Report No. 34913-BOReport No.Assessment Accountability Financial Country Bolivia 34913-BO Bolivia Country Financial Accountability AssessmentPublic Disclosure Authorized Public Disclosure Authorized January 10, 2006 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank, Inter-American Development Bank, Kreditanstalf fur Wiederaufbau, Public Disclosure Authorized Public Disclosure Authorized German Technical Cooperation, UK Department for International Development, Embasy of the Netherlands, and European Commission BOLIVIA COUNTRYFINANCIAL ACCOUNTABILITY ASSESSMENT Table of Contents Preface ............................................................................................................................................ iv Executive Summary ....................................................................................................................... v I. Background and Context ........................................................................................................... 1 Country Background..................................................................................................................... 1 The Participating Banks’ Country Assistance Strategy ................................................................ 2 Relationship with Other Sector Work........................................................................................... 3 Objectives ..................................................................................................................................... 3 Scope and Coverage ..................................................................................................................... 4 Methodology ................................................................................................................................. 6 Follow-up and Dissemination....................................................................................................... 7 I1. CFAA Analysis: Central Government .................................................................................... 8 Legal Framework.......................................................................................................................... 8 Integrated Financial Information System: SIGMA ....................................................................... 8 Budget Preparation. Execution. and Reporting .......................................................................... 11 Internal Controls ......................................................................................................................... 16 Internal Audit .............................................................................................................................. 18 Treasury ...................................................................................................................................... 19 Single Treasury Account ............................................................................................................ 20 Revenues..................................................................................................................................... 21 Accounting....................................................................... i.......................................................... 23 Financial Reporting .................................................................................................................... 24 Debt Management ....................................................................................................................... 26 External Audit ............................................................................................................................. 30 Transparency and Oversight ....................................................................................................... 34 I11. CFAA Analysis: Sub-national Government ........................................................................ 39 Municipalities ............................................................................................................................. 39 Prefectures .................................................................................................................................. 46 IV. Bolivia’s PFM Performance Measurement Framework.................................................... 51 V . Conclusions and Policy Recommendations ........................................................................... 57 Constraints to Proposed PFM Improvements ............................................................................. 59 Programs for Improved Financial Management ......................................................................... 59 Government’s Action Plan ......................................................................................................... 62 Annex 1: References..................................................................................................................... 64 Annex 2: List of Persons Interviewed......................................................................................... 68 Annex 3: Government of Bolivia Action Plan ........................................................................... 71 Annex 4: Transparency Projects ................................................................................................ 85 ... Bolivia CFAA 111 Annex 5: Decentralized Financial Operations ........................................................................... 88 Annex 6: Municipal Budget Realism.......................................................................................... 92 Annex 7: Prefecture Finances ..................................................................................................... 94 List of Tables Table 1.1: Key macroeconomic indicators baseline......................................................................... 2 Table 2.1 : 2003 SIGMA coverage ................................................................................................... 9 Table 2.2: Deviations between planned and executed expenditures, 1997-200 1 .......................... 12 Table 2.3: Increases in the budget by Congress ............................................................................. 12 Table 2.4: Central government budget realism ratios .................................................................... 15 Table 2.5: Budget arrears by line ministries and local governments, 2001-03 .............................. 20 Table 2.6: CGR 2003 reports ......................................................................................................... 33 Table 2.7: Timing of receipt of 2002 financial statements for municipalities and universities .....34 Table 2.8: Civil society role in monitoring expenditures and outcomes ........................................ 38 Table 3.1: Investment by central and sub-national governments ................................................... 40 Table 3.2: Share of co-participation in municipal revenue, 2000 .................................................. 41 Table 3.3: Municipal revenue sources, 2002.................................................................................. 41 Table 3.4: Municipal outtum reporting, 1997-2001 ....................................................................... 43 Table 3.5: Average budget data by prefecture ............................................................................... 48 Table 3.6: Summary of prefecture audit findings, 2002 ................................................................ 49 Table 3.7: Follow-up reviews conducted in prefectures, 2003 ...................................................... 50 Table 4.1: Budget appropriations and execution by line ministries, 2001-03 ................................ 52 Table 4.2 Economic growth rates, deficits and efficiency gains, 1999-2003 ................................. 53 Annex Tables Table A5.1: Share of combined public sector expenditures. 2001-2002 ............................................. 89 Table A5.2: Share of combined public sector investments. 2001-2002 ............................................... 89 Table A5.3: Transfers from central government to municipalities ...................................................... 90 Table A5.4: Disbursement and execution of HIPC I1funds in 2002 ................................................... 90 Table A5.5: Tributary co-participation ................................................................................................ 90 Table A5.6: HIPC I1 - solidarity fund, deductions, and balance .......................................................... 91 Table A6.1: Aggregate revenue collection (municipalities) ................................................................ 92 Table A6.2: Aggregate expenditures and budget execution (municipalities) ...................................... 93 Table A7.1: Prefecture structure of budget allocations by source ....................................................... 94 Table A7.2: Aggregate revenue collection (prefectures) ..................................................................... 96 Table A7.3: Aggregate expenditures and budget execution (prefectures) ........................................... 97 Bolivia CFAA iv Preface This Country Financial Accountability Assessment (CFAA) was prepared jointly by the World Bank (WB) and the Inter-American