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FOR OFFICIAL USE

INTERNATIONAL MONETARY FUND

Fiscal Affairs Department

NIGER

ASSESSMENT OF THE HIPC INITIATIVE AND ACTION PLAN

Lubin Doe, Gisèle Suire, Vincent Caupin, Emmanuel Pinto Moreira

July 26, 2004

__________________________________ 20030 Translation from _____________________________________ 200404893 Translation from French

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“The contents of this report constitute technical recommendations and advice given by staff of the International Monetary Fund (IMF) to the authorities of a member country. With the written authorization of the recipient country’s authorities, this report (in whole or in part) or summaries thereof may be disclosed to IMF Executive Directors and their staff, and to technical assistance providers and donors outside the IMF. Disclosure of the report (in whole or in part) or summaries thereof to parties outside the IMF other than technical assistance providers and donors shall require the written authorization of the authorities of Niger and the IMF Fiscal Affairs Department.”

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Table of Contents Page

Summary of Recommendations……………………………………………………………….5

I. Introduction ............................................................................................................................7 A. HIPC Assessment Process ........................................................................................8 B. Poverty Reduction Strategy of Niger ........................................................................9

II. Assessment of the Capacity to Track Poverty-Reducing Public Spending.........................10 A. Scope of the Assessment.........................................................................................10 B. Budget Formulation.................................................................................................11 C. Budget Execution ....................................................................................................17 D. Budget Reporting ....................................................................................................20 E. Public Procurement .................................................................................................23

III. Action Plan to Strengthen Public Expenditure Management ............................................25

A. Budget Formulation ................................................................................................25 B. Budget Execution ....................................................................................................26 C. Budget Reporting ....................................................................................................26 D. Public Procurement .................................................................................................27

Appendix Tables ………………………………………………………………………………29

Appendix I. Special Presidential Poverty Reduction Program ................................................33

Appendix II. Internal Control of Government Finance in Niger .............................................35

Appendix III. Evolution of External Control of the Budget in Niger......................................37

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Acronyms and Abbreviations AfDB African Development Bank AFFRM Autonomous Fund for the Financing of Road Maintenance APA Administrative Public Agency BCEAO Central Bank of West African States BL Budget law BOA Bank of Africa CABD Chamber of Accounts and Budgetary Discipline of the Supreme Court COFOG Classification of the Functions of Government CPC Central Procurement Commission DAFA Director of Administrative and Financial Affairs DBEL Draft Budget Execution Law DFC Directorate of Financial Control ECOWAS Economic Community of West African States FAD Fiscal Affairs Department (IMF) GDB General Directorate of the Budget GDFA General Directorate of Financial Audit HIPC Heavily Indebted Poor Countries IBA International Bank for Africa IBL Initial Budget law MGFS Manual on Government Finance Statistics (IMF) MTEF Medium-Term Expenditure Framework PEM Public Expenditure Management PEMFAR Public Expenditure Management and Financial Accountability Review PPRA Public Procurement Regulation Authority PRGF Poverty Reduction and Growth Facility PRSP Poverty Reduction Strategy Paper PWPA Payment Without Prior Authorization SDD State Directorate of Disputes SGA State General Audit TOFE Table on Government Financial Operations WAEMU West African Economic and Monetary Union

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SUMMARY OF RECOMMENDATIONS This report contains an assessment of the capacity of the government of Niger to track poverty-reducing expenditure. It is based on a common framework consisting of 16 indicators1 that are applied to all the beneficiaries of relief under the Heavily Indebted Poor Countries (HIPC) Initiative. The assessment and the related action plan were reviewed and agreed upon with the government and Niger’s principal development partners. They will be published once completed. During the first assessment of the HIPC Initiative in 2001, Niger met three of the 15 benchmarks. The present assessment shows that Niger observed five of the 16 indicators (Appendix Table 1). As regards the objectives that have not yet been achieved, in several areas Niger is much closer to the goal than in 2001. For instance, the number of B ratings (average performance) increased from four in 2001 to seven in 2004, reflecting progress made in budget execution and reporting, and the number of C ratings decreased from seven to four.2 The assessment also shows lower ratings in 2004 than in 2001 in a few areas due to the refinement in the definitions of several indicators. Hence, this does not reflect deterioration in the country’s expenditure management capacity. The budget covers mainly the central government as defined in the Fund’s Manual on Government Finance Statistics (MGFS). It does not cover the administrative public agencies (APAs) or the local governments. Similarly, the coverage of externally funded capital expenditure is incomplete. The administrative, economic and functional classifications are consistent with international standards. Multiyear projections are embryonic and are not yet integrated into the budget preparation process. Poverty-reducing spending is defined and tracked but not in a unique way. As regards budget execution, Treasury accounts are routinely reconciled with bank statements. By contrast, the surveys for tracking expenditure and checking the effectiveness of expenditure management that were deemed satisfactory during the previous mission were not carried out. Efforts will also need to be pursued to further reduce payments arrears. Actions to improve internal control should continue. Appreciable progress was recorded in reporting budgetary operations. Time lags in transmitting budget execution reports for consolidation are acceptable. Delays incurred in the preparation of budget execution laws had been substantially reduced as evidenced by the establishment of the operating accounts and budget execution laws for the years 1997

1 The assessment performed in 2001 was based on 15 benchmarks. A new indicator on public procurement was added for the 2003 assessment, thereby bringing the total number of benchmarks to 16.

2 The rating for benchmark 5 (for which the norm is B) was counted as A. The comparison with performance in 2001 excludes indicator 16 because it was not on the list in 2001.

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through 2001. Unfortunately, the 2002 and 2003 budget execution laws have not been prepared on time. Similarly, the two-month complementary period is not being observed. A new law on procurement has been passed but is not yet fully operational. The strong points in this area are the breadth of the legal framework and the relatively limited use of exceptional procedures. The report proposes an action plan for strengthening expenditure management capacity in Niger. This plan is aimed at helping the country meet, over time, all 16 indicators. The achievement of this objective constitutes a major challenge, but sustained efforts at all levels will bring the country closer to reaching the goal. The authorities are aware of this and have expressed their resolve to pursue the expenditure management reforms.

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I. INTRODUCTION

A joint IMF-World Bank mission visited Niamey from July 12 to 26, 20043 to assess the capacity of the government to track poverty-reducing expenditure and to prepare, in collaboration with the authorities, an action plan of reforms. The assessment and the action plan proposed are based on discussions held with the government, the Chamber of Accounts and donors. The mission thanks them all for their contribution. In particular, the self-assessment prepared by the authorities was a helpful basis for the work of the mission. The mission’s draft report was discussed at meetings held with the authorities and representatives of the principal development partners. Their comments were taken into account in the draft final report. During its stay, the mission met with the President of the Republic (Mr. Mamadou TANJA), the Minister of Economy and Finance (Mr. Ali Mahaman LAMINE ZEINE), the President of the Chamber of Accounts and Budgetary Discipline of the Supreme Court (CABD, Mr. Mory SISSOKO), the High Commissioner of Decentralization and Administrative Reforms (Mrs. Mariama SALIFOU), the State Inspector-General (Mr. Habibou HAMED), the Commissioner of Economy (Mr. Boubacar MOUMOUNI SAIDOU), the Commissioner of Development (Mr. Yakoubou SANI), the Director of State Directorate of Disputes (Mrs. Saliah GAZIBO), the Technical Adviser in the Office of the President (Mr. Ibraihim SAIDOU), the Budget Director General (Mr. Hamidine HABOU), the Director of the General Directorate of Financial Audit (Mr. Sani YAHOUZA), the Director General of Economy (Mr. Saâdou BAKOYE), the National Director of the BCEAO (Mr. Abdoulaye SOUMANA), the PRSP Coordinator (Mr. Malla ARI), the Budget Director (Mrs. Fatchima RABO), the Director of Payment Order Issuance (Mrs. Mariama BASSIROU), the Director of Financial Control (Mr. Hamidou AMADOU), the 1st and 2nd Authorized Representatives of the Treasury (Mrs. Awa DAGRA and Mr. Abdoulaye ISSAKA), and the Director of Multilateral Financing (Mr. Illiassou MAAZOU), and their staffs. The mission also visited the region of Dosso and held discussions with the Prefect (Mr. Moutari LAOUALI), the State Inspector-General (Mr. Adamou DJIGO), the Payment Authorizing Officer (Mr. Zakara KARIDIO), the Chief Physician of the Health District (Dr. Issa OUMAROU), the Municipal Secretary of the Dosso Town Hall (Mr. Mahamadou DOGON-YAROY), the Regional Directors in Dosso in charge of Customs, Other Taxes, Agricultural Development, Community Development, Basic Education, Health, Animal Resources, Agricultural Engineering, Urban Development, and Housing, Land Development, Youth, Sport, and the Environment, and their staffs. Next, the mission visited several projects 3 The mission consisted of Mr. Lubin Doe (FAD, Mission Chief), Mrs. Gisèle Suire (Advisor, AFRITAC-West), Mr. Vincent Caupin (Expert) and Mr. Emmanuel Pinto Moreira (World Bank). Mr. Jemma Dridi, the IMF Resident Representative in Niger, supported the mission in many ways. Mr. Amadou Ibrahim and Mr. Abdou Chayabou of the resident missions of the World Bank and the Fund participated in several meetings.

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financed with HIPC resources (dairy cattle belonging to a group of women and various small economic ventures being run by handicapped persons in the Dosso Commune, a health hut in Koygorou, an outlet dike in Kouré Kobadey, and the “President’s Triangle,” composed of a 50-meter well, a health hut, and a classroom, in Bossadjé). The mission thanks the authorities of Niger warmly for their exemplary assistance, their cooperation, and the excellent arrangements made to facilitate its work. The mission drew on the conclusions of the Public Expenditure Management and Financial Accountability Review (PEMFAR) report of the World Bank, which is being finalized.

A. HIPC Assessment Process

In 2001, IMF and World Bank staff jointly undertook a comprehensive assessment of the public expenditure management (PEM) system in Niger. That assessment was based on 15 benchmarks pertaining to budget preparation, execution and reporting. It was aimed at assessing the capacity of government departments to track poverty-reducing expenditure in the context of the Enhanced HIPC Initiative and ascertaining how the international community could further help to improve the existing expenditure management systems. Following that assessment, carried out in cooperation with the authorities, an action plan was adopted and technical assistance needs were identified. The results of the assessment (along with those of 23 other countries benefiting from the HIPC Initiative) were reported to the Executive Boards of the Bank and the Fund in March 2002.4 Subsequently, progress in the implementation of the action plans was reported to the two Boards in March 2003.5 The 2001 assessment concluded that the PEM system in Niger needed an overhaul as only three of the 15 benchmarks were met: two (of seven) in budget preparation and one (of four) in budget execution. None of the four budget reporting benchmarks was met. The most appreciable improvements expected concerned the broadening of budget coverage, the introduction of budget classifications as recommended in the MGFS, the identification of items related to poverty reduction in the budget, the preparation of multiyear expenditure projections, the reduction of payments arrears, and the strengthening of external audits. The Executive Boards of the Fund and the Bank had asked the staff to carry out another comprehensive review of the PEM systems in the HIPCs and report to them in the fall of 2004. This assessment of PEM in Niger is part of that process. It is based on the same general framework as in 2001, but the assessment benchmarks have been refined and made 4 Actions to Strengthen the Tracking of Poverty-Reducing Public Spending in Heavily Indebted Poor Countries. SM/02/30, Revision 2, March 21, 2002.

5 Update on the Implementation of Action Plans to Strengthen Capacity of HIPCs to Track Poverty-Reducing Public Spending, SM/03/90, March 11, 2003.

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more specific to facilitate comparisons between countries. A 16th benchmark on public procurement was added to the previous 15.

B. Poverty Reduction Strategy of Niger

Niger completed the formulation of its poverty reduction strategy in January 2002. That work was based on a broad participatory process. The strategy served as a background for the formulation of medium-term policies and for negotiations with technical and financial development partners. Poverty is widespread in Niger. According to the budget-consumption surveys carried out in 1990 and 1993, 63 percent of the population lives below the poverty line and about 34 percent are completely destitute.6 Illiteracy, malnutrition, low life expectancy, underemployment and unemployment are prevalent. The poverty reduction strategy hinged on priority actions to: • Ensure lasting, sustained economic growth;

• Promote the development of the productive sectors in the country;

• Improve access of the poor to basic social services (access to education, primary healthcare, actions against endemic diseases, especially malaria and HIV/AIDS, etc.); and

• Strengthen the development of human and institutional capacities, and promote good governance and further decentralization of public services.

The efforts under way to strengthen fiscal management capacities are instrumental in the implementation of the poverty reduction strategy. Indeed, fiscal management reforms contribute to the strengthening of the government’s capacity to implement the other components of its strategy. It is quite unlikely that the initiatives aimed at increasing access to primary healthcare or regional development will succeed unless the government has a transparent and reliable system for channeling resources toward the priority areas and ensuring the judicious use and tracking of those resources. Lastly, a sound fiscal management system reassures partners about the proper use of the resources provided to the government. Accordingly, the capacity of the country to attract external resources and move from project financing to budgetary support will be strengthened. According to the authorities, the first assessment of implementation of the strategy revealed improvements in the macroeconomic framework and advances in structural reforms 6 The survey was conducted in two phases: an urban phase in 1989-90 and a rural phase in 1992-93. The two phases were combined for the analysis of the results. The poverty line was set at CFAF 75,000 and CFAF 50,000 a year for urban and rural population groups respectively. The extreme poverty line, for its part, was set at CFAF 50,000 and CFAF 35,000, respectively, for the same categories.

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(introduction of the new government chart of accounts and a new nomenclature, submission of the operating accounts and several draft budget execution laws, adoption of a new law on public procurement, enactment and implementation of a new law on decentralization, strengthening of the financial control of local governments, etc.). Numerous educational, medical, and hydraulic infrastructures have been created with HIPC resources in the context of the special presidential program (Appendix 1).7 The second assessment of this strategy is under way and is expected to be completed in the last quarter of 2004. The government has started the process for updating its poverty reduction strategy, notably by initiating new poverty assessment surveys.

II. ASSESSMENT OF THE CAPACITY TO TRACK POVERTY-REDUCING PUBLIC SPENDING

A. Scope of the Assessment

This assessment primarily covers the central government, including the deconcentrated agencies. The law 2001/023 of August 10, 2001, the implementation of which began with the local elections of July 24, 2004, divides the country into 8 regions, 36 departments, and 265 municipalities.8 As administrative structures, the regions and the departments are headed respectively by governors and prefects appointed by the central government. The General Directorate of the Budget, the National Treasury, and key ministries—in particular, Education and Health—are deconcentrated in the regions. During the period 2001–03, the deconcentrated agencies of the central government executed about 4 percent of all poverty reduction expenditure. The deconcentrated administrations are closely integrated into the central government structure. They are governed by the same laws, regulations, and control mechanisms. Their operations are classified using the same budget and accounting codes. The decentralized administrations, in particular the municipalities, enjoy financial autonomy and are each managed by a mayor chosen by an elected municipal council. The law provides for the grouping of certain municipalities in the form of urban communities run by a president and a council of municipal delegates. The law also authorizes the election of regional and departmental councils. The mission supports the government’s prudent

7 The full implementation of the second phase of the presidential program is confronted with cash flow problems as potential funds from debt relief increase.

8 Before the elections of July 24, 2004, apart from the central government, the country was composed of eight departments, 36 counties, and 21 municipalities. In addition, to carry out territorial surveillance, there were 27 administrative field offices with no financial prerogatives attached to them. They were eliminated in 2001.

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approach to decentralization, consisting of implementing the institutional reform in phases (starting with the municipalities). The municipalities have two types of tax revenue: revenue collected by the central government and shared with them, and revenue that they collect on their own. For example, real estate tax is shared 60 percent for the Treasury and 40 percent for the municipalities. The ratios are 70 (Treasury)/30 (municipalities) for business license taxes. Local governments do not receive significant subsidies from the central government.9 The overall level of the financial activities of the 57 local authorities (municipalities and arrondissements) has been modest. In 2003, their total expenditure was estimated at CFAF 11.5 billion, or 4.2 percent of the total spending of the central government. Based on the available information, it would appear that the local administrations participate very little in poverty reduction efforts. Indeed, several municipalities, especially in rural areas, are experiencing enormous difficulties in their attempts to mobilize the resources needed for the operation or maintenance of the investments made in the context of the special presidential poverty reduction program. In light of the limited role of local governments in the execution of poverty reducing expenditure and the lack of data on their operations, the present assessment does not cover their financial management.

B. Budget Preparation

Indicator 1: Coverage of the government budget Benchmark: (A) The budget covers the government sector as defined in the Fund’s Manual on Government Finance Statistics (MGFS), that is, including central, regional, and local governments, and all government operations, whether funded through the budget or not. Assessment: (A) This benchmark is met. The expenditure excluded from the budget is estimated at 4.2 percent of total government expenditure. Budget coverage in Niger primarily encompasses the government sector as defined in the MGFS, except for the APAs and local governments. The budget covers the expenses of institutions and ministerial departments (32) and the special accounts (9). Local governments are not covered by the budget. In addition, the financial operations of the 23 APAs are taken into account only with respect to the budget subsidies they receive. Their own receipts, external funding, and related expenditure are not covered in the budget. The

9 The fact that the law authorizes them to contract loans reinforces the need to monitor their budgetary policy.

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financial position of the local governments is monitored by the Ministry of the Interior and Decentralization. That of the APAs is monitored by the Government Portfolio Directorate in the Ministry of Finance and Economy, though not in a systematic way. It is estimated that the share of general government expenditure that is not covered by the budgetary process represents 4.2 percent of total spending.10 That expenditure is mainly attributable to the local governments. Indicator 2: Degree of spending being funded by inadequately reported extrabudgetary sources Benchmark: (A) Government activities are not funded to a significant degree through inadequately reported extrabudgetary sources. Assessment: (B) This benchmark is not met. The extrabudgetary resources identified represent more than 3 percent of total government expenditure. There are four types of extrabudgetary revenue11 in Niger: (i) revenue from road tolls, allocated directly to the AFFRM (a road fund); (ii) the at-source withholding of a 1 percent fee on imports to pay COTECNA (an import inspection company); (iii) revenue raised by the APAs and local governments themselves and not shown in the budget law (BL); and (iv) certain withholdings from duty, fees, and taxes, granted to the staff of revenue collecting agencies as incentives. In all, this revenue represents 3.6 percent of total expenditure, (Table 2).

10 This estimate includes the expenditure of 12 APAs financed with their own resources. The staff estimate that even if the own revenue of the remaining 11 APAs are taken into account along with road toll allocations to the road fund (AFFRM) and payments to the import inspection company (COTECNA), the share of general government spending excluded from the budgetary process will still be less than 5 percent.

11 Defined here as all public revenue that is not included in the government budget. The WAEMU and ECOWAS community levies are governed by regional regulations.

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Table 2: Niger. Extrabudgetary Revenue in 2003 (In billions of CFA francs)

AFFRM (road tolls) 0.3 COTECNA (import inspection company) 1.4 Local governments (own revenue in 2002) 7.6 Autonomous public agencies (APAs, own revenue) 1/ 0.6 Incentive awards to staff of certain revenue collecting agencies N.A. 2/ Total (in billions of CFA francs) 9.8 Total (in percentage of total expenditure) 3.6 Total budget expenditure (in billions of CFA francs) 276

Source: Table prepared on the basis of information provided by the Niger authorities. 1/ The data relate to only 12 of the 23 APAs. 2/ N.A. = Not available. Indicator 3: Reliability of budget as a guide to execution Benchmark: (B) Budget outturn data are close to the original budget. Assessment: (C) This benchmark is not met. Overall, the budget outturn is different from the amounts appropriated. The deviations of actual from budgeted expenditure exceeded 15 percent of total primary expenditure, amounting to 18 percent in 2001, 16 percent in 2002 and about 26 percent in 2003 (Appendix Table 3). The ratios of individual functional components of these differences to the expenditure budgeted for those functions also exceed 20 percent in many instances, reaching 47 percent for social expenditure in 2002. Therefore, budgeted expenditure outturn is not close to projections. The bulk of education expenditure was spared from budget restrictions as the execution rate of primary expenditure stood at 94 percent on average in 2001-03. The execution rate was smaller in the health sector (78 percent). During the period 2001–03, Niger adopted two supplementary budgets in order to take into account: (i) HIPC relief, privatization receipts and the reform of the petroleum taxes; and (ii) supplementary receipts and the creation of two special accounts. The rates at which revenue forecasts proved accurate seem quite high, as outturns appear to have been close to the projections contained in the initial budget laws, except in 2003 when several exogenous shocks (crisis in Côte d’Ivoire leading to the non-payment

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of Niger share of compensatory levy by the WAEMU Commission, repeated closure of the border with Nigeria, and decline of the dollar) contributed to a revenue shortfall of 8 percent. Indicator 4: Inclusion of donor funds Benchmark: (A) Budgets and/or fiscal reports at all levels of government include, without exception, grants projected to be provided by donors, and the capital and current expenditure related to all government activities at the multilateral and bilateral levels. Assessment: (B) This benchmark is not met. Certain donor projects are implemented and tracked off-budget. While 75 percent of public investment is financed by donors, the government of Niger is experiencing serious difficulties tracking this expenditure in a systematic way. Over the period 2001–03, 16 percent of project spending was executed off-budget.12 Information on projects managed directly by donors (on average, 38 percent of the financing executed—Table 4) is difficult to obtain during the budget preparation and execution phases. Some donors contend that the information is provided to the authorities but is not properly stored and used. The government does not share this assessment. The General Directorate of Financing of the Ministry of Finance track the implementation of donor-financed expenditure off-book. Grants-in-kind are extended to institutions that are not covered in the budget.

Table 4: Niger. Externally Financed Capital Expenditure, 2001-03 2001 2001 2002 2002 2003 2003 IBL1/ Actual IBL Actual IBL ActualTotal external financing (In billions of CFAF)

92.7 55.9 106.2 79.5 135.0 87.2

of which: directly managed by donors (%)

22.5 41.1 24.3 35.8 20.7 36.7

Off-budget expenditure (%) 13.0 17.4 16.2Source: General Directorate of Financing. 1/ IBL: Initial budget law.

12 Off-budget projects are not referenced in the budget and are therefore implemented without parliamentary approval. Directly-managed projects are supervised by donors without the involvement of the government of Niger. A project can be off-budget and directly managed at the same time.

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Indicator 5: Classification Benchmark: (B) Budget expenditure is classified on an administrative, economic, and detailed functional or programmatic basis. Assessment: (B) This benchmark is met. The recently adopted budget nomenclature is consistent with international standards, notably the COFOG classification at the functional level. The new budget nomenclature, which transposes West African Economic and Monetary Union (WAEMU) Directive 04/98 into domestic law, was adopted by decree on July 26, 2002 and applied for the first time to the 2003 budget law. The decree classifies expenses in three categories: (i) administrative; (ii) economic; and (iii) functional. The functional classification follows the COFOG prescriptions of the United Nations (1999) and repeated in the MGFS, with 10 main functions and 69 sub functions at the second level. The administrative and economic classifications are now operational.13 The functional classification is done manually and is expected to be computerized in 2005.14 The review by the World Bank of the programmatic classification of expenditure of the ministries of basic education, health, agricultural development and livestock revealed some deficiencies that need to be eliminated. Indicator 6: Identification of poverty-reducing spending Benchmark: (A) Poverty-reducing expenditures are clearly identified.

Assessment: (A). This benchmark is met. Though there are several lists of poverty-reducing spending, they are codified in the budget. The Poverty Reduction Strategy Paper (PRSP) prepared in January 2002 lists priority actions to be carried out, with a specific timetable over the period 2002–04. The General Directorate of the Budget (GDB) considers as poverty-reducing expenditure all spending in the priority

13 According to the PEMFAR, there are some errors in the economic classification of the 2004 budget. For instance, salaries for volunteer teachers are classified as transfers, not as wages and salaries.

14 An appendix in the 2004 budget law shows a functional classification.

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sectors defined in the PRSP, although not all the items are budgeted because of financial constraints. The expenditure of these sectors are codified in the budget and tracked. To ensure that the HIPC relief is effectively applied to reducing poverty, the government selected a list of projects from the budget designed to meet basic needs nationwide. The implementation of these projects (school and health huts, wells, small-scale dams, very small loans for economic activity, etc.) regrouped under the name “presidential program” is closely monitored by at the Presidency. The cash-flow committee has also drawn up a list of priority poverty-reducing expenditure to be safeguarded. The latter list also is a subset of budgetary expenditure and includes projects financed with domestic resources and foreign funds (other than HIPC relief). The mission considered that the treatment of all current expenditure in the social sectors as poverty-reducing spending (GDB definition) is too broad and advised a tighter definition of poverty spending. It added that the existence of several lists of poverty-reduction expenditure could be source of confusion and possibly inefficiency and waste. A single, specific but revisable list may be more appropriate. Indicator 7: Integration of medium-term forecasts Benchmark: (A) Multiyear expenditure projections are integrated into the budget preparation process. Assessment: (B) This benchmark is not met. Initial steps are being taken to establish a medium-term expenditure framework, and several pilot ministries, in particular those involved in the poverty reduction strategy, are formulating program budgets. However, the forecasts have not been adopted by the government or the parliament and are not integrated into the draft budgets.

The culture of program budgets and medium-term expenditure framework is gradually taking root in several ministries, in particular those involved in poverty reduction programs (basic education, agricultural development, animal resources, health, water supply, and anti-desertification activities). The macroeconomic guidelines prepared by the General Directorate of Economy and sent to all the ministries in preparation of the 2005 budget includes expenditure projections by sector for up to 2008. However, attempts to encourage the preparation and use of program budgets in other the ministries in 2003 were unsuccessful. The PEMFAR notes that the lack of uniformity in the initial program budgets makes it difficult for the GDB to use them. Finally, these projections are still at the level of technical exercises and have not been approved by the government or the parliament.

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The timetable for implementation of poverty reduction programs contained in the PRSP has not been respected due partly to lack of resources.

C. Budget Execution

Indicator 8: Evidence of budget execution problems - Arrears Benchmark: (A) Small stock of expenditure arrears, with little accumulation of arrears over the previous year. Assessment: (B) This benchmark is not met. At end-2003, the stock of arrears represented more than 5 percent of total expenditure. However, notable efforts have been made to settle them.

External arrears have been restructured. The stock of domestic arrears exceeds 5 percent of government expenditure. According to the staff report on the sixth review of the Poverty Reduction and Growth Facility (PRGF) of June 16, 2004, the stock of domestic arrears was estimated at CFAF 69.6 billion at end-December 2003 or 37 percent of total government expenditure (excluding external financing). In 2003, the government paid CFAF 12.2 billion in arrears (6.4 percent of total expenditure, excluding external funding). During the mission, the authorities provided data showing a stock of arrears of CFAF 221.2 billion at end-2003 (Table 5).

Table 5: Niger. Domestic Arrears, 1999-2003

Payments

Stock

at end-1999

2001 2002 2003 Total Stock

at end-2003

(In millions of CFAF) Commercial creditors 129,216 6,174 18,007 6,024 30,205 99,011Arrears to households 68,928 12,425 15,485 6,142 34,052 34,876Financial institutions 53,110 5794 4,228 0 10,022 43,088Other creditors 44,302 0 0 0 0 44,302

Total 295,556 24,393 37,720 12,166 74,279 221,277

1/ Source: National Treasury and CAADIE. 1/ or 80.2 percent of total expenditure

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The present mission did not obtain information to enable it to reconcile the estimate contained in the staff report with the data it received. The stock of CFAF 221 billion probably contains claims that have already been rescheduled. Irrespective of the source used, the stock of domestic arrears compared to total expenditure is well above the 5 percent limit. However, the government has made considerable efforts to reduce the arrears, having settled, over the two-year period 2002–2003, an amount equivalent to 18 percent of total expenditure. An inventory of wage arrears was undertaken and settlement is proceeding as agreed with the workers. The government does not issue promissory notes nor enact frequent supplementary budgets. To avoid accumulation of arrears, expenditure commitment is regulated by a cash flow plan. In recognition of these efforts, the indicator is rated B. Indicator 9: Effectiveness of the internal control systems Benchmark 9: (A) Internal control is effective. Assessment: (B) This benchmark is not met. The procedures are well defined, but the monitoring of the effectiveness of internal control is still insufficient.

The legislative and regulatory control framework is well defined in the organic budget law15 and other regulations (Appendix 2). However, its implementation is not yet satisfactory. There is no comprehensive statistics to be used to assess the effectiveness of control of expenditure management. In particular, there are no data on: (i) the number of rejections issued, compared to the number of expenditure requests submitted for clearance; and (ii) the different reasons given for the rejections. Expenditure control systems, whether at the level of warrant officers or financial controllers are not uniform. Manual operations are common. According to the PEMFAR, during the first nine months of 2003, the GDB (the supervisory authority of the financial control unit) rejected 2,459 requests for expenditure commitment, representing an average of 10 per day. Until recently, the administration did not keep track of rejections of expenditure requests. Some financial controllers maintain records haphazardly on their own. Recently, the head of Financial control instructed that controllers provide this statistic in their monthly reports. The financial controller of the Ministry of Health confirmed this order during a meeting in this Ministry. 15 Budget execution is subject to control at three levels: administrative, jurisdictional, and parliamentary. The administrative control is internal and is to be exercised by the administration over its staff. External control comprised a judicial and a parliamentary review. Judicial control shall be exercised by the national jurisdiction responsible for audits. Parliamentary control shall be exercised by the national assembly.

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There is no systematic reconciliation of budgetary and accounting data in the course of the fiscal year. Although there has been a marked improvement in the accounting data in terms of transparency, there are still large balances in the suspense accounts. This could indicate some lapse in budgetary discipline. The timely clearing of the suspense accounts, notably in respect of debt service payments, will facilitate the closure of the books and speed up the preparation of operating accounts after the end of the fiscal year. Indicator 10: Tracking surveys are in use. Benchmark 10: (B) Tracking surveys are used, where necessary, to supplement internal control, but may not yet be a regular feature of the PEM system. Assessment: (C) This benchmark is not met. The tracking inspections done to complement internal controls do not allow for effective tracking of resources until they reach recipients and do not constitute genuine public expenditure tracking surveys.

Public expenditure tracking surveys provide information on the share of expenditure that reaches the intended recipients. They are aimed at ensuring that public funds are not “siphoned off” by excessive intermediate costs. They are carried out as a complement to internal controls and facilitate verification that effective public services are indeed being provided. Such expenditure tracking surveys are not undertaken in Niger. The General Directorate of Financial Audit (GDFA) and the State General Audit (SGA) have audited expenditures implemented under the special program of the President of the Republic and in-cash wage payments. The SGA also carried out a survey of vehicles acquired for government projects. At the Ministry of Public Health, the Directorate of Administrative and Financial Affairs has carried out supervision missions to check the application of expenditure procedures. For lack of funds, these surveys were not conducted in 2002 and 2003. Staffed with four auditors, the internal audit office of the Ministry of Basic Education was conducting a survey on the payment of wages to contractual personnel during the stay of the mission. Control missions were carried out in the regions in March 2004 to verify the effective delivery of schoolbooks by government suppliers.

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Indicator 11: Quality of fiscal information Benchmark 11: (A) Satisfactory reconciliation of fiscal and banking records is undertaken routinely. Assessment: (A) This benchmark is met. The accounts held in the central bank and the postal checking center are reconciled periodically and in a timely way with government accounting data.

Public accountants routinely reconcile the accounts held in the central bank and the postal checking center with the accounting data. There are no accounts held in the commercial banks at the central level. A few regional accounting offices have accounts at the IBA and the BOA when there is no central bank branch. At the central level, the reconciliation of certain operations (revenue in particular) is performed on a daily basis. At the regional level, treasury officials send to headquarters monthly statements of reconciliation of operations in their books with bank statements. Discrepancies are few because of close monitoring of entries. Often times, the differences relate to recording dates and are cleared rapidly during telephone conversations and in rare cases during meetings with bank officials.

D. Budget Reporting

Indicator 12: Regularity of internal fiscal reporting Benchmark: (B) Budget reports from spending units are received by the central office within four weeks of the end of the reference period. Assessment: (A) This benchmark is met. Financial reports are received at the central office in less than a month. Data on government financial operations are transmitted for consolidation in quite a timely fashion. Financial controllers (responsible for the administrative phase of expenditure) are required to submit their monthly reports by the 5th of the following month. The administrative classification of the 2004 budget identifies 32 budget units. Of these, 29 units (90.6 percent), account for 99.9 percent of all budgetary expenditure. Based on the statistics for the first week of July 2004, supplied to the mission, the reports of financial controllers

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were received at the GDB (the office responsible for centralizing this information) by the deadline indicated. The reports of about 57 percent of all administrative units arrived at the GDB on the 2nd of the month; those of 29 percent arrived on the 5th of the month; and those of 14 percent arrived on the 1st of the month. Responsibility for recording the administrative phase of expenditure falls to the payment authorizing officers (DAFAs, Director-General of the Budget, chiefs of payment sub authorization centers [centres de sous-ordonnancement]) and financial controllers. Accountants are responsible for making the payments. At the regional level, the administrative phase is managed by the regional officer in charge of payment sub authorization (under the supervision of the governor, who is the secondary payment authorization officer). The accounting phase falls under the authority of the payment officer (representing the National Treasurer). As regards revenue, the regional tax payment offices are required to report the amounts collected and their cash positions to the central office every Friday by telephone (with confirmation in writing) or by fax, in time for preparation of the Tuesdays meetings on the cash flow plan. Indicator 13: Regular fiscal reports track poverty-reducing expenditure. Benchmark 13: (A). There is good-quality classification of poverty-reducing expenditure or a virtual poverty fund. Assessment: (B) This benchmark is not met. The lists of poverty-reducing expenditure that are the subject of in-year reports are not comprehensive. As mentioned under Indicator 6, there are several definitions of poverty-reducing expenditure in Niger. However, they are either too broad or not reported in-yearly. The definition of the PRSP-based expenditure in the budget is broad but is the subject of annual reports only. The first such report, produced in 2003, shows a small improvement in standards of living in some rural communities. The next report is planned for the last quarter of 2004. HIPC-funded poverty-reducing expenditure is clearly identified in the budget and can be tracked in terms of projections and outturn on a monthly basis, but it is not comprehensive. Poverty spending in the cash flow plan likewise is tracked weekly and is the subject of quarterly reports but is not comprehensive. Budget and accounting classifications have been unified. A single identification number provides information on a budgetary operation and corresponding accounting operation in

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conformity with the chart of accounts. In this coding, HIPC-funded spending is identified by a financing code. Indicator 14: Transactions are recorded in the accounts in a timely fashion. Benchmark 14: (A) Routine transactions are recorded within two months of the end of the fiscal year. Assessment: (C) This benchmark is not met. Budgetary accounts are closed long after the regulatory two-month deadline. At the end of the fiscal year ending December 31, the government has two months to close the accounts. The complementary period therefore should end on February 28/29 of each year. According to the authorities, budget commitments (excluding statutory expenditure) end on October 31, while those for capital expenditure and statutory expenditure (e.g., wages) run until December 31. The complementary period is devoted to operations not leading to disbursements. Therefore, there are commitments of new expenditure are not made during the complementary period on account of the year just ended. However, the mission did not obtain a trial balance for 2002 that was finalized and signed as of February 28, 2003. The same remark applies to the balance for 2003. The transmission of the draft budget execution law for 2002 more than a year behind schedule is largely due to the delay incurred in the preparation of the treasury operating accounts for 2002.16 Hence, the complementary period of two months is not being observed. Indicator 15: Timeliness of audited financial information Benchmark 15: (B) The draft budget execution law should be presented to the National Assembly within one year of the end of the fiscal year. Assessment: (C) This benchmark is not met. The draft budget execution law for 2002 has not yet been forwarded to the parliament. The draft budget execution law (DBEL) for 2002 and the related operating accounts that were supposed to be forwarded to the Chamber of Accounts and Budgetary Discipline of the Supreme Court (CABD) by June 30, 2003 had not yet been sent by the

16 After the mission ended, the team was informed that the treasury accounts for 2002 had been closed and the 2002 DBEL was sent to government for review before transmission to the Chamber of Accounts.

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end of the mission (July 26, 2004), that is, more than a year after the end of the fiscal year. Hence, the audited financial information is not timely. However, the government has made considerable progress toward helping establish judicial and legislative control over the implementation of its fiscal policy (Appendix 3).17 The government plans to send the operating accounts and the DBEL for fiscal 2002 and fiscal 2003 to the court in the near future and to observe the timetable for forwarding the budgetary accounts to the CABD.

E. Public Procurement

Indicator 16 – Efficiency and effectiveness of the public procurement system Benchmark 16: (A) The public procurement system promotes efficiency and effectiveness in the expenditure of public funds through clear and enforceable rules that promote competition, transparency, and value for money. Assessment: (B) This benchmark is not met. A new procurement code has been adopted. Several operational regulations have been approved, but others are still outstanding. The regulatory body has been created but is not yet operational. The current regulation of the public procurement system in Niger is based on clear and coherent rules, the effective application of which is expected to promote competition and the efficient use of resources. Following the conclusions and recommendations of the Country Procurement Assessment Review conducted in 1998 by the government of Niger in partnership with the World Bank, a program of actions to improve the procurement system was introduced. The reform of the system began in 2002 with the establishment of a steering committee. Ordinance 2002-0072 of September 18, 2002 and several enabling regulations were adopted. The new code is consistent with international standards. Other implementing regulations have yet to be finalized, in particular those related to concession arrangements and owner agent status.18 The terms of reference for the preparation of the manual of

17 The government forwarded to the Chamber of Accounts the operating accounts and the DBEL for the following fiscal years on the dates shown in parentheses: 1997 (July 2000); 1998 (May 2000); 1999 (July 2001); 2000 (April 2002), and 2001(February 2003). The Chamber transmitted to Parliament its evaluation report on the accounts and a declaration of conformity for fiscal years as follows: (i) 1997 in May 2002, (ii) 1998 to 2000 in December 2002, and (iii) 2001 in October 2003. Regarding the administrative accounts, the government has forwarded to the Chamber the final statement of appropriations and a statement of reconciliation between payment orders and disbursements.

18 A draft law on owner agent status has been prepared.

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procedures for the implementation of the new procurement code are being reviewed by the World Bank. The institutional framework for the management of public procurement defines the responsibilities of central, departmental and local administrative bodies in the implementation of the procurement regulations.19 The Public Procurement Regulation Authority (PPRA) was recently created. However, it is not yet operational and the Central Procurement Commission (CPC) which plays the regulatory and supervisory role is not involved in the implementation of public procurement. The CPC does not participate in all the meetings of the procurement committees and the selection process of certain foreign-financed projects. Its human and material resources are very limited. The threshold for involvement of the CPC in invitations to bid is CFAF 100 million. The number of contracts on which it has ruled has declined from 203 (valued at CFAF 47.8 billion) in 2002 to 65 in 2003 (CFAF 32 billion).20 The Public Procurement Code offers bidders that consider themselves aggrieved by the procurement procedures the possibility of contesting the results. The enabling regulations on the establishment of the appeal body have been adopted but are not operational. As regards anti-corruption, there are laws that punish acts of corruption and favoritism in public procurement. However, the anti-corruption system suffers from the absence of an established institutional framework. Indeed, Niger does not have a permanent institution responsible for combating corruption. The only initiatives taken in this area have consisted of the creation of bodies that have occasionally carried out inquiries on matters of corruption.21

19 Government clients (i.e. deconcentrated and decentralized administrative bodies) are responsible for the programming, planning, and monitoring of the implementation of government contracts. Central and regional commissions are responsible for tracking the implementation of the procurement regulations.

20 The 203 contracts include 151 open bids (CFAF 32 billion), 19 restricted bids (CFAF 11 billion), nine direct awards (CFAF 762 million), 13 limited consultations (CFAF 2.8 billion) and 11 codicils (CFAF 271 million). The 65 contracts recorded by the CPC related to 35 invitations to bid (CFAF 23 billion), eight direct awards (CFAF 1.8 billion), 21 limited consultations (CFAF 7.4 billion) and one codicil (CFAF 50 million).

21 The most recent government decision in this regard was the creation in 2003 of a National Commission for the Formulation of Anti-Corruption Strategies (Decree 2003/256 of October 17, 2003). The Commission is to: (i) assess the scope of corruption; (ii) define anti-corruption strategies; and (iii) recommend anti-corruption measures.

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III. Action Plan to Strengthen Public Expenditure Management The Appendix Table 6 provides an overview of ongoing and planned technical and donor assistance in public expenditure management in Niger, while the Appendix Table 7 gives the implementation status of these recommendations made by the HIPC Initiative assessment mission in 2001. These tables show that several recommendations of the previous mission have been followed, and that additional efforts are under way to build further capacity in this area. Appendix Table 8 presents a draft action plan to strengthen budget management capacity in Niger. The general objective of this plan is to enable the country to meet all 16 benchmarks over the medium term. According to the mission, this objective, while achievable, is nevertheless a major challenge that will require sustained efforts at all levels of authority. The draft action plan includes several projects already being implemented or planned. Some of the recommendations of the mission could require the participation of the development partners.

A. Budget Preparation Indicators 1 and 2. Government budget coverage and extrabudgetary funds

• Identify and include in an appendix to the budget the revenue and expenditure of APAs (2005 BL) and local governments (2006 BL).

• Broaden the scope of the Table on Government Financial Operations (TOFE) to include APAs and, later, local governments (2006).

• Identify all extrabudgetary operations (road tolls, COTECNA fee, incentive awards for tax collection personnel, etc.) and include them in the 2005 budget (2004).

Indicator 3. Reliability of the budget as a guide to execution

• Improve the projections contained in the budgetary guidelines in order to further reduce the gaps between forecasts and outturns (2005).

Indicator 4. Inclusion of donor funding

• Establish, in consultation with donors, a strategy for the comprehensive coverage of projects financed by them, in actual and projected terms (2006).

Indicator 5. Classification

• Implement fully the functional classification and improve programmatic classification (2005).

Indicator 6. Identification of poverty-reducing expenditure

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• Define a single but comprehensive list of poverty reduction expenditure along

functional lines, codified it in the budget and monitor its evolution (2004).

B. Budget Execution Indicator 8. Arrears

• Establish and review monthly the stock of payment arrears, classified by seniority of claims and type of expenditure, and use this information for cash flow management (2004).

• Systematically reconcile expenditure in each phase of the expenditure process (2004). Indicator 9. Effectiveness of the internal control systems

• Subject to appropriate security precautions, give access to government officials in charge of budget execution, in the computerized expenditure management system (2006).

• Assess the activity reports of financial controllers to identify the weak points in the system, correct them (2004), and prepare a manual of procedures (2005).

• Make staff training on the new budget classification continuous (2005). Indicator 10: Public expenditure tracking surveys

• Carry out public expenditure tracking surveys (2005). Indicator 11: Quality of fiscal information

• Improve the technical capacity of Treasury staff through a program of continuous training (2005).

C. Budget Reporting

Indicator 12: Regularity of fiscal reporting

• Take advantage of timely fiscal reporting to reduce lags in consolidating public finance data (2005).

Indicator 13: Tracking of poverty-reducing expenditure

• Prepare in-year reports on a specific and comprehensive list of poverty reduction expenditure (2005).

Indicator 14: Time frame for closing budgetary accounts

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• Observe the time frame of two months for the complementary period and gradually

shorten it (starting from fiscal 2004). • Prepare a manual for preparing the operating accounts (2005).

Indicator 15: Audited and final accounts

• Complete the work on compiling the opening balance of the Treasury (2004). • Establish a mechanism for the routine collection of data on the financial operations of

APAs and local governments, to facilitate the control of their accounts, and for monitoring the quality of their staff (2006).

D. Public Procurement

Indicator 16: Efficiency of the public procurement system

• Finalize and implement all the legislation to enforce the new public procurement code and effectively enforce it (2005).

• Establish the PPRA and provide it with the material and human resources needed to enable it to carry out its activities (2005).

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Appendix I

Special Presidential Poverty Reduction Program After Niger reached the decision point under the HIPC Initiative in December 2000, the government received external debt relief estimated at CFAF 18.4 billion (1.2 percent of GDP) during the first phase of the program (2001–02) and is expecting CFAF 47.2 billion (2.8 percent of GDP) during the second phase (2003–04). The government decided to apply most of these resources to the financing of the program known as the special presidential poverty reduction program.22 In this regard, several construction projects have already been completed (1,421 primary school classrooms, 1,359 health huts, 100 mini-dams, 359 wells, and a number of rural tracks). These projects are part of the broader poverty reduction strategy program adopted in January 2002. Audits of the special presidential program conducted by the Ministry of Finance and other government agencies have revealed the success of several operations, but also the weaknesses. The gains include the permanent settlement of villages that previously had to migrate every year because of a lack of water, the start-up of numerous micro-productions, access to school, health care, veterinary services, and a feeling that “the government remembers us.” The weaknesses include lack of budgetary provisions for recurrent costs, failure of some local governments to assume responsibility for the infrastructures,23 the poor quality of some of the infrastructures and the failure to apply the normal budgetary procedures to the implementation of projects at the start of the presidential program. To verify these shortcomings and take appropriate measures, the government has commissioned an external technical and financial audit of the program. The technical audit is intended to ascertain the technical quality of the work done, while the financial audit seeks to establish compliance or lack thereof with rules and procedures and determine whether the projects represent value for money. The French firm BDPA (team leader), associated with the Nigerien company MAINA, has been selected to perform the audit. Public authorities will be represented by two teams, led, for the financial audit, by the Chamber of Accounts and Budgetary Discipline of the Supreme Court and, for the technical audit, by the Ministry of Community Development. The firm has 77 business days to file the final report. This report will be preceded by a provisional draft, due after 42 days of work. The audit cost of CFAF 207 million will be borne by the budget of Niger. 22 The 2004 budget earmarked CFAF 7.1 billion of HIPC resources for poverty reduction outside the presidential program.

23 The local communities are expected to build houses for teachers and medical staff, enclose the school and health compounds, and plant trees in therein.

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During its visit to Dosso and the villages of Koygorou, Kouré Kobadey, and Bossadjé, the mission saw livestock, health huts, a school hut, a dike, and a well 50 meters deep, all funded with HIPC resources. It also held discussions with young handicapped women who had each received a loan of up to CFAF 50,000 (about $ 100) to engage in productive business. They said they had repaid the loans in one year. According to the chief of Bossadjé village (a community of about 800 inhabitants), no child had been schooled before the construction of the school hut because the nearest school was 10 kilometers away. The persons met by the mission at all the sites visited unanimously expressed their immense joy for the opportunity that the HIPC funds have afforded them to become productive and the wish for continuation of the program to enable other households and villages to undertake similar productive projects. In the early months of implementation of this special program, funds were made available directly to payment officers in the regions, to pay the service providers. The administrative phase of these expenditures (commitment, validation, and payment authorization) was undertaken and recorded only after transmission of the supporting documentation to Niamey. This procedure was said to have been abandoned at end-2001 when expenditures made in the context of the presidential program started to being processed using normal budgetary procedures.24 The two main differences that still exist, compared to other expenditures, are that: (i) the various phases of the expenditure process are managed by an HIPC Unit in the General Directorate of the Budget, which makes it possible to speed up their processing; and (ii) payments are made from the HIPC account lodged at the BCEAO. The implementation of the second phase of the presidential program seems to be facing cash flow problems, which are at odds with the increase in the amounts generated by debt relief.25 For example, in 2003, out of the CFAF 19.4 billion budgeted, only CFAF 13.1 billion was secured and disbursed. During the first half of 2004, about CFAF 7 billion was authorized for payment, while linear execution of such expenditure would give a total of CFAF 14.5 billion (compared to a budget forecast of CFAF 28.9 billion for the whole year). New expenditure commitments to be financed with HIPC relief seem to have slowed down due to prospective cash flow difficulties of the Treasury.

24 This statement must be nuanced because expenditure for the special presidential program amounting to CFAF 5.8 billion and CFAF 2.2 billion at the beginning of 2003 and 2004 respectively, were not implemented in accordance with standard procedures but as payments without prior payment authorization (PSOP). The authorities explained that they used this procedure because they did not wish to delay project implementation.

25 Before reaching the completion point, Niger, faced with recurring cash flow problems, was paying only part of its debt service (multilateral and Paris Club creditors, essentially). The persistence of the cash flow problem is creating difficulties for the financing of poverty reduction expenditure.

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Appendix II

Internal Control of Government Finance in Niger Internal control is performed by the Directorate of Financial Control (DFC, a department of the GDB) and by the audit bodies (State General Audit, General Directorate of Financial Audit and the audit offices of the line ministries). Financial control. The principal tasks of financial controllers are : (i) to ensure that requests for spending are consistent with budgetary appropriations; (ii) to ascertain that budgetary rules and regulations are followed; (iii) to keep expenditure records, particularly on commitments; and (iv) to monitor the effective delivery of goods and services ordered by the government. Each of the 15 financial controllers of the DFC is responsible for one or several ministries and APAs. At the regional level, payment authorization officers carry out the functions of financial controllers. All decisions that have a financial impact should be endorsed by the financial controller before they are implemented. Controls are systematic and make no distinction between expenditures based on their amount and or level of priority. However, in practice certain expenditures are not submitted to the endorsement of the financial controller. A review of the trial balance of the accounts at December 31, 2003 shows expenditure executed without prior payment authorization (PWPA) representing about 31 percent of total expenditure, excluding external financing (Table 9). The PWPA operations still amount to 16 percent of total spending even if debt service payments and taxes due on government contracts are excluded.

Table 9: Niger. Expenditure Paid Without Prior Payment Authorization, EXCLUDING EXTERNAL FINANCING, 2003

Total (in billions of CFA francs) 58.3 Total (in percent of total expenditure, excluding external funding) 30.8 Debt 15.9 Interest deducted automatically by the BCEAO 1.1 Tax exemptions on public procurement borne by the Treasury 11.3 Advances on subsidies and transfers to APAs 12.5 Special presidential program spending 5.8 Other 11.7

Source: Account 470 of the provisional trial balance of the Treasury at 12/31/03. The General Directorate of Financial Audit (GDFA, a unit of the Finance Ministry) undertakes audits on instructions from the Minister of Finance. With a staff of 13 inspectors (compared to 21 planned), the GDFA conducted 40 audits in 2003.

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The State General Audit (SGA, a unit in the Presidency) has a broad mandate, covering potentially all aspects of public services (financial, accounting, management, organization, etc.). The SGA conducts audits on instructions from the Head of State. In recent years, its reports on local administrations have led to the rationalization of the allowances paid to their officials and to the close supervision of the operations of these governments and APAs by a state inspector-general to ensure fiscal discipline.26 The State Directorate of Disputes (SDD, a unit in the office of the Secretary-General of the Government), is in charge of: (i) representing the government in disputes with the private sector; and (ii) giving legal opinions on the findings of audit reports, in particular as regards financial improprieties. It does not conduct audits but follow through on issues raised in the audit reports of all audit agencies. In principle, it is a recipient of all audit reports. The sharp drop in the number of reports forwarded to the SDD —from 94 in 2001 to 78 in 2002, and then to 12 in 2003 was explained by the exceptional mobilization of auditors to clear backlog of audit orders in 2000 and 2001. The mission could not confirm whether there were resistance in releasing the reports to the SDD. Actions to recover government funds are subject to a statute of limitation of three years. The late transmission of audit reports to the SDD could prevent prosecution to recover funds because of this statute. Nevertheless, thanks to the actions of the SDD, the government collected CFAF 503 million of illegally appropriated funds in 2001–03 and took measures to improve the management of public assets. The SDD considered that the dissuasive impact of its action was more important than its financial outcome.

26 In order to ensure that the resources are available to pay for the services rendered, the State Auditor General must clear all the expenditure requests of local government.

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Appendix III

Evolution of External Control of the Budget in Niger The evolution of external auditing of the budget in Niger has been uneven. Indeed, under normal circumstances, the Treasury and the General Directorate of the Budget (DGB) should, at the end of the complementary period, establish the budget execution cutoff date, so that the Treasury can compile the final trial balance and render the accounts, and the DGB can prepare the budget execution account and the pertinent draft budget review law (DBRL). The Minister of Finance would forward the DBRL, the budget execution accounts, and the end-year Treasury accounts (with all the supporting documentation) to the Chamber of Accounts and Budgetary Discipline (CCDB) of the Supreme Court on a given date, currently set as June 30 at the latest (Law 2003/11 of April 1, 2003). After it has assessed the consistency of the individual accounts maintained by the accountants with the budget execution accounts of the payment authorizing officer, the CCDB prepares a report on the implementation of the Budget Law and a declaration of consistency between the end-year accounts compiled by the National Treasurer and the DBRL submitted by the payment authorizing officer. The report and the general declaration of consistency are forwarded to the Parliament.27 At the same time, the CCDB examines the end-year accounts in detail, operation by operation, supporting document by supporting document, to check the legitimacy of the transactions involved, the existence of required supporting documentation, the value of the services rendered, etc. This audit leads to a discharge for, or a ruling against, the National Treasurer. Table 10 below summarizes the evolution of external auditing of the budget in Niger. Legally required audits ceased in 1971 and resumed only in 2000, with the transmission by the government to the CCDB of the 1997 revenue and expenditure account. The Paris Audit Office performed the judicial audit of Niger’s end-year Treasury accounts for 1960 to 1971. The accounts for 1972 to 1986 have not been audited. Parliamentary reviews of budget management ended in 1973 and resumed only in 2002, with the transmission to the Parliament of the 1997 DBRL.

27 The Court does not forward the accounts, much less the supporting documents, to the Parliament.

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TABLE 10. NIGER: BUDGET REVIEW LAWS, 1960–02 1960–71 1972–86 End-1987 1988–96 1997–01 2002Ending balance Yes Yes No No No No Operating accounts Yes Yes No No Yes Yes DBRL formulated Yes Yes/No 1/ No No Yes Yes DBRL passed Yes Yes/No 2/ No No Yes Source: Table prepared on the basis of information supplied by the CCDB. 1/ Yes for 1972 to 1981. No for 1982 to 1986. 2/ Yes for 1972 and 1973 (passed by the National Assembly) and for 1974 to 1981 (promulgation by Ordinance). No for 1982 to 1986, in the absence of DBRLs. The creation in 1990 of the Chamber of Accounts and Budgetary Discipline of the Supreme Court, but especially the start-up of its operations at the beginning of the current decade, and the resumption of DBRL formulation represent great progress in the process of the return to transparent fiscal policy management. However, the impact of this progress is mitigated by the uncertain reliability of government finance statistics, attributable to the absence of beginning balances (and therefore of stocks) on the basis of which the end-year Treasury accounts should be compiled and the formulation of fiscal policy should be facilitated. Indeed, the Treasury did not prepare at the end of fiscal 1987 the final trial balance that should have served as the beginning balance for fiscal 1988. The mission was unable to obtain a clear explanation of the causes of this break with accounting discipline. The mission was informed of an agreement concluded between the government, the National Assembly, and the Supreme Court to find a solution to the problems of: (i) reconciling the statements compiled by the accountants with those prepared by payment authorizing officers during the period 1972–86, when the end-year Treasury accounts were not audited; (ii) the end-year accounts for 1987–96 that had not been prepared; and (iii) the draft budget review laws for 1982–96 that had not been prepared. The authorities plan to appoint a working group to address these problems.

Appendix

Standard 2001 Nig. Authorities MissionAssessment Assessment

Benchmark Assessment 2004 2004PREPARATIONCOMPREHENSIVENESS

1 Fiscal reporting adequately covers the MGFS definition of the general government sector A B B A 2 Government activities are not funded through inadequately reported extrabudgetary sources to a significant degree A A B B3 Budget outturns are quite close to the original budget B C A C4 Fiscal reports include grants projected to be provided by donors 2/ A A B B

CLASSIFICATION5 Budget expenditures are classified on an administrative, economic, and detailed functional or programmatic basis B C B B6 Poverty-reducing expenditure is clearly defined 2/ A B A A

PROJECTION7 Multiyear expenditure projections are integrated into the budget preparation process A C A B

EXECUTIONINTERNAL CONTROL

8 The stock of expenditure arrears is small, with little accumulation of arrears over the previous year A C A B9 Internal control is effective 2/ A B A B

10 Tracking surveys are in use, or are unnecessary 2/ B B A C

RECONCILIATION11 Satisfactory reconciliation of fiscal and banking records is undertaken routinely A B A A

REPORTINGIN-YEAR REPORTING

12 Internal fiscal reports are received within four weeks of the end of the relevant period B C A A 13 Good-quality classification of poverty-reducing expenditure is reflected in the in-year budget reports A C A B

FINAL AUDITED ACCOUNTS14 Routine transactions are entered into the main accounting system within two months of the end of the fiscal year A C B C15 An audited record of the financial outturn is presented to the Parliament within 12 months of the end of the fiscal year B * C C

NEWPROCUREMENT

16 The procurement system supports efficiency and effectiveness in the expenditure of public funds through clear A A Band enforceable rules that promote competition, transparency, and value for money

3 11 5

1/ Shaded cells indicate that the benchmark is met.2/ This benchmark is defined in more precise terms in 2004 than in 2001.

Table 1. Niger : Public Expenditure Management Indicators 1/

ASSESSMENT

TOTAL NUMBER OF BENCHMARKS MET

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Appendix

2001-03IBL Actual Change IBL Actual Change IBL Actual Change Average in absolute value

(in %) (in %) (in %) (in %)

Primary expenditure (excluding foreign-financed investment) 196,689 160,799 -18.2 207,039 173,451 -16.2 204,572 151,822 -25.8 20.1

Functional classificationGeneral public services 12,303 11,484 -6.7 12,793 11,997 -6.2 14,125 11,709 -17.1 10.0Defense 14,336 14,280 -0.4 14,267 14,062 -1.4 17,900 15,561 -13.1 5.0Public order and security 10,828 10,179 -6.0 8,650 10,605 22.6 11,808 10,644 -9.9 12.8Economic affairs 96,234 71,130 -26.1 98,635 71,940 -27.1 86,181 50,009 -42.0 31.7Environmental protection 4,129 3,699 -10.4 5,693 3,195 -43.9 4,619 3,465 -25.0 26.4Housing and community facilities 55 51 -7.6 292 161 -45.0 78 59 -24.6 25.7Health 19,935 15,408 -22.7 20,911 17,513 -16.3 22,509 16,182 -28.1 22.4Leisure, culture, and religion 1,275 1,214 -4.8 1,832 1,351 -26.2 2,309 1,830 -20.7 17.3Education 36,505 32,717 -10.4 42,701 41,957 -1.7 43,315 40,914 -5.5 5.9Social welfare 1,090 638 -41.5 1,266 670 -47.0 1,728 1,450 -16.1 34.9

Change in functional items (simple average) 12.4 17.5 18.4 16.1

Economic classificationWage bill 56,918 56,869 -0.1 53,916 61,333 13.8 56,229 57,041 1.4 5.0Purchases of goods and services 50,557 40,315 -20.3 48,403 38,908 -19.6 42,347 31,898 -24.7 21.5Transfers and subsidies 65,975 52,784 -20.0 75,640 62,768 -17.0 43,818 30,323 -30.8 22.6Locally funded investment 23,239 10,831 -53.4 29,080 10,442 -64.1 62,177 32,561 -47.6 55.0

Externally financed investment 92,720 55,930 -39.7 106,180 79,530 -25.1 134,980 87,170 -35.4 33.4

Sources: 2001 Budget Execution Law and appropriations statements at 12/31/02 and 12/31/03 for primary expenditure (General Directorate of Budget) and externally financed investment (General Directorate of Financing).

(In millions of CFA francs) (In millions of CFA francs) (In millions of CFA francs)

Table 3. Niger : Initial Budget Law (IBL) and Budget Execution, 2001-2003

2001 2002 2003

Appendix

Dates DatesWORLD BANK and CCM

???

AfDBUnder wayUnder way

EU

???

AfDB ???Under wayUnder way

BEAC/Commonwealth ???Under way

AFRITAC-West ??????

Bilateral 1: Japan ???

Belgium

???

BEAC/Commonwealth ???Under way

Others [names]

BEAC/Commonwealth ???????????????

Source: Table prepared on the basis of information provided by the Nigerien authorities

1. Review of the procedures for delegated appropriations.2. Integration into the expenditure process of externally-financedexpenditure.

Support to the General Directorate of the Budget for

Table 6. Niger: Overview of Technical and Donor Assistance in Public Expenditure Management

Description Description

1. Building staff capacity for analysis and forecasting.

1. Strengthening institutional framework and debt management.

Support to the Office of the Commissioner of Economy for

1. Reprocessing trial balance data.Assistance to the Treasury for:

Assistance to the General Directorate of the Budget for:1. Creating a pilot room for registration of commitment vouchers by DAFAs and Financial Controllers2. Providing training to staff in this area.

Donor/ProviderRECENT/ONGOING Assistance by Major Project PLANNED Assistance by Major Project

Support to the General Directorate of Financing for1. Purchasing computer hardware with a view to creating a Web site and communication network

Support to the General Directorate of the Budget for improvement of the reporting process through

Assistance to the General Directorate of the Budget for:1. Training staff in public procurement.

application to include sectors other than education and health.

2. Training staff in the use of debt analysis software.3. Compiling a debt management procedures manual.4. Training staff in the use of the CS-DRMS software.

Support to the General Directorate of the Budget for1. Establishing a framework for analysis of the present value of the debt.

1. Preparing a national debt policy framework.Assistance to the General Directorate of the Budget for:

2. Preparing a report on program budgets with a view to broadening the

1. Carrying out a study on the creation of a directory of external assistance and a file for the entry of disbursement information.

Support to the General Directorate of Financing for

Appendix

Relates to Timing Status DateIndicator² (S/M)³ (FI/II/NS)* Completed

1 2003 Budget Law to include an Appendix on local governments 1 S NS No action taken2 2004 Budget Law to include an Appendix on APAs 1 M NS No action taken3 Introduction of new budget classification in the 2003 Budget Law 5 S FI Jul-024 Preparation of a new chart of accounts and its use for the 2003 budget 5 S FI Jul-025 Finalization of the PRSP 6 S FI Jan-02

6Preparation of a MTEF for 2002-04 clearly linked to the PRSP

7 S IIExercise started with a number of sectoral ministries and should be continued.

1 Domestic arrears settlement plan to be adopted in 2001 8 S FI 2001

2

Reduction of domestic arrears in the context of annual financial programs

8 M IIMajor efforts are being made, but the performance criterion in the financial program has not been fully observed.

3

Assessment of the effectiveness of existing internal control mechanisms at the various stages of the expenditure process, and implementation of recommendations (from 2002)

9 S II

Internal control structures and systems were assessed with European Union support. Action plans were adopted in 2003 and should be implemented.

4Introduction of a new methodology for the control unit responsible for monitoring services received (validation) (from 2002) 9 M NS

5Monthly reconciliation of budgetary data

11 S IIThis action has been undertaken but needs to beconsolidated.

1Introduction of a management information system and its use for the regular production of reports on budget execution 12 M FI 2003

2 Consistency between budgetary data and payments made 13 M FI 20023 Compliance with budget reporting timetable 14 M II Observance of the timetable should be formalized.

4Adequate staffing of Chamber of Accounts and preparation of a work program (from 2001)

15 S II

5Submission of operating accounts to the Chamber of Accounts and preparation of the report on budget execution (from 2002) 15 S II

Progress has been noted, but there are problems with meeting the deadlines.

6Preparation by the Chamber of Accounts of reports on execution of the 1997, 1998, and 1999 budgets. 15 M FI 2002

12N

Table 7. Niger: Implementation Status of Actions to Strengthen Tracking of Poverty-Reducing Expenditure

Actions¹ CommentsActions to strengthen budget preparation

Actions to strengthen budget execution

Actions to strengthen financial reporting

Actions to strengthen public procurement

¹Actions reflect the descriptions used by FAD-PREM in the March 2003 Board Paper.² Shows to which of the 16 indicators from the AAP the action chiefly relates.³ S=Short-term action (within 12 months); M=Medium-term action.* FI=Fully implemented, II=Implementation initiated, NS=Not started

Appendix

No. ActionRelates to Indicator

Technical Assistance Provider No. Action

Relates to Indicator

Technical Assistance Provider

PREPARATION

1

Establish a mechanism for monitoring the operations of APAs (2004) and insert them in an appendix to the 2005 Budget Law (BL) 1, 2, and 15 To be identified 3

Establish a mechanism for monitoring the operations of local governments (2005) and insert them in an appendix to the 2006 BL. 1, 2, and 15 To be identified

Comprehensiveness

2Include off-budget operations in the 2005 BL (2004) 2 To be identified 4 Prepare a TOFE with broader coverage (2006) 1 and 2 To be identified

5Establish a strategy for a comprehensive coverage of donor-financed projects (2006) 4 To be identified

Classification

6

Define poverty-reducing expenditure precisely (2004) and introduce budget codification to facilitate its tracking (early 2005) 6 and 13 To be identified 7 Implement the functional classification (2005) 5 To be identified

Projection

EXECUTIONInternal Controls

8Compile a manual of procedures for financial controllers (early 2005) 8 and 9 To be identified 10

Perform public expenditure tracking surveys (2005) 10 World Bank ?

9Make staff training on the new budget classification continuous (2004-2005) 9 To be identified 11

Include, subject to appropriate security actions, all budget execution officers in the computerized expenditure management system (2006) 9 and 12 AfDB

Reconciliation

12

Pass legislation formally requiring the production of periodic budget execution reports (account balances, administrative accounts, early 2005) 9 To be identified 13

Increase the technical capacity of the Treasury and provide it with continuous training (2005) 9 and 11 To be identified

REPORTINGIn-Year Reporting

14Improve the revenue forecasts contained in the macroeconomic guidelines (2005) 12 World Bank 16

Compile standardized summary tables on budget execution (2005) and analyze them 12 World Bank

15

Establish procedures to speed up the discharge of delegated appropriations (end 2004) 12 World Bank

Final Audited Accounts17

Prepare the opening balance of the Treasury (end 2004-early 2005) 15 To be identified 18

Establish a methodology for compilation of the operating accounts (2005) 14 To be identified

NEWProcurement

19

Adopt all the implementing regulations related to the new public procurement code (early 2005) 16 World Bank

20

Make the PPRA operational and provide it with the means to carry out its tasks fully (early 2005) 16 World Bank

Table 8. Niger: Action Plan to Upgrade Public Expenditure Management Capacity

SHORT-TERM ACTIONS (within the next 12 months) MEDIUM-TERM ACTIONS (12 months to three years)