A. The Budget Framework

30. The institutional budget framework has been identified as weak, reflecting the country’s overall weakened administration after years of armed conflicts of the 1990s. As highlighted in 2001 by an FAD mission, ⁹ the budget calendar has often been observed with delays. On a technical level, preliminary tax and customs revenue forecasts were infrequently updated, and expenditure costing (in particular for utilities) was inadequate. The capital budgeting has been identified as cumbersome with several entities intervening in budget preparation and execution (Ministry of Finance, Economy, and Budget; and Ministry of Planning; and Debt Management Agency). Certain steps in the internal budgetary controls are redundant (the roles of the Financial controller and the Director of Budget in the control process often overlap) and inefficient (focusing on bureaucratic process rather than the objectives sought); inadequate training of controllers and insufficient material equipment have been identified as key technical problems.

31. Recent efforts have focused on improving the degree of centralization of revenues and expenditures within the budget framework, and to eliminate past practices of having the oil companies undertake government spending outside the budget framework. Additionally, the following complementary measures have been undertaken:

• The draft 2000 budget review law (Loi de règlement) was prepared in 2003.

• Delays in preparing the budget and sending it to parliament have been progressively reduced, and the 2004 budget was adopted with only a slight delay.

• More transparency and coherence is being introduced into the budget preparation process. The 2003 and 2004 budgets were discussed in parliament. Regular meetings on budget preparation among the General Directorates of the Budget (Ministry of Finance) and Planning (Ministry of Planning) have helped to improve consistency between the current and the capital budgets in both the data and policy orientation.

• The quality of non-oil revenue forecasts have been improved, especially in the 2004 budget framework, by explicitly taking into account underlying macroeconomic trends.

B. Revenue Mobilization

32. The effectiveness of tax and customs administrations is constrained by weak human capacity, insufficient computerization, limited circulation of information, and poor guidance from departmental management. More specifically, weak administrative capacity has impeded effective management of the value added tax (VAT), and the two large-taxpayers units (Brazzaville and Pointe-Noire) do not manage all taxes pertaining to large corporations.

33. The following actions have been recently launched in this area:

• Since 2003, oil revenues are being certified on a regular basis by an audit firm of international reputation.

• Coverage of the territory by tax and customs administration is being reinforced through the establishment of more provincial offices.

• Renegotiation of tax holidays granted to a number of corporations in the oil and forestry sectors has been launched.

• Operational audits of the General Directorates of Tax and Customs were launched, with a view to using their recommendations to enhance the management of these revenue-collecting departments.

• As mentioned earlier, some progress has been achieved in the centralization of oil revenues at the level of the treasury. Petty revenues (e.g., small levies and fines) are more systematically transferred from various agencies to the treasury account.

• A process of computerization of the systems at the General Directorates of Tax and Customs has been launched, with assistance from the World Bank.

• The use of a single taxpayer identification number (NIU), which seeks to improve the tracking of taxpayers and limit tax evasion, is being introduced.

C. Expenditure and Cash Management

34. The treasury system remains relatively weak. Substantial weaknesses in the accounting system, reporting capacity, and cash management effectively hamper data quality, restrict oversight, and constrain analysis. The tracking of expenditures at different phases of the spending circuit (commitment, validation, payment orders and payments) is insufficient, leading to weak monitoring of government domestic arrears. The control of the delivery of goods and services ordered (validation phase of the spending circuit) is often inadequate. Furthermore, in the absence of comprehensive government accounts, the impact of the newly established Court of Accounts would be severely limited.

35. Recent efforts in the area of expenditure and cash management include the following:

• The authorities have refrained from contracting new oil-collateralized debt.

• The use of exceptional spending procedures (paiement par anticipation) has been progressively reduced.

• A process aimed at unification and tighter monitoring of human resource management files has been launched. Procedures to strengthen the monitoring of benefit payments are being introduced.

• A number of the directors at the Ministry of Finance have been replaced in order to raise technical capacity and strengthen management.

• A preliminary consolidated treasury balance was prepared for December 2003, and January and February 2004. Efforts are under way to improve the degree of comprehensiveness and consistency of the report.

• To enhance the control of payment orders, the General Directorate of Finance Inspection has begun to work more closely with the Financial Controller to better verify the delivery of goods and services. This effort should improve the quality and timeliness of data on expenditures and payment arrears.

• A functional classification module in the budget nomenclature (current expenditure component) was introduced, with technical assistance from FAD.

• The relationship between the state, the national oil company (SNPC) and the national refinery (CORAF) is being formalized in order to make budgetary transfers more transparent and to limit the fiscal impact.

D. Future Steps

36. To complement the ongoing efforts, the areas of public expenditure management and non-oil revenue mobilization could be strengthened as follows:

• In public expenditure, there is a need to improve the: (i) comprehensiveness of the budgetary data coverage and frequency of dissemination; (ii) budget process, including compliance with the budget calendar and laws; (iii) budget nomenclature, by extending a functional classification to investment expenditures in order to better track priority spending; (iv) tracking of outlays in the expenditure circuit (commitment, validation, payment order, and actual payment); and (v) internal control, including by streamlining redundancies.

• Regarding non-oil revenue mobilization, reforms will need to focus on: (i) eliminating ad hoc exemptions; (ii) reinforcing the single Division of Large Taxpayers and entrusting it with the assessment and recovery of all tax liabilities for this group of taxpayers; (iii) accelerating the implementation of the single taxpayer identification system at the customs, tax department, and treasury; (iv) fully implementing the SYDONIA computer system at customs; and (v) completing a computer link between the revenue departments in Pointe-Noire and Brazzaville.