## _cr0568 ## Source details **Canonical URL:** [_cr0568](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr0568.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr0568.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr0568.pdf.json) --- ### Clarity of roles and scope of general government - General government definition consistent with the GFS manual and includes: - central government (ministries with central agencies and decentralized authorities), Parliament, the National Audit Court, various Councils, national public institutions under administrative law (EPA); - social security funds; - all levels of local government: 48 wilayas and 1,541 municipalities. - There are some 5,560 national and local EPA. - Wilayas are both levels of local government and administrative units of central government. - Decentralized general government includes local public institutions (établissements publics locaux). ### Government–central bank relations (Banque d’Algérie — BA) - Legal and operational framework: - Money and Credit Law No. 90-10 of April 14, 1990 increased BA’s operational autonomy. - Order No. 03-11 of August 26, 2003 replaced the 1990 Act to improve coordination between BA and the ministry of finance but does not contain an explicit reference to BA independence. - Since a 2001 Order, the Governor and Vice Governors no longer have fixed-term mandates. - Limits on central bank credit to the government: - Article 46 of Order No. 03-11 caps Treasury advances on current account at 10 percent of the Government’s current revenue in the preceding fiscal year, for a term not to exceed 240 days per year. - BA may, in exceptional cases, lend to the Treasury solely for purposes of ensuring the active management of the external public debt. - BA operations and fees: - Article 49: BA is the government’s financial agent, maintains the Treasury’s current account, handles credit/debit transactions free of charge; the credit balance on current account earns one percent less interest than that charged for debit balances (rate set by the Money and Credit Council). - Article 47 allows discounting or repurchase agreements for bills made payable to Treasury accounting officers and maturing within three months. - Articles 49 and 50 define operations performed by BA for central government and for local governments/public institutions. - Other operational notes: - No central-bank quasi-fiscal activities identified in exchange regime-related operations. - No BA-conducted bank bailouts; public bank recapitalization or repurchase is performed by the Treasury. - Banks’ reserve requirements earn a fixed 2.5 percent rate of interest since December 2002. ### Quasi-fiscal activities and public enterprise practices - Public financial institutions: - Directed credit persists: some loans continue to be granted to public enterprises running structural deficits. - These activities are estimated to currently cost the Treasury the equivalent of at least one percentage point of GDP per year. - Public banks have been repeatedly bailed out by the Treasury since the early 1990s, creating moral hazard. - Treasury occasionally extends explicit guarantees on banking liabilities of some public enterprises or “freezes” liabilities (Treasury services the debt pending restructuring). - Example: CNEP was directed in April 2000 to resume financing a project for 35,000 housing units, despite Treasury repurchase undertakings. - Public nonfinancial corporations: - Sonatrach and subsidiaries sell petroleum products and natural gas domestically at prices far below international market prices; this is an implicit subsidy not shown in the government’s budget and reduces government revenue. - The government estimates implicit subsidies in energy prices total approximately US$1 billion per year; this amount varies with oil price fluctuations and is not published. - Sonelgaz receives budget transfers to offset costs of maintaining below-market energy prices sold to a privatized steel-making company (privatized in 2001). - Low-income electricity consumers benefit from implicit subsidies via cross-subsidization among households; electrification in rural areas and electricity consumption in the South are explicitly subsidized through the budget. - Financial-sector and sovereign support practices: - Instances of explicit Treasury guarantees on bank credit needed to pay wage bills of large public enterprises. ### Regulation, privatization, and government equity holdings - Regulatory and business environment: - Executive Decree No. 03-80 of February 25, 2003 created a National Consultative Council for the Promotion of SMEs. - World Bank Doing Business indicators show numerous, cumbersome, and lengthy procedures for investing and operating a business in Algeria. - Privatization: - Order No. 01-04 of August 20, 2001 requires privatization to abide by rules on transparency and disclosure (Article 14). - Methods: competitive bidding, divestiture by mutual agreement, or public issue. - Most successful privatizations carried out by unpublished mutual agreements, reducing transparency. - Receipts from privatizations were modest and credited to a special earmarked funds account (compte d’affectation spéciale); receipts from cellular telephony licenses were posted under nontax revenue. - Government equity holdings: - Newly acquired equity holdings are not extensive; recent acquisitions arise from contributions to joint ventures where the public sector holds a fraction of equity. - No published report on government equity holdings exists. ### Fiscal relations across levels and branches of government - Local governments: - Responsibilities and revenue shares defined by municipalities code and wilayas code; local governments have autonomous budgets but limited autonomy due to funding constraints. - Most local funding derives from transfers via the Local Governments Common Fund (FCCL), financed by a percentage of principal taxes and general budget appropriations. - FCCL performs equalization and disburses subsidies to balance budgets of municipalities running a deficit (approximately 1,200 municipalities). - Central government intervenes extensively in municipality budget preparation and has absorbed district debts to certain public enterprises. - Branches of government: - Budget and budget review law must be adopted by both chambers of Parliament (National People’s Assembly and National Council). - If Parliament fails to adopt the budget law within 75 days, the President may promulgate the government’s draft by order (ordonnance) under Article 120 of the Constitution. - Government must provide both chambers of Parliament with a report on the manner in which budget appropriations have been used. - Article 170 of the Constitution gives the National Audit Court responsibility for ex-post audit of fiscal accounts of central government, local governments, and state services. ### Legal and administrative framework for budget management; Special Treasury Accounts (STA) - Key laws: - Budget framework: Law No. 84–17 of July 7, 1984 establishes content and presentation of budget laws, voting rules, and limits governing modification of appropriations. - Budget execution: Law No. 90–21 of August 15, 1990 on government accounting defines roles and responsibilities in budget execution and recording of revenue and expenditure; provides for separation between authorizing agents (les ordonnateurs) and government accounting officers (les comptables publics). - Observance and shortcomings: - Law No. 84–17 predates the Constitution and is not an organic law; it may be amended by budget laws and has been amended on several occasions. - Provisions are not fully observed in practice, notably regarding: - rules governing the special Treasury accounts (STA); - the annexes that should be attached to the draft budget law; - submission of the budget review law. - STA-specific issue cited: - STA rules are not fully observed, implying gaps in transparency and compliance in the use or reporting of special Treasury accounts. ### Management of budgeted and extrabudgetary activities (mechanisms) - Investment outlays, including externally financed capital expenditures, are recorded in the annual budget but largely executed by specialized public financial institutions outside the budget (e.g., Banque Algérienne de Développement (BAD) and the National Agricultural Mutual Insurance Fund (Caisse Nationale de Mutualité Agricole)). - These executions partially circumvent government accounting requirements; STA transactions are subject to special terms and are barely subject to annual budget constraints. - STA rules in Law No. 84-17 are not observed in practice; special Treasury account operations are not sufficiently transparent. - The Minister of Finance undertook to submit a draft organic law on budget laws in the course of 2004, envisaged to tackle STAs’ shortcomings. ### Box 1 — Special Treasury Accounts (STA): structure and practice - Six categories of STAs established by Article 48 of Law No. 84–17: - Special accounts for trading state services (comptes de commerce). - Special accounts for earmarked funds (comptes d’affectation spéciale). - Special accounts for the funding of advances (comptes d’avances). - Special accounts for loans (comptes de prêts). - Special accounts for transactions with foreign governments (comptes de règlements avec les gouvernements étrangers). - Special accounts for participations and obligations (comptes de participation et d’obligations). - Law No. 84-17 provisions: - STAs may only be established by a budget law. - Transactions on STAs, except loans and advances, shall be planned, authorized, and executed on the same terms as general budget operations (Article 50). - Except for trading state services accounts, STAs are in principle funded by capped appropriations; earmarked accounts may be increased administratively if resources exceed projections. - Article 68 requires the complete list of STAs to be annexed to the draft budget law with projected receipts, expenditures, and overdrafts. - Divergence in practice: - Special accounts for earmarked funds (60 in 2004) are often used to circumvent the prohibition on carrying forward general budget appropriations and are mostly financed by appropriations from the general budget. - Principal special accounts for earmarked funds include: the Local Governments Solidarity Fund, the National Housing Fund, the National Fund for Agricultural Regulation and Development, the Revenue Regulation Fund, and the account for managing public investment operations listed in the economic revitalization support program. - Receipts, expenditures, and balances of STAs are not recorded in the annual budget laws, though consolidated within the single Treasury account at the central bank, preventing Parliament from being apprised of total projected or actual STA operations. - No ceiling is set on advances and loans that the Treasury may grant. - Advances accounts are sometimes used for emergency outlays and “repaid” the following year from budget appropriations, undermining the annuality principle. ### Box 2 — Petroleum taxation and the Revenue Regulation Fund (FRR) - Legal regime: amended Law No. 86-14 of August 19, 1986; prospecting, exploration, production, and pipeline transportation may only be carried out by Sonatrach, alone or with foreign partners. Sonatrach accounts are audited by national audit companies and published on the company’s website. - Petroleum sector tax components: - Royalty: 20 percent of the value of the oil and gas extracted; falls to 16 percent or 12.5 percent for output in areas where exploration or production is particularly difficult. - Income tax on gross annual profits: 85 percent for prospecting, exploration, or production activities (reduced to 75 percent or 65 percent when production is under difficult conditions); normal corporate tax rate of 38 percent for pipeline transportation, liquefaction of natural gas, and processing and separation of liquefied petroleum gases. - Sonatrach is the sole entity responsible for payment of these taxes and pays to the Treasury on its own behalf and on behalf of partner enterprises. - Tax control over Sonatrach declarations has been weak but should improve with establishment of the Large Taxpayer Unit. - Oil tax revenue is equivalent to 20–30 percent of GDP and 60–75 percent of government revenue; mostly assigned to the central government budget. - Since the supplementary budget law for 2000, oil revenue recorded in excess of budget law projections is allocated to the Revenue Regulation Fund (FRR), a special account for earmarked funds consolidated within the single Treasury account at the central bank. - As of the 2004 budget law, FRR resources may be supplemented by advances Banque d’Algérie is authorized to grant the Treasury for active public debt management (Article 46 of the Order on money and credit). - 2004 budget law: FRR can only be used to: - Offset shortfalls resulting from oil tax revenue below budget law projections. - Reduce the external public debt. - In practice, since the FRR was set up, only expenditure on amortization of the principal of the public debt has been debited in the FRR accounts. - Position of the Revenue Regulation Fund at End-2002 (Billions of DA): - Credit - Oil tax surpluses 2000 453.24 - Oil tax surpluses 2001 123.86 - Oil tax surpluses 2002 26.50 - Total 603.60 - Debit - Public debt 2000 221.10 - Public debt 2001 106.97 - Balance outstanding (end-2002) 275.30 - Total 603.60 ### Tax policy, administration, and disputes - Legal basis: - Taxes and duties can only be established by law pursuant to Article 64 of the Constitution; Article 122 grants Parliament exclusive power to legislate on creation, base, and rates of taxes, contributions, levies, and duties, including customs duties. - Special regime and administrative discretion: - The special regime (le régime dit dérogatoire) allows the National Investment Promotion Agency (ANDI), for areas/sectors established by the National Investment Council (CNI), to negotiate tax benefits and subsidies with investors; agreements must be approved by the CNI and published in the Official Gazette. - Complexity of legislative provisions gives room for administrative discretion and limits transparency. - Information and procedures: - Explanatory materials on taxes and tax collection are prepared and updated every year and accessible in booklets and on the Directorate General of Taxes website. - A tax procedures code was introduced two years ago and published; customs procedures have been codified. - New measures are inadequately publicized and consultation with social partners on tax policy is relatively limited. - Existence of parafiscal taxes means the full extent of the tax burden is not entirely apparent from the budget law. - Local government taxation is not reported in publicly accessible documents; departmental directorates prepare reports for the Minister of Finance only. - Tax disputes: - Legal provisions for settlement of tax disputes exist, with several levels of administrative appeal and access to an independent judicial body. - Practical deficiencies: discrepancies in application of laws, slow judicial appeals, internal audit system reporting to the Director General, limited role of the IGF. ### Public servants’ conduct and anticorruption measures - Rights and duties of civil servants established by decree No. 85-59 of March 23, 1985 (should be in law); decree includes some elements of a code of conduct. - A code of ethics for the Tax Authorities introduced in 2002 and published on their website. - Officials have been obliged to declare assets for the past two years, but verification and subsequent asset monitoring are difficult in practice. ### Public availability, coverage, and quality of fiscal information - Coverage: - Budget documents cover most central government fiscal activities, except STAs, and do not provide information on fiscal activities for the whole of general government. - Annual budget law presents: general budget revenue by major categories; outlays by ministry (current expenditure) or by sector (investments); complete list of parafiscal taxes. - Attached booklets show a breakdown of appropriations by ministry; a presentation report summarizes macroeconomic context and main assumptions. - Contradicting Article 68 of Law No. 84-17, no information is published on STA transactions; only general budget allocations to certain earmarked accounts and a brief synopsis of FRR past operations are provided. - No data in budget documents on fiscal activities of local governments, public corporations, or social security funds; only central government transfers to these bodies via general budget appropriations are recorded. - The share of tax revenue not directly assigned to the general budget (e.g., local governments, Local Governments Common Fund, other Funds) is not recorded in budget documents. - Defense expenditures: - Included in the budget; current expenditures listed using a simplified classification system in the budget law while investment expenditures are not distinguished from civilian authorities. - Past and forecast fiscal data: - Budget documents provide a brief overview of principal fiscal aggregates for the two years prior to the budget year and for the two years beyond it. - Data presented as aggregates (oil, nonoil, and other tax receipts; current and investment expenditures). - Off-budget activity and contingent liabilities: - Statements of contingent liabilities are not included in the budget documents presented to Parliament, though internal government documents on external public debt include guarantees identified separately. - No estimate of tax expenditure is published. - Quasi-fiscal activities of public banks are extensive and their estimated cost is not included in budget documents. - Government entities carry nonperforming loans or claims possibly totaling over US$1 billion, with no complete inventory. - Publication of debt and financial assets: - Information on gross public debt partially published annually and for a limited audience; information on financial assets not published. - General Directorate of the Treasury (DGT) publishes a brief quarterly bulletin and an annual bulletin and an annual survey of the public debt; DGT does not yet have a website. - Banque d’Algérie discloses an annual survey of the public debt in “Mediabank” and on its website with a ten-year series. ### Publication and dissemination of fiscal data; GDDS and release practices - Algeria has not subscribed to the IMF’s General Data Dissemination System (GDDS). - No formal commitments for regular publication of fiscal data or advance release calendars are announced. - Legal obligation to present the draft budget review law with the draft annual budget law is not observed. - Highly aggregated national budget execution data appear in the report introducing the draft budget law and in a quarterly note on the current economic cycle (with a 2–3 month lag) published on the Ministry of Finance website. - No information available on fiscal data of local governments and public institutions. - National Statistics Office publishes intermediate balances for general government in the national accounts, but data are highly aggregated and not broken down by subsectors. ### Budget preparation, classification, and presentation issues - Budget preparation directed by the Minister of Finance; Budget Directorate organizes the process; Economic Studies and Projections Directorate prepares the macroeconomic framework. - Classification problems: - Different classifications for current and capital expenditure; no bridging table between sectors and ministries. - Subclassification mainly economic but inaccurate and not matching the Government Finance Statistics Manual. - No budget classification by program or function. - Titles (basic unit for presentation): - Title 1: Debt servicing (Charges de la dette publique) - Title 2: Public authorities (Dotations des pouvoirs publics) - Title 3: Goods and services (Moyens des services) - Title 4: Government interventions - Title 5: Government investment - Title 6: Investment subsidies - Title 7: Other capital expenditure - Information limitations: - Overall financial equilibrium of the budget law not described. - Amount for repayment of principal of the debt missing. - Cash transactions for the upcoming year not quantified. - Budget law contains no authorization to borrow. - Fiscal rules adopted in Algeria are not spelled out. - Detailed presentation distributed to Parliament members; after approval budget published in Official Gazette but presentation is succinct (Statements A, B, and C). ### Macroeconomic framework, medium-term policy, and sensitivity analysis - Macroeconomic framework drawn up by Ministry of Finance and updated during budget preparation; consistency impaired by conventional assumptions (flat-rate reference price for barrel of oil at prudential level). - Medium-term fiscal policy: - No statement on medium-term fiscal policy objectives in the budget documents. - Three-years’ projections included in the report introducing the budget law but serve only as a rough guide. - Example: in the report introducing the 2004 budget law, operating expenditures for 2005 and 2006 are calculated simply by raising them 2 percent per year. - Sensitivity analysis and fiscal risks: - Budget does not include sensitivity analysis to changes in economic variables. - Principal fiscal risks (e.g., from public enterprises) are not disclosed. ### Fiscal indicators, monitoring, and balances - Principal indicator used: overall balance of central government (excluding the Revenue Regulation Fund). - Annual budget law shows total government revenue and expenditure (except STAs) but does not indicate the budget balance. - Budget execution balance published in notes on current economic conditions includes the balance of the general budget and STAs, except the FRR. - Nonoil balance and primary balance are not calculated. - Overall general government balance calculated by the National Statistics Office with a two-year lag and is not used in conducting economic policy. - Public sector balance is unknown despite extensive quasi-fiscal activities. ### Budget execution, accounting systems, arrears, and reporting - Two accounting systems: - Budget accounting: shows use of appropriations voted by Parliament. - Government general accounting system: provides information on financial execution of government operations. - Treasury’s Central Accounting Unit (ACCT) can produce consolidated statements; these do not circulate outside the Ministry of Finance. - Arrears: - Accounting system should allow assessment of payment arrears, but arrears are not systematically monitored. - Financing not currently a significant problem; arrears probably limited and mainly related to fiscal management at end-of-fiscal-year. - A supplementary fiscal period exists and may last several months, complicating financial statements. - Closure of accounts and budget review law: - ACCT closes the books for a given year. - Article 76 of Law 84-17 states the budget review law establishes the income statement for the year but does not specify definitive closure. - No budget review law submitted to Parliament since the 1982 final accounts. ### Control, audit, procurement, and tax administration - Internal audit and supervision exist but oversight mainly verifies conformity to legal procedure rather than substantive evaluation; no monitoring of audit findings. - Procurement: - A new procurement code being introduced (Presidential Decree of July 24, 2002, amended September 11, 2003). - Code expected to bolster transparency but some provisions may run counter to government interests; public bid outcomes not always publicized. - Tax administration: - National tax administration lacks effective legal protection against political interference. - Tax and customs directorates lack independence and administrative autonomy; senior officers appointed by decree of the Council of Ministers. - Reports of tax authorities submitted exclusively to the Minister of Finance. ### Box 3 — Government accounting framework and oversight - Current system uses the 1967 Treasury Accounts Classification; Government Chart of Accounts scheduled for 2004. - Chart characteristics: focus on government assets (approche patrimoniale), statistical and fiscal bookkeeping, legal chart, compulsory framework, emphasis on standardization; “The introduction of IAS is fully compatible with this system.” - Reconciliation is only undertaken when substantial differences appear; public institutions and decentralized authorities ought to deposit funds at the Treasury. - Independent oversight: - National Audit Court empowered by Article 170; missions and procedures established by Order No. 95-20 of July 17, 1995 and Order No. 95-23 of August 26, 1995. - Publication practice limited: only annual reports for 1996 and 1997 were published though Article 16 provides for publication. - Audit capacity constraints: the Court lacks sufficient resources to oversee thousands of government accounts. - National Statistics Office (ONS): - Technical independence and financial autonomy established by Legislative Decree No. 94-01 and Executive Decree No. 95-159. - ONS not explicitly incumbent to verify fiscal data quality; national accounts use fiscal statistics and reprocess them. ### IMF staff assessment — developments and remaining shortcomings - Reforms over past five years increased transparency, including: 1) introduction, since 2001, of a new customs tariff schedule; 2) reform of legal framework governing public sector management and privatization; 3) new investment code; 4) new procurement legislation; 5) introduction of a code of tax procedures; 6) passing of a new law on competition; 7) reduction in quasi-fiscal activities through divestiture to the private sector of government assets in the steel sector. - Remaining shortcomings: - Reporting to Parliament and the public is largely inadequate. - Legal transparency requirements not fully respected. - Draft annual budget documents incomplete and sometimes difficult to understand. - Dissemination of budget execution and public finance data highly restricted and sporadic. - Available data cover only part of general government; relationships among public sector components unclear. - Significant quasi-fiscal activities persist; data quality impaired by accounting, oversight, and audit shortcomings. ### IMF staff recommendations — Short-term (A) - Revise budget documents presented to Parliament to make data easier to understand: - Submit exhaustive statements for each ministry describing proposed appropriations for both current expenditure and investment budgets. - Investment budget should identify stages of project execution with respect to program authorizations and payment appropriations (crédits de paiement). - State the financial balance of the budget law: - Include statements A, B, and C supplemented by special accounts for earmarked funds, advance and loan accounts, temporary liquidity operations, projections for repayment of principal of the debt, and borrowing authorization. - Provide other fiscal indicators including the primary balance and the nonoil balance. - Attach annexes to the budget law containing: 1) an evaluation of all tax receipts, including the percentage assigned to local governments and various agencies; 2) detailed projections for STA receipts and expenditures. - Include a projection for tax expenditures as soon as possible, and an assessment of government financial assets, government guarantees, and implicit subsidies from quasi-fiscal activities. - Attach the budget review law to the annual budget law, as provided by Law 84-17. - Publish and post budget execution data monthly on the Ministry of Finance website, based on the consolidated balance of accounts drawn up by the ACCT and on other centralized statements. - Provide more detailed and more frequent reporting of public debt data to Parliament and publish these data. - Consolidate, centralize, and publish local government data every quarter by the Directorate General of Accounting. - Transmit National Audit Court reports systematically to the National People’s Assembly and the National Council and publish them in the Official Gazette and on the Court’s website; devise a follow-up mechanism and adopt an amendment to Order No. 95-20 of July 17, 1995. ### IMF staff recommendations — Management framework reforms (B, medium-term) - Draft an organic law to replace Law No. 84-17, in accordance with Article 123 of the Constitution, to: - specify and clarify conditions governing recourse to STAs and the nature (capped appropriations, overdrafts, etc.) of annual authorizations in the budget law; - require a definition in budget laws of the balancing of the accounts for the fiscal year and terms governing recourse to borrowing; - establish how budget laws must be presented and voted on, and the content and scope of budget review laws; - specify documents to be appended to budget laws and make dissemination of the aforementioned data a legal obligation. - Under the new legal framework, restrict recourse to STAs, particularly for accounts for specific appropriations; avoid special accounts for earmarked funds primarily funded by grants from the general budget; specify expenditure and overdraft ceilings in the budget law for each special account. - Closely audit and monitor quasi-fiscal activities of public sector entities, gradually replacing them by subsidies included in the national budget: - Replace assistance provided by government banks to public enterprises running deficits with direct government budget subsidies under time-limited restructuring programs. - Replace below-market energy pricing with direct government subsidy programs targeted to certain consumer categories. - Clarify responsibilities of government and local governments by reviewing financing mechanisms and resources assigned to local governments. - Abolish the special tax regime (régime dérogatoire) under the investment code. - Adopt new civil service regulations to replace the inadequate 1978 law and Decree No. 85-59 of March 23, 1985, providing clearer salary foundations and legal protections for civil servants. ### IMF staff recommendations — System improvements to ensure data quality and clarity (C) - Reexamine scope, timetable, and sequencing of the Fiscal Systems Modernization project (World Bank loan) and take prior steps to improve fiscal management before implementing program-based budgets. - Prior steps and system improvements: - Implement an efficient accounting system and prioritize effective implementation of the new government chart of accounts (Plan comptable de l’Etat—PCE). - Use budget classifications that furnish clear information on expenditures: purpose, economic nature, administrator, geographical location, beneficiary, financing, etc., and ensure consistency enabling consolidation of local government fiscal operations. - Strengthen the audit system: - Give the Inspectorate General of Finance (IGF) a clear audit mandate and better qualified staff. - Require audited entities by law to provide IGF explanations and to take its recommendations into account. - Entitle IGF to send copies of its reports to competent judicial authorities when warranted. - Expand the National Audit Court’s responsibility to include public enterprises and provide a legal mechanism for follow-up on its reports. - Allow the National Audit Court to propose its draft budget to Parliament and grant it a fast-track expenditure process. - Consider giving the Legislative Branch a say in appointment of its president and presidents of the chambers. - Make consultation of the National Audit Court mandatory regarding draft laws with fiscal implications. - Implement medium-term fiscal frameworks with explicit medium-term fiscal policy objectives, recognizing administrative and political demands. *Source: _cr0568 — IMF staff report excerpts contained in the provided document.* ### 1. The Special Treasury Accounts ...................................................................................11 ### 1. The Special Treasury Accounts ...................................................................................11 ### Clarity of roles and responsibilities — general government definition and scope - General government definition is consistent with the GFS manual and includes: - central government (ministries with central agencies and decentralized authorities), Parliament, the National Audit Court, various Councils, national public institutions under administrative law (EPA); - social security funds; - all levels of local government: 48 wilayas and 1,541 municipalities. - There are some 5,560 national and local EPA. - Wilayas are both levels of local government and administrative units of central government. - Decentralized general government includes local public institutions (établissements publics locaux). ### Government relations with the central bank (Banque d’Algérie — BA) - Legal and operational framework: - Money and Credit Law No. 90-10 of April 14, 1990 increased BA’s operational autonomy. - Order No. 03-11 of August 26, 2003 replaced the 1990 Act to improve coordination between BA and the ministry of finance but does not contain an explicit reference to BA independence. - Since a 2001 Order, the Governor and Vice Governors no longer have fixed-term mandates. - Limits on central bank credit to the government: - Article 46 of Order No. 03-11 caps Treasury advances on current account at 10 percent of the Government’s current revenue in the preceding fiscal year, for a term not to exceed 240 days per year. - BA may, in exceptional cases, lend to the Treasury solely for purposes of ensuring the active management of the external public debt. - BA operations and fees: - Article 49: BA is the government’s financial agent, maintains the Treasury’s current account, handles credit/debit transactions free of charge; the credit balance on current account earns one percent less interest than that charged for debit balances (rate set by the Money and Credit Council). - Article 47 allows discounting or repurchase agreements for bills made payable to Treasury accounting officers and maturing within three months. - Articles 49 and 50 define operations performed by BA for central government and for local governments/public institutions. - No central-bank quasi-fiscal activities identified in exchange regime-related operations: BA does not apply multicurrency practices or require import deposits. - No BA-conducted bank bailouts; any public bank recapitalization or repurchase is performed by the Treasury. - Banks’ reserve requirements earn a fixed 2.5 percent rate of interest since December 2002. ### Quasi-fiscal activities by public financial institutions and public enterprises - Public financial institutions: - Some loans continue to be granted to public enterprises running structural deficits (directed credit). - These activities are estimated to currently cost the Treasury the equivalent of at least one percentage point of GDP per year. - Public banks have been repeatedly bailed out by the Treasury since the early 1990s, creating moral hazard. - The Treasury occasionally extends explicit guarantees on banking liabilities of some public enterprises or “freezes” liabilities (Treasury services the debt pending restructuring). - Example: CNEP was directed in April 2000 to resume financing a project for 35,000 housing units, despite Treasury repurchase undertakings. - Public nonfinancial corporations: - Sonatrach and subsidiaries sell petroleum products and natural gas domestically at prices far below international market prices; this is an implicit subsidy that is not shown in the government’s budget and reduces government revenue. - The government estimates implicit subsidies in energy prices total approximately US$1 billion per year; this amount varies with oil price fluctuations and is not published. - Sonelgaz receives budget transfers to offset costs of maintaining below-market energy prices sold to a privatized steel-making company (privatized in 2001). - Low-income consumers of electricity benefit from implicit subsidies via cross-subsidization among households; electrification in rural areas and electricity consumption in the South are explicitly subsidized through the budget. - Financial-sector and sovereign support practices: - There are instances of explicit Treasury guarantees on bank credit needed to pay wage bills of large public enterprises. ### Regulation, privatization, and government equity holdings - Regulatory framework and business climate: - Executive Decree No. 03-80 of February 25, 2003 created a National Consultative Council for the Promotion of SMEs. - World Bank Doing Business indicators show numerous, cumbersome, and lengthy procedures for investing and operating a business in Algeria. - Privatization: - Order No. 01-04 of August 20, 2001 requires privatization to abide by rules on transparency and disclosure (Article 14). - Privatization methods: competitive bidding, divestiture by mutual agreement, or public issue. - Most successful privatizations have been carried out by unpublished mutual agreements, reducing transparency. - Receipts from privatizations were modest and credited to a special earmarked funds account (compte d’affectation spéciale); receipts from cellular telephony licenses were posted under nontax revenue. - Government equity holdings: - Newly acquired equity holdings are not extensive; recent acquisitions arose from contributions to joint ventures where the public sector holds a fraction of equity. - No published report on government equity holdings exists. ### Fiscal relations among levels and branches of government - Local governments: - Responsibilities and revenue shares defined by municipalities code and wilayas code; local governments have autonomous budgets but limited autonomy due to funding constraints. - Most local funding derives from transfers via the Local Governments Common Fund (FCCL), financed by a percentage of principal taxes and general budget appropriations. - FCCL performs equalization and disburses subsidies to balance budgets of municipalities running a deficit (approximately 1,200 municipalities). - Central government intervenes extensively in municipality budget preparation and has absorbed district debts to certain public enterprises. - Branches of government: - Budget and budget review law must be adopted by both chambers of Parliament (National People’s Assembly and National Council). - If Parliament fails to adopt the budget law within 75 days, the President may promulgate the government’s draft by order (ordonnance) under Article 120 of the Constitution. - The government must provide both chambers of Parliament with a report on the manner in which budget appropriations have been used. - Article 170 of the Constitution gives the National Audit Court responsibility for ex-post audit of fiscal accounts of central government, local governments, and state services. ### Legal and administrative framework for budget management; Special Treasury Accounts (STA) - Key laws: - Budget framework: Law No. 84–17 of July 7, 1984 establishes content and presentation of budget laws, voting rules, and limits governing modification of appropriations. - Budget execution: Law No. 90–21 of August 15, 1990 on government accounting defines roles and responsibilities in budget execution and recording of revenue and expenditure; provides for separation between authorizing agents (les ordonnateurs) and government accounting officers (les comptables publics). - Observance and shortcomings: - Law No. 84–17 predates the Constitution and is not an organic law; it may be amended by budget laws and has been amended on several occasions. - Provisions are not fully observed in practice, notably with regard to: - rules governing the special Treasury accounts (STA) (see box 1 referenced in the source); - the annexes that should be attached to the draft budget law; - submission of the budget review law. - STA specific issue cited: - The report notes the STA rules are not fully observed, implying gaps in transparency and compliance in the use or reporting of special Treasury accounts (box 1 referenced but not reproduced in the supplied content). *IMF staff assessment and documentation as presented in the source text.* ### 15. Mechanisms for the coordination and management of budgeted and ### 15. Mechanisms for the coordination and management of budgeted and ### Management of budgeted and extrabudgetary activities - Investment outlays, including externally financed capital expenditures, are recorded in the annual budget but largely executed by specialized public financial institutions outside the budget, such as Banque Algérienne de Développement (BAD) and the National Agricultural Mutual Insurance Fund (Caisse Nationale de Mutualité Agricole). - Management of these expenditures partially circumvents government accounting requirements; STA transactions are subject to special terms and are barely subject to annual budget constraints. - STAs (Special Treasury Accounts), envisaged in Law No. 84-17 to allow carrying forward appropriations or earmarking, may only be established pursuant to a budget law and, in principle, their transactions are recorded in the annual budget law. In practice, these rules are not observed and special Treasury account operations are not sufficiently transparent. - The Minister of Finance undertook to submit a draft organic law on budget laws in the course of 2004, envisaged to tackle STAs’ shortcomings. ### Box 1 — Special Treasury Accounts (STA): structure and practice - Six categories of STAs established by Article 48 of Law No. 84–17: - Special accounts for trading state services (comptes de commerce). - Special accounts for earmarked funds (comptes d’affectation spéciale). - Special accounts for the funding of advances (comptes d’avances). - Special accounts for loans (comptes de prêts). - Special accounts for transactions with foreign governments (comptes de règlements avec les gouvernements étrangers). - Special accounts for participations and obligations (comptes de participation et d’obligations). - Law No. 84-17 provisions: - STAs may only be established by a budget law. - Transactions on STAs, except loans and advances, shall be planned, authorized, and executed on the same terms as general budget operations (Article 50). - Except for trading state services accounts, STAs are in principle funded by capped appropriations; earmarked accounts may be increased administratively if resources exceed projections. - Article 68 requires the complete list of STAs to be annexed to the draft budget law with projected receipts, expenditures, and overdrafts. - Actual practice diverges from Law No. 84-17: - Special accounts for earmarked funds (60 in 2004) are often used to circumvent the prohibition on carrying forward general budget appropriations and are mostly financed by appropriations from the general budget. - Principal special accounts for earmarked funds include: the Local Governments Solidarity Fund, the National Housing Fund, the National Fund for Agricultural Regulation and Development, the Revenue Regulation Fund, and the account for managing public investment operations listed in the economic revitalization support program. - Receipts, expenditures, and balances of STAs are not recorded in the annual budget laws, though consolidated within the single Treasury account at the central bank, preventing Parliament from being apprised of total projected or actual STA operations. - No ceiling is set on advances and loans that the Treasury may grant. - Advances accounts are sometimes used for emergency outlays and “repaid” the following year from budget appropriations, undermining the annuality principle. ### Legal and administrative framework for tax policy and administration - Taxation legal basis: - Taxes and duties can only be established by law pursuant to Article 64 of the Constitution; Article 122 grants Parliament exclusive power to legislate on creation, base, and rates of taxes, contributions, levies, and duties, including customs duties. - In practice, measures are enacted by law either in specific laws or in the budget law; degrees of discretion are governed by regulations. - Special regime and administrative discretion: - The special regime (le régime dit dérogatoire) allows the National Investment Promotion Agency (ANDI), for areas/sectors established by the National Investment Council (CNI), to negotiate tax benefits and subsidies with investors; agreements must be approved by the CNI and published in the Official Gazette. - Complexity of legislative provisions (e.g., VAT exemptions, forfait system for small taxpayers) gives room for administrative discretion and limits transparency. - Information and procedures: - Explanatory materials on taxes and tax collection are prepared and updated every year and accessible in booklets and on the Directorate General of Taxes website. - A tax procedures code was introduced two years ago and published; customs procedures have been codified. - New measures are inadequately publicized and consultation with social partners on tax policy is relatively limited. - Existence of parafiscal taxes means the full extent of the tax burden is not entirely apparent from the budget law. - Local government taxation is not reported in publicly accessible documents; departmental directorates prepare reports for the Minister of Finance only. ### Box 2 — Taxation in the Petroleum Sector and the Revenue Regulation Fund (FRR) - Legal regime: amended Law No. 86-14 of August 19, 1986; prospecting, exploration, production, and pipeline transportation may only be carried out by Sonatrach, alone or with foreign partners. Sonatrach accounts are audited by national audit companies and published on the company’s website. - Petroleum sector tax components: - Royalty: 20 percent of the value of the oil and gas extracted; falls to 16 percent or 12.5 percent for output in areas where exploration or production is particularly difficult. - Income tax on gross annual profits: 85 percent for prospecting, exploration, or production activities (reduced to 75 percent or 65 percent when production is under difficult conditions); normal corporate tax rate of 38 percent for pipeline transportation, liquefaction of natural gas, and processing and separation of liquefied petroleum gases. - Sonatrach is the sole entity responsible for payment of these taxes and pays to the Treasury on its own behalf and on behalf of partner enterprises. - Tax control over Sonatrach declarations has been weak but should improve with establishment of the Large Taxpayer Unit. - Oil tax revenue is equivalent to 20–30 percent of GDP and 60–75 percent of government revenue; mostly assigned to the central government budget. - Since the supplementary budget law for 2000, oil revenue recorded in excess of budget law projections is allocated to the Revenue Regulation Fund (FRR), a special account for earmarked funds consolidated within the single Treasury account at the central bank. - As of the 2004 budget law, FRR resources may be supplemented by advances Banque d’Algérie is authorized to grant the Treasury for active public debt management (Article 46 of the Order on money and credit). - 2004 budget law: FRR can only be used to: - Offset shortfalls resulting from oil tax revenue below budget law projections. - Reduce the external public debt. - In practice, since the FRR was set up, only expenditure on amortization of the principal of the public debt has been debited in the FRR accounts. - Position of the Revenue Regulation Fund at End-2002 (Billions of DA): - Credit - Oil tax surpluses 2000 453.24 - Oil tax surpluses 2001 123.86 - Oil tax surpluses 2002 26.50 - Total 603.60 - Debit - Public debt 2000 221.10 - Public debt 2001 106.97 - Balance outstanding (end-2002) 275.30 - Total 603.60 ### Tax disputes and administrative remedies - Legal provisions for settlement of tax disputes exist, with several levels of administrative appeal and access to an independent judicial body. - Practical deficiencies: - Discrepancies in application of laws (e.g., disagreements among tax bureaus on interpretation). - Authorities adopt measures only after matters are brought to their attention. - Internal audit system reports to the Director General; role of the IGF limited to evaluation and expertise. - Judicial appeal procedures are slow, diminishing the effectiveness of remedies. ### Public servants’ code of conduct and anticorruption measures - Rights and duties of civil servants are established by decree No. 85-59 of March 23, 1985, though they should be contained in a law; the decree includes some elements of a code of conduct. - A code of ethics for the Tax Authorities was introduced in 2002 and published on their website. - Officials have been obliged to declare assets for the past two years, but verification and subsequent asset monitoring are difficult in practice. ### Public availability of fiscal information — coverage and quality of budget documents - Coverage: - Budget documents cover most central government fiscal activities, except for STAs, and do not provide information on fiscal activities for the whole of general government. - The annual budget law presents: general budget revenue by major categories; outlays by ministry (current expenditure) or by sector (investments); complete list of parafiscal taxes. - Attached booklets show a breakdown of appropriations by ministry; a presentation report summarizes macroeconomic context and main assumptions. - Contradicting Article 68 of Law No. 84-17, no information is published on STA transactions; only general budget allocations to certain earmarked accounts and a brief synopsis of FRR past operations are provided. - A list of accounts for specific appropriations is provided to budget committees but not published. - No data in budget documents on fiscal activities of local governments, public corporations, or social security funds; only central government transfers to these bodies via general budget appropriations are recorded. - The share of tax revenue not directly assigned to the general budget (e.g., local governments, Local Governments Common Fund, other Funds) is not recorded in budget documents. - Defense expenditures: - Included in the budget; current expenditures listed using a simplified classification system in the budget law while investment expenditures are not distinguished from civilian authorities. ### Past and forecast fiscal data in the budget - Budget documents provide a brief overview of principal fiscal aggregates for the two years prior to the budget year and for the two years beyond it. - Data are presented as aggregates (oil, nonoil, and other tax receipts on revenue side; current and investment expenditures on expenditure side) in the presentation report. - More detailed information is reportedly provided to the Finance commission of the Assembly. ### Budget treatment of off-budget fiscal activity and contingent liabilities - Statements of contingent liabilities are not included in the budget documents presented to Parliament, though internal government documents on external public debt include guarantees identified separately. - No estimate of tax expenditure is published; tax benefits under Order 01-02 of August 20, 2001 on investment promotion and other provisions likely represent a nonnegligible item. - Quasi-fiscal activities of public banks are extensive and their estimated cost is not included in budget documents; prior Treasury restructurings of bank balances since the early 1990s are not reflected in the government budget balance, leading to an overestimation (or underestimation) of the surplus (or deficit). - Government entities (Sonelgaz, Banque Algérienne de Développement, Algérie Télécom, others) carry nonperforming loans or claims possibly totaling over US$1 billion, which may have to be absorbed in whole or in part by the Treasury; no complete inventory of these nonperforming loans exists. ### Publication of data on debt and financial assets - Information on gross public debt is partially published annually and for a limited audience; information on financial assets is not published. - The General Directorate of the Treasury (DGT) publishes: - A brief quarterly bulletin: Informations trimestrielles—Marché des Valeurs d’Etat, covering the issuance program for the year on the primary market, volumes placed and amounts outstanding, issue amounts and redemptions, trends in interest rates and rate of return on the auction, amounts auctioned and distribution by category of security, and secondary market information. - An annual bulletin in January: L’Evolution du Marché des Valeurs d’Etat, incorporating quarterly data with past and prospective trends. - An annual survey of the public debt, specifying individual components of domestic and external debt, State-guaranteed debt, and other contingent liabilities; this document is transmitted to the Minister of Finance and forwarded to the Head of Government’s staff. - The DGT does not yet have a website. - Banque d’Algérie (BA) discloses an annual survey of the public debt in its in-house journal “Mediabank” and on its website, with a ten-year series of outstanding medium- and long-term debt and short-term debt, indicators on external indebtedness, trends in debt structure, debt servicing trends, and breakdown of outstanding debt by currency. *Source: _cr0568 - 15. Mechanisms for the coordination and management of budgeted and (IMF chapter/section).* ### 27. Formal commitments for regular publication of fiscal data have not been made ### 27. Formal commitments for regular publication of fiscal data have not been made ### Publication and dissemination of fiscal data - Algeria has not subscribed to the IMF’s General Data Dissemination System (GDDS). - No formal commitments for regular publication of fiscal data or advance release calendars are announced. - Legal obligation: presentation by the government, along with the draft annual budget law, of the draft budget review law for fiscal year N-3 (indicating outturn of appropriations voted on). This obligation is not observed (see paragraph 43). - Highly aggregated national budget execution data: - Appear in the report introducing the draft budget law on a payment order basis (budget law execution) and on a cash basis. - During the year, on a cash basis only, similar data are provided in the quarterly note on the current economic cycle produced with a 2–3 month lag by the Directorate General of Economic Studies and Projections of the Ministry of Finance; this note is published on the Ministry’s website. - These data appear to be taken from the Summary Statement of Treasury Operations (SROT), which is more detailed but not disseminated outside government. - No information is available on fiscal data of local governments and public institutions. - The National Statistics Office publishes intermediate balances (soldes intermédiaires) for general government in the national accounts, but data are highly aggregated and not broken down by subsectors. ### Budget preparation: process, classification, and presentation - Budget preparation is directed by the Minister of Finance; the Budget Directorate organizes the process; the Economic Studies and Projections Directorate prepares the macroeconomic framework used in the budget circular. - Budget classifications: - Different classifications for current and capital expenditure: current expenditure classification is essentially administrative (by ministry, then by departments), capital expenditure classified by sectors and subsectors; no bridging table between sectors and ministries. - Subclassification (title, part, chapter) is mainly economic but inaccurate and does not match the Government Finance Statistics Manual. - Examples of classification issues: titles 3 and 4 both record current transfers to public agencies; certain transfers are classified as payroll expenses in Title 3. - Classification by parts is not homogeneous: for Title 3 it is economic; for Title 4 it is based on objectives. - No budget classification by program or function. - The Title is the basic unit for presentation of budget expenditures. Titles listed: - Title 1: Debt servicing (Charges de la dette publique) - Title 2: Public authorities (Dotations des pouvoirs publics) - Title 3: Goods and services (Moyens des services) - Title 4: Government interventions - Title 5: Government investment - Title 6: Investment subsidies - Title 7: Other capital expenditure - Information in the annual budget law is limited and not widely disseminated: - Overall financial equilibrium of the budget law is not described. - Amount for repayment of principal of the debt is missing. - Cash transactions (opérations de trésorerie) for the upcoming year are not quantified. - The budget law contains no authorization to borrow. - Fiscal rules adopted in Algeria are not spelled out. - Detailed presentation of the draft budget law is distributed to members of Parliament; after approval the budget is published in the Official Gazette but presentation within the budget law is succinct and limited to Statements A, B, and C: - Statement A: a 13-line description of final revenues in the national budget. - Statement B: one-line-per-ministry account of appropriations for current expenditures. - Statement C: lists final expenditures under the National Plan in two groups: investment expenditures in broad sectors and capital operations mainly by Fund. - More detailed description for current expenditure appropriations (except Ministry of National Defense and charges communes) is shown in presidential or executive decrees on apportionment. ### Macroeconomic framework, medium-term policy, and sensitivity analysis - Macroeconomic framework: - Drawn up by the Ministry of Finance and updated during budget preparation. - Consistency impaired by use of conventional assumptions, notably a flat-rate reference price for a barrel of oil set at a prudential level that does not reflect short- and medium-term market projections. - Medium-term fiscal policy: - A statement on medium-term fiscal policy objectives is not included in the budget documents. - Clear fiscal targets are not set; fiscal policy is not conducted according to predefined policy rules, except the ceiling on central bank advances. - Three-years’ projections are included in the report introducing the budget law but serve only as a rough guide and are not based on detailed analysis of expenditure programs. - Budget documents do not provide analysis of medium- or long-term fiscal sustainability. - Example: in the report introducing the 2004 budget law, operating expenditures for 2005 and 2006 are calculated simply by raising them 2 percent per year. - Sensitivity analysis and fiscal risks: - The budget does not include analysis of sensitivity of estimates to changes in economic variables (e.g., price per barrel of oil). - Principal fiscal risks, such as hazards from financial situation of public enterprises, are not disclosed. ### Fiscal indicators, balances, and monitoring - Principal indicator used: overall balance of central government (excluding the Revenue Regulation Fund). - The annual budget law shows total government revenue and expenditure (except special Treasury accounts) but does not indicate the budget balance. - Budget execution balance published in notes on current economic conditions includes the balance of the general budget and special Treasury accounts, except the Revenue Regulation Fund; economic significance limited because distribution of oil tax revenue between general budget and Regulation Fund is based on revenue level specified in the budget law (itself based on conventional flat-rate oil price and exchange rate assumptions that change across budgets). - Nonoil balance and primary balance are not calculated. - The overall general government balance is calculated by the National Statistics Office with a two-year lag and is not used in conducting economic policy. - Public sector balance is unknown despite extensive quasi-fiscal activities and deficits in financial and nonfinancial public enterprises. ### Budget execution, accounting systems, and arrears - Two accounting systems exist: - Budget accounting: describes budget outturn in terms of use of appropriations voted by Parliament, tracking appropriations committed, authorized, and taken into account by government accounting officers. - Government general accounting system: provides information on financial execution of government operations, whether budget or treasury. - The Treasury’s Central Accounting Unit (ACCT) can produce: - A balance for each accounting officer. - An overall balance synthesizing accounts of all government accounting officers. - A general statement of the current expenditure budget. - A general statement of the investment budget. - A monthly summary of the revenue accounts. - A monthly budget execution statement. - These statements do not circulate outside the Ministry of Finance. Statements of operations by local governments do not appear to be available; no indication of order of magnitude provided. - Arrears and end-of-year issues: - Accounting system should allow assessment of payment arrears, but arrears are not systematically monitored. - Financing is not currently a significant problem; arrears are probably limited and mainly related to fiscal management problems at end-of-fiscal-year when appropriation carryovers are restricted. - A supplementary fiscal period at both current expenditures and investment budget levels exists and limits problems from absence of carryovers. - Expenditures are recorded on a payment order basis, not on a basis of disbursement. ### Control, audit, procurement, and tax administration - Internal audit and supervision: - A comprehensive internal audit system exists (financial controllers, government accounting officers, in-house auditors, inspectorates), overseen by the Inspectorate General of Finance. - Oversight mainly verifies conformity to legal procedure rather than substantive evaluation. - No monitoring of audit findings and recommended control activities, limiting supervision effectiveness. - Procurement: - A new procurement code specifying contracting and procurement rules is being introduced; Presidential Decree of July 24, 2002, amended and supplemented by a Presidential Decree dated September 11, 2003. - Code expected to bolster transparency but provisions on advances, down payments, and amendments may run counter to government interests; outcomes of public bids are not always publicized. - Employment and wages: - Rules governing employment and wages are complex and are being revised to improve personnel management. - Appointment to a career civil service position (emploi statutaire) is now subject to a well publicized competitive examination. - Tax administration: - National tax administration lacks effective legal protection against political interference. - Tax and customs directorates do not enjoy independence or administrative autonomy vis-à-vis the Ministry; senior officers are appointed by decree of the Council of Ministers and lack statutory protection. - Reports of tax authorities are submitted exclusively to the Minister of Finance; information to Parliament comes through him. - No regular report on measures adopted to enforce tax laws nor a study of the costs involved in such measures. - Local-level officials’ contribution to the information system needs updating. ### Closure of accounts, reporting lags, and integrity of data processes - Closure of accounts and budget review law: - ACCT closes the books for a given year. - Article 76 of Law 84-17 states the budget review law establishes the income statement for the year but does not specify whether it definitively brings a fiscal year to a close. - No budget review law has been submitted to Parliament since the 1982 final accounts. - Parliament does not undertake a midyear review; no draft budget review law submitted since 1985. A document on budget outturn for years n-2 and n-1 is presented yearly with the draft budget law. - Accounting basis and lags: - Operations are recorded on a modified cash basis that allows certain items awaiting payment or collection to be taken into account. - End-of-year execution uses a supplementary budget period of variable duration, which may last several months and complicates preparation of financial statements. - Government general accounting system uses a specific classification system dating to 1967; double-entry accounting in place by 1991; nomenclature underwent major updating up to 1998. - A government chart of accounts aligned with Algeria’s national chart of accounts has been tested and should be ready for implementation in 2004; it will have capacity to record government assets and ultimately implement accrual basis accounting. - Reconciliation and centralization: - Data centralization ensures ongoing reconciliation of fiscal and accounting data at the ACCT for amounts payable by the Treasury; ACCT supplies consolidated data to directorates general of budget, accounting, economic studies, and Treasury. - Centralized monthly statements are drawn up within six weeks of the end of the month. - Reconciliation with financial institutions is facilitated because all Treasury operations are recorded in a single master account of the Treasury at Banque d’Algérie. - Lack of systematic periodic publication of reconciliations and nonpublication of underlying methodologies makes it difficult to vouch for data reliability. _This summary is based exclusively on the content of the source document._ ### Box 3. The Government Accounting Framework ### Box 3. The Government Accounting Framework ### Current government chart of accounts and structure - The current system uses the 1967 Treasury Accounts Classification. - Government Chart of Accounts scheduled for 2004. - Comparative units: - The basic unit is the group (current system). - The basic unit is the class (planned chart). - Contents mapping (current groups → proposed classes): - Group I Cash and portfolio → Class 1 Earnings (Résultats) and debts - Group II Budget operations → Class 2 Fixed assets - Group III Treasury operations accounts → Class 3 Liaison accounts and stock accounts - Group IV Correspondents → Class 4 Third party and correspondent accounts - Group V Operations awaiting classification → Class 5 Financial accounts - Group VI Earnings → Class 6 Expenditure accounts - Group VII Government-guaranteed debts → Class 7 Revenue accounts - Group VIII Government claims (Créances de l’Etat) → Class 8 Treasury holdings and overdrafts - — → Class 9 Budget execution - The current system is structured to provide financial information in a context in which operations are limited; it “quickly reaches its limits and is a source of confusion due to the proliferation of suspense accounts where numerous accounting operations are required.” - The chart of accounts is based on the Algerian national chart of accounts, following “continental” standards characterized by: - a focus on government assets (approche patrimoniale); - a statistical and fiscal approach to bookkeeping; - a legal chart of accounts; - a compulsory accounting framework; and - a marked emphasis on standardization. - “The introduction of IAS is fully compatible with this system.” 1/ ### Limitations in practice and data flows - Reconciliation is done and reconciliation is only undertaken when substantial differences become apparent. - Public institutions and the decentralized authorities ought to deposit their funds at the Treasury. - The same applies for postal check current accounts. - For administrative centers in wilayas where there is no branch of Banque d’Algérie, a correspondent is appointed to fulfill this function. The BA’s monthly position is published. Each month the BA draws up a statement of its assets and liabilities with the Treasury’s current account balance. This statement is published at irregular intervals in the Official Gazette. This information serves to verify the consistency of Treasury data. - However, this rule was not systematically enforced prior to 2004. ### Independent oversight: external audit - Article 170 of the Constitution empowers the National Audit Court (Cour des comptes) to oversee the finances of the central government, the local governments, and state services ex post. - The missions, organization, and procedures of the National Audit Court are established by Order No. 95-20 of July 17, 1995 on the National Audit Court; Order No. 95-23 of August 26, 1995 defines the status of the members of the Court. - The National Audit Court: - oversees the quality of management in supervised agencies, - rules on the accounts of the government accounting officers, - rules on breaches of fiscal and financial discipline. - Members have the status of magistrates who may not be removed; their career comes under the aegis of a council in which the majority of members are elected by the magistrates in the Court. - The Court sets its own work schedule and may receive referrals from the President of the Republic, the President of the Legislature, and the Chair of any parliamentary group; however, this right has never been exercised. - Publication practice: - Although Article 16 of Order No. 95-20 provides for its annual report to be addressed to the President of the Republic with a copy to the Legislative Assembly and “being wholly or partially published in the Official Gazette,” only its annual reports for 1996 and 1997 were published. - The National Audit Court issued evaluation reports on preliminary draft budget review laws up to and including fiscal year 1996; the last draft budget review law and evaluation report submitted to Parliament dates back to the 1982 final accounts. - Audit capacity constraints: - In practice, the National Audit Court has great difficulty doing what it is supposed to do. - It has thousands of government accounts to oversee (each public institution is involved) and it lacks the wherewithal for such a task. - Pursuant to the 1995 Order, public enterprises are now only monitored for sound management. ### Independent oversight: economic projections and statistics - Independent evaluation of macroeconomic and fiscal projections is hampered by the weakness of the data furnished by the administration and by the lack of genuine expertise in nongovernment circles. - The National Economic and Social Council prepares a report on the current economic situation and may be called upon to discuss public policies, but it does not examine the draft budget law. - The National Statistics Office (ONS) has technical independence and national public institution status with financial autonomy, established by: - Legislative Decree No. 94-01 of January 15, 1994 on the statistics system; and - Executive Decree No. 95-159 of June 3, 1995 on revision of the by-laws of the National Statistics Office. - Institutional arrangements: - The ONS technically reports to the Planning Ministry but is run by a Director General appointed by the President of the Republic and is genuinely independent in day-to-day technical work. - The National Statistics Council draws up the national schedule for statistical studies and monitors observance of the code of ethics and technical and scientific standards. - Data limitations: - It is not explicitly incumbent upon the ONS to verify or validate the quality of fiscal data, which for the most part are produced by the Ministry of Finance. - When economic accounts are drawn up, national accounting staff use fiscal statistics and reprocess them where necessary to produce the accounts of the institutional sector of general government. - These data remain very highly aggregated (there is no breakdown by subsector) and are adversely affected by the weakness of the source data, especially for local governments and public institutions, and by shortcomings of human resources working on the national accounts. ### IMF Staff Commentary — developments and assessment - Since the late 1980s, and consistently since 1994, Algeria has embarked on economic liberalization. - Major structural reforms over the past five years have increased transparency and included: 1) the introduction, since 2001, of a new customs tariff schedule; 2) a reform of the legal framework governing public sector management and privatization; 3) a new investment code; 4) new procurement legislation; 5) the introduction of a code of tax procedures; 6) the passing of a new law on competition; and 7) a reduction in quasi-fiscal activities through divestiture to the private sector of government assets in the steel sector. - Algeria has signed (but not yet ratified) an association agreement with the European Union. - As a result of these developments, macroeconomic stability and the financial position of the Algerian government have strengthened, making reforms to increase fiscal transparency more achievable and necessary. - Remaining shortcomings: - Reporting of data to Parliament and the general public is largely inadequate. - Some transparency requirements of the existing legal framework are not fully respected. - Draft annual budget documents are incomplete and sometimes difficult to understand. - Dissemination of data on budget execution and the state of public finance is highly restricted and sporadic. - Available data cover only part of general government; relationships between public sector components are unclear. - Budget and financial data are essentially restricted to the central government budget despite significant expenditure by local governments, public institutions, and social security agencies. - Significant quasi-fiscal activities persist in public enterprises and financial institutions. - Data quality is impaired by shortcomings in the accounting system and oversight and audit arrangements. ### A. Recommended Short-term Measures (urgent, based on existing systems and legal framework) - Revise budget documents presented to Parliament to make data easier to understand: - Exhaustive statements for each ministry should be submitted, describing proposed appropriations for both current expenditure and investment budgets. - The investment budget should identify stages of project execution with respect to program authorizations and payment appropriations (crédits de paiement). - State the financial balance of the budget law: - Data should take into account statements A, B, and C, supplemented by special accounts for earmarked funds, the advance and loan accounts, temporary liquidity operations, projections for repayment of principal of the debt, and the borrowing authorization. - Other fiscal indicators, including the primary balance and the nonoil balance, should also be provided. - Attach annexes to the budget law containing: 1) an evaluation of all tax receipts, including the percentage assigned to local governments and various agencies; and 2) detailed projections for special treasury account receipts and expenditures. - Include a projection for tax expenditures as soon as possible, and an assessment of the government’s financial assets, of government guarantees, and of implicit subsidies resulting from quasi-fiscal activities conducted by certain public enterprises and government banks. - Attach the budget review law to the annual budget law, as provided for by Law 84-17. - Publish and post budget execution data monthly on the Ministry of Finance website, based on the consolidated balance of accounts drawn up by the ACCT and on other centralized statements, presented in the same way as the SROT but in greater detail to allow monitoring of data consistency. - Provide more detailed and more frequent reporting of public debt data to Parliament and publish these data. - Consolidate, centralize, and publish local government data every quarter by the Directorate General of Accounting to improve insight into financial problems and viability of authorities. - Transmit reports drawn up by the National Audit Court systematically to the National People’s Assembly and the National Council; the Court should publish these reports—or extracts—in the Official Gazette and on the Court’s website. - The contents of annual reports could be debated in a parliamentary session convened for that specific purpose. - A follow-up mechanism should be devised to ensure full advantage is taken of the contents. - All these measures should be formally undertaken by adopting an amendment to Order No. 95-20 of July 17, 1995. ### B. Management Framework Reforms (medium-term, clarifying roles and improving fiscal management) - Draft an organic law to replace Law No. 84-17, in accordance with Article 123 of the Constitution, to: - specify and clarify conditions governing recourse to special Treasury accounts and the nature (capped appropriations, overdrafts, etc.) of the annual authorization granted in the budget law; - require a definition in budget laws of the balancing of the accounts for the fiscal year and terms governing recourse to borrowing; - establish the manner in which budget laws must be presented and voted on, and the content and scope of budget review laws; - specify documents to be appended to budget laws and make dissemination of the aforementioned data a legal obligation. - Under the new legal framework, restrict recourse to special Treasury accounts, particularly for accounts for specific appropriations; avoid special accounts for earmarked funds primarily funded by grants from the general budget; specify expenditure and overdraft ceilings in the budget law for each special account. - Closely audit and monitor quasi-fiscal activities of public sector entities, with a view to gradually replacing them by subsidies included in the national budget: - Replace assistance provided by government banks to public enterprises running deficits with direct government budget subsidies under clearly defined and time-limited restructuring programs. - Replace the practice of setting energy product prices far below international market prices with direct government subsidy programs for certain consumer categories (low-income households, underdeveloped areas, etc.). - Clarify responsibilities of government and local governments by reviewing financing mechanisms and resources assigned to local governments (tax revenue or government transfers) to equip them with resources to cover expenditures and end discretionary subsidies to balance their books. - Abolish the special tax regime (régime dérogatoire) under the investment code. - Adopt new civil service regulations to replace the inadequate 1978 law on the status of workers and Decree No. 85-59 of March 23, 1985, by: - providing simple, consistent, suitably differentiated and fair foundations for the salary scale (to be shaped by implementation regulations); - providing civil servants legal standing that shields them legally from political interference while spelling out rights and obligations (conditions governing promotion, training, codes of ethics, etc.). ### C. Improvement of systems to ensure data quality and clarity - The Ministry of Finance has embarked, in the context of a World Bank loan, on a Fiscal Systems Modernization project aimed at in-depth reorganization of budgeting and fiscal management to establish a medium-term program-based budgeting system; reexamine scope, timetable, and sequencing of this ambitious program and take prior steps to improve fiscal management before implementing program-based budgets. - Prior steps and system improvements: - Implement an efficient accounting system to record accurate and truthful accounting information and produce summary statements of general government financial operations; priority to effective implementation of the new government chart of accounts (Plan comptable de l’Etat—PCE). - Use budget classifications that furnish clear information on expenditures: purpose, economic nature, administrator, geographical location, beneficiary, financing, etc.; ensure classifications follow rules to ensure consistency and enable local governments to use them for consolidation of general government fiscal operations. - Strengthen the audit system: - Give the Inspectorate General of Finance (IGF) a clear audit mandate and better qualified and specialized staff. - Require audited entities by law to provide IGF with explanations and to take its recommendations into account. - Entitle IGF to send a copy of its reports to competent judicial authorities when warranted. - Expand the National Audit Court’s area of responsibility to include public enterprises and provide a legal mechanism for follow-up on its reports. - Allow the National Audit Court to propose its draft budget to Parliament without going through an intermediary and grant it a fast-track expenditure process. - Consider giving the Legislative Branch a say in appointment of its president and presidents of the chambers. - Make consultation of the National Audit Court mandatory regarding draft laws having fiscal implications, with tight deadlines. - Implement medium-term fiscal frameworks associated with an explicit statement of medium-term fiscal policy objectives to place annual budget preparation within a medium-term perspective, noting that such frameworks are administratively and politically demanding and should not hamper other priority reforms. *Source: IMF staff report excerpts contained in the provided document.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr0568.pdf_