Public Expenditure Review of Algeria

Public Expenditure Review (PDF) Main study (I) Appendices and Statistics (II) Additional Information Bank’s web site on the public sector

1. Evaluate fiscal sustainability in the context of fiscal stimuli that the important PCSC represents;
   
2. Define high technical standards for the management of public investments;
   
3. Identify lessons learned from the present process of reform and budgetary modernization in order to accelerate the general implementation, monitoring and evaluation of PCSC projects;
   
4. Support the preparation of a Medium Term Expenditures Framework (CDMT); and
   
5. Improve the efficiency and the economics of investments in four key sectors, notably transport and public works, water, education, and health.

Assessment

The PER estimates that the PCSC is financially viable in the medium term. The fiscal budget can temporarily support large increases of public investments over the period 2005-2009 taking into account the following three caveats :

1. First, the authorities should ensure that the number of increases in the current expenditures from PCSC investments is limited.
   
2. Second, the PCSC should be implemented gradually, during the entire life cycle of the project. Limiting the financing of projects could encourage needless expenses and corruption.
   
3. Third, when the PCSC is completed, the authorities need to adopt concrete measures in order to return to a level of spending that is viable over the medium term.
   

The PER also concludes that Algeria has made significant progress in terms of public education and health. With the exception of maternal mortality, Algeria could certainly achieve all of its millennium development objectives (ODM). However, the RDP has identified several weaknesses in the institutional framework, the sectoral efficiency and the economics of public investment :

• The national system of public investment needs to be modernized. “Major” projects require specific supervision from a specialized agency. Budgetary reform, an essential tool in the implementation of the PCSC is making progress albeit very slowly. In general, the level of technical skill of personnel in charge of carrying out projects is weak and it is not likely that this level will improve in the near future. The Wilayas and other institutions of the local government have the same challenges.
  
• The low efficiency of public investment results primarily from the unequal quality of the project. The large-sclae projects often do not conform to minimal technical standards and few, rather none of the projects, are monitored given that no centralized database of PCSC projects exists. In general, this results in the partial completion of the project objectives. Several projects should not be continued. These problems are exacerbated by an allocation of resources that is too large in relation to the local absorption capacity.
  
• Although the initial costs are for the most part underestimated, the final costs are very often overestimated. This is why the weakness of the absorption capacity induces considerable risks from costs that are too high. Private investment in public infrastructure projects has been limited. More specific problems in implementation are common to all sectors. A bad coverage and poor quality of service persists particularly in the poor and rural communes. Most of the sectoral strategies (excluding education) are obsolete; a situation that leads to strategic concentrations of PCSC implicitly biased towards infrastructure construction projects. Highly fragmented institutional frameworks start in several key ministries, specifically in the areas of water and health. The budget deficits of maintenance, especially for large infrastructure projects (roads and public works) are very onerous. However, there are several possibilities for reorganizing the considerable costs in the domain of dams, construction of schools, medical equipment and pharmaceutical management.

Principle Recommendations

Measures need to be adopted in order to correct the weakness of the public investment system. Additionally, the PER recommends working on three pillars of institutional reform:

• Restructuring the national public investment system. An improved system of public investment should move away from a “project by project” approach towards a sectoral approach extending over several years and where the projects are selected on the basis of an updated sectoral strategy.  Investment projects should meet the minimum standards and should be financially efficient, or else they should not be approved. The ministerial teams and agencies that are responsible for the execution of projects should be trained, and their numbers should be increased.  New standards should guide the investments of the Wilayas and the other cases of local governments.
  
• The newly created CNED (National Fund of Equipment for Development) should play a central role so that the sectoral priorities of the major projects and their minimum technical standards are respected. A central database of major projects PCSC should be created to accurately monitor and audit the changes.
  
• Modernization of budget management should be prioritized. The economic budgetary reclassification should be completed, as planned, as well as submitting a new constitutional budget law to Parliament in 2007. The CMDT sectorals and budgeting based on performance in preparation for five pilot ministries in 2006 should be tested in 2007 before being implemented in the rest of the central government. Informatization of the budget should be ready in 2008 in order to be introduced the following year.
  
• The transport and public works sectors should place greater importance on roads maintenance especially those in the wilayas and communes. Railway investment should be reconsidered taking into consideration the recent analysis between the economic role of rail transportation and the comparative advantage which benefits the roads in several areas. The institutional reforms should assure the coordination of work between the civil aviation and port authorities all in mobilizing private financing. Performance based contracts should be used as well as the cost recovery when it is economically justified.
  
• Global priorities, in terms of education, should be directed towards the inspection of a mechanism of standards of reference in order to monitor the quality of education for schoolchildren; to increase the spending per pupil in terms of pedagogical access; to review the physical standards for the construction of schools; and to better focus education subsidies for marginalized families.
  
• The Algerian health system should finalize the creation of a complete and sectoral strategy; increase the budget dedicated to the needs in the health sector; reinforce the budget for human resources in the health institutions; in particular for those in charge of the investment in projects and information technologies; develop a new contractual system between social security and the hospitals, and urgently reform medical and pharmaceutical management sectors.