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October 28, 2011

Democratic Republic of the Congo: Conference on Fiscal Reform

Posted by Ian Lienert

A conference on budget reforms in the Democratic Republic of the Congo (DRC) was organized in Kinshasa on October 3 and 4, 2011 by the Committee for Public Finance Reform(COREF).[1] Over 150 persons took part, including provincial ministers of budget or finance, and representatives of the central ministries (Planning, Budget and Finance) and sectoral ministries, as well as the National Assembly and the Senate. The (national) Minister of Budget opened the conference.

At the conclusion of the discussions, the participants validated a prioritized approach to public finance reform. The first priority is to restore the credibility of the annual budget law. The provincial representatives emphasized the need to implement the 2006 Constitution, particularly the provisions on the allocation of 40 percent of national revenues to the provinces.

Context

Given the weaknesses that continue to plague public finance management and the challenges of decentralization, the government took the decision to overhaul the entire public finance management system in the context of the Public Finance Reform Strategy Plan (PSRFP) adopted in March 2010. The aim of this strategy is to modernize the public finance system on the basis of good international practices.

Some reforms have been undertaken over the past few years, including a new revenue and expenditure classification, unification of the budget, which now includes both operating and capital expenditures, improvement of the budget preparation process, clearer procedures and a computerized process for expenditure execution, a computerized payroll system, which is intended to be the only basis for the remuneration of civil servants, the adoption of a new public procurement code, and the establishment of a system for the production of budget tracking statements.

In July 2011, a new public finance law (LOFIP) was enacted. This law is divided into five sections:  (1) general provisions; (2) provisions regarding the budget laws of the central government; (2) provisions regarding provincial budget decrees and the budgetary decisions of the decentralized territorial entities (ETDs); and (5) relations between the central government, provinces and ETDs. COREF has been tasked with preparing a draft timetable for implementation of the LOFIP so as to ensure that the LOFIP innovations are understood by all stakeholders, both at the central level and in the provinces, as soon as possible.

Purpose of the conference

The main aim of the seminar was to share experiences and encourage discussion of the various issues raised by the LOFIP’s provisions. The innovations introduced by the new law should, in time, transform budgetary practices in the DRC by introducing a culture of performance in public management. This new approach requires a radical change in current practices[2] and gradual implementation.

The conference provided the DRC with an opportunity to learn about the constraints that faced other countries as they managed their budget reforms. The experiences of those countries should help the DRC better handle the challenges of the reform. At the same time, the discussions aimed to identify the key aspects of the budget reforms and to develop a sustainable approach.

Conference program

The first day of the conference consisted of two sessions during which the lessons learned from the experiences of the OECD countries and French-speaking African countries were reviewed. The second day was devoted to the specific implications of these lessons for the reform approach planned in the DRC.

In his opening remarks, His Excellency, the Minister of Budget noted the participation of various international delegations and participants from the 11 provinces (Bandundu, Bas Congo, Province Orientale, Sud Kivu, Nord Kivu, Maniema, Equateur, Kasaï Oriental, Kasaï Occidental, Katanga and Kinshasa). The conference program, which is attached, lists the foreign and Congolese delegates.

Session 1:  International comparisons:  the OECD countries

The OECD countries:

For these countries, the following points should be noted:

  • the quality of the budget systems varies widely (e.g., weak accounting systems in some EU countries);
  • the reform process is slow in some countries (e.g., Germany); and
  • the OECD countries are not necessarily the best models for the DRC (there is also much to be learned from other countries, particularly those at the same level of development).

Sweden and France: 

Performance budgeting was introduced in Sweden in the 1980s (while France did not introduce program budgeting until 2006). The Swedish experience shows (for the “programs” of government agencies), the difficulties involved in:

  • setting performance targets;
  • measuring performance;
  • linking targets to agency activities.

For these reasons, Sweden is moving away from performance budgeting, although performance information is still used for evaluating programs and activities.

Session 2:  Budget reforms in French-speaking African countries and post-conflict countries

The main weaknesses identified in the French-speaking African countries can be summarized as follows:

  • the lack of political will in some cases;
  • resistance to change;
  • weak coordination among donors;
  • weak human and physical capacities;
  • insufficient consideration of the need to stagger implementation of very ambitious reform programs;
  • complex budget execution procedures.

Public finance management reform in post-conflict countries:

  • Some “fundamental” reforms have been possible in all countries (e.g., chart of accounts, budget nomenclature).
  • Some “basic” reforms have seen little or no progress (e.g., internal controls, procurement) or have seen progress in some countries but not others (e.g., cash management; comprehensive financial reporting).
  • The most complex reforms, in the area of budget preparation, could not be implemented quickly (e.g., multi-year budget, Medium-Term Expenditure Framework (MTEF), link between budget and policies/results).

Session 3:  Budget reform in the Democratic Republic of the Congo

Planned reforms:

  • option taken by the government to move from an input-based budget to a results-based budget and to reflect public policies in the government budget;
  • priority given to 5 sectors:  Health, Education, Agriculture, Rural Development, and Public Works and Infrastructure;
  • formulation of programs and subprograms with the sectoral ministries;
  • adoption of Sectoral Medium-Term Expenditure Frameworks (SMTEF) for these 5 sectors.

Difficulties encountered until now (by the Ministry of Budget)

  • weak capacity of the government levels involved in the process;
  • frequent changes in the macroeconomic framework during budget preparation;
  • lack of a standard format for presentation of the MTEF;
  • lack of involvement of some sectoral ministries in the preparation of forecasts;
  • modest resources;
  • lack of a firm political commitment on the part of managers;
  • delay in the completion of the new program nomenclature;
  • difficulties relating to the definition of subprograms;
  • mismatch between public expenditure execution procedures and the requirements of the MTEF.

The challenges of budget reform in the DRC (viewpoint of a member of the National Assembly)

The following issues must be dealt with:

  • the frequently disrupted parliamentary budget cycle and the delayed tabling of the draft budget law;
  • a macroeconomic framework that is frequently challenged by Parliament, which systematically increases revenue projections to identify additional revenue (and expenditures);
  • limited budget documentation that precludes a full understanding of the budget data;
  • spending overruns, often by substantial amounts, that flout parliamentary authorizations.

Session 4:  Summary of the discussion:  Lessons for the DRC

Lessons from the presentation and discussion on the “advanced” countries

  • The experiences of these countries cannot be imitated without taking account of prior conditions and local circumstances.
  • The basic system must be improved before beginning reforms that are still controversial in the OECD countries.

Lessons from the presentation and discussion on the French-speaking African countries

It is important to:

  • adopt an overall strategy for public finance reform covering the long term, along with a rolling action plan (2-3 years) and a plan for disseminating information on the reform;
  • establish an institutional framework with a dedicated staff to manage the reform and a partnership arrangement with the donors supporting the reform;
  • set realistic implementation deadlines;
  • involve all public finance participants in advance;
  • ensure strong political support;
  • involve the donors and ensure that their contributions are available;
  • avoid regulatory and legislative rigidity to encourage a rethinking of provisions that prove to be inappropriate;
  • pay attention to the prerequisites for the transition to second generation reforms.

The experience of other post-conflict countries:

  • The success of the reform requires firm political will.
  • The degree of dependence of the country on international aid influences the role of donors in setting reform priorities.
  • The formalization of procedures can undermine individual interests.
  • The emphasis on performance can run counter to real motivations.
  • The decentralization process can alter political calculations.

Implications for the DRC

  • Begin with the basics:
    • Table  the annual budget law by the required deadline;
    • Table of the draft law on budget execution of the previous fiscal year before the debate on the draft annual budget law for the upcoming fiscal year;
    • Improve budget execution and, especially the respect of annual spending limits.
  • First restore the credibility of the annual budget.
  • Finalize a timetable for implementation of the LOFIP.
  • Focus the parliamentary debate on public policies.
  • Better reflect public policies in the budget; make the budget figures easier to understand.
  • Improve the capacity to forecast fiscal revenues.
  • Respect parliamentary authorizations and votes.

Conclusions

  • The fiscal reforms in the DRC are very ambitious.
  • COREF is already in place to guide the reforms.
  • The budget reforms must be prioritized, beginning with improvements in existing procedures and  the “classical” annual budget. The most urgent priority is to improve budget execution,[3] with special emphasis on avoiding abusive use of the “exceptional” procedure, which results in overruns of budgetary appropriations for some expenditures (particularly sovereignty expenditures) and under-execution of the budgets of the so-called “priority” sectors, such as education and health.
  • A prioritization framework involving “platforms” was unanimously adopted at the end of the conference. The three platforms (see “Conference Summing Up”—in French--attached) are:
    • Platform 1 (to be completed by 2013 at the central level and 2014 in the provinces):  Increase the credibility of the annual budget both at the central level and in the provinces. For the provinces, a political decision is needed to implement the provisions of the 2006 Constitution:  allocation of 40 percent of national revenues to the provinces and establishment of an Equalization Fund for investments in the provinces.
    • Platform 2 (to be completed by 2015 at the central level):  Enhance the accountability of budget actors and increase fiscal transparency.
    • Platform 3 (to be completed by 2018 at the central level):  Prepare and adopt an annual performance-based budget law in the context of MTEFs for each program.

The major challenges in this approach to prioritization are:  (1) to what extent should the preparatory stages for the Platform 2 and 3 actions begin now; (2) are the indicative dates (2013, 2014, 2015, etc.) realistic? The experience of other countries shows that reforms can be accelerated or slowed depending on human and physical capacities and resources and, especially, the ownership (or lack thereof) of the reforms by the political authorities.

Next steps 

  • All budget participants – including the donors – must avoid putting the cart before the horse by moving ahead with complex reforms (program budgets, MTEF) before restoring the credibility of the annual budget law and giving meaning to the parliamentary authorizations.
  • As part of its priority action plan (PAP) for 2011-12, COREF must ensure a balance between the Pillar 1 actions (budget reforms) and the four other pillars of the PSRFP, particularly tax reforms (Pillar 2), improvement of budget execution (Pillar 3), a reliable public accounting system and transparent cash-flow management (Pillar 4) and an effective system of controls at four levels:  ex ante budget controls; controls by the Office of the Inspector General of Finance, the external Audit Office (Court of Accounts) and the two chambers of parliament (at central level) or the provincial assemblies (and the governing bodies of the ETDs).
  • In the coming years, COREF plans to organize other annual conferences, starting with Pillar 2 (tax reform) of the PSRFP.

COREF plans to post all of the conference presentations (in French) on the websites of the Ministry of Budget Ministry of Budget and the Ministry of Finance.

Download Programme

Download Synthese


[1]COREF=Comité d’Orientation de la Réforme des Finances Publliques. The French authorities (Coopération Française) financed the conference jointly with the Congolese government.

[2] On August 14, 2011, the Head of State called for a reduction in exorbitant expenses, usually taking place outside official channels, i.e., outside the normal public expenditure process.

[3] Slide No. 10 of the Summing Up (attached) shows that the DRC’s annual budget is one of the least credible of all of the African countries.

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