Currency equivalents

C. Simulating PCSC Implementation Scenarios

16. 
    The shortcomings identified in the previous section underscore a simple truth: more resources may help to accelerate execution, but they are not the answer to enhance quality. To the contrary, the predominance of the existing “project approach” over “the sector strategic approach”—combined with strong political pressures to implement projects through already-stretched institutions—pose major risks. Especially in some large-scale projects, there is a real danger in accelerating execution without adherence to minimum standards. Inevitably, the unavoidable consequences will be failure to adhere to basic procurement guidelines, duplication of activities, and wasted resources. The question is how fast execution ratios may increase?
    

16. 
    Estimating execution ratios with respect to budget authorizations (commitments), we performed three simulation scenarios on the implementation of the PCSC over 2005-07.¹¹ By mid-2005, authorities had approved 75 percent of PCSC resources for 2005–07. Annex A describes in detail the three simulations prepared by World Bank staff. Summarized results are on Figure 1.3.
    

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  The first one is based on a project-by-project—micro appraisal—bottom-up approach. It was prepared by each World Bank sector specialist based on several interviews and experience working in each sector. It makes a projection following detailed analysis of execution assumptions by project corresponding to each sector.
  
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  The second one is based on historical averages (2002-04) per sector in another bottom-up approach. It makes a projection following disaggregated sectoral execution rates according to their historical execution rates during 2002–04.
  
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  The third one is based on a top-down approach, using past aggregate investment execution rates from the fiscal accounts. It projects aggregate execution rates by discounting unspent net balances at the Treasury special accounts from executed investment expenditure. They are based on information and conversations with national authorities.
  

Source: Bank staff estimates based on Ministry of Finance data.

23. 
    With respect to budget authorizations expenditure commitments, simulation scenarios of the implementation of the PCSC suggests a mild trend toward rising execution ratios over 2005–07, albeit less than 70 percent on average. As a point of reference, Algeria had an average 65 percent execution ratio during PSRE implementation in 2003–04. The analysis also reveals similarities and discrepancies among the three scenarios.
    

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  For 2005, the execution ratios based on historical averages are much higher (67 percent) than the other two, which vary inside the 53 (micro appraisal) to 61 (top down) percent range. Availability of 2005 preliminary information on actual investment execution shows that scenario one was actually closer to 2005 actual execution, estimated at 54 percent.
  
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  For 2006, there is a more significant discrepancy among the three scenarios, as the projected execution ratio lies inside the wide 46 to 65 percent range.
  
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  For 2007, the execution ratios project a much narrower range—from 50 percent, according to scenario one, to 85 percent, according to scenario 3. The ratio based on historical averages remains essentially constant.
  
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  An important caveat to these findings is that these scenarios were prepared before the actual budgetary increases to the original PCSC envelope, which should not essentially modify these results, but make the trend toward higher execution ratios smoother.
  

1.24 Common sense strongly suggests that national authorities should adopt a more realistic stance in the appropriation of resources. If possible, approval of payment credits from 2007 should follow a midcourse progress evaluation assessing progress achieved during 2005 and 2006.¹² Under the present circumstances, excessive resources would aggravate resource-swamping and deteriorate execution ratios. In addition, authorities should resist committing or allocating resources to investment projects that do not meet minimum technical standards. Ultimately, a higher rate of execution (and absorption capacity) does not depend on the availability of resources, which are otherwise abundant, but on addressing the specific shortcomings discussed in this review.

1.25 The measures taken during Government-Walis meetings at the end of 2006 should contribute to the:

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  Strengthening of the administrative and technical definition of responsabilities for all institutions and public organizations.
  
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  Strengthening of technical implementation capacities.
  
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  Flexibilization of public procurement norms, as regards deconcentrated investments (raised minimum ceiling required for approval from 6 million DA to 8 million DA), limitations to constitute a submission guarantee for bidding proposals, restoration of procurement commissions in public entities, and raising of the amount of funds required for the intervention of the National Procurement Commission from 250 million DA to 400 million DA.
  

CHAPTER 2: OVERALL FISCAL TRENDS AND CHALLENGES

Algeria’s fiscal stance is strengthening. On the one hand, oil prices and hydrocarbon revenues are flying high. On the other hand, the authorities are using the enlarged fiscal space to advocate (and practice) a sound debt management strategy, coupled with a selective expansion of public investment in key basic and social infrastructure sectors. This chapter deals, first, with the macroeconomic background. Second, it estimates the volatility of fiscal variables. Third, it identifies the fiscal trends. Fourth, it assesses the key features of oil resources management. The final section assesses the fiscal sustainability of the PCSC.