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Delegation of the European Union to Algeria Economic section “Introducing Sector Budget Support on Sanitation in Algeria” Key challenges ENPI REGIONAL WATER SEMINAR : AMMAN 21-24 MARCH Context in Algeria 1. Relative macroeconomic stability, huge reserve funds, repayment of external debt 2. Economy based on hydrocarbons 3. Very dependant of external shocks 4. Closed economy (large state sector, including financial sector), limited impact of the financial crisis, move towards protectionist policies (Complementary financial law 20092010) 5. Algeria has massive investment plan: USD 286 bn for the next 5 year Plan 6. Public expenditures as the main source of growth with marginal role for the private sector 7. Focus on investment, no incentive for reform Unusual context to promote budgetary support Problems with EU cooperation 1. Algeria not part of EC Neighbourhood Policy, but using Neighbourhood instrument 2. Key policy context is the Association Agreement (signed in 2005), very controversial, institutional set-up exists (subcommittees) 3. Development cooperation with EU covering all sectors, smaller amount than with Morocco and Tunisia (about 54 mio per year), instruments limited to technical assistance (twinning started in 2009) 4. Limited absorption capacity leading to recoveries of old programmes, important cuts decided in the 2008 and 2009 programming (about 50 mio euro) 5. Political stability: no real revolution expected until date? Challenges to implement the first SBS • Sector budget support in a wealthy country = limited financial leverage on Algeria (20 mio for 286 bn) = critcism of some Member States • Commission is the only donor pushing for budget support, others not present or without experience • Complexity of involving different ministries (Foreign Affairs, Finance, Water) • Ministry of Foreign Affairs is favorable but for the wrong reasons • Lack of understanding by Water ministry of the full contents and implications of sector budget support Not an easy start…. Why a SBS in Algeria ? • Limited absorption capacity for TA and important decommitment • Problem of coordination: need for a common platform between line ministries (MRE, National Office on Sanitation, MoF, MAE, etc) • Why Algeria is the lone partner not benefitting from this financial modality (Marocco, Tunisia, Egypt, etc.)? • Improve ownership and deliver aid through national system (Aid effectiveness) • Upgrade policy dialogue at a higher decision level • Eligible criteria are met in this particular sector… • …but is not systematic/dogmatic (Cf Transport II: sector not mature for SBS) Money is not the problem …but the strategic vision and quality of spending Challenges in the WS sector • Weak links between the ministries (Water and Finance) • No economic (cost/benefit analysis) approach in the sector • Difficulties to evaluate and perform state programme on costly investment • Sustainability of budget resources to cover the sanitation office (ONA) • Weak management of Human Resources and level of training for the executive and middle management on sanitation • Limited management and planning tools to organize the sector • No participation of users, or consumers Why a SBS on water and sanitation? • A key priority in the 5 years state plan • Continuity in the EC programming (EAU I = 20 mln Euros) • Relatively good institutional capacity in the Ministry and in the National Sanitation Office • Solid legal framework (Water law 2005) • Sector strategy exists although scattered, incomplete and not well formalised (Plan National de l’Eau, Schema Directeur de l’Eau) • Very few donors in the sector • Focus on investment but not on services and management • Ministry of water resources pilot for sector MTEF Priorities of the SBS EAU II • Strenghten a strategic integrated approach on sanitation in the water sector • Focus on management and services (regulatory function) instead of investment • Develop management skills and training • Implement mid term budget planning based on performance and transparency • Improve quality of water and impact on public health Hybrid SBS with TA (€30 mln) Budget sector support: €20 millions Validation of the national strategy and budget planning With indicators focused on qualitative changes in the sanitation sector Improved sanitation investments, including maintenance Key public finance management issues in the water sector (cost recovery for the Sanitation Office, performance audit, MTEF, etc.) Technical assistance: €10 millions Preparation of a strategic Sanitation Plan Technical training center for sanitation (national training center) Specialised equipment for laboratories (Quality of water) Temporary results • Better ownership and involvment through the national system. • Establishing a common platform for a policy dialogue between the line ministries • A better understanding of the financing modality (SBS) • Strategic discussion from operational to policy level (Cabinet) • Understanding the rationale behind a logical framework • Positive side effects on PFM with: -Succesful PEFA with participative approach and acceptation by the MoF of the weaknesses. -A new EC programme (€ 5 mln) on a strategic reform of budget system (minister level), crucial because public expenditure is the main source of growth in Algeria …..those results before disbursing the first tranche! Lessons learnt • SBS plays the role of catalyst • Stimulates policy dialogue: EC/Algerian partner and between line ministries • Opens new opportunities on PFM reform • Better ownership and effectiveness using national system (State budget) • Not to be dogmatic but sector specific • Money is not the issue… but the strategic vision, level of dialogue and quality of spending