World Bank European Union Kingdom of Morocco PUBLIC FINANCIAL MANAGEMENT PERFORMANCE REPORT (PEFA) Assessment of Public Financial Management Systems, Procedures, and Institutions May 1, 2009 CURRENCY Currency Unit = Moroccan Dirham (MAD) US $1 = MAD 8.60 (January 2009) FISCAL YEAR January 1 to December 31 ACRONYMS AND ABBREVIATIONS AAO : Appel d’offres ouvert/Open competitive bidding IMF : International Monetary Fund AREF : Académies régionales de l’éducation et de la INDH : Initiative nationale pour le développement formation/Regional academies of education and humain/National initiative for human training development BADR : Base automatisée des douanes en réseau/Automatic INTOSAI : International Organisation of Supreme Audit customs database network Institutions BAM : Bank Al-Maghrib/Central bank of Morocco IPSAS : International Public Sector Accounting Standards BD: Budget Directorate IS: Impôt sur les sociétés /Business tax CCG: Caisse centrale de garantie/Central guarantee Fund IR: Impôt sur le revenu /Income tax CDMT: Cadre de dépenses à moyen terme/Medium term MDA : Ministères, départements et agences/Ministries, expenditure framework departments and agencies CAS : Comptes d’affectation spéciale/Special accounts PE : Public Enterprise COFOG : Classification of Functions Of Government PEE : Public Enterprises and Public Establishments DAAG : Direction des affaires administratives et générales/ PEFA : Public Expenditure and Financial Accountability Administrative Directorate PFM : Public Financial Management DEPP : Direction des entreprises publiques et de la PFM-PR: Public Financial Management Performance Report Privatisation/Public enterprises directorate PPR : Paierie principale des rémunérations/Public DGD : Direction générale des douanes/Customs payroll office Directorate ROSC : Report on the Observance of Standards and Codes DGI : Direction générale des impôts/Tax directorate SEGMA :Services de l’État gérés de manière autonome/ DRH : Direction des ressources humaines/Human Autonomous public services (mainly hospitals resources directorate and training institutes) DTFE : Direction du Trésor et des finances SIT : Système intégré de taxation/Integrated tax system extérieures/Treasury Directorate SGG : Secrétaire général du Gouvernement/ Secretary EU: European Union General GFS : Government Financial Statistics STA : Special Treasury Account IFAC : International Federation of Accountants TGR : Trésorerie générale du Royaume/Treasury IFACI : Institut français de l’audit et du contrôle interne/ TOFT : Tableau des opérations financières du Trésor/ French institute of internal audit and control Treasury transactions table IFU : Identifiant fiscal unique/Unique fiscal ID VAT : Value Added Tax IGF : Inspection générale des finances/Inspector general IGM : Inspection générale ministérielle/Ministerial inspector general Regional Vice-President: Daniela Gressani, MNAVP Country Director: Mats Karlson, MNCO1 Director: Ritva Reinikka, MNACS Sector Manager: Farrukh Iqbal Task Team Leader: José Lopez-Calix, MNACS TABLE OF CONTENTS ACKNOWLEDGEMENTS ................................................................................................................ iii SUMMARY ASSESSMENT ................................................................................................................ iv SECTION 1: INTRODUCTION .......................................................................................................... 1 SECTION 2: COUNTRY BACKGROUND INFORMATION ......................................................... 3 2.1 COUNTRY ECONOMIC SITUATION .............................................................................. 3 2.2 GOVERNMENT REFORM PROGRAM & BUDGETARY OUTCOMES .................... 4 2.3 LEGAL AND INSTITUTIONAL FRAMEWORK FOR PFM ............................................ 6 SECTION 3: ASSESSMENT OF PFM SYSTEMS, PROCESSES AND INSTITUTIONS ........... 9 3.1 BUDGET CREDIBILITY..................................................................................................... 9 PI-1 Aggregate expenditure out-turn compared to original approved budget .................................. 9 PI-2 Composition of expenditure out-turn compared to original approved budget ......................... 10 PI-3 Aggregate revenue out-turn compared to original approved budget ....................................... 11 PI-4 Stock and monitoring of expenditure payment arrears ........................................................... 12 3.2 COMPREHENSIVENESS AND TRANSPARENCY ...................................................... 14 PI-5 Classification of the budget .................................................................................................... 14 PI-6 Comprehensiveness of information included in budget documentation .................................. 15 PI-7 Extent of unreported government operations .......................................................................... 16 PI-8 Transparency of inter-governmental fiscal relations .............................................................. 17 PI-9 Oversight of aggregate fiscal risk from other public sector entities ........................................ 19 PI-10 Public access to key fiscal information ................................................................................. 21 3.3 POLICY-BASED BUDGETING ........................................................................................ 22 PI-11 Orderliness and participation in the annual budget process .................................................. 22 PI-12 Multi-year perspective in fiscal planning, expenditure policy and budgeting ...................... 23 3.4. PREDICTABILITY AND CONTROL IN BUDGET EXECUTION ............................. 25 PI-13 Transparency of taxpayer obligations and liabilities ............................................................. 25 PI-14 Effectiveness of measures for taxpayer registration and tax assessment ............................. 27 PI-15 Effectiveness in collection of tax payments .......................................................................... 29 PI-16 Predictability in the availability of funds for commitment of expenditures .......................... 30 PI-17. Recording and management of cash balances, debt and guarantees ..................................... 32 PI-18 Effectiveness of payroll controls ........................................................................................... 33 PI-19 Competition, value for money and controls in procurement ................................................ 35 PI-20 Effectiveness of internal controls for non-salary expenditures ............................................. 37 PI-21. Effectiveness of internal audit .............................................................................................. 39 3.5. ACCOUNTING, RECORDING AND REPORTING ........................................................... 42 PI-22. Timeliness and regularity of accounts reconciliation ........................................................... 42 PI-23 Availability of information on resources received by service delivery units ........................ 43 PI-24 Quality and timeliness of in-year budget reports ................................................................... 43 PI-25 Quality and timeliness of annual financial statements.......................................................... 44 3.6. EXTERNAL SCRUTINY AND AUDIT ................................................................................. 46 PI-26 Scope, nature and follow-up of external audit ....................................................................... 46 PI-27 Legislative scrutiny of the annual budget law ....................................................................... 47 PI-28 Legislative scrutiny of external audit reports ........................................................................ 49 i 3.7. DONOR PRACTICES .............................................................................................................. 50 D-1. Predictability of direct budget support .................................................................................... 50 D-2. Financial information provided by donors for budgeting and reporting on project and program aid ............................................................................................................................ 51 D-3. Proportion of aid that is managed by use of national procedures ............................................ 52 ANNEX 1 : SUMMARY OF PERFORMANCE INDICATORS .................................................... 53 ANNEX 2: WORKSHEET FOR INDICATORS PI-1 & PI-2: EXPENDITURE OUT-TURN ... 59 ANNEX 3. BUDGET CLASSIFICATION : ECONOMIC AND FUNCTIONAL STRUCTURE FOR EXPENDITURES ....................................................................................................................... 63 ANNEX 4: SECTOR PROGRAMS, 2005-07 .................................................................................... 65 ANNEX 5: VAT, INCOME & BUSINESS TAXES: ESTIMATED, ACTUAL AND COLLECTION RATES, 2005-07 ....................................................................................................... 66 ANNEX 6 : INFORMATION SOURCES ......................................................................................... 67 ANNEX 7: LIST OF PEFA DISCUSSION PARTICIPANTS ......................................................... 68 ii ACKNOWLEDGEMENTS The team responsible for preparing the report appreciates the warm welcome