.14 5.39 Equipment and transport 0.72 0.15 2.55 3.42 2.77 6.19 Health 5.22 5.51 4.43 15.17 3.38 18.55 Education 29.80 8.12 4.27 42.20 3.80 45.99 Social development 0.39 0.14 0.16 0.69 0.29 0.98 Other 4.57 3.85 11.87 20.28 3.70 23.98 TOTAL (excluding 65.95 38.77 26.12 130.84 24.50 155.34 debt service) TOTAL (including 199.64 224.14 debt service) Appendix B.2 g). Domestically-financed Public Expenditures, 2003 Allocations (Budget Law) Recurrent expenditures Wages Goods Transfers and and and Capital Sectors salaries services subsidies TOTAL expenditures TOTAL General public services, 21.81 19.57 5.49 46.87 5.53 52.40 public order and defense Rural development 2.46 2.10 3.62 8.19 4.41 12.61 Water and environment 1.40 0.25 0.62 2.27 5.10 7.37 Equipment and transport 1.06 1.09 4.86 7.01 4.17 11.18 Health 5.53 5.80 5.66 16.99 4.40 21.39 Education 27.30 3.99 8.18 39.46 3.58 43.04 Social development 0.37 0.03 0.38 0.79 0.86 1.65 Other 4.54 17.31 11.36 33.21 2.32 35.53 TOTAL (excluding debt service) 64.48 50.14 40.17 154.79 30.37 185.16 TOTAL (including debt service) 214.33 244.70 Public Expenditure Management and Financial Accountability in Niger 105 Appendix B.2 h). Domestically-financed Public Expenditures, 2003 Execution (Payment Orders) Recurrent expenditures Wages Goods Transfers and and and Capital Sectors salaries services subsidies TOTAL expenditures TOTAL General public services, 20.52 15.11 4.51 40.13 3.50 43.63 public order and defense Rural development 1.91 1.33 2.40 5.64 3.08 8.72 Water and environment 1.37 0.19 0.35 1.91 4.55 6.46 Equipment and transport 0.65 0.93 1.29 2.86 2.58 5.44 Health 4.74 1.80 5.06 11.60 5.92 17.52 Education 27.67 3.08 6.36 37.11 4.72 41.82 Social development 0.36 0.01 0.19 0.55 1.35 1.90 Other 4.25 14.21 6.81 25.27 1.05 26.32 TOTAL (excluding debt service) 61.46 36.66 26.96 125.08 26.74 151.82 TOTAL (including debt service) 180.28 207.02 APPENDIX C Methodology of Public Expenditure Reclassification Exercise Appendix C.1. Objectives and Main Tasks In order to assess consistency between Government spending and strategic priorities of the Government, the presentation of budget data had to be transformed from the administra- tive categories used in the old budget classification (pre-2003) to a functional presentation (by sectors). The following measures were taken for this purpose: I Convert the administrative budget classification used in the old budget classifica- tion (pre-2003) into a functional classification. I Re-allocatethebudgetlinescontaininggeneralexpenditures(dépensescommunes) at pro-rata to the different sectors. In order to produce an exhaustive picture of allocation and use of public resources, data on externally financed investment spending had to be added to the general budget data. This was done as follows: I Classify expenditures undertaken as part of externally-financed investment pro- jects, which are presented by the DFI in a separate classification for 2000, 2001 and 2002, according to the categories used in the general budget. In order to ensure year-to-year comparability of data sets, the following measures were taken: I Adaptthepresentationofbudgetdataintheoldclassificationtorenderitcompa- rable to the new classification. I Adapt the presentation of budget data to ensure compatibility between budget years following re-arrangements in composition of ministries and institutions. 107 108 A World Bank Country Study Appendix C.2. List of Reclassifications and Explanations (This list is presented in French, as it can only be understood in the context of Niger's Budget Laws.) In 2000­2001­2002 (old classification) 1) Fusion des titres 2 et 3 au sein des chapitres personnel (1), matériel (2), transport (3) et loge- ment (4); 2) Passage des contractuels du Ministère de l'Education de Base I et de l'Alphabétisation et du Ministère de l'Enseignement Secondaire et Supérieur et de la Recherche Technologique dans les dépenses de personnel (361-2 ou 461, 306-2 > 361-1, 306-1); 3) Soustraction des lignes « fiscalité compensée » et « contribution au budget d'investissement » des dépenses de transfert du Ministère de l'Economie et des Finances afin d'éviter une double comptabilisation avec les données désagrégées du budget d'investissement de l'Etat (447); 4) Reclassement, en 2000 et 2001, des dépenses de fonctionnement spécifiques à l'enseignement du second degré du Ministère de l'Education de Base et de l'Alphabétisation vers le Ministère de l'Enseignement Secondaire et Supérieur et de la Recherche Technologique afin de rendre comparables les budgets respectifs des ministères avant et après le passage de l'enseignement secondaire du premier au second ministère (lignes identifiées du second degré 361-2, 361-3, 361-4 > 306-2, 306-3, 306-4); 5) Retraitement des dépenses communes de personnel (titre 2 et 3) comme suit: · Redistribution égale entre les sections des dépenses communes de personnel du titre 2 (290-1 > toutes les sections-1); · Redistribution des dépenses communes de personnel du titre 3 au prorata des dépenses initiales de personnel de toutes les sections (390-1 > toutes les sections-1); 6) Retraitement des dépenses communes de matériel (titres 2 et 3) comme suit: · Redistribution égale entre les sections des dépenses communes de matériel du titre 2 (290-2 > toutes les sections-2); · Reclassement des lignes « appui à la décentralisation » et « dépenses électorales » au matériel du Ministère de l'Intérieur (390-2 > 325-2); · Reclassement de la ligne « remises DGI-TG-Adm centrale » au personnel du Ministère de l'Economie et des Finances (390-2 > 347-1); · Redistribution des lignes « gratifications », « primes et remises diverses » et « service civique national » au prorata des dépenses initiales de personnel de toutes les sections (390-2 > toutes les sections-1); · Redistribution des autres dépenses communes de matériel du titre 3 au prorata des dépenses initiales de matériel de toutes les sections (390-2 > toutes les sections-2); 7) Redistribution des dépenses communes de transport au prorata des dépenses initiales de transport propres aux structures (390-3 > toutes les sections-3); 8) Redistribution égale des dépenses communes de logement entre toutes les structures (390-4 > toutes les sections-4); 9) Reclassement des dépenses de fonctionnement du centre de l'informatique et des nouvelles technologies du Cabinet du Premier Ministre vers le Ministère de la Communication (303-2 > 308-2); 10) Reclassement des dépenses de fonctionnement de la cellule crise alimentaire, du système d'alerte précoce et du système d'information sur les marchés du Cabinet du Premier Ministre vers le Ministère du Développement Agricole (303-2 > 354-2); 11) Reclassement des dépenses de fonctionnement du haut-commissariat au barrage de Kandadji du Cabinet du Premier Ministre vers le Ministère des Mines et de l'Energie (303-2 > 359-2); Public Expenditure Management and Financial Accountability in Niger 109 12) Reclassement des dépenses de fonctionnement du haut-commissariat à la réforme de l'Etat et à la décentralisation du Cabinet du Premier Ministre vers le Ministère de l'Intérieur (203-2, 303-2 > 225-2, 325-2); 13) Reclassement des dépenses de fonctionnement du conseil national de l'environnement et du développement durable du Cabinet du Premier Ministre vers le Ministère de l'Hydraulique, de l'Environnement et de la Lutte contre la Désertification (303-2 > 360-2); 14) Reclassement des dépenses de fonctionnement du programme national de lutte contre le SIDA de la Présidence vers le Ministère de la Santé (305-2 > 364-2); 15) Reclassement des dépenses de fonctionnement du conseil supérieur de la magistrature de la Présidence vers le Ministère de la Justice (305-2 > 317-2); 16) Reclassement des dépenses de fonctionnement du conseil national solaire de la Présidence vers le Ministère des Mines et de l'Energie (305-2 > 359-2); 17) Reclassement des lignes de transfert « dotation au fonds de la décentralisation » et « subven- tions aux partis politiques » du Ministère de l'Economie et des Finances vers le Ministère de l'Intérieur (447 > 425); 18) Reclassement des lignes de transfert « programme d'urgence SAP » et « sécurité alimentaire » du Ministère de l'Economie et des Finances vers le Ministère du Développement Agricole (447 > 454); 19) Reclassement de dépenses d'investissement effectuées sur ressources PPTE imputées dans les dépenses communes de transfert au: · Ministère du Développement Agricole pour les puits pastoraux (490 > investissement 54); · Ministère de l'Hydraulique, de l'Environnement et de la Lutte contre la Désertification pour les mini-barrages (490 > investissement 60); · Ministère de l'Education de Base I et de l'Alphabétisation pour les constructions et équipements de classes primaires (490 > investissement 61); · Ministère de la Santé Publique et de Lutte contre les Endémies pour les constructions et équipements de cases et centres de santé communautaires (490 > investissement 64); · Ministère du Développement Social pour les actions spécifiques pour les femmes (490 > investissement 65); · Cabinet du Premier Ministre pour la préparation du DSRP mais au titre 3 étant entendu qu'il s'agit de dépenses de fonctionnement (490 > 303-2); 20) Reclassement des investissements projet par projet à partir des rapports d'exécution annuels 2000, 2001 et 2002 produits par la Direction du Financement des Investissements et de la Dette (y compris, en exécution, les projets recensés par la DFID mais non pris en compte dans le BIE voté). In 2003­2004 (new classification) 21) Passage des contract teachers du Ministère de l'Education de Base I et de l'Alphabétisation, du Ministère de l'Enseignement Secondaire et Supérieur et de la Recherche Technologique et du Ministère de la Santé Publique et de la Lutte contre les Endémies dans les dépenses de personnel (461, 406, 464 > 261, 206, 264); 22) Reclassement, en 2003, du transfert à la CAFER du titre 5 vers le titre 4 du Ministère de l'Equipement (558 > 458) 23) Redistribution pondérée entre les ministères de la rémunération des membres du Gouverne- ment (247 > titre 2 de tous les ministères); 24) Redistribution au prorata de la masse salariale initiale des structures des cotisations à la CNSS et de toutes les dépenses communes de personnel imputées au Ministère de l'Economie et des Finances (247 > titre 2 de toutes les sections); 110 A World Bank Country Study 25) Redistribution au prorata de la masse salariale initiale des structures de la contribution au FNR Ministère de l'Economie et des Finances (447 > titre 2 de toutes les sections); 26) Reclassement des dépenses de fonctionnement et d'investissement du centre de l'informa- tique et des nouvelles technologies, des dépenses de fonctionnement et d'investissement de l'institut africain d'informatique et du projet d'appui aux nouvelles technologies du Cabinet du Premier Ministre vers le Ministère de la Communication (303, 503 > 308, 508); 27) Reclassement des dépenses de fonctionnement et d'investissement de la cellule crise alimen- taire et du système d'alerte précoce du Cabinet du Premier Ministre vers le Ministère du Développement Agricole (303, 503 > 354, 554); 28) Reclassement des dépenses de fonctionnement du haut-commissariat au barrage de Kandadji et du programme barrage de Kandadji du Cabinet du Premier Ministre vers le Ministère des Mines et de l'Energie (303 > 359); 29) Reclassement des dépenses de fonctionnement et d'investissement du haut-commissariat à la réforme de l'Etat et à la décentralisation du Cabinet du Premier Ministre vers le Ministère de l'Intérieur (303, 503 > 325, 525); 30) Reclassement des dépenses de fonctionnement et d'investissement du conseil national de l'environnement et du développement durable, du projet d'appui institutionnel au CNEDD et du programme national environnement et développement durable du Cabinet du Premier Ministre vers le Ministère de l'Hydraulique, de l'Environnement et de la Lutte contre la Désertification (303, 503 > 360, 560); 31) Reclassement des dépenses de fonctionnement et d'investissement de la coordination intersectorielle de lutte contre les IST/VIH/SIDA et du projet VIH SIDA du Cabinet du Premier Ministre vers le Ministère de la Santé (303, 503 > 364, 564); 32) Reclassement de la ligne d'investissement « réhabilitation de l'ENA » du Cabinet du Premier Ministre vers le Ministère de la Fonction Publique et du Travail (503 > 541); 33) Reclassement des dépenses de fonctionnement du programme national de lutte contre le SIDA de la Présidence vers le Ministère de la Santé (305 > 364); 34) Reclassement des dépenses de fonctionnement du conseil supérieur de la magistrature de la Présidence vers le Ministère de la Justice (305 > 317); 35) Reclassement des dépenses de fonctionnement du conseil national solaire de la Présidence vers le Ministère des Mines et de l'Energie (305 > 359); 36) Reclassement au titre 3, pour toutes les structures et en prenant en compte les retraitements précédents, des dépenses d'investissements internes aux administrations, classées en fonctionnement dans l'ancienne nomenclature, afin de rendre comparables les données de 2003­2004 avec celles de 2000­2002 (investissements des administrations 5XX > 3 XX); 37) Redistribution des lignes « fiscalité compensée » et « contrepartie de nouveaux projets » entre tous les ministères au prorata des investissements financés sur ressources extérieures (447 > 5XX) 38) Redistribution égale entre toutes les sections de la ligne « subventions aux EPA » du Ministère de l'Economie et des Finances (447 > 4XX) 39) Reclassement des lignes de transfert « secours et aide sociale », « frais de soins médicaux et hospitalisation » et « frais médicaux malades » du Ministère de l'Economie et des Finances vers le Ministère de la Santé (447 > 464); 40) Reclassement des lignes de transfert « maintien de la paix », « consolidation de la paix » et « subvention au compte spécial affrètement d'avions » du Ministère de l'Economie et des Finances vers le Ministère de la Défense (447 > 415); 41) Reclassement des lignes de transfert « sécurité », « installation des nouvelles communes », « dotation au fonds de la décentralisation » et « subventions aux partis politiques » du Min- istère de l'Economie et des Finances vers le Ministère de l'Intérieur (447 > 425); 42) Reclassement des lignes de transfert « subvention à l'importation de l'électricité » et « subvention pétrole lampant » du Ministère de l'Economie et des Finances vers le Ministère des Mines et de l'Energie (447 > 459); Public Expenditure Management and Financial Accountability in Niger 111 43) Reclassement des lignes de transfert « programme d'urgence SAP » et « sécurité alimentaire » du Ministère de l'Economie et des Finances vers le Ministère du Développement Agricole (447 > 454); 44) Reclassement de dépenses d'investissement effectuées sur ressources PPTE imputées au Ministère de l'Economie et des Finances au : · Ministère du Développement Agricole pour les puits et forages pastoraux et villageois ainsi que les aménagements hydro-agricoles (547 > 554); · Ministère de l'Hydraulique, de l'Environnement et de la Lutte contre la Désertification pour les mini-barrages et seuils d'épandage (547 > 560); · Ministère de l'Education de Base I et de l'Alphabétisation pour les constructions et équipements de classes primaires (547 > 561); · Ministère de la Santé Publique et de Lutte contre les Endémies pour les constructions et équipements de cases et centres de santé communautaires (547 > 564); · Ministère du Développement Social pour les actions spécifiques pour les femmes et les crédits groupements féminins (547 > 565); · Ministère des Ressources Animales pour les constructions et équipements de cases vétérinaires ainsi que le programme de crédit vaches laitières (547 > 555); · Ministère de la Jeunesse et de l'Insertion Professionnelle des Jeunes pour les crédits jeunes diplômés (547 > 511); · Cabinet du Premier Ministre pour la préparation du DSRP mais au titre 3 étant entendu qu'il s'agit de dépenses de fonctionnement (547 > 303); 45) Reclassement du recensement général de la population et de l'habitat, du programme UNICEF et du projet d'appui au suivi-évaluation en matière de développement et de population du Ministère de l'Economie et des Finances vers le Ministère du Développement Social (547 > 565); 46) Reclassement du programme national cadre de lutte contre la pauvreté du Ministère de l'Economie et des Finances vers le Cabinet du Premier Ministre (547 > 503); 47) Reclassement du projet Syrene d'appui à l'artisanat du Ministère de l'Economie et des Finances vers le Ministère du Tourisme et de l'Artisanat (547 > 551); 48) Reclassement du programme de micro-réalisations de la BAD, du programme d'action communautaire de base et du programme de soutien à la paix Nord-Niger du Ministère de l'Economie et des Finances vers le Ministère du Développement Communautaire (547 > 556); 49) Reclassement du programme de consolidation de la stratégie de développement de la santé animale (SDSA) du Ministère de l'Economie et des Finances vers le Ministère des Ressources Animales (547 > 556). 112 A World Appendix C.3. Synthesized Table of Reclassifications Bank (This Table is presented in French, since it can only be understood in the context of Niger's Budget Laws.) Country Study 01--Services publics généraux Sujet Ligne Origine 0 Cours Suprème 1 Assemblée Nationale 2 Conseil Supérieur de la Communication 3 Cabinet du Premier Préparation DRSP PPTE 490­547 Ministère de l'Economie et des Finances Ministre 4 Grande Chancellerie 5 Présidence de la République 7 Cours Constitutionnelle 10 Commission N. Droits de l'Homme 12 M. Affaires Etrangères et Coopération 14 M. Intégration Africaine et NEPAD Total 01 02--Défense 15 Défense Nationale Maintien de la paix 447 Ministère de l'Economie et des Finances Total 02 03--Ordre public 17 M. Justice Conseil supérieur de la magistrature 305 Présidence 25 M. Intérieur Haut Commissariat à la réforme 303 Primature administrative et à la décentralisation (HCRAD) Sécurité Dotation au fonds de la décentralisation 447 Ministère de l'Economie et des Finances Subventions aux partis politiques 447 Ministère de l'Economie et des Finances Public Appui à la décentralisation 447 Ministère de l'Economie et des Finances Appui à la décentralisation 547 Ministère de l'Economie et des Finances Expenditure Dépenses électorales 390 Charges communes Programme d'Actions 390 Charges communes Communautaires (IDA) 390 Charges communes 554 Ministère du Développement Agricole Management Total 03 04--Affaires économiques 8 Communication Centre de l'informatique et des 303 Primature and nouvelles technologies Financial Institut africain d'informatique 303 Primature 13 Plan 41 Fonction publique Accountability 47 Finances et économie Subventions et autres transferts 447 (secours & aide sociale, réserve budgétaire, et modernisation des AEF) 51 Tourisme et Artisanat Syrène 547 Minisère de l'Economie et des Finances 52 Commerce et industrie 53 Transports in 54 Développement Agricole Cellule de crise alimentaire 303 Primature Niger Système d'alerte précoce 303 Primature Programme d'urgence SAP 447 Ministère de l'Economie et des Finances 113 (continued) 114 Appendix C.3. Synthesized Table of Reclassifications (Continued) A 04--Affaires économiques Sujet Ligne Origine World Sécurité alimentaire EU 447 Ministère de l'Economie et des Finances Bank Puits pastoraux PPTE 490­547 Ministère de l'Economie et des Finances Country 55 Ressources Animales Consolidation stratégie 547 Ministère de l'Economie et des Finances de développement SDSA 58 Equipement Study 59 Mines et énergie Haut Commissariat au barrage 303 Primature de Kandadji Conseil solaire national 305 Présidence 66 Privatisation 67 Promotion des PME 90 Charges communes Dépenses communes de personnel 247 Ministère de l'Economie et des Finances Contributions au FNR 490­547 Charges communes Caisse nationale de sécurité sociale 247 Ministère de l'Economie et des Finances Charges spéciales 247 Ministère de l'Economie et des Finances Rémunération membres 247 Ministère de l'Economie et des Finances du gouvernement Autres dépenses de personnel 247 Ministère de l'Economie et des Finances Subventions et autres transferts 447 Ministère de l'Economie et des Finances (sauf secours & aide sociale, réserve budgétaire, et modernisation des AEF) 490 PPTE Total 04 60 Environnement Conseil national de l'environnement 303 Primature et du développement durable (CNEDD) Mini-barrages PPTE 490­547 Ministère de l'Economie et des Finances 62 Hydraulique Total 05 56 Développement Micro-réalisations 490­547 Ministère de l'Economie et des Finances communautaire Nord-Niger (France) 490­547 Ministère de l'Economie et des Finances Projet Action Communautaire de base 490­547 Ministère de l'Economie et des Finances 68 Urbanisme et Habitat 90 PPTE Total 06 07--Santé Public 364 Santé publique Coordination lutte contre sida 303 Primature Secours et aide sociale 447 Ministère de l'Economie et des Finances Expenditure Frais de soins médicaux et hospitaliers 447 Ministère de l'Economie et des Finances Transport et frais médicaux 447 Ministère de l'Economie et des Finances UNICEF 547 Ministère de l'Econ. et des Fin. Management Centres de Santé PPTE 490­547 Ministère de l'Econ. et des Fin. Programme national de lutte 305 Présidence contre SIDA PPTE and Total 07 Financial 08--Sports, Culture et religion 309 Sport et culture 311 Jeunesse et insertion Accountability des jeunes Total 08 09--Education 306 Enseignement supérieur Contractuels du secondaire 462 Enseignement supérieur et secondaire in et secondaire Dépenses de personnel 361 38,6% des dépenses de personnel du Ministère de Niger (continued) 115 116 A World Bank Appendix C.3. Synthesized Table of Reclassifications (Continued) Country 09--SEducation Sujet Ligne Origine Study l'Education de base I Dépenses de fonctionnement second degré 361 Ministère de l'Education de base I 361 Education de base I Classes primaires PPTE 490­547 Ministère de l'Economie et des Finances Volontaires 461 Education de base I Pécules volontaires 361 Education de base I 490 PPTE Total 09 10--Protection sociale 365 DEV.SOC/POP/PF. Actions spécifiques femmes 490­547 Ministère de l'Economie et des Finances PPTE Total 10 Fiscalité compensée 547 Ministère de l'Economie et des Finances TOTAL GENERAL References Ablo, E., and R. Reinikka. 1998. Do Budgets Really Matter? Evidence from Public Spending on Education and Health in Uganda. Policy Research Working Paper No. 1926. Wash- ington, D.C.: The World Bank. Bouley, D., J. Fournel, and L. Leruth. 2002. How Do Treasury System Operate in Sub- Saharan Francophone Africa. IMF Working Paper. Washington, D.C.: International Monetary Fund. Bruns, B., A. Mingat, and R. Rakotomalala. 2003. Achieving Universal Primary Education by 2015--A Chance for Every Child. Washington, D.C.: The World Bank. Castro-Leal, F., J. Dayton, L. Demery, and K. Mehra. 1999. "Public Social Spending in Africa: Do the Poor Benefit?" The World Bank Research Observer 14(1):49­72. Chukwuma, O. 2004. The Medium-Term Expenditure Framework: The Challenge of Budget Integration in SSA Countries. 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Niger Poverty Assessment: A Resilient People in a Harsh Environment. Population and Human Resources Division, Africa Region. Washington, D.C. ------. 1998. Assessing Aid: What Works, What Doesn't and Why. Oxford University Press: New York. ------. 2000. "Niger Interim Poverty Reduction Strategy Paper and Joint Staff Assess- ment." Washington, D.C. Processed. ------. 2002. "Niger Poverty Reduction Strategy Paper and Joint Staff Assessment." Washington, D.C. Processed. ------. 2003a. "Niger PRSP Annual Progress Report and Joint Staff Assessment." Washington, D.C. Processed ------.2003b."MozambiquePublicExpenditureReview:Phase2--SectoralExpenditures." Washington, D.C., Processed. ------.2004a."NigerCountryFinancialAccountabilityAssessment(CFAA)."Washington, D.C. Processed. ------. 2004b. Santé et Pauvreté au Niger: Vers les Objectifs du Millénaire pour le Développe- ment. Département du développement Humaine, Série Documents de Travail # 29083. Washington, D.C. Public Expenditure Management and Financial Accountability in Niger 119 ------. 2004c. "Niger HIPC Completion Point Document." Washington, D.C. Processed. ------. 2004d. Zambia: Public Expenditure Management and Financial Accountability Review. World Bank Country Study. Washington D.C. ------. 2004e. Nourrir, éduquer et soigner tous les Nigériens: La démographie en perspective. Département du développement Humaine, Série Documents de Travail # 63. Wash- ington, D.C. ------. 2004f. "Concept Note for the Niger Health Sector Support Project (Health 3)." Washington, D.C. Processed. Eco-Audit Environmental Benefits Statement The World Bank is committed to preserving Endangered Forests and natural resources. We print World Bank Working Papers and Country Studies on 100 percent postconsumer recy- cled paper, processed chlorine free. The World Bank has formally agreed to follow the rec- ommended standards for paper usage set by Green Press Initiative--a nonprofit program supporting publishers in using fiber that is not sourced from Endangered Forests. For more information, visit www.greenpressinitiative.org. In 2004, the printing of these books on recycled paper saved the following: Trees* Solid Waste Water Net Greenhouse Gases Electricity 307 14,387 130,496 28,262 52,480 * Pounds Gallons Pounds KWH 40" in height and 6-8" in diameter Public Expenditure Management and Financial Accountability in Niger is part of the World Bank Country Study series. These reports are published with the approval of the subject govern- ment to communicate the results of the Bank's work on the economic and related conditions of member countries to gov- ernments and to the development community. Effective, efficient, and transparent management of public resources is particularly important in a poor country like Niger. This study shows how difficult it is for Niger to significantly change its expenditure composition in a short time span. A narrow and volatile domestic resource base, heavy depend- ence on aid, and a large share of pre-determined expenditures, such as external debt payments, are important factors behind this lack of flexibility. There are ways, though, to create space in the budget for increasing public spending on priority sec- tors. The study identifies a number of measures in this regard, such as increasing domestic revenues, more realistic and con- servative budgeting, strengthening cash management, con- trolling the wage bill, borrowing prudently, and attracting higher external financing for recurrent costs in priority sectors. The study also shows that enhancing the efficiency and trans- parency of public spending is as important as increasing spending for priority sectors. It thoroughly assesses public management systems in Niger and presents an action plan, jointly elaborated by the Government and its main external partners, to address the main challenges in this area. This action plan contains a priority set of measures to improve budget preparation, execution as well as internal and external oversight. World Bank Country Studies are available individually or by subscription, both in print and online. ISBN 0-8213-6366-2 THE WORLD BANK 1818 H Street, NW Washington, DC 20433 USA Telephone: 202 473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org