Report No. 36270-DZ People’s Democratic Republic of Algeria Republicof Democratic Report No.36270-DZPeople’s Review A PublicExpenditure Vo Report No. 36270-DZ People’s Democratic Republic of Algeria A Public Expenditure Review Public Disclosure Authorized Assuring High Quality Public Investment (In Two Volumes) Volume I: Main Report August 15, 2007 Social and Economic Development Group Middle East and North Africa Region Public Disclosure Authorized Public Disclosure Authorized lume I Document of the World Bank Public Disclosure Authorized ETUSA Entreprise des Transports Urbains et O&M Operation and maintenance Suburbains d’Alger ONA Office National de l’Assainissement EU European Union (National Agency for Sanitation) FAO UN Food and Agricultural Organization ONID Office National de l’Irrigation et du FCCL Local Government Common Fund Drainage FRR Fonds de Régulation des Recettes (Small and medium irrigation schemes) FNGIR (Hydrocarbon Stabilization Fund) ONM Office National de la Météorologie Fonds National de Gestion Intégré de la ONOU Office Nationale des Œuvres Universitaires Ressource ONS Office Nationale des Statistiques de GDP Gross domestic product l’Algérie GER Gross enrollment rates OPEC Organization of the Petroleum Exporting GNFS Goods and non-factor services countries GOA Government of Algeria OPI Office des Périmètres Irrigués GPI Grands Périmètres irrigués (Large PCD Programme Communal de Développement GTZ irrigation schemes) (local development program) German Agency for Technical Cooperation PCSC Programme Complémentaire de Soutien HIPC Heavily Indebted Poor Country à la Croissance (2005-2009) IBL Initial Budget Law PDSRE Perspective Décennale pour les Ressources ICAO International Civil Aviation Organization en Eau ICOR Incremental Capital/Output ratio PER Public Expenditure Review ICT Information Communication Technologies PISA Programme for International Student IMF (FMI) International Monetary Fund Achievement IMR Infant mortality rate PMH Petite et Moyenne Hydraulique INSP Institut National de Santé Publique PNE Plan National de l’Eau (water master plan) (National Public Health Institute) PPP Public-Private Partnership IWRM Integrated Water Resources Management PSP Private Sector Participation LFC Loi de Finance Complémentaire PSRE Programme de Soutien à la Relance LMD License-Maitrise-Doctorat Economique (2001-2004) (Undergraduate-Masters-Doctorate) RH Région Hydraulique LPA Lease Project Approval ROSC Report on the Observance of Standards and LSI Large-Scale Irrigation Codes MAO Mostaganem-Arzew-Oran SANRAL South African National Road Agency MATE Ministry of Environment and Urban SEF Sector Expenditure Framework Management/Ministère de l’amenagement SITC Standard International Trade Classification du territoire et de l’Environment SNMG Salaire national minimum garanti MCM Millions of cubic meters (National guaranteed minimum wage) MDG Millennium Development Goal SNTF Société Nationale des Transports MDT Ministère des Transports Ferroviaires MEFP Ministère de la Formation et de SOE State-owned enterprise l’Enseignement Professionnelle SONATRACH Entreprise Nationale de Recherche (Ministry of Vocational and Technical d'Exploration et de Commercialisation des Training) Hydrocarbures MEN Ministère de l’Education Nationale SSA Sub-Saharan Africa MESRS Ministère de l’Enseignement Supérieure et STA Special Treasury Accounts de la Recherche Scientifique TEU Twenty-foot equivalent unit et de la Recherche Scientifique TIMSS Third International Mathematics and MLA Monitoring of learning achievement Science Survey MMR Maternal mortality ratio UNESCO United Nations Educational, Scientific and MoF Ministry of Finance Cultural Organization MOHPHR Ministry of Health, Population, and UNFPA The United Nations Food program Agency Hospital Reform UNICEF The United Nations Children’s Fund MOL Ministry of Labor USTHB Université des Sciences et de la MOT Ministry of Transport Technologie Houari Boumediene MPW Ministry of Public Works VET Vocational education and training MRE Ministère des Ressources en Eau WDI World Development Indicators (Ministry of Water Resources) WEO World Economic Outlook MSB Projet de Modernisation des Systèmes WHO World Health Organization Budgétaire WITS World Integrated Trade Solution MTEF Medium-Term Expenditure Framework WRM Water resources management MTP Ministère des Travaux Publics WRR Water requirement ratio N.E.C National Executive Committee WSS Water supply and sanitation NHGDP Nonhydrocarbon GDP WTO World Trade Organization NHA National health accounts WUA Water user association OECD Organization for Economic Co-operation WWTP Waste water treatment plant and Development Vice President: Daniela Gressani Country Director: Theodore O. Ahlers Sector Director: Mustapha K. Nabli Sector Manager: Miria Pigato Lead Economist and Task Team Leader: José R. López-Cálix PEOPLE’S DEMOCRATIC REPUBLIC OF ALGERIA PUBLIC EXPENDITURE REVIEW TABLE OF CONTENTS EXECUTIVE SUMMARY .......................................................................................................x CHAPTER 1: INTRODUCTION..............................................................................................1 A. Overview of PCSC .....................................................................................................1 The social and economic context preceding the PCSC....................................................... 3 B. Lessons Learned from the PSRE—The Predecessor of PCSC..................................4 Limited strategic sectoral content....................................................................................... 5 Low quality in project design and poor implementation .................................................... 6 Poor cost analysis............................................................................................................... 7 C. Simulating PCSC Implementation Scenarios ............................................................7 CHAPTER 2: OVERALL FISCAL TRENDS AND CHALLENGES ...................................10 A. Macroeconomic Background...................................................................................10 B. The Volatility of Fiscal Variables............................................................................14 C. Fiscal Trends ...........................................................................................................16 Fiscal revenue................................................................................................................... 16 Public expenditure ............................................................................................................ 18 D. Hydrocarbon Resources Management.....................................................................18 E. Fiscal Sustainability under the PCSC ......................................................................19 CHAPTER 3: SETTING HIGH STANDARDS FOR PUBLIC INVESTMENT...................21 A. Public Investment during the Past Decade...............................................................21 The link to economic activity and growth......................................................................... 22 Some estimates of the aggregate efficiency of investment ................................................ 24 The sectoral composition of investment expenditure ........................................................ 26 Investment execution......................................................................................................... 28 Execution problems for individual projects...................................................................... 29 B. Looking to the Future: Improving the Institutional and Procedural Framework....32 Formulating overall and sectoral strategies..................................................................... 34 Strengthening project preparation.................................................................................... 34 The special role of the CNED ........................................................................................... 37 Moving to investment programming ................................................................................. 39 CHAPTER 4: MODERNIZING BUDGETARY MANAGEMENT ......................................45 A. Overview of Budgetary Management......................................................................45 B. The Budgetary Process and its Recent Performance ...............................................46 C. Budget Management Review in the Central Government .......................................51 Budget formulation ........................................................................................................... 51 i Budget execution and monitoring ..................................................................................... 55 D. Budget Management by Wilayas and Municipal Governments ..............................58 E. Recommendations ....................................................................................................60 CHAPTER 5: FILLING THE GAP IN TRANSPORT AND PUBLIC WORKS INFRASTRUCTURE ..............................................................................................................65 A. Performance of the Transport and Public Works Sector .........................................65 B. Institutional Framework and Sector Strategy ..........................................................67 Institutional framework....................................................................................................