Algeria - Budget Systems Modernization Project

World Bank Document Report No: 21484 AL PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US $23.7 MILLION EQUIVALENT TO THE PEOPLE'S DEMOCRATIC REPUBLIC OF ALGERIA FOR THE BUDGET SYSTEMS MODERNIZATION PROJECT December 21, 2000 Social and Economic Development Group Maghreb Department Middle East and North Africa Regional Office  CURRENCY EQUIVALENTS (Exchange Rate Effective 10/24/2000) Currency Unit = DZ 82DZ = 1 US$ FISCAL YEAR January 1 - December 31 AiIBkEVIATIONS AND ACRONYMS CITIF Conseil de l'informatique et des technologies de l'information des Finances (Council *n informatics and information technologies of the Ministry of Finance) DCl Direction centrale de l'informatique (Central information systems directorate) DGB Direction generale du budget (Budget directorate) DGC Direction generale de la comptabilite (Accounting directorate) DGD Direction g6nerale des douanes (Customs directorate) DGDN Direction generale du domaine national (Real Property directorate) DGEP Direction g6nerale des etudes et previsions (Forecasting and Analysis directorate) DGI Direction generale des impots (Taxation directorate) DGRFE Direction g6nerale des relations financieres exterieures (External Financial Relations directorate) DGT Direction generale du tresor (Treasury directorate) DMOB Direction des moyens et operations budgetaires (Internal Resources and Budget Operations unit) DRH Direction des ressources humaines (Human Ressourc.es Management unit) GoA Government of Algeria HWS Hardware and software IBMS Integrated Budget Management System ISSP Information Systems Strategic Plan IGF Inspection gen6rale des finances (Audit directorate) IT Information Technology MoF Ministry of Finance PIU Project Implementation Unit SC Steering Committee SG Secretaire general SOE State-Owned Enterprises UNDP United Nations Development Programme Vice President: Jean-Louis Sarbib Country Manager/Director: Christian Delvoie Sector Manager/Director: Mustapha Nabli Team Leader: Francois Lacasse  ALGERIA Budget Systems Modernization CONTENTS A. Project Development Objective................................................2 1. Project development objective.............................................2 2. Key performance indicators...............................................2 B. Strategic Context............................................................2 I. Sector-related Country Assistance Strategy (GAS) goal supported by the project .....2 2. Main sector issues and Government strategy..................................3 3. Sector issues to be addressed by the project and strategic choices .................3 C. Project Description Summary .................................................5 1. Project components......................I...............................5 2. Key policy and institutional reforms supported by the project ....................6 3. Benefits and target population.............................................6 4. Institutional and implementation arrangements................................7 D. Project Rationale ............................................................8 1. Project alternatives considered and reasons for rejection ........................8 2. Major related projects financed by the Bank and/or other development agencies......9 3. Lessons learned and reflected in the project design.............................9 4. Indications of borrower commitment and ownership ..........................1I0 5. Value added of Bank support in this project .11............................... E. Summary Project Analysis...................................................1 1 1. Economic............................................................I11 2. Financial.............................................................I11 3. Technical ............................................................I11 4. Institutional ...........................................................12 5. Social................................................................12 6. Environmental .........................................................12 7. Participatory approach.......................................................12 F. Sustainability and Risks.......................................................13 1. Sustainability .........................................................13 2. Critical Risks..........................................................14 3. Possible Controversial Aspects............................................15 G. Main Loan Conditions .......................................................16 1. Effectiveness Conditions ................................................16 2. Other................................................................16 H. Readiness for Implementation.................................................16 I. Compliance with Bank Policies ................................................16 Boxes Boxl1 Project description.................................................... 17 Box 2 Project rationale...................................................... 18 Box 3 Summary evaluations of project..........................................20 Box 4 Main loan conditions..................................................2 1 Box 5 Compliance with general bank policies....................................2 1  Annexes Annex I Project Design Summary ........................................ 22 Annex 2 Detailed Project Description ........................................ 25 Annex 3 Estimated Project Costs ........................................ 3 1 Annex 4 Cost-Benefit, Cost-Effectiveness Analysis Summary ... ..................................... 32 Annex 5 Financial Summary ........................................ 32 Annex 6 Procurement and Disbursement Arrangements ........................................ 33 Table A Project Costs by Procurement Arrangements ................ ........................ 36 Table B Thresholds for Procurement Methods and Prior Review ........................................ 36 Table C Allocation of Loan Proceeds ........................................ 37 Annex 7 Project Processing Budget and Schedule ........................................ 44 Annex 8 Documents in the Project File- ......................................... 45 Annex 9 Statements of Loans and Credits ........................................ 47 Annex 10 Country at a Glance .48 Annex 11 Implementation Plan + Disbursement Schedule............................................................. Map IBRD No. 29992  ALGERIA Budget Systems Modernization Project Appraisal Document Middle East and North Africa Regional Office Maghreb Department Date: December 21, 2000 Team Leader: Fran,ois Lacasse Country Manager/Director: Christian Delvoie Sector Manager/Director: Mustapha Nabli Project ID: P064921 Sector: BF --- Public Financial Management Lending Instrument: Theme(s): Governance Investment Loan Poverty Targeted Intervention: L I Yes XI No Project Financing Data [X] Loan [ 1 Credit [1 Grant [ Guarantee [ Other [Specify] For Loans/Credits/Others: Amount (US$m): 23.7 Million Proposed terms: [] To be defined [ Multicurrency X] Single currency USD Standard Variable [x ] LIBOR-based fixed spread ] loan Grace period (years): 4 years Years to maturity: 12 Including 4y grace Commitment fee: 0.85% 0.75% after 4 years According to effective disbursements Service charge: % Front-end fee on Bank loan: 1.0% Fi~ndagph~: - ~'oreiTO -Ta Government 6.06Million 6.06M Co-financing IBRD 23.7 Million 23.7M Other (specify) Other (specify) Other (specify) Borrower: Government of Algeria Guarantor: Responsible agency: Ministry of Finance Estimated disbursements: US$M yve - 1 2- -$X-- 4 Annual 5.2 7.1 7.8 3.6 Cumulative 5.2 12.3 20.1 23.7 Guaranties: no Project implementation period: 4 years Project promoter: Ministry of Finance Nature of underlying financing: IBRD loan Financing conditions: . Principal amount 23.7 million USD Final closing date February 28, 2006 Amortization profile ENo Financing available without guaranties? n/a If yes, estimated cost or estimated duration: n/a Estimated cost or estimated duration of guaranteed financing: n/a Expected effectiveness date: March 1, 2001 Expected closing date: February 28, 2006 Implementing agency: Project Implementation Unit, Budget Systems Modernization Project Contact person: M. S.A. Dib Address: Ministere des Finances, Alger, Algerie Tel: 011-213-21-71-13-66 Fax: 001-213-21-73-27-58 E-mail: ccmdb2.wissal.dz  2 A: Project Development Objective 1. Project development objective (see Annex 1) The objective is to modernize and expand the capacity of the MoF to discharge its core expenditure management and economic policy advice functions. The key goals are: budgetary institutions and organizations which favor growth in the context of a democratic market economy by delivering: i) a transparent and comprehensive statement of public resources allocation, iirmly anchored to the economic situation of the country; ii) a framework for strategic expenditures cheices using the best information possible, arrayed according to international practices; and iii) an instrutnent which promotes efficiency and effectiveness in budget execution as well as timely and reliable feedback to insure solid controls and overall fiscal discipline. 2. Key performance indicators (see Annex 1) 1. The expenditures budget is comprehensive: all significant public expenditures are included in it. A multiyear expenditures framework links it to economic conditions, pro-vides for expenditures groupings around outputs, outcomes and target populations; expenditures are presented in multiyear fashion with forecasts for the 3 outlying years. 2. The presentation of the budget is transparent so that key stakeholders (parliamentary committees, the press, the public, international institutions) can understand and debate the key decisions it incorporates without having to expend considerable resources in identifying the financial transcription of government policies. 3. Key structural changes in budgeting and accounting are implemented, such as: functional grouping of activities into programs; new accounting standards and rules ("nouveau plan comptable de l'Etat"); limited use of accrual accounting for some physical assets such as vehicles. New and adequate structures are in place and functioning to manage modernized computer infrastructures and information systems; the management and control of the whole expenditure circuit has been revamped with shorter delays and more effective controls of expenditures. 4. A multi-year framework is used for preparing and presenting the budget, integrating current and capital expenditures. Within the MoF, an analytical and forecasting capacity has been built to the point where forecasts are regularly produced and revised, and expenditure/cost implications of new policies or of maintaining existing ones can be readily estimated and assessed by the MoF. 5. A new MIS resources management structure is in place; the Information Systems Strategic Plan (ISSP) has been finalized and implemented (the new hardware and software are in place, the training of personnel has been completed). Up-to-date information systems are in place and operational, and adequate resources and organizational structures are provided to insure their maintenance and updating. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1) Document number: R96-15 [Rev.] Date of latest CAS discussion: Feb. 27, 1996 The latest CAS was an interim one and dates back to 1996. The unchanged goal pursued is the growth in income and employment through the transformation of a command economy into a market economy and a lesser dependence on the hydrocarbons sector. After the major efforts and resources expended in downsizing the State Enterprise sector, the reform of the core public sector has begun with the transfer of the investment budget to the MoF in 1998. The modernization of budget institutions is the next step in adapting central and structures to the objective of maximizing growth in a market environment.  3 Recent work has stressed the urgency of optimal use of scarce resources to alleviate unemployment, housing and water scarcities, and rigidities and inefficiency in the delivery of public services. The key structure able to deliver on these issues is the MoF, especially its expenditures management institutions; this project will assist in modernizing, tooling up and empowering them. 2. Main sector issues and Government strategy Sector issues manifest themselves in the following way: a) A poor record in the control of costs and delays in implementing capital projects; solid formal controls of paper flows exhibiting low reliability in terms of time, costs and adherence to specifications for assets delivery; and low performance controls on on-going services effectively delivered. The imposition of fiscal discipline in recent years has stopped overspending but aggravated delays, unit costs and work flow problems. b) Inadequate planning of investments (especially networks in transportation and water); weak links between investments and current expenditures (essentially annual cash limits); difficulties in insuring that assets are provided to ministries at correct costs; and moreover, that they are adequately maintained and used. c) Difficulties encountered when the budget is debated in parliament: a) insufficient capabilities in the MoF in answering all the questions asked by parliamentarians; b) budgetary documents whose presentation makes it difficult for parliamentarians to fully understand them and thereby limits their effective readership. d) Absence of a forward-looking and comprehensive transcription of the resources allocation consequences of implementing the Government's Program; no forecasting and analysis of external economic shocks and their budgetary consequences; no multiyear framework capable of assessing the future costs of current or new policies, of providing timely warnings as to their sustainability. e) Inadequate information management systems and equipment: this prevents both credible macroeconomic forecasting and the production of simulations of expenditures along program categories. This impairs timely monitoring. The absence of an integrated MIS systems within the MoF leads to unnecessary costs and to duplications of efforts. f) Low capacity inside the MoF for countervail analysis of ministries' spending requests (e.g., low capacity to assess line ministries' costing for these requests, the relevance/optimality of service delivery options they selected, the relationships between proposed actions and identified needs (effectiveness), the distributive impacts of proposed policies and programs). The strategy followed by the government has been to merge the organizations responsible for capital and current expenditures budgets, to cut off funding from the budget to SOEs, to limit public banks' exposure to SOEs, etc. From this basis, its strategy is now to reinforce central financial management and budgeting by aiming at an integrated budget which would incorporate the best international practices to support transparency, better strategic choices, as well as efficiency and effectiveness in control and execution. The present project and the resources devoted to its preparation and implementation bear witness to the determination of the government to attain these objectives. 3. Sector issues to be addressed by the project and strategic choices The government's intentions are to reinforce the MoF as a whole, in particular, the Accounting, Budget and Treasury directorates. A simultaneous modernization in expenditures management planning and internal controls is intended for line ministries.  4 The strategy selected for the Budget Systems Modernization project is to focus on the core MoF functions in expenditures budgeting and management and on a limited number of key complements to it: improvements in accounting and in implementation monitoring, full integration of capital expenditures in budgeting and control, setting up and using a multiyear functional (programs) structure for expenditures allocation, integrated into a proper macroeconomic forecasting framework. Achieving significant progress in these fields, in turn, demands a major upgrading of the MoF's capability for economic analysis as well as in MIS equipment and management. Financial management systems also have to be modernized through new accounting standards ("nouveau plan comptable de l'Etat") and the whole expenditures circuit has to be revamped to increase efficiency, effectiveness and control (from the effective availability of budgetary credits to spending agencies to a clearer allocation of authority in controls, in recurrent reporting and in implementation monitoring). The option of extending the project to all the operations of the MoF was considered and rejected. It would have involved dealing with too large a number of heterogeneous and sometimes weakly linked issues. Moreover the organizations involved would then have been very different in terms of the problems they face and the stage they are at in their technology. For instance, operating on a such a wider front would have meant dealing with complex property right and land management issues (Real Property directorate). These issues go far beyond the boundaries of the MoF. As well, dealing with revenues issues would have significantly increased complexity since the relevant directorates have information systems and capabilities substantially ahead of what is available for expenditure management; tackling those issues would also have meant dealing with "fiscal federalism" (the overall systems of financial relationships between levels of government in fields such as taxation and expenditures authority and responsibility, incentives within each level of government, etc.). Essentially to insure that the project is successful and further significant improvements, it has been decided to limit its scope to insure feasibility and speed in a number of tightly interrelated fields. It should also be noted that a parallel project to this one, supported by the EU, is in preparation; it will focus on the revenue generation functions of the MoF. Taken together the 2 projects will lead to a global modernization of the whole financial core functions of the government. It should noted however that the ISSP (Information Systems Strategic Plan) will apply to the whole of the MoF since its implementation will amount to an upgrading of a common infrastructure. Consequently, the key sector issues to be addressed specifically by the project are: a) the structure and elaboration (multiyear, programmatic, comprehensive) and the presentation of the expenditures budget (transparency); and b) the capability of the MoF for promoting efficiency and effectiveness through improved macro and micro economic analysis capacity and in its capability for countervail analysis of line ministries budgetary requests, new accounting rules and standards, streamlined and reinforced controls and management in implementing the expenditures budget). Apart from institutional changes, the project provides for a major upgrade in computerized information management capabilities in the MoF.  5 C: Project Description Summary 1. Project components (see Annex 2 for a detailed description, and Annex 3 for a detailed cost breakdown). --Component $etr .9-4 : A) Implementation of new BF 13.2 44 10.4 expenditures management systems Budget structuring, controls, economic and functional classification grouping, new accounting standards, accrual accounting (partial), transparent presentation. integration of capital expenditures, output monitoring and controls, dissemination of new procedures, analytical and countervail capacity building. B) Development and implementation IT 16.6 56 13.1 79 of information systems for new budget structures i) Capacity building: preparation of MoF's Information Systems Strategic Plan (ISSP) and technical assistance for its implementation (training, organization, policies and procedures); technical assistance to the MoF's IT Council and its Secretariat; technical assistance to the Project Coordination and Monitoring Unit for the implementation of the Computer and Information Systems component. ii) Development and implementation of computerized management systems: a computerized Integrated Budget Management System (IBMS); ancillary systems. iii) Strengthening of the technological infrastructure: provision of H/S for the Centralized computer unit (DCI); provision of H/S for operating the IBMS; provision of H/S for other computer units. Total 29.8M 100% 23.7 79% Total project costs 29.8M Front-end fee 0.237M Total financing required 29.8M 23.7  6 2. Key policy and institutional reforms supported by the project Institutional reforms are the core objectives of the project. The Governrent's program includes a global restructuring of the MoF and the whole of the budgeting component of the project deals with changes in the rules and procedures for expenditures allocation planning, decisions, expensing and controls. The major upgrading of the MIS within the MoF involves fundamental changes in business processes, not a computerization of the existing systems. Details on the nature of these changes appear below. A) For the full integration of capital and current expenditure budgets within a multiyear framework, the main organizational changes required have already been effected in making the MoF the sole locus of budgeting. The institutional changes sought thus deal with structuring the budget itself, building up of capacity and its use in client ministries and the MoF, improving methods and practices in expenditures analysis and forecasting, and implementing functional groupings of expenditures. B) Two complementary additions to present capacity seem necessary: il sufficient analytical capacity to give the MoF a strong countervail capacity on expenditures programs and investment projects, and ii) their organizational and institutional integration to budget processes in such a way as to insure that these capabilities are effectively used to improve the menu of options (costing and assessment of impacts) provided to decision-makers. No matter where this additional analytical capability will be located, its very existence and the need for using it effectively make it imperative that expenditures management rules and modus operandi be modified, from budgetary discussions to parliamentary presentation. These institutional changes will also apply to those parts of line ministries in most direct contact with the MoF. C) The new accounting standards will modify how expenditures are reported and controlled. The partial introduction of accrual accounting represents a major departure from past practices; it will also require a re-allocation of responsibilities in inventory maintenance and ways of accounting for the use of assets. D) The project involves building up the capacity to group expenditures within programs defined by the outputs they deliver and the sectoral priorities in outcomes and outputs they intend to achieve. This key feature of fiscal discipline and of the transparency of the budget has organizational consequences in the needs it creates for forecasting capacity and for designing and applying rules to control its quality and relevance. E) Implementing the MIS modernization changes described implies a rnajor and sustained upgrading of present information management systems. Such an expanded capacity will require: i) centralization of authority and resources in the field within the MoF as well as a clarification of roles and responsibilities; and ii) compatibility and immediacy of information flows with ministries and other organizations. New organizational structures have been created to meet those needs: the CITIF (Council for informatics and information technologies in Finance) and the DCI (Central Informatics Unit). With the new MIS, the rules and procedures for the acquisition and uses software and hardware will change; as well, the computerization of many operations will by itself modify the modus operandi of the MoF, mainly in controls and disbursements. 3. Benefits and target population This project concerns a basic infrastructure for economic management. Consequently, its benefits are dispersed throughout the polity; they consist in a better allocation of public resources and in a greater capacity to focus public sector action on priority issues. It will, in the medium term, make the task of civil servants and decision-makers easier in budget formulation and monitoring. The benefits expected cannot be quantified given present techniques. Moreover, the question is not whether a project to modernize budget systems will be carried out or not, but under what conditions such an endeavor will take place. The GoA has already rejected a separate budgetary/programming systems  7 for investments, inherited from the abandoned command economy model and has moved decisively toward a modem integrated budgeting model by unifying all public expenditures responsibilities at the MoF. These reforms are not yet completed in terms of fusing organizations and the MoF has not yet brought in place a modem systems for expenditures allocation and execution. This project will facilitate and accelerate the transition by facilitating access to international expertise and information systems support, by allowing for the computerized infrastructure to be vastly improved and focused, by strengthening the credibility of reforms in a field where they are complex, and difficult to implement. 4. Institutional and implementation arrangements Project Implementation In order to increase the institutional capacity of the targeted directorates, the project preparation has benefited from the contribution of consultants under a PHRD grant and a grant from the Italian Trust Fund. These grants have served essentially to: i) supply expertise to assist in developing options suitable to Algerian conditions and reaching decisions on the issues listed above under "Institutional reforms to be sought"; and ii) carry out studies on the computerized systems to be put in place and the feasibility of the implementation strategies required for their continuous operation. The project will be implemented over a period of four years. Project completion is expected by August 2005, with a closing date of February 28, 2006. A mid-term review will be carried out no later than October 2003. The Ministry of Finance is the executing agency. Steering Committee: The project will operate under the guidance of a Steering Committee (SC), chaired by the Secretary General of the Ministry of Finance, and comprised of representatives from MoF directorates and various line departments involved in the project, at the discretion of the Chairman. This Steering Committee has been established during preparation and has been the focal point for decisions on the project. This role will continue during project implementation. The Steering Committee will then meet regularly but no less than four times a year. Members of the Committee can designate other members to act on their behalf. The Committee will direct and facilitate project execution and recommend measures or changes in execution modalities to facilitate project implementation, and will clear regular progress reports to the World Bank. Project Implementation Unit (PIU): The overall responsibility for project execution will be delegated to a Project Implementation Unit (PIU). This PIU has been set up during the last stages of preparation and its director (an experienced project manager) appointed. It reports directly to the Secretary General of the MoF. Its staffing, including capabilities for accounting and financial management and reporting, is being completed. The PIU will be in charge of implementing the project in accordance with the Project Implementation Plan (see annex 11) and with the directives coming from the Steering Committee. The PIU will use substantial international expertise at each step of the project for: i) assessing, adapting and sequencing the implementation of best international practices in the design and implementation plans for the structural modernization of budget systems; ii) implementing changes in information systems, from management to systems architecture; and iii) designing and assessing the training of personnel; iv) periodically updating the implementation plan. Given the importance of the MIS component of the project, the secretary-general of the CITIF (Council for informatics and information technologies in Finance) will serve as the key expert on MIS within the PIU. Part of the expenditures related to the use of consultants will be financed by the project. The local salaries and complementary expenditures necessary for the PIU will be the responsibility of Algerian authorities. The PIU is responsible for the preparation of monitoring reports and working documents  8 required by Bank supervision missions, and for the mid-term review of the project. These reports will be vetted by the Steering Committee. The PIU will be responsible for procurement, contracting, disbursement, administrative oversight and accounting; it will also manage the design of bidding documents and the oversight of contracts delivery and implementation; and it will insure that reporting arrangements are carried out in accordance with standard World Bank procedures. The PIU will serve as a secretariat for organizing Steering Committee meetings and for providing it with the information required for project implementation. As described in annex 11, a detailed project implementation plan has been prepared and agreed upon.. Accounting and financial reporting: Upon implementation of the project financial management system (see Annex 6), the Project Manager will maintain, with the assistance of the financial management specialist, acceptable project accounts. This team will assure the issuing of the annual project financial statements and the quarterly Project Management Reports (PMR) acceptable to the Bank and their submission to the Bank and to the auditors. Procedures for accounts and financial reporting as well as internal control mechanisms specific to the project, which aim at meeting the Bank requirements, will be developed by a specialized consultant and will be reflected in a Financial Management Procedures Manuel no later than September 2001. Audit: MoF will appoint an auditor acceptable to the Bank to carry on an annual audit according to the International Standards of Auditing as issued by the International Federation of Accountants, Bank's Guidelines (e.g., financial, accounting, reporting and auditing handbook, "FARAH") and specific Terms of Reference (TORs) acceptable to the Bank. The auditor will express a professional opinion on the annual project financial statements and will submit to the Bank an annual audit report as soon as possible, no later than 6 months after the end of each fiscal year. Disbursements from the Bank loan will be initially made accorcling to the traditional system (reimbursements with full documentation and against Statements of Expenditure - SOEs, and direct payments). GoA could opt to the PMR based disbursement after the assessment of the project financial management system which aims at ensuring that this system is operating satisfactory. This assessment will take place no later than February 2002. D: Project Rationale 1. Project alternatives considered and reasons for rejection As mentioned in B.3. ("Sector issues to be addressed by the project and strategic choices"), the alternative of extending the project to all of the MoF operations was rejected because it would have led to a dispersal of efforts, too much complexity and an overly heterogeneous series of operations, thereby unduly increasing risk and costs. For instance, the key issues and challenges relating to revenue generation and real property management are fundamentally different from those relating to expenditures planning and management systems. During project preparation, discussions on a prcject supported by the EU were initiated to deal with revenue generation issues; this project would effectively complete the present one; it could effectively start past the mid-point of the Bank-supported project. In the same vein, organizational and institutional difficulties associated with procurement systems -- if these elements had been included -- would have led to a loss of focus and lower efficiency; these problems should be addressed separately in the usual Bank framework for procurement systems reform. The project focuses on strengthening intemal accounting and controls. T his focus derives from the very structure of external audit and control institutions in Algeria: the key institution in this respect is the Court of Accounts (La Cour des Comptes) which is constitutionally independent from the MoF.  9 Even if it focuses on expenditures forecasting and management functions, the Information Systems Strategic Plan (ISSP) will incorporate infonnation bridges into the upgraded computerized systems in other directorates concerned with revenue generation which are themselves being modernized. The objective is an integrated MIS for the whole of the MoF. 2. Major related projects financed by the Bank and/or other development agencies A) An IDF grant has been awarded to help with the update of the private accounting standards ("Modersization du plan comptable national') and to upgrade the capacity of a key internal audit institution (Inspection Generale des Finances). This tightly complements the present project. B) A large EU-financed project is in preparation to modernize all the revenue functions of the MoF. Contacts have already been established to insure coordination between the Bank-supported project focused on expenditures allocation and management and the EU initiative. For instance, the necessary harmonization points, notably in MIS architecture and communication channels, have already been identified C) France is involved in assisting with the updating of the public sector accounting standards ("nouveau plan comptable de l'Etat'). D,) The UNDP is also involved in projects in the financial sector, particularly with public institutions. E) The WB Financial System Infrastructure Development Loan project is at the preparatory stage. Implementation Development progress (IP) objective (DO) Bank-financed IDF Grant N.A. N.A. Other development agencies Public sector financial institutions UNDP :..... Private accounting standards France (bilateral) ("Modemisation du Plan Comptable ,, National"). EU (starting) Revenue Functions of the MoF _ .'' x "+ - 3. Lessons learned and reflected in the project design The whole of the best practices in budgeting -- whose introduction in Algeria is at the core of the project - - is derived from lessons learned in Bank-Fund supported projects and in analyses and experiences of other international organizations such as the OECD and SIGMA (EU-OECD joint initiative for transition economies). The design of the project derives from lessons learned both in budget reform and information systems upgrading. The basic MTEF (Multiyear Expenditures Framework) was introduced in the 1960's in OECD countries belonging to the Westminster tradition, the Scandinavian countries and the USA. In the 80's it was introduced with success in countries like Taiwan and Singapore, refined in countries which had already adopted it. With Bank assistance, in the '90s, it has been implemented in Estonia, Guatemala, Poland and  10 Hungary; it is being introduced in Bulgaria and Bolivia. In Africa, it has been successfully introduced in Ghana and is being implemented in Benin. Recently, some countries in the OECD (essentially Latin tradition countries) which had not adopted such a framework have started introducing it. The functional groupings for public expenditures ("classification fonctionnelle ou economique") consists of aggregating expenditure, sometimes irrespective of administrative units responsible for their management, into categories reflecting the outputs and objectives sought, the populations targeted by the investment and policies. Presenting expenditures in this fashion, as programs, allows for meaningful forecasting according to the underlying factors driving the evolution of public expenditures (e.g., demographics and costs related to levels in education, prices and aging for health, etc.). The benchmark functional classification now in use has been initiated by the UN in 1976; it has been extensively recommended and supported by the IMF and the Bank over the last two decades, and by SIGMA since 1991. These groupings of expenditures are useful for transparency (they allow stakeholders to know clearly how the government's intentions are effectively translated into the reality of expenditures allocation) and to insure fiscal discipline (the forward looking presentation allows for early detection of drifts and thus offers a set of early warning signals on sustainability). With respect to MIS, the integrated system proposed, with open access to all information users, has been the standard in public and private systems modernization over the last decade, in virtually all countries. The technological choice effected in this project to go for a web-centered architecture also reflects now available technology enabling organizations to have fully integrated systems which are more efficient and less costly to upgrade and maintain. The need for clarity of purpose, ownership and subordinating information systems to precise decisions on substantive reforms in budget processes drives the design of the project, with an emphasis on in-depth preparation with substantial technical assistance, on a first component heavily loaded with careful design of budget reforms and their implementation plans, as well as the weight given to institutional reforms which should support them, for instance in information systems management structures (accountability, locus, power and resources). With more than 50 percent of the ultimate costs being on computers, software and technical training, it comes out clearly from the implementation plan that the project will be expending, up-front, a maximum of effort to insure that the focus remains firmly on budget restructuring and that computers and software remain essentially implementation tools to attain precisely defined structural/institutional changes objectives. This approach stems from lessons learned over the last decade. For the MIS component, particularly costs and implementation timelines, the preparation work carried out has called upon consultants experienced in recent turn-key operations of this nature in governmental contexts. 4. Indications of borrower commitment and ownership The Minister of Finance for Algeria requested the technical assistance at the 1998 annual meetings. Preparatory work revealed that the commitment to change was solidly shared among senior civil servants in the key directorates of the MoF. The collaboration obtained has been superb in all cases. The preparation work has been conducted with competence and energy in all sectors in spite of substantial changes in senior officials and a change of minister. Moreover, the Secretary General of the MoF and the Minister's advisor have devoted a large amount of time and energy to insure that written and well thought-out priorities were produced by the relevant directorates; these were openly discussed under their chairmanships, and were carefully harmonized and ranked in both importance and timing. They did not shy away from openly discussing difficult organizational problems. Finally, the required structures (CITIF for the MIS and the PIU itself), discussed early on in preparation, have effectively been set up in conformity with agreements reached during the discussions of experts'  11 reports, and their managers have been appointed months before the loan will become effective. As well, the Steering Committee requested was set up early during preparation and was the main forum for discussions with consultants and for deciding on the project orientations; it will serve as the main locus for high level discussions and impulsing implementation with line ministries. Moreover, the creation of a Central informatics unit is now part and parcel of the MoF's overall restructuring plan. 5. Value added of Bank support in this project The Bank support will add value at the organizational and technical levels. At the organizational level, in a context where the independence of each directorate dominates the MoF structures and traditions, this loan and its collective preparation will help forge consensus on the changes needed -- which are all in the direction of a more closely integrated MoF (centralized information management, new MIS insuring free flows of information between directorates, etc.). The Bank's experience with similar challenges in other countries as well as its reputation for competence and impartiality provide the GoA with a partner capable of helping in overcoming the organizational resistances to change which are unavoidable in such endeavors. The Bank contribution would not be available from the private sector given the specialized expertise needed in public sector restructuring. The Algerian authorities are acutely conscious of the need for modernization and are highly interested in effecting it by going beyond the confines of the Latin model they have inherited and used since independence. At the same time, they are justly apprehensive about the risks that profound and rapid reforms could involve for one of the few very stable institutions left in a difficult environment: the current expenditure budget. The mobilization of expertise the Bank can achieve (breath and depth) and the credibility of the Bank on what has, in practice, worked in various countries, is deservedly seen as a unique possibility to act decisively and with audacity while minimizing risks. E: Summary Project Analysis (detailed assessments are in the project file, see Annex 8). 1. Economic assessment [ Cost-Benefit Analysis: NOT APPLICABLE ] Cost-Effectiveness Analysis: NOT APPLICABLE 2. Financial assessment :NOT APPLICABLE Fiscal impact: Will contribute to more effective allocation of resources and more efficient budget execution, thereby facilitating the pursuit of the fiscal discipline established since the adjustment program of the mid-90s. 3. Technical assessment The budgeting component of the project will serve to finance the adoption of well-known good practices for budget formulation, integration, presentation and management (MTEF). These accepted practices are instruments that have been thoroughly tested elsewhere in order to ensure budgetary discipline, transparency and public expenditure rationalization. The strengthening of analytical and forecasting capabilities within the MoF pursues similar aims. The information systems component will serve to finance the modemization of the tools required to implement this set of modern expenditures allocation and management institutions. Indeed, the archaism and lack of integration of MIS within the MoF would thwart any attempt at budgeting reform.  12 4. Institutional assessment a. Executing agencies: The directorates involved within the Ministry of Finance have a high level of competency and are adequately staffed. As project sponsor and throughout the preparation process, the MoF has demonstrated its willingness and ability to bring to completion projects of this nature, as evidenced by the quality and fast turnaround of the information subrnitted, a rigorous effort to meet deadlines and the quality of the debate surrounding options and strategies at all times. The Secretary General has personally taken the role of project champion from start to finish, by chairing the Steering Committee; the same can be said for the person designated as the Bank's counterpart, the minister's advisor. b. Project management: The Project Implementation Unit has been set up; its structures, locus, and functions are in agreement with all the Bank's requirements to insure effective implementation. Its director has been appointed soon enough in the preparation phase to insure full ownership of and participation to implementation planning; the full staffing of the PIU is underway and will be completed before the start of the project. In addition, its closed links with the Steering Committee and the Secretary General will give it sufficient clout to manage conflicts and the unavoidable trade-offs in projects of this nature. The decree creating the CITIF is being processed and its secretary-general is the chief IT person within the PIU. c. Financial management issues: The financial management assessment that has been conducted showed that the project's accounting and financial management system is in place in the MoF, it is based on principles and procedures defined by the legal framework applicable to the public sector. This system is incomplete in terms of providing the cumulative and detailed data that is required by the Bank. Accordingly the Project Manager will be held responsible to build a financial management system specific to the project including, among others, issuing of a detailed financial and accounting procedures manual, implementation of a software for accounting and reporting and t-aining of the project staff. The improvements proposed in the agreed time bound action plan, if successfully implemented during the 12-month period, will mitigate the risks linked to the insufficiencies identified in the existing MoF financial management system (financial management arrangements for the project are detailed in Annex 6). 5. Social assessment The central social issues in Algeria are the serious disruptions in labor markets that have surfaced in the wake of the transition from a command economy, and the difficult adjustment process that had to be undertaken given the country's indebtedness and difficult financial position. This occurred against a backdrop of overall stagnation during the last decade. This project will help reach Government's social priorities by improving investment selection and project management, as well as providing for a quantum leap in the tools required for expenditures allocation, monitoring and control. 6. Environmental assessment Environmental Category [ ] A [ ] B [X] C The project deals with budgeting machinery, and thus has no direct impact on investments or expenditures with a prospective environmental impact. 7. Participatory approach a. Primary beneficiaries and other affected groups. The project cannot succeed fully if ministerial stakeholders in the preparation and execution of budgets are not involved at an early stage. On the budget execution side, the same applies to the regional offices and their employees. Within the project itself, the first stage will serve to familiarize senior civil servants  13 with the project and build consensus. The Steering Committee is set up with enough flexibility to achieve the required high level buy-in from line ministries. The implementation plan and its communication strategy, as well as the large amount of resources devoted to training and communication in launching the new systems, will serve to bring in the second and third tiers of civil servants. b. Other key stakeholders. N/A F: Sustainability and Risks 1. Sustainability Four risks affect sustainability and effectiveness. The first is political, and is by no means specific to Algeria: effecting a better allocation of public resources via a more transparent expenditures budgeting framework and more efficient controls depends on political factors going beyond this project. The project only puts in place tools capable of furthering theses objectives. The second is technical and economic: the substantive reforms undertaken demand a major upgrade in forecasting and policy analysis capacities. The costs and real availability of resources to maintain and to upgrade this capability up to a critical mass might be substantial and they raise the question of sustainability. The recurrent costs involved should not be so heavy as to pose a major threat. However the capacity to recruit, train and retain the specialized personnel required may prove problematic. The third risk is not specific to Algeria; difficulties in the field have beset governments in OECD countries as well as in developing ones. The problems lie in the effective use of an upgraded analytical capacity and notably in its effective integration to budget processes in such a manner that it really contributes to better resources allocation choices. To take the best known example, it has proven difficult, everywhere, to effectively use for budgetary choices the knowledge accumulated through program and policy evaluations. Even after a generation of experiments, the problem cannot be considered completely solved. Constraints in this field appear to be linked to the ways knowledge gets used and transmitted within public organizations; they would thus have more to do with organizational culture than with the level of technical proficiency. In Algeria, the upgraded capacity might not be fully used during the project because the qualitative organizational and institutional changes required to do so are delicate and slow to implement. The fourth risk has to do with the capacity to maintain and manage the planned upgraded MIS. The risks in this field are: i) that the real authority for this function will be eroded with the passage of time, leading back to the dispersed and inefficient present arrangements; and ii) that in implementation and continuous upgrading, as has often been the case elsewhere, the MoF will face severe constraints in recruiting and retaining skilled personnel in a very fast growing field -- given the rigidities of the remuneration system in the public service. Outsourcing might prove difficult because of reticence inside the public sector and because of the demands it would impose in this field in terms of controls and structures which would be required to manage the interface between contractors and MoF. A special study was commissioned during preparation specifically to uncover solutions to this problem.  14 2. Critical risks (reflecting the assumptions made in the fourth column of Annex 1) _ $ 0 From outputs to objective The critical risks are: i) Project management is not strong enough to M With regarcl to project management, the ensure prompt and complete application of all clear commitment expressed by the MoF reforms planned as part of the project. toward the implementation of the execution and control structure described above, as well as the willingness to call upon consultants in this task coincide with the completion of the preparation and first phase of the project (planning finalization). All these measures, as well as the participative approach described earlier, seek to give the project an implementation plan that is carefully spelled out but flexible, mainaged by competent persons, and given adequate resources and the required authority. ii) that a technically more complete and S Political variable not within reach of the proficient budgeting system is not used for project except for its transparency policy debates outside the executive; improveme.nt dimension iii) that improvements in budget execution M The project itself is designed to give monitoring are not realized due to constraints greater power clout to the MoF, as beyond the effective authority of the MoF; explicitly desired by the GoA. iv) that the management structures put in place M The full integration of the MIS changes to for information systems do not prove resilient the rest of the modified expenditures enough, and/or that not enough resources are management systems reduces the risk that devoted to the continuous upkeep and this component could revert to its former development of the system. dispersed mnanagement.  15 From components to outputs i) Serious constraints may exists to institutional M i) The project can only offer good tools. capacity to actually use the improved analytical capabilities, to do so transparently, to submit to the type of criticisms and demands that a MTEF with clear policy objectives and forecasts entail ii) In MIS deployment and use, the key risk is M ii) This risk is the key reason why that of delays and cost overruns given the contingencies reserves are an explicit part number of elements to introduce and the variety of the project; they serve to contain it as in demands as well as the delicate connections well as to take into account the fiact that between the MIS and the changes effected in all unplanned difficulties are bound to arise. dimensions of expenditures management. As well, preparatory work has been tightly focused on systems with proven track records and on wide participation of all interested parties in order to avoid surprises iii) The traditional risks in such operation are M iii) The mitigation of these risks has taken that either the material bought is already the form of a scheduling of operations obsolete or that its use is delayed so much that such that the substantive changes in substantial skills deterioration occurs. institutions are implemented before the ISSP is finalized; that this finalization itself offers a downstream occasion to insure against irrelevance and obsolescence; as well, calls for bids preparation once the ISSP is finalized will insure tight integration between materials and training and launch. iv) The improvement in communication S iv) The web-based architecture selected infrastructure will not occur or will come too can be run on reserved facilities inside late for this project. ("private web") cities and special lines can dedicated or outlying areas. Overall Risk Rating S The overall risk is higher than the sum of the risks associated with individual components. Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk). 3. Possible Controversial Aspects Changes of this magnitude are bound to affect power relationships. The present project will certainly reinforce Mol's intervention capabilities vis-a-vis other institutions. Mutatis mutandis the same holds for relationships between directorates inside the MoF. While these consequences of the changes explicitly sought by the project will generate internal debates and conflicts, no controversy involving Bank policies is likely to emerge.  16 G: Main Loan Conditions 1. Effectiveness Conditions None. 2. Other Dated Covenants in the Loan Agreement I. The mid-term review (MTR) report is to be submitted to the Bank not later than October 315' 2003 and the MTR of the project to be carried thereafter. 2. Not later than October 3 15, 2003, the Borrower shall have enacted the regulations required for the restructuring of the MoF, including the institution of a central entity responsible for MIS. 3. Not later than December 2002, the Borrower shall have enacted the regulations required to enable the presentation of its annual budget if possible for the fiscal year 2003 and not later than FY 2004 on the basis of a Multiyear Expenditures Framework (MTEF as defined in article I of the loan agreement). This MTEF (Multiyear Expenditures Framework) will complement the standard annual budget presentation; it will present expenditures forecasts for the outlying 3 years, for all current and investment expenditures, aggregated according to the functional groupings which will have then been finalized and implemented. 4. Not later than June 30, 2003, the Borrower shall have adopted and implemented its new public sector accounting standards ("nouveau plan comptable de l'Etat"). 5. The Borrower shall not later than December 31s' 2003, have taken all the necessary steps, including the enactment of the relevant regulations, to implement a rationalization, a streamlining and efficiency improvements to the whole expenditure circuit, including in particular a clarification of the roles and effective authority of agents and organizations with respect to expenditures management and control. H: Readiness for Implementation [ ]. a) The engineering design documents for the first year's activities are completed and ready for the start of project implementation. [X ] 1. b) NOT APPLICABLE. ] 2. The procurement documents for the first year's activities are completed and ready for the start of project implementation. NOT APPLICABLE. [ X ] 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. [ ] 4. The following items are lacking and are discussed under loan conditions (Section G): NIL.  17 1: Compliance with Bank Policies [ X ] 1. This project complies with all applicable Bank policies. ] 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. [signature] - Team Leader: Francois Lacasse [signature] Sector Manager/Director: Mustapha Nabli [signature] Country Manager/Director: Christian Delvoie  18 Box 1: Project description 1. Project developmental objectives (see Annex 1 for key performance indicators). The project will provide tools to enable budgetary institutions to deliver a comprehensive and transparent statement on expenditures allocation; to increase efficiency in the execution and control of expenditures; to offer better and more realistic assessments of expenditures consequences of policy choices. 2. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed breakdown of costs). Components Category Costs. includin>zunexpected % of total (Million USD) A) Implementation of new Expenditures management systems BF 13.2 44 Budget structuring, controls, economic and functional classification grouping, new accounting standards, accrual accounting (partial), transparent presentation, integration of capital expenditures, output monitoring and controls, dissemination of new procedures, analytical and countervail capacity building. B) Development and implementation Of information systems for new budget Structures IT 16.6 56 i) Capacity building: Information Systems Strategic Plan (ISSP) and TA for its implementation (training, organization, policies and procedures). ii) Development and implementation of Computerized management systems: a computerized Integrated Budget Management System (IBMS); ancillary systems. iii) Strengthening of the technological infrastructure: Provision of HIS. Total 29.8 3. Benefits and target populations This project concerns a basic infrastructure for economic management. Consequently, its benefits are dispersed throughout the polity; they consist in a better allocation of public resources and in a greater capacity to focus public sector action on priority issues. It will, in the medium term, make the task of civil servants and decision-makers easier in budget formulation and monitoring. 4. Institutional structures and implementation procedures Implementation period: March 2001 to August 2005 Implementation agencies: Project Implementation Unit within MoF Project coordination: Steering Committee chaired by SG of the MoF Project supervision: standard with dated covenants anchored to MTR Accounting, financial information and audit. IGF audits; FMM in Sept. 2001 (see annex 6) Monitoring and evaluation. Steering committee.  19 Box 2: Project rationale 5. CAS objective(s) promoted by the project Growth supported by efficient, transparent and effective governance. Document number: 15316- AL Date of latest CAS discussion: Feb. 5, 1996 6. Sectoral issues and government strategy i) A poor record in planning and control of costs and delays in capital projects. ii) (a) Insufficient capabilities in the MoF in answering parliamentarians' questions; b) budgetary documents rather difficult to interpret. iii) Absence of a forward-looking and comprehensive transcription of the resources allocation consequences of implementing the Government's Program. iv) Inadequate information management systems and equipment. v) Low capacity inside the MoF for countervail analysis of ministries' spending requests. 7. Sectoral problems targeted by the project and strategic choices Reinforce the Accounting, Budget and Treasury directorates; simultaneous modernization in expenditures management planning and internal controls for line ministries. The strategy selected for the Budget Systems Modernization project is to focus on the core MoF functions in budgeting and expenditures management and on a limited number of key complements to it, essentially in MIS. 8. Options considered and reasons for their rejection The option of extending the project to all the operations of the MoF was considered and rejected. It would have involved dealing with too large a number of heterogeneous and sometimes weakly linked issues and therefore would have led to increased risks due to a lack of focus and implementation complexities. A project is under discussion with the EU to modernize the revenue generation functions of the MoF. 9. Main related projects financed by the Bank and/or other development agencies (completed, ongoing or projected) IDF grant to update commercial accounting standards ("plan comptable") and to upgrade the capacity of a key internal audit institution (Inspection Generale des Finances). EU financed project is in preparation to modernize all the revenue functions of the MoF. WB Financial System Infrastructure Development Loan project is at the preparatory stage. France [Ministere Economie et Finances, Direction Generale de la Comptabilite Publique (DGCP)].assists with the updating of the public accounting standards. 10. Lessons learned and integrated in project design The whole of the best practices in budgeting is derived from lessons learned in Bank-Fund supported projects and experiences of OECD and SIGMA. The design of the project derives from lessons learned both in budget reform and information systems upgrading. The MTEF was introduced in the (1960's in OECD) with success in countries like Taiwan and Singapore in the '80s; with Bank assistance, in the '90s, in Estonia, Guatemala, Poland and Hungary; it is being introduced in Bulgaria and Bolivia; in Africa, it has been successfully introduced in Ghana and is being implemented in Benin. With respect to MIS, the integrated system proposed, with open access to all information users, has been the standard in public and private systems modernization over the last decade, in virtually all countries. The technological choice effected in this project to go for a web centered architecture also reflects now available technology enabling organizations to have fully integrated systems which are more efficient and less costly to upgrade and maintain.  20 11. Elements demonstrating borrowers commitment and ownership The Minister of Finance requested assistance at the 1998 annual meetings. Preparatory work revealed that the commitment to change was solidly shared among senior civil servants; the collaboration obtained has been superb; the preparation work has been conducted with competence and energy in spite of substantial changes in senior officials and a change of minister. The Secretary General of the MoF and the Minister's advisor have devoted a large amount of time and energy to insure that written and well thought-out priorities were produced by the relevant directorates. 12. Value added of the Bank's support The Bank support will add value at the organizational and technical levels. At the organizational level, in a context where the independence of each directorate dominates the MoF structures and traditions, this loan and its collective preparation will help forge consensus on the changes needed -- which are all in the direction of a more closely integrated MoF (centralized information marnagement, new MIS insuring free flows of information between directorates, etc.). The Bank's experience with similar challenges provides the GoA with help in overcoming organizational resistances to change. At the technical level the Bank contribution would not be available from the private sector given the specialized expertise needed in public sector restructuring.  21 Box 3: Summary evaluations of Project (detailed evaluations are found in the project file. See Annex 8) 13. Economic assessment Cost-benefit analysis: NA Cost-effectiveness Other (specify) (see Annex 4): NA analysis: NA Institutional Readiness Fiscal impact (for all project): Will contribute to more effective allocation of resources and more efficient budget execution, thereby facilitating the pursuit of the fiscal discipline established since the adjustment program of the mid-90s. 14. Financial assessment: NA. 15. Technical assessment: The project is feasible, solid commitment and planning, well integrated into the overall transition strategy of the GoA. 16. Institutional assessment a. Executing agencies: PIU has been set up and changes made for MIS management; all conditions met. b. Project management: PIU reporting to Steering Committee chaired by the SG; all conditions met. 17. Social assessment: No direct impact; better budgetary machinery will facilitate implementation of policies directed at social priorities. 18. Environmental assessment: Environmental Category A B C 19. Participatory approach: NA Identification/Preparation Execution Operation Beneficiary/community groups: NA; Other sources of financing: GoA 20. Sustainability: Moderate risks related to sustainability and ability to find and retain required personnel in informatics and economic analysis. 21. Critical risks (see fourth column of Annex 1): From outputs to objectives Risk: Multiyear framework makes for clearer statement of objectives; new accounting, integration of expenditures foster fiscal discipline and efficiency; improved countervail assists in clarifying choices. For these results to be attained depends on: a) capacity of the MoF and departments to integrate the added expertise and multiyear perspective in designing policy choices; b) the will of policy makers to use this information. Rating: M. Risk minimization measures: substantial training and feedback mechanisms; gradual introduction, transparency aspects focuses on Parliamentarians and media. From components to outputs Risk (budgeting): Delays in using MTEF and implementing accounting standards and difficulties in integrating analytic capabilities. Rating: M. Risk minimization measures Commitment and resources in PIU, MTR linked covenants, preparation studies and planning. Risk (MIS): Delays from difficulties in budgeting component, complexity and scope; difficulties in finding required personnel, resistance to centralization of authority, communications infrastructure. Risk Rating: M. Minimization: Substantial resources devoted to establishing conditions and planning; commitment to MoF reorganization (covenants) and basic architecture which insulates partially against delays in telecommunication upgrading. Overall risk rating: S (The overall risk is higher than the sum of the risks associated with individual components) 22. Possible controversial aspects: NIL  22 Box 4: Main loan conditions 23. Effectiveness conditions: None 24. Other: Dated covenants anchored to the MTR on the effective implemenltation of the project: MTEF launch, new accounting standards for the public sector, comprehensive strategy for streamlining and in improving budget execution and control, orderly deployment of new information management technology, training and MIS management structures. Box 5: Compliance with general Bank policies The project complies with all applicable Bank policies. The following exceptions to Bank policies are recommended for approval: NIL The project complies with all other applicable Bank policies. Francois Lacasse t Mustapha Nabli Chris Delvoie Team Leader Sector Director Country Director  23 Annex 1: Project Design Summary Algeria: Budget Systems Modernization Sector-related CAS Goal: Sector Indicators: Sector / Country Reports: (from Goal to Bank Missi on) Growth supported by Solid expenditure forecasts WB and IMF data bases and Continued timprovement in efficient, transparent and and control on project and annual reports. social/business climate; effective governance. policies old and new; tight continued progress toward links between expenditures diversified growth, and macro situation. increased investments and improved governance. Project Development Objective: Outcome I Impact Indicators: Project Reports: (from Objective to Goal) The project will provide The goals are: tools to facilitate: comprehensive and transparent budgeting Budgetary institutions i) Reduction in payments Supervision reports, media inform private and public delivering a comprehensive delays 2003 when mid-term and Parliamentarians' views decision makers, reduce and transparent statement on review will take place collected, IGF views on uncertainty on government expenditures allocation on a together with demonstrated compliance. intentions and foster fiscal multiyear basis; increased execution controls. discipline; improved budget efficiency in execution and ii) New accounting execution monitoring monitoring of expenditures, standards ("nouveau plan reinforces suppliers' solid analytical capability in comptable de l'Etat") are in financial planning and place and used. place and followed. reduces costs; stronger iii) Parliament has received Supervision reports, data countervail capabilities the new format budget and collection on delays from fosters better instruments the tools necessary for its the start, IGF opinion, MTR. choice and priorization; and comprehension. a more transparent budget facilitates contestability by elements of civil society. The critical assumption for all these goals to be reached is that the instruments the project sets up are: a) delivered adequately and b) effectively used by decision makers, media and Parliamentarians.  24 Output from each component: Output Indicators: Project Reports: (from Outputs to Objective) A) Expenditures management i) Multiyear framework in i) Regulations are enacted Supervision reports, annual Multiyear and program place with accepted for the new budget structure progress reports, MTR. framework make for clearer methodology used and before Oct. 31 2003; statement of government controlled by MoF. functional groupings are in objectives and target place at the end of 2002; populations. New capacity for forecasting is in accounting, integration of place in departments and so expenditures foster fiscal is the quality/relevance discipline and economv. controls in the MoF by Sept. Improved countervail assists 2003. in clarifying choices. ii) Partial accrual accounting ii) Referenced inventory The critical conditions for is launched for vehicles. implemented for vehicles these results to be attained during 2003/2004, methods given the instrumental for depreciation and changes that the project will valuation are then in place. deliver are: a) capacity of iii) Fully integrated capital iii) Presentation of fully the MOF and departments to expenditures. integrated capital integrate the added expertise expenditures in budget law and multiyear perspective in in 2004. designing policy choices; iv) Improved capacity for iv) Observations for a b) the will of policy makers economic assessment and sample of sectoral policy to use this information. forecasting. groupings: quality of "micro" forecasts and of control system assessed by MoF. v) Improved budget v) Direct legibility presentation; more assessment. accessible to Parliament and civil society B) New management i) Operational tests on IT Annual progress reports. Real authority and resources information systems hardware and software and Supervision reports. are devoted to managing i) IT hardware and software users have been trained on infornation systems and the are in place at the end of the new information systems. launching of the new project, in full congruence Systems have been put in systems has been done onlv to the budgeting objectives place according to the after carefully planning the pursued and providing implementation plan. implementation of all the effectively a unified ii) Budgetary structures required changes in budgetary/accounting have been modified as budgeting and management system accessible to all agreed before the bulk of the structures as well as relevant personnel. new technology is put in providing for adequate ii) Management structures place(end of 2002), resources competencies to are in place and working including integrating a new upgrade. within the MoF for an information system integrated system management. management. iii) Observations on: iii) Adequate resources of systems breakdowns information systems (frequency, length); levels management, maintenance of resources for support and and continuous upgrading. management; capability for updating systems.  25 Project Components/ Inputs: (budget for each component, in US$ 000) Project reports: (from Goal to Bank Sub-components: Mission) 1. Budget system US$8,711. component. 1.1. Implementation of US$2,006. Design of functional WB supervision Expertise mobilized, multiyear budgeting. groupings, dissemination, training in its reports annual project decision flows use as a base for MTEF (2001-2). reports. continuous, line depts. integrated. 1.2. Improvement of US$525. Needs analysis, design of Supervision reports. Will and openness in presentation and diffusion supports, validation according to plan needs analysis. of budget. (2001-3). 1.3. Reinforcement of US$1,560. Choices for reinforcement Supervision reports. Capacity of MoF to economic and policy (training and recruitment), organizational adapt structures to analysis at the MoF. choices; planning and action (02-4). use capability. 1.4. Reform of expenditure US$3,050. Analysis, validation, solution Supervision reports. Leadership in implementation cycle. design, testing, regulatory changes, overcoming sectoral New public accounting implementation, review.(2001-4). New interests. system accounting standards in (2002-3). 1.5. Implementation of US$1,570. Design for motor pool, pilots, WB supervision Creating local accrual accounting validation, regulatory formulation reports annual project expertise. (partial). (responsibilities, methods) (2003-4). reports. 2. Computer and US$12,844. information systems component. 2.1. Structural US$1,165. Detailed architecture planning Supervision reports. Careful bids planning strengthening. and bids preparation, organizational and surveillance. changes. 2.2. Development and US$5,100. Contracted out including Supervision reports Adequate feed-back deployment of launch, training and adjustments. annual reports. (experts and users). applications. 2.3. Strengthening of the US$6,519. Expansion of systems and Supervision reports. Previous steps fully technological integration of new equipment and implemented. infrastructure. technology. 3. Reserve for US$2,172. In a project of that complexity, Procurement contingencies. capacity to adapt to unforeseen decisions, contingencies is crucial. supervisions. _  26 Annex 2: Detailed Project Description Algeria: Budget Systems Modernization The project has two major components. The BUDGETING component contains changes to rules, organizations and practices related to budget preparation, its presentation, and the expenditures monitoring procedures. The INFORMATION SYSTEMS component deals with the implementation, operation and testing of equipment, structures and skills required for the information systems to effectively support the new budgeting structures and promote closer integration of key expenditures management functions within the Ministry of Finance. PROJECT COMPONENT A - Budgeting: Implementation of new expenditures management systems: 13.2 million USD The overall objectives are: to facilitate the overall control of public expenditures; to facilitate strategic choices through better information and analysis; to improve budget transparency in order to promote an open discussion of economic and social policies options, to strengthen budget execution monitoring and the effectiveness of policy implementation via improved choices and execution in both recurrent and investments expenditures. The operational objectives of the project -- the sub-components selecteJ to facilitate the attainment of the overall objectives -- are: 1. Implementation of an integrated, multiyear budgeting, including both investments and current expenditures. The move towards multiyear budgeting, while maintainiing entirely the annual budgetary cycle from a legal point of view (one year with budget projections for three-years, updated annually), implies the following initiatives: 1.1. Strengthening of expenditure forecasting capacity within departments and the MoF, as well as an analytical and programming capacity for public investments, full integration of current and capital expenditure nomenclatures; adoption of a new expenditures grouping system based on a functional breakdown of expenditures. 1.2. For each of these elements, the following initiatives will be undertaken: required staff training, modernization of equipment (hardware, software, etc.) and changes to laws and regulations as required. 2. Improving budget presentation and dissemination in order to promote a more open and informed debate on the various option facing the government. Here are the measures contemplated to this end: 2.1. Streamlining the documents to be published based on the reform introduced by multiyear budgeting to the formulation and implementation of a revised dissemination policy for budget documents and information, following consultations with interested parties (parliamentarians, media, etc.). 2.2. This sub-component will entail expenditures for analysis and surveys, budget layout design, adaptation and procurement of required hardware and software. 3. A substantial capability building in terms of the overall analytical capacity of the MoF, specially for establishing a full-scale MTEF and micro-economic and policy analysis of expenditures programs and projects.  27 3.1. This sub-component will entail expenditures for tooling up in both computer and software infrastructure, technical and methodological training. 3.2. Building such capability and, more importantly, insuring that it is used effectively requires delicate changes in processes and organizations. Consequently, it will require continuously revised planning over the duration of the project. The same holds for insuring that the recurrent costs involved in setting up this capability are kept within bounds and do not endanger sustainability. This concern, in turn, means a careful and sequential examination of all procurement options for such products, not only the hiring of additional civil servants with the required qualifications. Expenditures for this sub-component will take the form of technical assistance, training time and expenses. 4. A substantial strengthening of the capacity for monitoring and accounting for public expenditures will take place. A revamping of the whole of the budgetary expenditures implementation cycle will focus on improving service delivery, reducing costs and delays in payments, improving performance controls. 4.1. This sub-component includes the implementation of a completed new set of public accounting standards; diagnostic, design and implementation of solution on the revamping of the expenditures implementation cycle; a partial introduction of accrual accounting during the second half of the project, starting with vehicles in the perspective of improving both management and budgetary capabilities in balancing maintenance and replacement expenditures and assessing needs of line ministries. The role of ex-post auditing will also be re-defined within this sub- component and the required methods and expertise will be set in place. 4.2. This sub-component links up tightly with the unified MIS for budgeting and accounting. The main expenditures will be on training and building up the procedures for the revamped system and the new MIS. PROJECT COMPONENT B - Computer and Information Systems: 16.6 million USD It is necessary to develop an integrated budget management system (IBMS) that would allow the various actors in budgetary processes -- MoF Directorates and ministry's budget administrators (ordonnateurs) -- to exchange data and have access constantly to timely and accurate budget, commitment, expenditure and revenue data at all levels. Although the development and implementation of the.IBMS is the raison d'ere of the Computer and Information Systems component, two other aspects have to be taken into account to ensure that the project will meet its objectives: i) the strengthening of the MoF's capacity to operate a system which will become a critical tool for budget planning and execution; and ii) the strengthening of MoF's physical infrastructures (computer and telecommunications hardware and software) which, given their degree of obsolescence', is a pre-requisite for the deployment of the IBMS. The Computer and Information Systems component has therefore been subdivided into three sub-components. 1.1 Capacity Building Three (3) series of project activities have been designed to enable the MoF to implement and successfully operate the IBMS: i) preparation of a ministry-wide Information Systems Strategic Plan (ISSP); ii) O out of the 945 units (microcomputers, workstation, servers) in use at the DGB, DGEP, DGC and DGT, 719 are considered as being obsolete, i.e. with a 486 or lower processor.  28 tecknical assistance to the MoF Information Technology Council and its Secretariat; and iii) technical assistance to the PIU. Although the first two series of activities may not seem directly related to the nature of the project, i.e. the modernization of budget systems, they nevertheless constitute key elements of a strategy aimed at ensuring a positive return on the investment required to develop and implement the IBMS. Suffice it to say that, as reported in a project preparation study, most computer system problems currently faced by the Ministry result from past organizational choices and from the weakness of the coordination structure adopted to monitor the implementation of the Schema directeur informatique strategique of 1991. 1.1.1 Information Systems Strategic Plan The project will finance the preparation of a ministry-wide ISSP which will: i) determine strategic orientations w.r.t. the mission and role of IT within the MoF; ii) define data and applications architectures that ensure the orderly implementation of applications within the MoF - especially those linked to budget processes - and the development of data bases allowing for a sharing of information among the various applications; iii) provide a blueprint for the deployment of a technological infrastructure that ensures compatibility of hardware and software and facilitates the sharing of telecommunication resources among the various departmental administrative units; iv) estimate resources (human, material, financial) for the development and operations of needed information systems; v) provide guidelines for the establishment of a well-structured and performing informatics organization; and vi) define an overall implementation plan for the ISSP. 1.1.2 Technical Assistance to the IT Council Based on international experience and taking account of the Algerian context, the proposed organizational structure would entail: i) the creation of the MoF Information Technology Council (Conseil de l'informatique et des technologies de l'information des Finances - CITIF)2 which will be responsible for the definition of the Ministry's IT strategies and policies; ii) the creation of a permanent secretariat - attached to the CITIF - which will assist the CITIF in the definition of strategies and policies, represent the MoF towards the Algerian government and other organizations in matters related to IT, prepare and update the MoF's ISSP, set standards and methods to be used by all computer units and assess sub-ISSP prepared by Directorates; iii) the creation of a Central computer unit (Direction centrale de l'informatique) which will be responsible for the development and operations of centralized systems (such as the IBMS, Payroll, etc.) as defined in the ISSP, the planning and management of technological infrastructures used for the operation of centralized systems or used by other directorates for the operation of their own systems; and iv) the revision of the way computer services are organized within Directorates. The project will finance two sets of activities to assist the MoF in the setting-up a of the proposed structures: i) coaching and advisory services to CITIF Secretariat staff to help them play their support role to the members of the CITIF; and ii) training and study tours to upgrade CITIF Secretariat staff's technical capabilities. 2 The CITIF will be composed of MoF high-level managers (Secrdtaire gein&ral, Directeurs gene'raux and Directeurs) and of the Finance Auditor (Inspecteur general des finances); it will be chaired by the Secretaire general.  29 1.1.3 Technical assistance to the PIU The project will provide consulting and advisory services to the PIU which will bear the responsibility of implementing the highly complex Computer and Information Systems component of the project. Assistance will be provided in areas such as: planning; preparation of bidding documents; evaluation of proposals; monitoring of contractors' performance; and coordination of project activities assigned to the MoF computer units. 2.1 Systems Development and Implementation The project will contribute to the development and deployment of computer applications to support budget processes by financing technical assistance and training of both computer specialists and users. The limited skills and knowledge of cutting-edge technologies among computer personnel, the lack of computer experts and the speed at which applications should be deployed under the project timetable would call for a strategy where the development of computer applications is contracted out to specialized firms. These would submit a plan aimed at integrating the Ministry's resources in order to promote skill transfers to Algeria's computer staff. Given the country's situation and the nature of the applications required, most of these would have to be custom-developed in the absence of packaged software on the market. These strategies would be validated or rejected during the preparation of the ISSP. Although specific systems requirements resulting from changes to be brought to budget processes are not yet known, the general features of the budget systems modernization as outlined in the Budget Component and the agreed upon need to deploy an Integrated Budget Management System which will focus on the expenditure side of budget management make it to possible to define precisely the scope of the IBMS. The estimation of the effort and cost required to develop and implement the IBMS was done taking into account that: i) all current systems supporting budget processes have to be replaced due to either their functional shortcomings or their technological obsolescence; and ii) computer hardware currently in place is or will be obsolete when the IBMS will be deployed (two years after project start-up). 2.1.1. Integrated Budget Management System The main objectives of the IBMS are as follows: i) to streamline the budgetary processes by applying the principle of single entry by the initiator of an operation3 and to make this information accessible to various parties based on their right of access to this information; ii) to facilitate and speed up the treatment of actions linked to an expenditure by rationalizing the information flows to promote better cash-flow management (by the DGT); iii) to ensure that, at all times, the accounting data produced by the various budget administrators (and assistant budget administrators), financial controllers and accountants match4; iv) to accelerate the process by which budgetary bills are prepared and examined; currently, these bills are tabled three (3) years after the end of the fiscal year. The MoF Business Model developed during the preparation phase of the project highlighted that many internal organizational units (Directorates) and external organizations (e.g., ministries, Cour des comptes) participate in the same business processes; and that there is a high level of data sharing of budget data. This finding reinforces the idea that the IBMS cannot belong to any specific organizational unit (DGB, DGC, DGT) and that a central computer unit is needed for operating it. The MoF Business Model also 3The DGB for budget and administrative controls, the budget administrators for commitments, the DGC for expenditure accounting, and the DGI, DGD and DGDN for revenue accounting. 4The computer system would be designed to ensure continuity among budget and accounting nomenclatures, whether or not they are standardized.  30 proved to be a useful tool to define the scope of the IBMS by delimiting the boundaries of the business processes it will support. To that end four