Report No: AUS9418 . Republic of Panama Panama Public Expenditure and Financial Accountability . July 2013 . LCSFM LATIN AMERICA AND CARIBBEAN . Document of the World Bank . . . Standard Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. . Copyright Statement: . The material in this publication is copyrighted. 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FISCAL YEAR January 1–December 31 Table of Contents Preface .......................................................................................................................................................... 1 Summary of Assessment ............................................................................................................................... 3 Section 1. Introduction ................................................................................................................................. 9 Section 2. Country Background .................................................................................................................. 13 Sub-Section 2.1: Country economic situation......................................................................................... 13 Sub-Section 2.2: Description of the budgetary outcomes ....................................................................... 15 Sub-Section 2.3. PFM legal and institutional framework ....................................................................... 18 Section 3. Assessment of Public Financial Management Systems, Processes, and Institutions ................. 24 Sub-Section 3.1. Budget credibility ....................................................................................................... 24 PI-1. Aggregate expenditure out-turn compared to original approved budget ........................................... 24 PI-2. Composition of expenditure out-turn compared to original approved budget ................................... 26 PI-3. Aggregate revenue out-turn compared to original approved budget.................................................. 29 PI-4. Stock and monitoring of expenditure payment arrears ...................................................................... 31 Sub-Section 3.2. Scope and transparency .............................................................................................. 34 PI-5. Classification of the budget ............................................................................................................... 34 PI-6. Comprehensiveness of the information included in budget documentation ...................................... 35 PI-7. Extent of budget unreported government operations ......................................................................... 38 PI-8. Transparency of inter-governmental fiscal relations ......................................................................... 40 PI-9. Oversight of aggregate fiscal risk from other public sector entities .................................................. 42 PI-10. Public access to key fiscal information.............................................................................................. 43 Sub-Section 3.3. Policy-based budgeting.............................................................................................. 44 PI-11. Orderliness and participation in the annual budget process ............................................................... 44 PI-12. Multi-year perspective in fiscal planning, expenditure policy, and budgeting .................................. 48 Sub-Section3.4. Predictability and control in budget execution ........................................................... 52 PI-13. Transparency of taxpayer obligations and liabilities ......................................................................... 52 PI-14. Effectiveness of measures for taxpayer registration and tax assessment ........................................... 56 PI-15. Effectiveness in collection of tax payments....................................................................................... 59 PI-16. Predictability of the availability of funds for commitment of expenditures ...................................... 61 PI-17. Recording and management of cash balances, debt, and guarantees ................................................. 62 PI-18. Effectiveness of payroll controls ....................................................................................................... 64 PI-19. Transparency, competition, and complaints mechanisms in procurement......................................... 69 PI-20 Effectiveness of internal controls for non-salary expenditure ........................................................... 73 PI-21 Effectiveness of internal audit ........................................................................................................... 77 Sub-Section 3.5. Accounting, recording and reporting ......................................................................... 80 PI-22. Timeliness and regularity of accounts reconciliation ........................................................................ 80 PI-23. Availability of information on resources received by service delivery units ..................................... 83 PI-24. Quality and timeliness of in-year budget reports ............................................................................... 86 PI-25. Quality and timelines of annual financial statements ........................................................................ 89 Sub-Section 3.6. External scrutiny and audit ........................................................................................ 92 PI-26 Scope, nature, and follow-up of external audit .................................................................................. 92 PI-27 Legislative scrutiny of the annual Budget Law ................................................................................. 95 PI-28 Legislative scrutiny of external audit reports..................................................................................... 98 Sub-Section 3.7. Donor Practices........................................................................................................ 100 D-1 Predictability of Direct Budget Support .......................................................................................... 100 D-2 Financial information provided by donors for budgeting and reporting on project and program aid 101 D-3 Proportion of aid that is managed by use of national procedures .................................................... 102 Section 4. Public Sector Reform Process .................................................................................................. 104 Sub-Section 4.1: General description of recent and on-going reforms ................................................. 104 Sub-Section 4.2. Institutional factors that support reform planning and application ............................ 106 Annex 1. Summary of Performance Indicators ........................................................................................ 107 Annex 2. Indicator Data ........................................................................................................................... 112 Annex 2.1 Summary of Budget Execution for 2007, 2008, and 2009 and Budgetary Outcomes......... 113 Annex 2.2 Summary of Current Revenue Collection Administration, 2007-2009 .............................. 119 Annex 2.3 Payroll Payments Made by the Treasury Directorate as Requested by CGR (October 2010) ............................................................................................................................................................... 120 Annex 2.4 Public Sector Entities ......................................................................................................... 121 Annex 2.5–Public Procurement vs. Annual Budget, 2007-2009 .......................................................... 122 Annex 2.6 Principal Modifications of the Procurement Legal Framework .......................................... 123 Annex 3. Effects of Performance in Public Financial Management ........................................................ 124 Annex 4. Summary of Information Sources ............................................................................................. 128 Annex 5, Bibliography .............................................................................................................................. 131 List of Tables Page Table ER.1 PFM strengths and weaknesses 3 Table 2.2.1 Central Government Budget execution as percentage of GDP 16 Table2.2.2 Budget allocation: Economic classification (as percentage of total expenditure) 18 Table 3.1.1.1 Summary of Budget execution, 2007- 2009 25 Table 3.1.1.2 Out-turn of budget execution, 2007, 2008, and 2009 25 Table 3.1.2.1 Out-turn of budget expenditure deviation, 2007, 2008 and 2009 27 Table 3.1.3.1 Out-turn of revenue execution (actual/budgeted) for 2007, 2008, and 2009 30 Table 3.1.4.1 Pending payment orders in the MEF Treasury Directorate 32 Table 3.1.4.2 Pending accounts payable 2007, 2008, and 2009 33 Table 3.2.6.1 Information included in Budget documents presented to the NA for review and 37 approval of the annual Budget Law Table 3.2.10.1 Public access documentation 44 Table 3.3.11.1 Regulatory framework of the Panama budget system 45 Table 3.3.11.2 Budget calendar for preparing and approving the 2011 Budget 46 Table 3.3.11.3 Adherence to the Budget calendar 47 Table 3.3.11.4 National Assembly budget approvals 48 Table 3.4.13.1 Tax revenue, 2005-2009 (as a percentage of GDP) 53 Table 3.4.13.2 Central Administration tax revenue, 2005-2009(as a % of collection) 53 Table 3.4.14.1 Tax contributor disaggregation by type and amount collected 56 Table 3.4.14.2 Types of taxpayers by type and tax submission media 57 Table 3.4.15.1 2007-2009 Stock of taxes in arrears (number of cases and millions of B/.) 59 Table 3.4.17.1 Total public sector debt (millions of US$) 63 Table 3.4.18.1 Summary of the payment of the State payroll (August 2010 – B/.) 65 Table 3.4.19.1 Total claims and complains presented, 2008-2009 70 Table 3.4.21.1 Internal audit personnel by sectors 78 Table 3.5.22.1 Timeliness of conciliations of the DGT General Fund account 81 Table 3.5.24.1 Terms and reports Established by the annual Budget Law 86 Table 3.6.26.1 Types of external audit interventions 93 Table 3.6.27.1 Types of modifications and approval environments 97 Table 3.7.D1.1 Amounts of Direct Budget Support, 2007-2009 (US$ millions) 100 Table 3.7.D3.1 Use of National Procedures for Government Support Funds, 2009 103 List of Charts Page Chart 2.2.1 Current Income (% GDP) and GDP, 2002-2009 15 Chart 2.2.2 Current Income vs. Central Government Operating Cost 16 Chart 2.2.3 Public Debt as a percentage of GDP 17 Chart 2.2.4 Budget Execution (accrued/approved by the NA) 18 Chart 3.1.3.1 Comparison between Current Collected Revenue and Budget 2007-2009 30 Chart 3.4.20.1 Information Flow Chart for Cash Purchase Order 75 Chart 3.4.20.2 Information Flow Chart for Credit Purchase Order 75 Preface This Public Expenditure and Financial Accountability (PEFA) Report for the Republic of Panama was prepared by a team comprised of Antonio Blasco (World Bank, Team Leader) and Deborah Sprietzer (Inter-American Development Bank, Co-team Leader); Juan Carlos Dugand and Karina Diaz Briones (Inter-American Development Bank); Karla María González Guerra, Claribel Acosta, José Eduardo Gutiérrez Ossio, Ulises Guardiola, Cristobal Silva, and Hernán Pflücker (consultants). Additionally, Pedro Arizti (World Bank Project Manager for Panama Public Sector Efficiency) provided support and collaboration during the process. This assessment is undertaken at the request of the Government of Panama, which is conducting a reform and modernization process of its public finances with the support of the Inter-American Development Bank and the World Bank through different projects, and is therefore interested in establishing a baseline for both project and future performance measures of public financial management, as well as establishing the degree of management alignment to internationally accepted best practices. The members of the technical team extend their appreciation to the authorities, officials and personnel of public entities consulted, to the representatives of international organizations, and to all those who contributed to conducting this assessment. In the same vein, we appreciate the assistance and ongoing collaboration of the Government of Panama. 1 List of Abbreviations and Acronyms AGA Autonomous government agency ANA Custom National Authority CABEI Central American Bank of Economic Integration CFAP Public Administration Function Classification CGR Office of the Comptroller General BC Budget Commission (of the national Assembly) CPI Consumer price index DCP Public Credit Directorate (of the Ministry of Economy and Finance) DGI General Revenue Directorate (of the Ministry of Economy and Finance) DGT General Treasury Directorate (of the Ministry of Economy and Finance) DINACO National Accounting Directorate (of the Ministry of Economy and Finance) DIPRENA National Budget Directorate (of the Ministry of Economy and Finance) DIPROIN Investment Programming Directorate (of the Ministry of Economy and Finance) DNAG National General Audit Directorate (of the Office of the Comptroller General) EC European Commission DFP Public finance statistics GDP Gross domestic product GoP Government of Panama PFM Public financial management IBRD International Bank for Reconstruction and Development (World Bank) IAU Internal Audit Unit IADB Inter-American Development Bank IFRS International Financial Reporting Standards IMF International Monetary Fund INTOSAI International Organization of Supreme Audit Institutions IPSAS International Public Sector Accounting Standards ISR Income Tax IT Information technology MDA Ministries, departments, and agencies MEDUCA Ministry of Education MEF Ministry of Economy and Finance MEFP Public Financial Statistics Manual of the IMF (GFS) MIDA Ministry of Agro Cattle Development MINGOB Ministry of Governance and Justice MINSA Ministry of Health MoP Ministry of Public Works NA National Assembly NAG Government Audit Standards NCI Internal Control Standards PanamaCompra e-Procurement system PE Public entity AGA Autonomous government agency PEFA Public Expenditure and Financial Accountability SBP Panama Bank Superintendence SIAFPA Financial Administration Integrated System of Panama SINIP National System of Public Investment UN United Nations USAID United States Agency for International Development 2 Summary of Assessment I. Integrated Public Financial Management Assessment The detailed assessment of the Public Expenditure and Financial Accountability (PEFA) indicators of performance reflects notable achievements by the Government of Panama (GoP), including in managing records, reporting, publications, and so forth (evidenced by the high scores attained in 12 of the 71 evaluated dimensions of the PEFA methodology). However, the assessment also shows significant challenges, including in budget management and in treasury management (see Table ER.1). Panama’s Public Financial Management system displays several strengths with respect to the fiscal position, debt management, and payroll administrative controls, but from a systemic perspective budget preparation and budget credibility issues undermine the efficiency of sectoral investment plans and make it difficult to advance on other improvements in the public sector. An efficient and transparent allocation of budgetary resources allows the Government to achieve value for money in delivering public services. Table ER.1 PFM strengths and weaknesses Strengths • Overall expenditure within limits approved by the National Assembly (NA). • Information on government expenditure is readily accessible to the public. • Good and timely public debt management and reporting. • Payroll registries management that ensures permanent reconciliation. • Review and timely approval of the budget by the NA. Weaknesses • Accuracy in government revenue forecasts, which show significant levels of underestimation. • Tax administration, which shows inconsistencies in the Contributor Registry, the inefficacy of the sanction system (for non-compliance) and the system for fiscal monitoring and auditing of taxpayers, the lack of (or delays in) reconciliation settlement, and delays in tax collection and transfer of collected taxes to the Treasury. • Budget formulation and execution, which lacks clear standards, resulting in inconsistency and the undermining of the objectives of the budget process. Frequent budget modifications result in an executed budget that is not qualitatively comparable to the budget originally approved by the NA. The lack of cost calculations for sectoral policies precludes linking the multiyear budget with sector or institutional expenditures. • The lack of transparency in the procurement and public contracting processes, which are not based on Procurement Plans, and are not necessarily included in the budget or always registered and published in the PanamaCompra (e-Procurement) system, as legally required. • Control and follow-up of delays in payment arrears* that enable non-transparent forms of financing, do not enable the amounts to be quantified, and limit their impact on the budget. • Fiscal reports, do not provide complete information on government revenues and expenditures, which precludes follow-up of budget execution. • Information presented to the NA for annual Budget approval is extensive but does not contain critical elements to support the budget amounts. • Transfers to sub-national governments lack clear, transparent, and accepted rules. • The internal audit system does not adhere to professional practices standards. • Accounting registries and reports have significant omissions regarding assets, expenditures, and accounts balances. • Government financial statements are not audited. Budget execution audits are not performed. Entities ex-post audit reports are not issued, nor is there an overall annual audit report. * A distinction must be made on delayed payments, between those that are attributable to the Government but that were not paid on time, and payments delayed for reasons attributable to creditors, for example for failing to submit timely invoices. 3 The following are the main conclusions on the principal dimensions of the PEFA methodology as assessed in Panama through the PEFA Indicators (PIs). Budget credibility Budget credibility is one of the key PFM weaknesses in Panama. Inefficiencies in administrative procedures undermine budget predictability, with the result that unplanned budget modifications proliferate. The lack of budget predictability and the difficulty of realistically defining the activities that will actually be executed during the following year have at least two unfortunate consequences: (i) action plans are frustrated during their execution because of lack of expected funding, and institutions are obliged either to improvise a new program of reduced activities that align with actual funds received or request ad hoc budget modifications (i.e., additional funding); and (ii) some institutions prepare an ex- ante budget modification request to be submitted on the first working day of the new budget term. A budget that is executed in this manner loses significance and is no longer a strategic tool of public administration and planning, rather it is merely a tool for registering commitments and transfers. Comprehensiveness and transparency One of the strengths of Panama’s PFM system is that all government funds, no matter their type, source, origin, or specific destination, are registered in the budget. Also, all payments must be previously registered in the budget and can only be executed by applying budget procedures. However, although all payments are budgeted, that is not necessarily the case for accrued expenditures. Therefore, as discussed in the PI-6 assessment, 1 during a given fiscal year the government can contract works under the “turnkey with financing” model and only register the commitment in the budget of the subsequent fiscal year in which the payment is to be made. From a transparency perspective, these weaknesses are evident from the moment the government presents its Budget proposal for approval by the National Assembly (NA). The Budget proposal is not adequately underpinned by basic information (such as budget policies and their impacts and macroeconomic factors). Budget procedures are affected by administrative inefficiencies that adversely impact management transparency, so that formally adequate budget procedures produce non-transparent budget processes. Budget information is published in a timely manner, but this information does not necessarily reflect the actual management status. For example, the “budgeted payment moment” refers to the moment that the purchase order is issued, but its actual execution can be delayed for several months; thus budget reports can show as expenditures paid those that have not been. As described in the PI-7 assessment, in 2010 almost 30% of transactions reported in June as paid, had not been paid and the funds were still deposited in institutions’ bank accounts. The Treasury, on the other hand, showed a list of pending payments as of October 2010 with delays that could exceed 90 days and that represented a value equivalent to 8% of the central government annual budget. Finally, transfers to municipal governments are also not transparent, since the standard framework is not clear; thus the definition of the amounts to be transferred by the government to each municipality (which in many cases is the main municipal revenue) is unpredictable, rendering the municipality’s budget preparation dubious if not purely nominal. Policy-based budgeting The budget regulatory framework is simple and not very extensive. It allows for flexible budget management that prioritizes government programs and facilitates adjustments to current management circumstances. The fact that during the budget preparation process there are no ceilings or maximum budget limits imposed on the draft budget requests of ministries, department, agencies (MDAs), and other 1 The 2011 Budget proposal’s Statement of Objectives states: “The National Government has proceeded to conduct or program “Turnkey” contracting for a series of projects that are not included in the 2011 Budget Project.” Since these have been contracted by the Government (and the excluded sums are significant), the deficit amounts shown may not correspond to the actual situation. 4 entities covered in the budget is operationally significant (and counter to international best practices); it leads to final budget approvals that are substantially different from those presented by different MDAs as well as to the widespread practice of agencies preparing budget modification requests even before the budget term has begun. The disjuncture with internationally accepted best practice is evident on another front: the budget preparation system, an independent, Internet-accessible spreadsheet (SIPRES) available to budget formulating agencies, is not part of the integrated financial administration system of Panama (SIAFPA). There is a Government Strategic Plan, a Government Plan for 2010-2014 and a Social and Fiscal Responsibility Law that mandates preparation of multiyear projections. However, despite sundry multiyear sectoral strategy documents, there is no linkage between the various plans and the budget needs to support those plans. Projections are used to provide follow-up with respect to fiscal balance but with no link to the sectoral or institutional expenditure projections. The country has sound and timely public debt management and reporting process, during the period covered by the PEFA assessment there have been several studies on the sustainability of the external and internal public debt. But there is no evidence in budget preparation and planning of any follow-up on appropriations for the future recurrent costs of investment projects. Predictability and control in budget execution Non-tax revenues represent approximately 40% of central Government revenues; they primarily derive from profits secured by public enterprises. This, too, affects the predictability of total government revenue and budget execution, as profits fluctuate. Moreover, although the legislation and procedures for assessing and collecting the more important taxes are clear, administrative shortcomings affect the relevant bottom line. Shortcomings in the taxpayer registry hinder the accurate estimation of the total number of taxpayers and their true tax assessments. There is no also clarity in the time framework for the transfer of funds to the Treasury; in the case of customs resources this can be up to seven days and in the case of tax revenue, two or three days, but there is no information on delayed payments coming from Provincial Revenue Administrations. Transactional exchanges are followed-up on a daily basis, but this does not include delayed or outstanding payments. Although there is a cash flow forecast at the beginning of the fiscal year, and there are monthly reports on resource allocations, there is no reliable information concerning the frequency of adjustments and their transparency; therefore, there is not a transparent or clear policy to plan the allocation of resources. The internal and external debt registries are complete and are updated daily with monthly closing, and are reconciled at least on a monthly basis, with data that is considered to be highly reliable. The payroll registries are reconciled through an ex-ante review process performed by the Comptroller General of the Republic (CGR), and the registries show information on salary scales and a definition of work positions. The electronic procurement system (PanamaCompra) provides information on bidding invitations and contract awards, but there are some doubts regarding coverage of the total awards of all MDAs. Accounting, recording, and reporting Although a single treasury account exists, there is no single account system as there are more than 6,000 accounts outside Treasury management; this undermines the ability to present consolidated information of the balances or settlements of the different MDAs. The Treasury periodically reconciles its funds, but according to information collected during the assessment, sectoral-level reconciliations are not undertaken in a timely manner. Although no report is issued, complete monthly information regarding primary service provision units is available. 5 Complete budget execution reports, albeit of low quality, are presented to the NA periodically. The financial statements presented to the NA are not subject to external auditing and have significant omissions regarding expenditures, assets, and account balances. External scrutiny and audit The control framework of the Republic in Panama is based upon the application of ex-ante control by the Office of the Comptroller General of the Republic (CGR); although CGR undertakes subsequent supervision, the ex-ante control substitutes for an external control process. There is no information regarding the effectiveness of ex-ante control since there is no indication of the percentage of errors or inconsistencies corrected, or of a percentage of the budget that could not be executed because of these errors. CGR prepares an annual report that is submitted to the NA, but does not prepare an annual audit report of government financial statements. The NA, through the Budget Commission (established in Art. 54 of the Organic Regulation of the Internal Regime of the National Assembly), revises the details of expenditure, but does not address fiscal policies, the fiscal framework, or the medium-term priorities. The NA has sufficient time to consider and analyze the budget proposals both in the area of macro-fiscal aspects as well as the minor details and there are clear rules regarding budget modifications that must be presented to the Assembly. Donor practices The main country donors are the Inter-American Development Bank and the World Bank; these institutions provide sufficient information with respect to disbursements to the Government. While the considerable extent of budget support means that country systems are used for more than half of donor funding, the percentage of financial assistance for investment projects managed in accordance with national procedures is miniscule. II. Impact Assessment of PFM Weaknesses Aggregated fiscal discipline Although the process of budget preparation is framed within clear principles about fiscal discipline, during the period analyzed in this Report budget execution was not aligned with internationally accepted best practice, largely because the numerous budget modifications preclude an accurate estimation of the availability of resources and administrative delays undermine timely execution. Although there is an adequate analysis and registry of debt, and cash flow planning, fiscal management clearly does not integrate all the relevant variables to cover the needs of sectoral entities. Strategic resource allocation The lack of linkage between sectoral strategic plans and the budget’s multiyear estimates, and the disconnect between the budget plans of the different MDAs with those that are finally negotiated and approved, precludes effective strategic management of resources, thereby generating additional Ministry of Finance (MEF) efforts to provide follow-up of strategic investment projects and the execution of the sectoral programs. Approved budgets are not fully executed, largely because of the difficulty of accurate revenue estimation (mainly of non-tax revenues) that also affects the execution of sectoral plans. This undermines government priorities, complicates strategic management and the attainment of multiyear investment goals, and adversely affects sectoral strategies through de-linking of strategic plans and allocated resources. 6 Efficient service provision Although there are adequate control procedures regarding payroll expenditures, administrative shortcomings have produced delays or inefficiencies that severely undermine effective managements. To a large degree the provision of primary services is directly linked to resources and supplies available to the staff involved in service provision (teachers, physicians, auxiliary health personnel, police, etc.). III. Planning perspectives and reform application The Government of Panama (GoP) is engaged in an important institutional reform process to enhance the efficient and effective achievement of its priorities; above all, it seeks to implement a more modern financial resource management framework that promotes economic and social development and meets the needs of its citizens. The GoP recognizes that the lack of a consolidated management system and the failure to fully complete previous reform efforts have left in place a framework of practices and regulations that makes public financial management more difficult. MEF is leading the Government’s preparation of a broad public sector reform agenda. This PEFA assessment has the aim and the potential to support this critical agenda. 7 PFM Performance Indicators for Panama Indicator Concept Result A. PFM-out-turns: budget credibility PI– 1 Aggregate expenditure out-turn compared to original approved budget A PI– 2 Composition of expenditure out-turn compared to original approved budget B+ PI– 3 Aggregate revenue out-turn compared to original approved budget D PI– 4 Stock and monitoring of expenditure payment arrears NR B. Key characteristics of all stages: comprehensiveness and transparency PI– 5 Classification of the budget B PI– 6 Comprehensiveness of information included in budget documentation B PI– 7 Extent of unreported government operations D PI– 8 Transparency of inter-governmental fiscal relations C PI– 9 Oversight of aggregate fiscal risk from other public sector entities C PI-10 Public access to key fiscal information A C. Budget cycle C. (i) Policy-based budgeting PI-11 Orderliness and participation in the annual budget process C+ PI-12 Multiyear perspective in fiscal planning, expenditure policy, and budgeting C C. (ii) Predictability and control in budget execution PI-13 Transparency of taxpayer obligations and liabilities C PI-14 Effectiveness of measures for taxpayer registration and tax assessment D PI-15 Effectiveness in collection of tax payments NR PI-16 Predictability of the availability of funds for commitment of expenditures D+ PI-17 Recording and management of cash balances, debt, and guarantees NR PI-18 Effectiveness of payroll controls C+ PI-19 Competition, value for money, and controls in procurement D+ PI-20 Effectiveness of internal controls for non-salary expenditure C+ PI-21 Effectiveness of internal audit D+ C. (iii) Accounting, recording, and reports PI-22 Timeliness and regularity of accounts reconciliation C+ PI-23 Availability of information on resources received by service delivery units A PI-24 Quality and timeliness of in-year budget reports D+ PI-25 Quality and timeliness of annual financial statements D+ C. (iv) External scrutiny and audit PI-26 Scope, nature, and follow-up of external audit D PI-27 Legislative scrutiny of the annual budget law C+ PI-28 Legislative scrutiny of external auditor reports D+ D. Donor practices D-1 Predictability of direct budget support D+ Financial information provided by donors for budgeting and reporting on project A D-2 and program aid D-3 Proportion of aid managed by use of national procedures Score C Notes on scoring: A= Maximum score, D= Minimum score, NR= Scoring was not possible (not rated), NA= Not applicable, UN = Assessment not planned (not used) 8 Section 1. Introduction 1. This section describes the PEFA process and methodology used in preparation of this Report, to facilitate understanding of the information it contains, the context in which the assessment occurred, and the scope of the PFM assessment. Report objective 2. This assessment is undertaken at the request of the Government of Panama which is in the process of reforming and modernizing its public finances, and is therefore interested in establishing both a baseline for future PFM performance measures and the degree of management alignment to internationally accepted best practices. The PEFA methodology provides relevant information on current management and will allow establishment or adjustment of a reform strategy to improve PFM quality. Thus it is important to mention that the data in this report extend only up to 2010. Report preparation process 3. The PEFA assessment was financed and conducted by the Inter-American Development Bank (IDB) and the World Bank. Panama’s National Accounting Directorate (DINACO) of the Ministry of Economy and Finance (MEF) coordinated the entire assessment process, and played a critical role as the promoter of the PEFA methodology among Panamanian officials. This report was proposed and considered as part of the preparation and implementation of two PFM projects: (i) the Program to Strengthen Fiscal Management financed by IADB, which aimed to support the GoP efforts to increase public investment to the levels required by the Government Strategic Plan (PEG), through a sustainable increase in tax revenues and improvements in the efficiency of public expenditure management; and (ii) the Enhanced Public Sector Efficiency Technical Assistance Loan financed by World Bank (WB) with the objective of assisting public agencies of the borrower in producing, using and disseminating timely and quality performance information, thereby fostering a more efficient, transparent and accountable use of the borrower's public budget funds. There are four components in the latter project, the first component being strengthening performance-based budget management and evaluation.2 This PEFA assessment provides a reference and a baseline for both projects and a baseline for the GoP to measure progress of the current reform. 4. The assessment process began with a preparation phase from October 4 to October10, 2010. During this first stage, a work plan was prepared including a calendar, the main participants of the exercise, a preliminary programming of meetings, and a list of complementary documentation. At the same time some “topics of conversation” were prepared that included the main issues to be addressed by each participant during the meetings. 5. The second work phase began with the execution of the main assessment mission starting on October11, 2010 and continuing for two weeks. During the first week, a day-long workshop was held with civil service officials and technicians (41 participants) to introduce the PEFA framework. Several directorates and units from MEF represented the Government, along with financial units from ministries in the areas of health, education, and public works, and representatives from PanamaCompras. There were also delegates present from the Office of the Comptroller General of the Republic, the National 2 IADB PN-L1066 and World Bank loan 80160 (P121492). 9 Assembly, and the National Bank of Panama (a state-owned commercial bank that is the official depository for public funds). Officials from the Inter-American Development Bank, the World Bank, and the European Commission also participated. The fieldwork during this phase concentrated on obtaining necessary information and evidence for the indicators that support the assessment (presented in Section 3). Several subsequent missions were required to obtain and validate additional information required for the assessment. The process for collecting information finished in March 2011. 6. A draft version of the report to confirm the PEFA findings was presented to Government counterparts in August 2011. In September 2011 a workshop was held to present and discuss the findings of the assessment team with Government representatives and some donors. The present document incorporates the comments received in that workshop. 7. The report has been subject to internal IADB and World Bank quality review process including a decision meeting that was held in May 2013 with participation of the IADB, which included peer reviewers comments. Additionally the draft report was submitted to the PEFA Secretariat for comments. Methodology for preparing the Report The methodological components proceeded in the following sequence: • Information and evidence regarding assessment themes was essentially collected during missions to Panama through: (i) the aforementioned PEFA workshop, (ii) meetings with authorities and officials of public institutions, donor representatives, and civil society, (iii) several consultations on administrative information system applications, (iv) collection of statistics and other data from 2007 to date (primarily data from 2007, 2008, and 2009 programmed and executed budget years); (v) cross- referencing to verify data from different sources, and (vi) ‘control interviews’ to plumb the solidity of the information obtained. • The analysis and assessment of obtained data was undertaken applying: (i) the PEFA assessment framework, (ii) orientations on the scope of the assessment and the sources of the required information, (iii) clarifications published by the PEFA Secretariat, and (iv) modifications to indicators PI-2, PI-3, and PI-19. Following the PEFA framework, each dimension was allocated a score (according to a scale of A, B, C, or D). The score of each indicator was calculated combining the score of its dimensions, according to the classification method M1 or M2 (obtaining scores according to a scale of A, B+, B, C+, C, D+, and D). The evidence that sustains the scores of the 28+3 indicators was described in detail and enabled a comprehensive assessment of Panama’s PFM performance. For some indicators it was not possible to assign a score to every dimension, in which case a NR (not rated) score was assigned. Scope of the assessment according to Report programming 8. This assessment primarily covers the central government (including its decentralized institutions). Only in the analysis of some indicators (PI-8, PI-9, PI-23) has information been included on other public sector non-financial entities, such as municipalities and public enterprises. The PEFA exercise does not review the public financial sector. 9. Panama’s Budget Classification Manual in its Chapter II, Institutional Classification, establishes an organizational structure of the public sector that includes the following: 10 • State Powers and Entities that constitute the Panamanian State, according to the Constitution and the laws that regulate its organization and operation. This group includes the Legislative Entity, the Executive Entity (including ministries and/or dependencies), and the Judicial Entity. • Decentralized institutions, including the institutions and entities that provide public works or services, whether delegated by the Central Power, laws, or the Constitution itself. • Public enterprises, mainly public sector entities that produce, sell, or market goods and services. Public enterprises have their own assets and full legal capacity for contracting with third parties. • Financial intermediaries, mainly engaged in accepting demand, term, or savings deposits that incur liabilities and acquiring financial assets in the market. In this group there are several monetary institutions, insurance and pension fund companies, and other financial institutions. • Corporations and development projects, which include several entities, created with institution-like characteristics but that are limited to complying with the objectives for which they were created. • Municipalities, which are part of the decentralized political administrative organization of the country, and are autonomous in relation to the other Powers of the State. They are subject to fiscal review by the Comptroller General of the Republic. 10. Chart 1.1 shows the organizational structure of the government and Annex 2.4 lists the entities that comprise the Panamanian public sector as defined in the Budget Classification Manual. Chart 1.1 – Organizational Structure of the Panamanian Public Sector State Powers and Organs Central Decentralized Ministries and Institutions Government Dependencies Decentralized and Autonomous Municipalities Public Institutions Sector Corporations and Development Public Enterprises Projects State Enterprises Financial Intermediaries 11 11. The 2010 Budget Law distributed the general government budget as indicated immediately below. Revenue (PBA millions) Expenditure (PBA millions) Institution Group Current Capital Total Current Capital Total Central Government 5,065.00 1,002.88 6,067.88 3,563.38 2,504.50 6,067.88 Decentralized Inst. 2,700.86 433.03 3,133.90 2,466.00 667.89 3,133.90 Public Enterprises 768.05 176.89 944.94 672.13 272.81 944.94 Financial Intermediary 431.09 1,233.97 1,665.05 369.73 1,295.33 1,665.05 Total 8,965.00 2,846.76 11,811.77 7,071.24 4,740.53 11811.77 12 Section 2. Country Background 12. This section provides general information about the Republic of Panama, the core characteristics of the country’s PFM system, and ongoing reforms. Sub-Section 2.1: Country economic situation Country context 13. Panama is an upper-middle-income country with a dollarized economy (and hence no Central Bank with monetary policy instruments) and a per capita gross national income of US$6,740. The country’s population is about 3.5 million; nearly three-quarters of the populace lives in urban areas, mostly around the Panama Canal. About 10 percent is of indigenous origin; they primarily reside in remote rural areas. 14. Over the last 50 years gross domestic product (GDP) growth has averaged 5 percent, making Panama a fast-growing economy in Latin America. With its ethnically diverse population, a world famous canal, and a modern financial and commercial sector, Panama has been a primary beneficiary of globalized economic growth. During the four years before the 2008 world economic crisis, Panama’s annual GDP growth averaged 8.5 percent, and its unemployment rate fell from 13.8 percent to 5.6 percent. This growth was fueled not only by the rising global economy but also by internal policy improvements that strengthened fiscal balances, reduced the fiscal vulnerability, and enhanced productive investments. Also, through the historical national referendum of 2006, Panama approved a $5.25 billion dollar expansion of its canal. These factors contributed to strengthened investor confidence, lower interest rates, and ample stability, which enabled the economy to emerge from the crisis in better shape than most countries. 15. On December 31, 1999, control of the Cnaal was transferred to Panama and since then has been managed and operated by the Panama Canal Authority (“ACP”), an autonomous entity of the national government. Under Panamanian management, both operational and financial performance of the Canal has significantly improved. More than 14,700 vessels pass through the Canal every year, carrying more than 300 million tons or 5 percent of the world’s seaborne cargo trade. The main users of the Canal are the US, China, EU, and Japan, but the Canal is also important to Central and South American economies. 16. The Canal is the greatest economic asset of the Panamanian nation. ACP’s transfers to the National Treasury in 2009 represented about 3.4 percent of the country’s GDP and about 12.5 percent of its fiscal revenues. 17. Government investment plans for 2010-2014 are estimated at US$13.6 billion, significantly higher than during previous years. Close to US$7.3 billion will be invested in the social sector, of which US$2.9 billion will be for training and social assistance. The majority of the investments will be in the region outside of Panama City (close to US$4.2 billion), but the most important investment will be the underground transportation system in the City of Panama (close to US$1.8 billion). Expected investments outside urban areas include irrigation projects, highways to improve logistics, port interconnections, and rural electrification. The investment program represents an annual increase of 1 percent of GDP in capital expenditure. 13 Overall public sector reform program 18. In January 2010, the GoP published the Government Strategic Plan for 2010-2014, which among other goals, prioritizes increased efficiency, transparency, and distribution of public expenditures and improved tax management. To achieve these goals, the Government, through the Ministry of Economy and Finance (MEF), will focus on the following key reforms: • Strengthening and modernizing planning and budgeting. • Strengthening the financial management system and the financial control structure. • Continuing general contracting reforms. • Developing the national system of monitoring and evaluation, and gradually introducing of a results- based Budget underpinned by performance data and a more efficient system of public investment. • Improving the production and distribution of statistical information. 19. To maximize the impact of planned investment, the GoP will concentrate on the most critical public sector challenges, prominent among which is weak institutional capacity, which has hindered operational efficiency, delivery of social services, and the central government’s ability to monitor and manage for results (In a 2008 report 3 of the World Economic Forum, “inefficient governmental bureaucracy” and “corruption” were cited as the two greatest “problem factors” in doing business in Panama). Thus reform efforts will center on strengthening institutional capacity for strategically planning, managing, and executing public programs. Rationale for PFM reforms 20. Approval of the Social and Fiscal Responsibility Law in 2008 was a public management milestone in Panama. It validated the need for strategic planning, established a results-based management framework that must be monitored by indicators, and limited the consolidated fiscal debt. 21. There is no unified public financial management law; rather the relevant regulations are codified in the Constitution, which regulates the State General Budget (Art. 267-278) and the functions of the Comptroller General (Art. 279-280); in the Ministry of Economy and Finance organic law; and in annual Budget Laws (each of which has an important section that describes procedures for budget administration), among other documents. 4 22. The improvement of the core financial management functions in MEF and completion of proposed reforms are important objectives of the GoP that are critical to ensuring greater efficiency and transparency in the use of financial resources. The GoP has an agenda with ambitious objectives that when executed will transform Panama’s public administration, positively affect investment processes, and support the country’s growth. 3 Global Competitiveness report, publish by the World Economic Forum, 2008-2009. 4 The organic law of the Ministry of Economy and Finance (Law 97, 1998) and its regulations (Decree 52, 1999) establish the leadership of MEF in public sector budget administration, and give it the legal mandate for “modernizing the State.” Each annual law of the State General Budget establishes the general norms for budget administration. The regime for ex-ante control (fiscal) and ex-post audits (accounts examinations) is established in the CGR organic law (Law 32, 1984). The Tax Code and other specific laws stipulate the framework for fiscal administration operation. The Transparency Law (Law 6, 2002) mandates public management transparency and provides individuals with rights of access to public information. The manuals and guidelines published by MEF cover the Integrated Financial Administration System (SIAFPA), while CGR determines public sector accounting and audit criteria. 14 Sub-Section 2.2: Description of the budgetary outcomes Fiscal Performance 23. Although the Fiscal Responsibility Law, 2002 provided a framework for fiscal discipline and sustainability, it has not been entirely successful in its implementation. Current expenditures were subsequently increased to cover more public servants and interest payments, while tax revenue remained the same. The public debt that had grown to 60 percent of the GDP in 2000 rose to 66 percent in 2004. The fiscal deficit (excluding the Panama Canal Authority) reached 5percent of GDP in 2004 and in that year external funds of B./ 331 million were needed to cover operational costs, highlighting a precarious financial condition. Faced with this situation, the Government set in 2004-2005 the following goals: • Reduce the fiscal deficit step-by-step, from 5percent in 2004 to 1percent at the close of 2009. Thanks to robust economic growth and stringent Government management, in 2006 and 2007 a surplus was registered of 0.5% and 3.5% of GDP, respectively. • Increase current savings to finance an ever-growing portion of public investments, which was achieved by increasing current revenue in a greater proportion than current expenditures, thereby allowing a sustained increase in current savings that in 2007 amounted to B/.1,375.3 million. • Reduce the weight of public debt on public finance and the economy (a goal was set to reduce public debt from 70% of GDP in 2004 to 60% in 2009; however, accelerated economic growth reduced the figure to 53% in 2007. 24. During 2005-2009 several reforms and laws were approved, among which were tax reforms and a reform of the Social Security Bank (CSS) that resolved structural fiscal problems, and the Social and Fiscal Responsibility Law that established limits for the fiscal deficit and various regulations for public funds management. The positive impact of tax reforms with respect to tax collection can be seen in Chart 2.2.1, which also shows how the GDP increase was accompanied by increases in non-tax collections. 25. During almost the entirety of the administration of President Torrijos, current revenue exceeded operational expenditures; including public debt service (2009 was anomalous because of a notable increase in public debt service and a lower rate of revenue growth resulting from the global financial crisis). Chart 2.2.2 clearly shows the transition in 2006 between current revenue and operational expenditure that endured for more than two years. Chart 2.2.1 Current Income (% GDP) and GDP, 2002-2009 30000 Current Income as a % of GDP 20.0% 25000 Millions of Balboas 20000 15.0% 15000 10.0% 10000 5.0% 5000 0.0% 0 2002 2003 2004 2005 2006 2007 2008 2009 2002 2003 2004 2005 2006 2007 2008 2009 CURRENT INCOME INGRESOS CORRIENTES INGRESOS TRIBUTARIOS TAX INCOME GDP PIB INCOME NON TAX NO INGRESOS TRIBUTARIOS OTHERINGRESOS OTROS CURRENT CORRIENTES INCOME Source: General Revenue Directorate. 15 Chart 2.2.2 Current Income vs. Central Government Operating Cost 6,000.00 5,000.00 Millions of Balboas 4,000.00 3,000.00 2,000.00 1,000.00 - 2002 2003 2004 2005 2006 2007 2008 2009 CURRENT INCOME OPERATING COSTS INGRESOS CORRIENTES GASTOS DE FUNCIONAMIENTO Source: General Revenue Directorate (revenue) and the Comptroller General of the Republic (Expenditure). Table 2.2.1 Central Government Budget execution as percentage of GDP Central Government Budget 2007 % 2008 % 2009% Aggregated Revenue 18.8 19.3 18.0 Own Revenue 18.7 19.0 17.8 Donations 0.2 0.3 0.1 Total Expenditure 22.5 22.3 26.6 Expenditure not related to interests 15.5 16.7 17.2 Expenditure related to interests 6.9 5.6 9.4 Aggregated Deficit (includes donations) -3.6 -3.0 -8.6 Net Financing 3.6 3.1 8.6 External 3.0 2.1 7.4 Internal 0.7 1.0% 1.2 GDP (B./ millions) 19,739.80 23,183.9 24,349.4 Source: Office of the General Comptroller of the Republic. Comptroller Reports 2007, 2008, and 2009. 26. Although public debt levels have remained broadly stable in recent years, the debt to GDP ratio has declined, enhancing debt sustainability. (Debt in 2004 was B/. 10,026.5 million, representing 70% of GDP; in 2009 debt increased to B/. 10,972.3 million, equivalent to 45% of GDP.). More detailed information is presented in Annex 2.1. 16 Chart 2.2.3 Public Debt as a percentage of GDP 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total Debt Deuda Total External Deuda Debt Externa Internal Deuda Debt Interna Source: Office of the Comptroller General of the Republic. Resource Allocation 27. The 2004-2009 Government Plan, “Strategic Vision of Economic Development and Employment in 2009,” provided the strategic foundation for defining government priorities and therefore the allocation of budgeted resources. The Plan clearly signaled a development strategy based on five pillars: poverty and inequality reduction, economic growth with job creation, public finance consolidation, development of human capital, and state reform and modernization. 28. Central government budget execution is unpredictable. The budget proposal is prepared well before its final approval by the National Assembly (NA), and given substantial administrative inefficiencies (including of tax collection), governments are not in the position to estimate how much of the budget can be executed. Innumerable budget modifications during execution produce significant deviations from the initial budget proposal. Chart 2.2.5 shows that for 2007-2009 only three institutions (Education, Judicial Power, and Electoral Tribunal) were able to closely match execution with initial budget approval. Moreover, the deviations of their colleagues were often far from nominal, in some cases reaching 60% of what was originally approved. 17 Chart 2.2.4 Budget Execution (accrued/approved by the NA) Budget Execution (Accrued/Approved by the NA) 1.2 1 0.8 0.6 0.4 Year 2007 0.2 Year 2008 0 Year 2009 Assembly Comptroller Education Judicial Organism Presidency Public Works Social Development MIDA Housing Economy and Finances Governace and Justice Work and Social Welfare Electoral Tribunal Comerce and Industry Foreing Affairs Rest of Expenses Public Sector Debt Source: Comptroller General of the Republic. 29. A review of budget execution by type of expenditure over the same period as the immediately preceding Charts shows consistency (see Table2.2.2). Table2.2.2 Budget allocation: Economic classification (as percentage of total expenditure) Economic classification categories 2007 % 2008 % 2009 % Current Expenditure 52.7 63.8 64.8 Wages and Salaries 18.4 21.4 22.5 Goods and Services 5.5 7.4 6.0 Interest Payments 11.9 15.1 17.4 Transfers 16.9 19.9 18.9 Capital Expenditure 23.8 26.3 21.9 Gross Investment 17.1 18.0 15.5 Capital Transfers 6.7 8.3 6.3 Total Net Expenditure 76.5 90.2 86.6 Public Debt amortizations 23.5 9.8 13.4 Source: Office of the Comptroller General of the Republic. Comptroller Reports 2007, 2008, and 2009. Sub-Section 2.3. PFM legal and institutional framework PFM legal framework 30. The following are the constituent elements that together constitute the legal framework for managing public finances in Panama. Constitution of the Republic of Panama Title V. Legislative Entity, Chapter 1, National Assembly Article 159, establishes the general framework of the National Assembly’s functions, and in number 4, reference is made to the approval of the State Budget, according to Title IX of the Constitution. Title IX. Public Treasury, Chapter 2, State General Budget, Articles 267-273 establish the general framework for preparing and approving the State General Budget. Articles 274-278 establish the general framework for executing and modifying the budget. 18 Chapter 3, The Comptroller General of the Republic, Article 279, establishes the requirements for naming the Comptroller and Assistant Comptroller of the Republic; Article 280 regulates the function of the Comptroller General of the Republic (CGR). Budget Organic Law There is no Budget Organic Law per se; rather, each year, the Annual Budget Law contains a section that establishes General Budget Administration Standards. The General Budget Administration Standards contain the set of regulations governing the execution, follow-up, assessment, closure, and settlement of the State General Budget. Fiscal Code Chapter V (Libro V) of the National Treasury Administration and Chapter VII (Libro VII) of the Administrative Procedures in Fiscal Matters contain additional regulations in reference to budget and fiscal management. Social and Fiscal Responsibility Law (Law 34 of 2008 modified by Law 32 of 2009) This Law establishes the Standards, Principals, and Methodologies to consolidate fiscal discipline in public sector financial management under principles of transparency, responsibility, and accountability, conditions deemed necessary for stability and sustainable growth. Specifically the object of the Law is to: • Increase non-financial public sector savings so as to decrease dependency on debt instruments to finance public investment, and guarantee net public debt sustainability, through a gradual reduction of debt as a percentage of GDP. • Establish debt and deficit growth limits for the non-financial public sector. • Provide accountability to society on the entire public sector, based on accepted best practices regarding transparency. The Law applies to all public sector entities and the Minister of Economy and Finance, Vice Ministers, Comptroller, Assistant Comptroller General, and General Manager of the National Bank of Panama. External Control 31. The Comptroller General Organic Law, approved in 1984, establishes it as a technical Independent State Entity, whose mission is to supervise, regulate, and control the movement of public funds and assets, and to inspect, intervene, finalize, and judge these accounts. The Comptroller additionally prescribes the accounting methods and systems for public entities and directs and creates national statistics. 32. CGR has authority over all persons and organizations that are in charge of the stewardship or management or funds or assets of the State, Municipalities, Community Boards, State Enterprises, Autonomous and Semi-Autonomous Entities, in the country or abroad. This authority also applies to persons or organizations where the State or Public Entities have any monetary participation and to the persons that receive subsidies or economic assistance from those Entities and those that organize public collections for public ends (but this should be proportional to the level of participation of these public entities). 33. In addition to the Organic Law, the legal framework for the exercise of the constitutional attributes of the CGR includes its Regulation and other complementary legal standards. CGR is the Government Internal and External Control regulatory body. 19 34. CGR has issued Government Audit Standards (NAG), Manuals, and Guidelines to fulfill its professional responsibility. These are general standards for Internal and External Audit. Internal Control 35. In 1998, CGR issued, by Decree No. 106, the Government Standards for Internal Control (NCI). The NCIs define the basic acceptable requirements for an operational internal control structure with which the government public sector must comply. These Standards are applicable to any type of management, operation, or administrative function and are not be limited exclusively to financial operations. Additionally, they are for the use of all systems, whether automatic or manual. PFM institutional framework Legislative power 36. The Legislative Entity is constituted by the National Assembly, whose members are elected through party positioning or free elections through direct popular vote, as established in Art.146. of the Constitution. The National Assembly is composed of 71 Deputies elected according to Law, on the same day that the ordinary election takes place for the President and Vice-President of the Republic and for a five-year period. 37. One the National Assembly functions is that of participating in the approval of the State Budget, as is established in Title IX of the Constitution (Art. 159, number 4), and it examines and approves or disclaims responsibility of the General Treasury Account that the Executive presents, together with the Comptroller General of the Republic (Art. 161, number 8). To perform its functions the National Assembly is supported by its Budget Commission and its Economy and Finance Commission, respectively. 38. The Budget Commission, a permanent entity as is established in Art. 54 of the Organic Regulation of the Internal Regime of the National Assembly, is, among other functions, responsible for (i) approving or rejecting the State General Budget Law Proposal that the Executive sends to the Legislative Assembly, (ii) approving or rejecting supplementary or extraordinary credit requests, additional to the budget, that may be presented by the Executive, (iii) participating in consultations regarding preparation of the State General Budget, and (iv) supervising the execution, accounting, control, and compliance of the Budget Law. Executive Power 39. The Ministry of Economy and Finance (MEF) is in charge of preparing everything related to economic policy initiative; programming public investments and social strategy; designing and executing the general guidelines and specific Government tasks on Revenue and National Treasury; preparation, execution, and control of the General State Budget, Public Loans, and State modernization, as well as preparation and execution of Programming. 20 40. The MEF representing the Executive must present the Preliminary budget draft by the first month of the legislative year (that is, by July 31). If the Budget proposal is not approved at the latest by the first day of the fiscal year (that is, by the subsequent January 1), the proposal sent by the Executive is approved as submitted transforming the budget proposal in the Budget Law. If on the contrary, the National Assembly rejects the Budget proposal, the Budget from the previous term is automatically extended until the new Budget is approved, but this process approves by default also the items included in the proposed Budget rejected regarding public debt services, compliance with the rest of the State contracting commitments, and the financing of the Public Investments previously authorized by the Law. 41. The Budget is prepared on an annual basis and contains all of the investments, revenue, and expenditures of the public sector and includes Autonomous Entities, Semi-Autonomous Entities, and State Enterprises. Ministry of Economy and Finance 42. As part of the Executive, MEF is responsible for preparing everything related to economic policy initiative; programming public investments and social strategy; design and execution of general guidelines and specific Government tasks on Revenue and National Treasury; preparation, execution, and control of the General State Budget, Public Loans, and State modernization, as well as preparing and executing the State Finance Program. 43. MEF, through the Nation Budget Directorate, directs the administration of the Public Budget, by preparing or formulating physical and financial execution, accounting and control, assessment, coordination, and settlement of the Budget and its programs, and approval of the preliminary Budget proposals of State Dependencies. 44. The National Accounting Directorate is responsible for the administration of the Integrated Financial Administration System of Panama (SIAFPA), including the development of the conditions within institutions for continuous and efficient functioning. The National Accounting Directorate promotes and facilitates State financial administration development and coordinates with CGR the issuance of the standards, processes, and procedures for government accounting. 45. The General Treasury Directorate (DGT) is responsible for efficiently administrating the cash flow of the National Treasury under principles of efficiency, assuring the best performance of central government financial resources. DGT is also responsible for providing information on revenue and payments of the central government. 46. The Public Credit Directorate is the state entity in charge of guaranteeing an efficient programming, utilization, and control of financial measures obtained through issuing and placing securities, bonds, bills, and treasury notes of short-, medium-, and long term commitments made through one or more public credit operation loans. 47. The General Revenue Directorate (DGI) is the entity in charge of administrating the tax system (including interpretation of tax laws) and collecting taxes, fees, contributions, and revenues for the National Treasury, and countering tax evasion. 21 Comptroller General 48. The Constitution assigns CGR the responsibility of supervising and regulating, by prior or subsequent control, all fund management actions and other public assets. As part of the responsibilities constitutionally assigned, the CGR Organic Laws includes the following functions, among others: • Methods and Accounting Systems. The Comptroller is solely responsible, as the controlling office, to establish the accounting systems and methods for public dependencies within the Constitution and to coordinate and supervise their adequate application. • Accountability. Any person that receives, collects, manages, administers, invests, takes care of, controls, approves, authorizes, or pays public funds or assets is obliged to render accounts to CGR, in a manner and term determined by this entity. • Accounts Examination. All accounts are examined, closed, or modified during the term of one year, starting from the date when received by the Comptroller’s Office, and if the party so requests, the CGR is required to issue a receipt to verify this procedure. • Supervision of Management Actions. The Comptroller endorses or rejects public fund disbursements and actions that affect public assets. These actions, at the discretion of CGR, may not be exercised without prior authorization of the Comptroller and may be revoked at any time, should circumstances require it. Essential Attributes of Panama Public Financial Management (PFM) system Panama’s Financial Management Integrated System (SIAFPA) 49. Through Resolution 002, of January 28, 2000, SIAFPA was adopted as the official system for registering financial and budget information for the Panamanian State, and the Financial Administration Integrated System of Panama National Directorate was created and designated as the unit responsible for administrating this system (a responsibility previously assigned to CGR). 50. SIAFPA is charged with the efficient management of financial administration through planning, obtaining, allocating, using, registering, and monitoring the State’s financial resources. SIAFPA’s operational modules are Budget, Procurement, Treasury, Accounting, and Public Debt. 51. The SIAFPA Directorate is an entity of MEF, responsible for the organization, direction, and control of the processes and shared resources of the automated information systems of the Panamanian financial administration. Also, this Directorate recommends necessary changes to the current system and provides training, technical support, and assistance for all its users. 52. The Directorate is in charge of the following departments: Standards and Security, Center for Assistance and Liaison with Users, Training, Planning, and Development of the Information and Data Processing System. The Directorate has the following functions among others: • Defining the administrative policies of the information, processes, and resources of the shared systems of the current Panamanian System of Information for Financial Administration. • Planning, organizing, directing, and controlling the development of each of the departments and officials within the Directorate. • Preparing agreements of adherence to the system and service with public sector institutions. • Administering financial and technological resources allocated to the Directorate. 22 • Promoting the utilization and integration of new technologies that facilitate the analysis, connection, processing, and distribution of system information. • Supervising the functioning and level of quality of the processes and information systems of the financial administration. • Serving as the Secretariat of the Financial Administration System Committee. 23 Section 3. Assessment of Public Financial Management Systems, Processes, and Institutions Sub-Section 3.1. Budget credibility PI-1. Aggregate expenditure out-turn compared to original approved budget 53. This indicator measures the aggregate variance of expenditure out-turn compared to the expenditure approved by the National Assembly, thereby reflecting Government capacity to provide public services, as expressed in the policies, the out-turn commitments, and action plans used to prepare its annual budget. The analysis covers 2007, 2008, and 2009. 54. Article 16 of Law 34, 2008 on “Social and Fiscal Responsibility” establishes that it is mandatory for the Government to prepare a strategic plan during its first six months in office, describing the economic and social strategy, the financial programming over five years, and the public investment plan for the same period. This plan prepared by the current government was published in the official Circular on January 12, 2010. The 2010 budget was prepared and presented to the Ministry of Economy and Finance (MEF) during the first half of 2009 by the previous government; therefore the new administration that entered into office on July 1 had limited options for adjusting the budget to its action plans. 55. MEF does not establish budget ceilings for the various institutions and entities covered by the Budget, although it does establish an overall expenditure amount for the Government. Thus, institutions prepare their budgets based on general budget policies established by MEF, but without expenditure limits, so the Budget proposal presented to the NA, is the product of a process of negotiation and adjustments coordinated by MEF and approved by the Council of Ministers. i) Difference between executed primary expenditure and primary expenditure as originally budgeted (excluding the charges for debt service and the amounts of the proposal with external finance in which the government has no control on expenditure execution) 56. During the period under analysis, budget execution was subject to numerous modifications, both with respect to institutional expenditure distribution as well as to the total general budget. It is estimated that each year there are more than a 1,000 central government budget modifications. For this reason, when the amount actually executed is compared to the budget originally approved by the NA, amounts of over-budget execution are obtained. However, when the modified budget amount is compared with actual execution, significant levels of under-budget execution are observed. 57. The Financial Administration Integrated System of Panama (SIAFPA) manages within the system the following six budget registry phases. • The approved budget, which is approved by the NA. • The modified budget, which is amended in response to modification requests from institutions and their respective approvals. • The allocated budget, which is the budget authorized to be committed for each institution, which is updated monthly according to cash flow availability, and the institution’s request for additional expenditures or the redistribution of funds between budget items. • The executed budget, corresponding to the total accrued expenditures to date. 24 • The paid budget, which includes the total accrued budget transactions approved for payment by the previous control system and payments in process, as well as the transfers undertaken by the Treasury to current accounts of institutions. • The reserved budget, which includes those transactions, accrued and not paid by the end of the fiscal year, but that can be paid until the last working day of April, in accordance with what isestablished in the normative framework (Art. 255, Law 69 of December 2008). The reserved budget funds are established by the Treasury and come from the budget funds of the completed fiscal year. 58. Table 3.1.1.1 shows for the three years analyzed the totals for budget management up to December 31 and notes how the budget that was actually executed during each year was greater than the budget originally approved by the NA, but was less than the modified budget that the institutions tried to execute during the year. The difference between the various budget figures demonstrates the following: (i) a high level of under-estimation in the original budget amounts, since through budget modifications that must be supported by additional revenue, it was possible to allocate greater resources than predicted (by 23.8% in 2008); and (ii) the difficulty that institutions experienced in executing their plans and budgets, as actual execution fell short of intended execution (actual execution minus modified budget). Table 3.1.1.1 Summary of Budget execution, 2007- 2009 (excludes debt service) 2007 2008 2009 Approved budget 2,984,123,180 3,587,266,100 4,119,479,300 Modified budget 3,328,100,214 4,440,215,610 4,732,890,894 Allocated budget 3,328,100,214 4,440,215,610 4,732,890,894 Budget executed 3,069,610,432 3,881,029,901 4,179,682,196 Budget paid to December 31 2,624,734,491 3,308,873,623 3,787,017,257 Reserved budget (paid to April) 444,875,941 572,156,277 392,664,939 Budget actually executed 3,069,610,432 3,881,029,901 4,179,682,196 Differences: Modified – Approved % 11.53 23.78 14.89 Differences: Actual – Approved % 2.86 8.19 1.46 Differences: Actual – Modified % -8.66 -15.59 -13.43 Source: Comptroller General of the Republic. SIAFPA. Table 3.1.1.2 Out-turn of budget execution, 2007, 2008, and 2009 (B./ and %) Year Approved Budget Executed Budget Deviation 2007 2,984,123,180 3,069,610,432 2.86% 2008 3,587,266,100 3,881,029,901 8.19% 2009 4,119,479,300 4,179,682,196 1.46% Details in Annex2.1. Sources: Annual Budget Law for 2007, 2008, and 2009; and Report from the Comptroller of the Republic 2007, 2008, a 2009. 59. Table 3.1.1.2 shows the budget execution deviation for 2007, 2008 and 2009, which was calculated on the basis of the Central Government Budget amounts in its annual aggregated values approved by the NA, as well as the modified annual aggregated values, and those actually paid during each fiscal year (including expenditures paid during the first four months of the following term), as authorized in the regulatory framework. Debt service payments have been excluded from the calculation, but not the proposal expenditures, as these are executed following the same administrative, decision, and fiscal procedures to which normal institution expenditures are subject. 25 60. The budget execution deviation 5 has been calculated as the percentage in absolute value of “the difference between the budgeted expenditure (budget initially approved by the NA) and the accrued expenditure during the term” divided by the “budgeted expenditure.” Score: A. 2008 was the only year, within the period of analysis from 2007 to 2009, during which actual expenditure deviated by more than 5% of the budgeted expenditure approved by the NA. Indicator Assessment Justification PI-1 A Scoring method M1 In no more than one out of the last three years has the actual expenditure (i) Score: A deviated from budgeted expenditure by an amount equivalent to more than 5% of budgeted expenditure. PI-2. Composition of expenditure out-turn compared to original approved budget 61. This indicator assesses the extent to which the budget is a useful statement of policy intent. The performance is measured calculating the variance in the actual expenditure compared to the expenditure approved by the NA, taking into account the impact that contingent and emergency expenditures during the years analyzed may have had in the modification of the executed budget. From the present analysis the variance has been calculated using the administrative expenditure classification. The reference period for this analysis is 2007-2009. 62. Section 4 of the Annual Budget Law regulates budget modification processes. Depending on the amount and their impact on the approved budget, changes are notified to or approved by the NA. Budget ceilings are not established as discussed in PI-1 above. 63. Inefficiencies in administrative procedures (including tax collection and transfer of taxes to the Treasury) undermine budget predictability, with the result that unplanned budget modifications proliferate. The lack of budget predictability and the difficulty of realistically defining the activities that will actually be executed during the year have unfortunate consequences: action plans are frustrated during their execution because of lack of expected funding, and institutions are obliged either to improvise a new program of reduced activities that align with actual funds received or request ad hoc budget modifications (i.e., additional funding). 64. Toward the end of the year, when the Budget is finally approved, and institutions have a better sense of the programmed activities that they have not been able fully to complete in the current year (frequently because of a combination of their own administrative inefficiencies and those associated with tax collection and tax transfers to the Treasury, with resulting delays of budgeting allocation to the institution to cover its budgeted programs), institutions prepare ex-ante budget modification requests before the new budget term even begins so as to be able to include in their budget, activities that were programmed but not completed in the term now ending. Thus, the beginning of the new fiscal year and the first submission of budget modification requests are coterminous, which starts afresh the budget uncertainties of the recently adopted Budget, which will accelerate in an ad hoc manner throughout the year until December comes around again and the process renews. A budget that is executed in this manner 5 The budget expenditure deviation, as is shown in indicators PI-1 and PI-2, is calculated with a mathematical model established by PEFA, which is applied in a standardized way in all PEFA assessments. 26 loses significance and is no longer a strategic tool of public administration and planning, rather it is merely a tool for registering commitments and transfers. 65. Budget execution is regulated by a system of monthly allocations that reflect funds availability for expenditures committed in principle to various institutions. Administrative procedures are subject to ex ante control by the CGR. The procedures are fully documented but the supporting information systems do not reduce the flow of documentation between institutions. The processes are cumbersome and cause numerous delays, which in many cases is the origin of budget under-execution. 66. Each institution is responsible for administering, recording, and reporting its budget execution and for proper accounting of all its transactions in the government computer system (SIAFPA). Because decentralized units typically lack this computer system, the ‘parent’ sector institution is responsible for recording and consolidating the information on behalf of its decentralized entities. This and other administrative inefficiencies hinder prompt program execution. Delays can sometimes exceed six months, and may be exacerbated by supplier tardiness in bill submission. i) Extent to which the variance in the primary expenditure composition has surpassed the overall deviation of the primary expenditure (as defined in PI-1) in the last three years 67. Table 3.1.2.1 shows the expenditure deviation for the three years analyzed for central government entities. The deviation was calculated using the same model applied in indicator PI-1, which excluded expenditures beyond government control as well as those marked as budget contingency expenditures, which in this analysis are considered depreciable costs. In Annex 2.1, the detailed information that led to these results is shown using the relevant administrative classification. Table 3.1.2.1 Out-turn of budget expenditure deviation, 2007, 2008 and 2009 (percentages) Entity 2007 % 2008 % 2009 % Assembly 11.1 37.2 36.6 Comptroller 5.8 2.2 11.2 Presidency 27.5 38.7 43.7 Governance and Justice 4.2 27.8 6.8 Foreign Affairs 10.3 3.5 12.1 Education 2.3 7.9 8.7 Commerce and Industry 2.2 53.0 22.6 Public Works 15.0 1.2 15.5 MIDA 38.7 3.8 9.9 Health 9.8 1.2 4.2 Labor and Social Welfare 2.4 4.5 44.8 Housing 14.7 19.7 21.3 Economy and Finance 19.0 11.8 30.1 Social Development 12.2 8.2 24.1 Judicial Entity 2.0 4.1 3.6 Electoral Tribunal 2.1 5.6 1.8 Other Institutions 3.6 12.9 2.3 Expenditure deviation (PI-1) 2.9 8.2 1.5 Variation of expenditure out-turn 9.8 10.2 14.1 Variation in excess of total deviation 6.9 1.9 12.6 Details in Annex 2.1. Sources: Annual Law of State General Budget, 2007, 2008, and 2009; Report from the Comptroller of the Republic, 2007, 2008, and 2009. 27 68. The following are the main factors that affected budget execution and produced the deviations observed for 2007, 2008, and 2009. • Administrative inefficiencies delayed program execution, in some cases leading to inter-institutional transfer of non-executing funds to other institutions that requested additional budget. • The Government signed new loans to finance new investments that were not included in the budget preparation phase. • The billing and payment processes for government suppliers are far from expeditious. The regulating framework establishes that before a State supplier can be paid, the Government must certify that the supplier has debt neither with the State nor with the social security system. Although certificates are available through the Internet, the payment process for the certificate is difficult and can be time consuming; this results in delays in suppliers submission of their invoices and subsequent payments. • In 2009 there was a change of Government, so budget execution was subject to policy and organizational changes that led to additional budget modifications. 69. In addition to budget deviations, this indicator also reveals weakness in preparation of some sectoral plans; in some cases these have been superseded by the Government Plan. Moreover, the National Assembly ultimately determines the Budget and may well modify the MEF budget proposal, leading to cascading alterations of institutional plans/budgets as funds may be transferred from one institution to another. 70. This indicator is intended to measure the extent to which the originally approved budget is executed in line with the activities programmed within it. However, during the period analyzed many of the originally budgeted activities were superseded by activities that arose from budget modifications (which frequently derive merely from attempts to circumvent administrative inefficiencies), thus precluding quantitative comparability and making it difficult to follow up on budget execution, because the final executed Budget is not qualitatively comparable with the original Budget approved by the NA. Score: B. Variance in expenditure composition exceeded 10% in no more than one of the last three years. ii) The average amount of expenditure charged to contingency 71. The Annual Budget Law does not explicitly mention reserve funds for contingencies or emergencies; however, the Ministry of Government and Justice (MINGOB) supports the General Directorate of the National System of Civil Protection, whose functions include: “Provide assistance throughout the entire country in search, air rescue and evacuation activities caused by any air, maritime or natural disasters. Carry out activities related to protection and prevention against fires and determine all related security measures. Assure sustenance for the citizens in case of emergencies or public calamity.” 72. The final MINGOB budget in 2008 shows a deviation of 28% compared to the institution’s budget as originally approved by the NA; however, it is possible that a substantial part of the deviation is associated with expenditures that reflect the previous year’s sub-execution, rather than contingent expenditures related to natural disasters in that year. In any case, MINGOB’s budget constitutes but a 28 small portion of the overall Government budget and hence the observed variance is not a significant factor in the PEFA methodology’s deviation calculation. 73. The Government Accounting Manual groups in its “Account 58 of Extraordinary Expenditures and of Previous Terms” those expenditures caused by “extraordinary happenings.” According to the relevant Comptroller Reports: for 2007, Account 58 shows a balance of B/. 54.7 million (1.25% of the annual budget approved by the NA); for 2008, a balance of B/. 40.8 million (0.01% of the annual budget approved by the NA); and for 2009, a balance of B/. 91.7 million (1.65% of the annual budget approved by the NA). 74. No reference has been found in the Treasury Account Report for 2008 or in the relevant Comptroller Report to extraordinary expenditures that could have generated significant budget redistribution. There are no references to emergencies on the Websites of MINGOB or of the National System of Civil Protection for events in 2007, 2008, or 2009 (though there are references for the 2000- 2005 period), so it may be a permissible provisional working hypothesis that the natural disasters in the years analyzed did not significantly affect overall budget execution. Score: A. Budget expenditure charged to the contingency vote was less than 3% of the Budget approved by the NA in the three years analyzed. Indicator Assessment Justification PI-2 B+ Scoring method M1 Variance in expenditure composition exceeded 10% in no more than one of the (i) Score B last three years. The budget expenditure charged to contingency vote was on average less than (ii) Score: A 3% of the original budget in the three years analyzed. PI-3. Aggregate revenue out-turn compared to original approved budget 75. This indicator evaluates the capacity of the government to obtain sufficient revenue to satisfy its expenditure needs. For this, the actual annual revenue is compared to the budget goals established in the annual budget law. 76. Once again, the reference period is for the years 2007-2009. The actual monthly revenue amounts and that budgeted derive from the revenue reports published by the General Revenue Directorate (DGI) of MEF, cross-checked in SIAFPA with CGR records. 77. Panama’s revenue stream is provided by a wide diversity of sources and types of government revenues (the budget revenue classification establishes more than 60 revenue items), which promotes collection stability. Thus it has been possible for governments to provide a reasonable flow of funds throughout the year; typically, revenue collection has reached 80% during the year with small quarterly spikes, leaving only a 20% balance of end-year collections (see Chart 3.1.3.1). 29 i) Actual domestic revenue collection in comparison to estimations made in the original approved budget 78. In general, current revenue collection has satisfied both the partial collection goals and the total goals set by the Government, even though the collection goals significantly increased during 2009. 79. Several reforms to tax standards during the analyzed period and in previous years have positively affected collection, allowing Government expenditure targets to be met. This has also enabled part of current revenue to support investment programs entirely financed by State resources. On the other hand, given that no institutional expenditure ceilings are set during budget preparation, under-valuation of revenue is used as a tool for the Government to control the growth of budget expenditure. Chart 3.1.3.1 Comparison between Current Collected Revenue and Budget 2007-2009 B./ Real Collection Budget Goals 1.2 1 0.8 0.6 0.4 0.2 0 MAY MAY AUGUST MAY AUGUST AUGUST OCTOBER OCTOBER JUNE JULY OCTOBER APRIL JUNE JULY APRIL JUNE JULY NOVEMBER FEBRUARY NOVEMBER APRIL FEBRUARY SEPTEMBER DECEMBER MARCH SEPTEMBER DECEMBER FEBRUARY NOVEMBER MARCH MARCH SEPTEMBER DECEMBER JANUARY JANUARY JANUARY Source: MEF General Directorate of Revenue. 80. Table 3.1.3.1 shows revenue out-turns for the three years analyzed. The deviation represents the degree to which the initial revenue goal has been attained. In Annex 2, B/. values are included as well as the level of compliance of the main revenue items. Table 3.1.3.1 Out-turn of revenue execution (actual/budgeted) for 2007, 2008, and 2009 (percentages) Deviation Type of Revenue 2007 % 2008 % 2009 % Current Revenue 118 130 108 Tax Revenue 127 120 108 Direct Taxes 129 121 112 Indirect Taxes 81 88 122 Non-Tax Revenue 107 150 104 Tariffs, Duties, and others 114 142 92 Participation, Utilities, State Enterprises, and Contributions 103 157 113 Other Current Revenue 101 107 130 Details in Annex 2.2 Sources: Information provided by the DGI; Annual Budget Laws 2006, 2007, 2008, and 2009. 81. In general, although revenue totals are foreseeable, deviations are high because collection goals are under-estimated. This calculation excludes capital revenues for the period considered. Upon the 30 clarification of the PEFA Fieldguide issued in May 3, 2012, capital revenues should be considered along with current revenues for this calculation, but that information is not currently available for this indicator. In 2009 capital revenues were 32.9 % of total revenues and were 80.8 % of capital revenue budgeted. 6 Score D. Actual revenue collection exceeded collection goals in 2007 (118%), 2008 (130%), and 2009 (108%). Indicator Assessment Justification PI-3 D Scoring method M1 Domestic revenue collection was more than 116% of domestic revenue (i) Score D estimates budgeted in two or more of the last three years. PI-4. Stock and monitoring of expenditure payment arrears 82. This indicator assesses whether in practice there are procedures, such as expenditure payment arrears, that constitute non-transparent forms of financing. This indicator tries to establish whether there is complete and reliable data on such arrears and, if so, whether the proportion of such delayed accounts to total budget expenditure is, tracked over time to assess whether the problem is being resolved. 83. In this indicator a distinction must be made between accounts payable that are not scored by the indicator (such as unpaid amortization of loan principal, since amortization is a financing transaction not expenditure, or delays arising from a creditor’s tardy submission of an invoice) and delays in payment that are the object of this assessment. Debtor-driven delays in payment arise when the debtor fails to comply with the contracted payment commitment; therefore it is necessary clearly to define how the contract has not been honored. In the case of Panama, it is not easy to identify non-compliance; there a no generalized practice that can be considered a Government standard or a common business practice for transactions with the State. The only reference that this review has found is in Article 70 of the Public Contracting Law, which establishes the obligation of public entities to honor their commitments and payments stated in contracts, and recognizes the possibility of establishing penalties for non-compliance. No evidence has been obtained of any other regulatory, commercial, judicial, or generalized standard. 84. The existence of Government accounts payable is apparent. An analysis of budget execution shows substantial difference between budget-executed amounts and those contained in payment orders. A registry has not been found with information that allows an assessment to be undertaken when these payment orders have been executed, but evidence has been found in the Treasury Directorate of payment orders that are being processed with delays of 90 or more days. It was noted that many of the payment orders sent to the Treasury for processing concern invoices that have been in the respective institution’s administrative processing for several weeks. A list of pending payment orders up to October 19, 2010 supplied by the Treasury to the PEFA mission shows that almost 60% have been pending more than a month (exclusive of time in the executing institution’s administrative system) and those pending for 90 days or more constitute more than 30% of the total arrears. 6 Source: CGR 2009 Annual Report. 31 Table 3.1.4.1 Pending payment orders in the MEF Treasury Directorate Age of payment order Amount pending payment (B/.) % Less than 30 days 122,982,829 40.42 More or equal to 30 but less than 60 days 55,969,836 18.40 More or equal to 60 but less than 90 days 32,547,732 10.70 More or equal to 90 days 92,746,933 30.48 Total 304,247,330 100.00 Note: The period provided only indicates the period in which the payment order remained in the Treasury, but not the total period of the transaction, which may well have been held up at the executing institution. Source: Treasury Directorate. October 19, 2010. 85. Balance payables are reported monthly and are available in SIAFPA. For example, a budget execution report as of September 30, 2010 for the Ministry of Public Works shows an accrued and accumulated budget execution of B/. 314.9 million, and an amount payable accumulated to the same date of B/. 194.8 million. Thus almost 39% of the accrued budget execution of that entity had no payment orders issued. 86. Table 3.1.4.2 summarizes for the 2007-2009 period budget execution statements and balances to be paid (accrued amounts that have no payment orders as of December 31) as a percentage of the executed budget. The executed budget may not include some transactions that were not accrued in a timely manner (such as transactions that could not be registered for lack of available balances in the corresponding budget item that may itself be part of an ongoing modification request; 7 or those for which the provider, through having delivered the goods/services, has not presented an invoice.) 8 However, the standard framework allows commitments due to be paid by December 31 to occur in the first four months of the following year. 87. Sundry factors can lead to arrears, stemming from both service providers and institutional administrators, in which case the file passes through a slower bureaucratic process, and may be returned to the provider with observations. (No registry is kept accounting for the source of such delays.) During this process, some provider documents that have short bureaucratic deadlines for submission may expire, thus further complicating arrears resolution. In many of these cases, when the relevant document is finally approved and payment is authorized, the responsible entity may request that the service provider void the original invoice and present a new one, which is promptly paid; consequently, on the record, the payment of that invoice appears to be timely. 7 The regulating framework establishes that in order to commit to expenditure there must be a budget item where these expenditures can be placed, but it does not establish that this item must have available and sufficient balances at that moment. Because SIAFPA does not allow transactions to be recorded when there is no balance, the institutions that are submitting the paper work for budget modification for this item, postpone recording the commitment acquired until the item has sufficient cash balance. 8 Regulations require that before State suppliers can collect payment from the State for rendered goods/services, they must present a “Good Standing” certificate that they do not have pending debts with the State or with the Social Security system; this certificate can be obtained online. 32 Table 3.1.4.2 Pending accounts payable 2007, 2008, and 2009 (B/. thousands) Executed Budgeta Paid Budgetb Budget to be Paidc 2007 2008 2009 2007 2008 2009 2007 % 2008 % 2009 % Central 4,432 5,172 6,468 3,987 4,600 6,076 10.0 11.1 6.1 Government Decentralized 1,997 2,453 2,722 1,848 2,272 2,581 7.5 7.4 5.2 Sector Public 555 805 669 500 763 613 9.7 5.2 8.2 Enterprises Financial 1,342 1,493 1,536 1,339 1,479 1,531 0.2 0.9 0.3 Intermediaries Total 8,326 9,923 11,395 7,674 9,114 10,801 7.8 8.2 5.2 Notes: a Budget amount accrued. b Budget amount with an approved payment order. c Budget amount accrued that still does not have a payment order issued. Source: Comptroller General of the Republic. SIAFPA. 88. SIAFPA allows follow-up on accrued budget balances that do not have payment orders, but it does not indicate how much of this amount is in arrears. Because the origin of delays in procedures may be attributable to the creditor, or because the responsible institution has asked the provider to reissue the invoice with a date close to the payment day, it is not possible to identify when the non-compliance of contractual clauses has been rectified, or when a delay in payment is the responsibility of the public entity, or if delays in payments are occurring. 89. In addition to the types of cases cited, evidence has been found of commitments acquired but not accrued by December 31 that cannot be reverted. In these cases, which this review was unable to quantify, the payment obligation is transferred to the following year’s budget, adversely affecting the capacity of expenditure for that year. However, it appears that most such incidences originated before 2008 and have since been substantially reduced. i) Balance of expenditure payment delays (as a percentage of the actual total expenditure of the corresponding term) and all recent variations of this balance 90. Although it is likely that in the two years analyzed, part of Government accounts payable may have been delayed, it is impossible to quantify such cases; hence no trend (positive or negative) can be established. Score: NR. The indicator cannot be evaluated because there is insufficient pertinent information. ii) Availability of data to provide follow-up of the balance of payment of expenditure delays As is mentioned in previous paragraphs, there are no accrued data on delays. 33 Score: D. Information on payment delays in the Government entities cannot be accurately determined. Indicator Assessment Justification PI-4 NR Scoring method M1 (i) NR This dimension cannot be score. (ii) Score: D There is no reliable data on delays. Sub-Section 3.2. Scope and transparency PI-5. Classification of the budget 91. This indicator assesses whether budget classification enables adequate tracking of expenditure to be undertaken with respect to administrative, economic, functional, and program dimensions; to do so, the budget classifier is compared with international classification standard practices (Public Finance Statistics Manual, FMI, 2001 or 1986). The period of reference for this analysis is that of the 2009 executed budget. i) The classification system used for formulation, execution, and reporting of the central government´s budget 92. Budget classifiers within a program structure of expenditure enable the structure and distribution of items to express, in a uniform manner, the public accounts by expenditure, economic, administrative, and functional objectives. 9 They also allow identification and reporting of revenue and expenditures in a manner compatible with international classification practices (MEFP 1986), even if its structure does not coincide with that used by other countries. 93. The Budget proposal presented to the NA for approval reflects a very detailed and voluminous program structure, which is accompanied by summaries and consolidations, as well as a brief exposition of objectives, in which only a brief reference is made with respect to budget policies (see PI-6) as well as the medium-term fiscal framework and the State Expenditure Framework, which are published during the first quarter of every year. 94. Although the expenditure function classification follows its own structure, it includes the ten highest level functions of the United Nations’ Public Administration Functions Classification (CFAP). However, in Panama only some of the 69 second-tier sub-functional elements identified by the United Nations are included. All budget expenditure classifiers were revised and updated in 2008, and have been presented in an Expenditure Classifier Manual. One of the primary objectives of the revision was to enable financial information to be entered in SIAFPA. 95. Each institution has its own budget and accounting accounts; therefore the budget and accounting classifiers are common up to a certain level of codification by public entities. Each entity, at lower levels, adds the necessary sub-allocations for their management. The review of some institution financial reports (Quarterly Financial Statement reports, presented to the NA and MEF) has revealed some inconsistencies in budget items, which appear with negative balances, indicating a lack of coordination at lower institutional levels of the budget and accounting classifiers (i.e., that register expenditures on wrong budget lines). 9 Although the Budget structure is programmed some methodological inconsistencies have been found, because in some cases expenditures and administrative groups have been defined as “program.” 34 96. Although the budget differentiates between current and capital expenditures, on the accounting side this distinction is not so clear as investment accounts do not coincide with accrued amounts or with investment budget amounts paid. For example, the Ministry of Public Works investment budget in 2009 was of B/. 529.8 million accrued and B/. 485.6 million was paid from that budget, according to CGR budget execution reports. However, in the financial statements included in the Comptroller Report of 2009, the Ministry of Public Works reported the execution of investments amounted to B/. 481 million. 97. SIAFPA lacks a budget formulating tool, thus DIPRENA has developed an Internet-accessible EXCEL spreadsheet model (SIPRES) that enables entities to formulate their budgets through a standard procedure that also enables subsequent consolidation of all information used to prepare the Government Annual Budget. In 2005, CGR developed a Government General Accounting Manual that describes government accounting accounts, which remains in use. 98. To report Government statistical data in the national account system or to provide the IMF with government financial statistics, “Bridge Formats” provided by the IMF (MEFP 1986) are used, which gather accounting and budget information at a given moment and allow an external conversion of the information compatible with the MEFP 2001 standard. Score: B. The Budget classification includes administrative, economic, and functional classification codes, even though not necessarily at the sub-functional level of detail recommended in the United Nations Public Administration Functions Classification (CFAP). The budget classification system permit uniform reports to be created that compatible with MEFP 1986. Indicator Assessment Justification PI-5 B Scoring Method M1 Budget formulation and execution is based on administrative, economic, and sub-functional classifications (using at least CFAP’s 10 main functions), (i) Score: B through use of EFP/CFAP standards or a standard that can create uniform documentation to conform to these standards. PI-6. Comprehensiveness of the information included in budget documentation 99. This indicator assesses whether the Budget proposal information presented by the Executive to the NA is adequate and sufficient for an analysis, discussion, and approval/rejection to be rendered. The indicator scoring methodology verifies the number of information elements specified by the PEFA system that have been presented to the NA with the Government Budget proposal. The reference period for this analysis is that of the 2011 Budget, which was debated and approved during the PEFA mission. The President of Republic signed the 2011 Annual Budget Law on November 2, 2010. 100. The Political Constitution of the Republic of Panama 2004 establishes that the State General Budget will include “the total of investments, revenue, and expenditures of the public sector, which includes autonomous, semi-autonomous, and state enterprise entities” (Art. 268), but it does not specify the supporting documentation for fiscal and budget estimates that serve as a basis for the preparation of the Government Budget proposal. 35 101. The Fiscal and Social Responsibility Law (Law 34, June 2008) mandates that the Government prepare and publish a five-year Government Plan for its administration. This Plan can be reviewed periodically and modifications to it must also be published. The macroeconomic estimates and fiscal and medium-term expenditures frameworks are included in the Government Plan and are revised and published in the first quarter of every year. In this manner, information on policies, strategies, and estimates (fiscal and macroeconomic) are public knowledge. The Statement of Objectives in the Annual Budget proposal is brief and only references the values and terms previously published in the Government Plan and its respective annual revisions. 102. The process of budget proposal revision and approval begins when the Minister of Economy and Finance presents the draft Budget and Statement of Objectives to the NA Plenary. The authorities responsible for each specific institutional budget then appear before the Budget Commission (BC), where they explain and substantiate their portion of the overall Government Budget. When this process is complete the budget is then debated in three plenary sessions of the NA. The Budget Commission and the NA can request from an institution’s officials any documents that may be pertinent to their task. Since the Budget proposal is presented in detail, the documentation is quite extensive. 103. The letter of remittance of the Budget proposal to the NA, received on August 9, 2010, noted that 20 sets of the following documents were attached: • Central Government Revenue and Expenditure Budget Proposal (Book I and II). • Decentralized Sector Revenue and Expenditure Budget Proposal (Book I, II, and III). • Public Investment Budget Proposal, for Province, District, County, and Circuit. • Budget Proposal Financed with Resources from the Fiduciary Fund and its Counterpart. i) Proportion of reference information contained in budget documents most recently published by the central government (for consideration in the assessment, the reference specification parameter of the information must be completely met) 104. The PEFA methodology establishes that the assessment of this indicator can only take into account documents that have been presented to the NA with the Budget proposal. Other information, even if it may have been presented to the NA on another occasion, or that may be of a public character, cannot be considered, because there is no certainty that it was available to the legislators at the moment of deliberation, or it may not have been updated, or that it may not correspond to that used to prepare the Budget. In this assessment, documents that are presented by institutional officials to the Budget Commission are also not included, whether they support the institutional budget or are presented to fulfill Commission requests, since in both cases, the information was not available when the legislator formulated his/her initial budget assessment criteria The PEFA criteria, in accordance with the PEFA Fieldguide issued on May 3, 2012, consider only that information available to member of the legislature at the time of reviewing the budget proposal). 105. Internationally accepted best practice considers that budget documentation must include at least the nine components described in Table 3.2.6.1. 36 Table 3.2.6.1 Information included in Budget documents presented to the NA for review and approval of the annual Budget Law Information component Included Comments 1) Macroeconomic The macroeconomic assumptions that support the 2011 Budget proposal were assumptions with growth presented in the “2010-2014 Government Plan” published in December 2009. Yes aggregate estimates, inflation The Statement of Objectives that accompanied the Budget proposal makes rate, and exchange rate reference to these assumptions, but does not explain or update them. The deficit, in the case of Panama, is calculated subtracting the expenditures from revenue (Article 9 of the Social and Fiscal Responsibility Law), which is in accordance with the former definition of the Public Finance Statistics (EFP) 1986 Global Deficit (paragraph 446: Analysis Framework). This definition is 2) Fiscal deficit, defined equivalent to the Net Operational Result as defined by the EFP 2001.a In the No according to the EFPs 2001 EFP the results are expressed in three different variables: net/gross operational result; net loan/net indebtedness, and deficit/cash surplus. Additionally, the 2011 Budget excludes turnkey contracts of significant amounts; since these have been contracted by the Government, the deficit amounts shown may not correspond to the actual situation. b The 2011 Budget documentation showed a budget deficit and financing needs, 3) Deficit finance and its indicating the foreseen sources and the contributions for each one of these. No composition However, the 2011 budget excluded some financed works, so that the amounts presented do not correspond to actuality (see previous component). The information is available at the Public Credit Directorate, but evidence has not been found that the public debt balance was presented with the requisite 4) Debt balance including Yes detail in the documentation accompanying the 2011 Budget proposal. There are details for the beginning year brief references to it in the Statement of Objectives, but not a detailed presentation for the legislators. The information is available in the Comptroller reports; however, no evidence 5) Financial assets with Yes has been found that financial assets were presented with the requisite detail in details for the beginning year the documentation accompanying the 2011 Budget proposal. 6) Budget out-turn from the The information is available in the Comptroller reports and in the budget Yes previous year (2009) execution reports. 7) Present-year budget The information is available in the Comptroller reports and in the budget Yes (revised or out-turns) (2010) execution reports. 8) Summarized budget data The budget information is provided in a summarized and detailed manner both Yes on revenue and expenditure for revenue and expenditure. The impact of the new government budget policies were described in the “2010- 9) Explanation of the budget 2014 Government Plan” published in December 2009. The Statement of consequences of new policies, Objectives that accompanied the Budget proposal makes reference to these estimating the budget impact policies and strategies, but does not provide any explanation of them. The of the main modifications in No indicator requires that the impacts and consequences of budget policies for the revenue policy and/or current term be explicitly shown in the documentation presented to the NA and important modifications in not in documents outside of the presentation, even if these are public expenditure programs knowledge. Notes: a Public Finance Statistics Manual 2001. Chapter 4.E. b The Statement of Objectives text that was presented to the NA in August 2010 specifically states: “The National Government has proceeded to conduct or program “turnkey” contracting for a series of projects that are not included in the 2011 Budget Project.” Source: The 2011 General State Budget proposal documentation. Score: B. Six of nine evaluated parameters of the indicator are available to the legislature, although some of them are not included in the budget submissions sent to the National Assembly they fulfill the information requirements established by the PEFA methodology. 37 Indicator Assessment Justification PI-6 B Scoring Method M1 The recent budget documents cover six or fewer of the nine information (i) Score B references. PI-7. Extent of budget unreported government operations 106. This indicator assesses the proportion of government expenditures and revenues not declared or inadequately reported in fiscal reports, to establish how complete the budget estimates and reports are on government financial management. The reference period for the analysis of this indicator is 2009. 107. In general, budget regulations make it obligatory to declare and deposit in Treasury accounts all institutional and government revenues, as well as to register all revenues in the budget, to thereby establish that the budget includes all Government resources, be they of the government or from international cooperation, whether collected in cash or financed. Likewise, all expenditures must be budgeted. Constitution of the Republic - Article 268. The budget will cover an annual period and will contain the total amount of investments, revenues and expenditures of the public sector, which includes autonomous, semi-autonomous, and state entities.” Social and Fiscal Responsibility Law - Article 5. “Public entity fiscal revenues must be consigned in the State General Budget. The deductions and adjustments to revenue, as well as tax expenditures, must be presented in a detailed manner. No payment can be made if within the State General Budget there is no specific mention of the expenditure item that would satisfy this commitment.” (Law 34 of Fiscal and Social Responsibility, June 5, 2008, and its modifying Law 32 of June 26, 2009) Social and Fiscal Responsibility Law - Article 6. “Central Government revenues must be registered in the Budget and must be deposited in the National Treasury Account in the National Bank of Panama, against which all payment orders will be issued to cover commitments from the authorizations of expenditures originated in their different dependencies. The Single Treasury principle will also apply to Decentralized Institutions, Public Enterprises and Financial Intermediary Institutions, in accordance with administrative and financial autonomy. In the case of earmarked funds created by special laws with specific destinations, their collection and deposit will be undertaken in accordance with this article.” (as above) 108. Regarding 2009, evidence has not been found of the existence of extra-budgeted revenues or expenditures. However, some deficiencies arising from inefficient administrative procedures have been identified in budget execution reports and led to a budget expenditure that is not adequately declared, making government follow-up difficult. 109. Government standards establish that institutions must prepare and present to CGR and MEF budget execution reports on a monthly basis and financial reports on a quarterly basis (Annual Budget Law 2009, Article 253). These reports must contain information on the commitments, assignments, and budget payments (Annual Budget Law 2009, Article 194). These reports, which have an appropriate management report design, are produced in cycles that do not coincide with management operational cycles; therefore this information does not adequately reflect budget execution. It has been estimated that the current average payment cycle is 53 days. The average period between the registration of the commitment and the registration of the payment has not been estimated, but as is mentioned in the PI-4 analysis, this can extend for several months. Additionally, as noted in the PI-4 analysis, there are also 38 payment processing delays in the Treasury that could exceed 120 days. In this way, monthly reports show amounts related to ongoing processes whose status and end date cannot be precisely determined. 110. In the case of quarterly reports, additional weaknesses are apparent. For example, accounting information is not necessarily the same as budgeted information. Cases have been found in which expenditures have been mistakenly allocated to accounts that generate negative budget balances (see PI- 5). In addition, deficiencies have been found in institutions’ banks statement reconciliations, since these accounts can be administered in a decentralized way and settlements are not necessarily undertaken in a timely manner. In this way, institutional financial statements that are presented quarterly do not necessarily reflect the actual situation of these accounts on the reporting date. It is noteworthy the National Bank reports that there are more than 6,000 government bank accounts outside of the single Treasury account system, and that settlement must be completed in the first 10 days of each month to prepare monthly and quarterly reports. 10 111. Another aspect to highlight is the Treasury transfer of funds to institutional accounts (the more than 6,000 noted immediately above). These transfers are registered as expenditures in the budget; however, these funds are without movement in institutional bank accounts for undetermined periods. A National Bank report of balances in institutional current accounts as of June 30, 2010 showed a total balance of B/. 1,421.7 million; the balance of accounts of central government entities as of that date was B/. 650.7 million. CGR’s Quarterly report of June 30, 2010 shows that from January through June 2010, the public sector paid B/. 5,012.2 million, of which B/. 2,251.8 million was for central government payments, which include funds deposited in institutional accounts. That is to say, almost 29% of transactions reported as paid in public sector budget reports and in the central government report had not yet been executed, since the funds were still held in institutional checking accounts. 112. Another practice of some institutions, that has not been possible to quantify, is delays of the transaction registration, which can be postponed for several weeks and not always completed before December 31; therefore, these operations are not registered in the budget execution of the year in which the asset was acquired, but rather in the new budget of next year. In this manner, since these goods are acquired without budget transfers, extra-budget expenditure is incurred. Most often, this practice arises from two circumstances: (i) when there is no budget item or balance available for that particular expenditure item (which typically occurs when the creation or modification of the budget item in question is still in process); and (ii) when the supplier, after delivering the goods or services, delays submitting an invoice). In both cases, monthly and/or quarterly reports are compromised by this registry omission of goods or services that have effectively been acquired; if this occurs toward the end of the year, the end-of- year fiscal reports can be affected as well as budget liquidation. i) Level of extra-budgetary expenditure – other than projects financed by donors – that are not declared (i.e., that do not appear in fiscal reports) 113. Although the shortcomings; described above tend to occur toward the end of the year, and in the majority of cases the fiscal closing and budget liquidation reports include compensations for these 10 The following example, although not belonging to the period in the study, confirms the difficulties of settling accounts: a consolidated report of MEDUCA bank settlements from April 1 to September 30, 2010 mentions that only the accounts for the central office and the regional units are included, leaving out the accounts from the almost 3,000 schools that receive MEDUCA budget funds. Additionally, this report notes that the settlement accounts for some regional units are those through August, because at the time of the report, banking information for September had not been received. 39 amounts, it is clear that interim reports also do not report budget execution adequately and thus undermine follow-up. 114. In 2009, as of December 31, approximately 6% of the budget accrued during the year was still unpaid, though by the following April this discrepancy had been compensated. Thus, the reports of that year do not properly state the expenditure amounts. Additionally, the monthly and/or quarterly reports, as noted above, do not adequately report budget execution for amounts that could easily be above the 10% budget execution limit. Evidence shows most items identified are reported, though not necessarily in the correct accounting period, but the timing of the information makes difficult to produce an accurate picture of the budget execution situation until all the accounts are incorporated into the fiscal reports. Score: D. The level of expenditures not reported or inadequately declared in the end-2009 fiscal reports is above 5%, but does not exceed 10% of the executed budget amount: However, the level of non-reported or inadequately declared expenditure during the year is easily above 10% of government total expenditure, thereby precluding an appropriate budget execution follow-up. ii) Information on revenue and expenditures with reference to projects financed by donors that are included in fiscal reports 115. The total amount of funds derived from grants and loans are executed by budget procedures and through SIAFPA, where both revenue and expenditures are registered. Budget execution of these projects is subject to the same management and reporting problems of the government budget execution of current expenditure. Evidence has been found that payments from funds deriving from international cooperation showed processing periods greater than six months at the moment when the use of funds in the special project account was requested to execute purveyor payment. Additionally, the use of fiduciary agents renders it difficult to assess the real execution situation of those funds as the funds are registered as executed in the budget when transferred to the fiduciary agent. Score: D. Weaknesses in fiscal reports mean that it is not possible to provide complete information on revenue and expenditure of projects financed through loans. Indicator Assessment Justification PI-7 D Scoring Method M1 The level of unreported extra-budgetary expenditure (other than donor-funded (i) Score: D projects) is estimated to be above 10% of total expenditure. Information on donor-funded projects in fiscal reports is seriously deficient and (ii) Score: D does not even cover all loan-financed operations. PI-8. Transparency of inter-governmental fiscal relations 116. This indicator assesses the extent to which budget transfers, whether conditional or not, from the central government to sub-national, decentralized, or autonomous entities are based on clear, predictable, and transparent rules. The analysis of this indicator is centered on management of the last completed fiscal year (2009). 40 i) Transparent and rules-based systems in the horizontal allocation among subnational governments, of unconditional and conditional transfers from central government (both budgeted and actual allocations) 117. The Constitution of the Republic does not define a particular legal framework that regulates regular transfers of central government resources to municipal governments. The Constitution recognizes the municipal governments as autonomous, democratic entities and as local governments (Article 229) with autonomy to collect taxes and their own revenue (and hence the ability to prepare their own expenditure budgets). Furthermore, Article 233 establishes that only certain circumstances (for example, epidemics, public security matters that cannot be solved by the municipal government, and other national interest matters that regulated by law) will lead the State to support municipal management experiencing difficulties. Finally, the Constitution defines the resources that need to be dealt with as municipal revenue, including State subventions and donations, without providing greater detail on the type of subventions or donations or whether they must align with municipal budget preparation cycles (Article 243). 118. Panama does not have an administrative decentralization law that defines and regulates with more detail the competencies of decentralized and autonomous entities vis-à-vis the central government. Therefore it is at the discretion of the Executive to determine the amounts of transfers to municipal governments regarding specific programs and budget availability (for example, the Social Development Program, which transfers subsidies to certain municipalities for social programs); such decisions are not regulated by rules, such as formulas, that could enable municipalities to predict their annual allocations and thus prepare their budgets and operational plans in an effective manner. Score: D. There are no clear, transparent, and accepted rules, such as formulas, to enable sub-national governments to predict the transfers they will receive from the central government. ii) Timely and reliable information provided to subnational governments on the allocations they will receive from the central government for the next term 119. Although there is no comprehensive legal framework that regulates and provides clear rules on central government transfers allocation to municipalities, those municipalities that are a party to such transfers are aware at the time of national budget preparation of the amounts that will be allocated to them in the next term, and thus have some ability to modify their own budgets at the preparation phase. Score: A. The information about fund allocations given to municipalities is reliable and is delivered before the municipalities complete their own budgets. iii) Extent to which consolidated fiscal data is collected and made known (at least regarding revenue and expenditures) with reference to the general budget, by sector categories 120. The Ministry of Economy and Finance (MEF) publishes a quarterly fiscal balance of the Non- Financial Consolidated Public Sector (SPNF), including the general government and the central government fiscal balance. This information shows details of SPNF total revenues, which include the central government current revenues (Central Government, Social Security, and Consolidated Agencies, not including municipalities), the balance of public enterprises, agencies, and others, capital revenue, and grants. On the other hand, SPNF expenditures show the general government current expenditures, interest, and capital expenditures (fiscal investments). 41 Score: D. Central government, general government, and SPNF fiscal information does not include the consolidation of operations performed by municipal governments. The information on municipal operations is audited by CGR but is not included in the SPNF consolidated fiscal balance. Indicator Assessment Justification PI-8 C Scoring Method M2 Horizontal allocation of central government transfers is largely not determined (i) Score: D through transparent systems based on standards. Sub-national governments are provided with reliable information on the (ii) Score: A allocations that will be transferred to them before they begin detailed budget preparation. Fiscal information (ex-ante and ex-post) that is compatible with central government fiscal information is collected and consolidated in relation to less (iii) Score: D than 60% (by value) of sub-national government expenditures; if coverage is of a larger proportion in consolidated annual reports, if it occurs with more than 24 months delay. PI-9. Oversight of aggregate fiscal risk from other public sector entities 121. This indicator assesses the capacity and quality of central government oversight of aggregated fiscal risk generated in an explicit or implicit manner by other public sector entities, such as autonomous, public enterprises, sub-national governments, and public enterprises. The analysis of this indicator is centered on the management of the last completed fiscal year (2009). i) Extent to which the central government performs oversight of Autonomous Government Agencies and public enterprises 122. MEF is responsible for oversight of public finances stemming from central government agencies or autonomous agencies and cash-based public enterprises. Monthly and quarterly reports show budget execution of the central government (the most recent one available for this study corresponds to September 2010). The most recent consolidated quarterly report on general government balance and SPNF corresponds to September 2010. 123. However, according to the International Monetary Fund’s most recent Article IV Consultation report, 11 the consolidation of information on transfers between public sector entities should be more consistent and particularly the consolidation of operations of public enterprises must be undertaken in a timelier manner and of a universal character. For example, since 2004 financial data on the Panama Canal Authority (ACP) has been excluded from the SPNF definition for fiscal purposes, so to obtain such information one must go to the Web portal www.pancanal.com. In 2009 ACP assets were US$ 5.3 billion with revenues of US$ 1.8 billion. Score: C. Autonomous and decentralized entities and public enterprises annually present their financial information to MEF, but there is no complete consolidation of fiscal information, especially regarding public enterprises. 11 Panama: 2010 Article IV Consultation—Staff Report, October 2010. 42 ii) Extent to which the central government effectively oversees the sub-national government fiscal position 124. There is no systematic oversight of the municipal government fiscal position so as to measure fiscal risk. However, accounting-type consolidation is performed by CGR to control expenditure and accountability exists. This accounting consolidation is not standard in any sense (since if it is performed by the Municipal Council it reflects definitions incorporated in its accounting manual, which may or may not coincide with the regulations and general budget execution standards issued by MEF). In fact, municipal budgets are not part of the general budget and only include transfers from the central government to municipalities; consequently there is no annual consolidated report or any other indication of municipal government fiscal-risk factors. Evidence itself shows that 100% of municipalities do not report a surplus at the end of the management period, which indicates that they are not considered as borrowers in the first place (if they are borrowing funds, these are guaranteed by the National Treasury). Score: C. Sub-national governments annually present their financial information to CGR, so the latter can control expenditures, accountability, and accounting consolidation. However, MEF does not prepare a complete consolidation of the municipalities’ fiscal position. Indicator Assessment Justification PI-9 C Scoring Method M1 The majority of the main OPA/EP’s present fiscal reports to the central (i) Score: C government at least on an annual basis, but a consolidated overview is either not prepared, or if it is, it substantially incomplete. Oversight of the corresponding net fiscal position is undertaken at least on an (ii) C annual basis for the most important sub-national government level, but a consolidated overview is either not prepared or is substantially incomplete. PI-10. Public access to key fiscal information 125. This indicator assesses the extent to which the public in general or some stakeholders have comprehensive access to key fiscal information of a certain quality standard that enables analysis and comparison to be performed. The analysis of the current indicator is centered on the management process of the last completed fiscal year (2009). i) Number of elements of public access to information mentioned below (1-6) that are used (for an element to be taken into account in the assessment the full specification of the information benchmark must be met) 126. The PEFA assessment model requires the following six information elements be available to citizens. 43 Table 3.2.10.1 Public access documentation Required elements Public access elements Assessment The annual budget documentation as is presented to Congress is available at www.asamblea.gob.pa. For example, the 2010 and 2011 budget proposals, respectively are available at http://www.asamblea.gob.pa/LEGISPAN/Pdf_TRA_HIS/2000_tra_his/2009_tra Annual budget _his/2009_P_049.pdf and documentation, as is http://www.asamblea.gob.pa/actualidad/proyectos/2010/2010_P_185.pdf.This Complies presented to Congress information includes (i) the delivery notes from the executive to the legislature; (ii) the Statement of Objectives; and (iii) the law proposal. Also, the information on the budget delivered includes actions executed by the legislature, including (i) report on the first debate; (ii) report from the Budget Commission and correction on style; and (iii) the law proposal approved in the third debate. In-year budget execution MEF follows up on the budget execution monthly and the information is Complies reports available at: http://www.mef.gob.pa/Portal/index.html Financial statements for the closing of the SPNF term are available at Year-end financial www.mef.gob.pa. For example, the SPNF consolidated financial statements Complies statements from 2009 are available at http://www.mef.gob.pa/Portal/index.html. There was no evidence of publication or access to external audit reports on Does not External audit reports budget matters. comply Information on purchase processes and contracting is available at www.mef.gob.pa and specifically at the PanamaCompra link Contract awards Complies http://www.mef.gob.pa/Portal/index.html (what is not very clear is the coverage of the publications related to the annual procurement plans). Information on the resources received and utilized by primary service providing units is complete, reliable, and is updated on a monthly basis and it’s available Resources available to to the public, enabling continuous monitoring of the reception and usage of Complies primary service units these resources by the units. CGR and the sector institutions undertake this oversight on a monthly basis. Score A. The central government publishes the information of five of the six elements indicated. Indicator Assessment Justification PI-10 A Scoring Method M1 The government makes available to the public between five and six of the six (i) Score A types of information indicated. Sub-Section 3.3. Policy-based budgeting PI-11. Orderliness and participation in the annual budget process 127. As is mentioned in the PI-1 analysis, the standard framework of budget management is simple and not very extensive, providing flexible management that emphasizes priority programs and facilitates adjustments to current circumstances. 128. Since 2009, governments are required to present a Government Plan for the five years of their administration, 12 defining the strategies and development plans for that period; these take priority over existing or sectoral institution plans. Thus, the budgets only prioritize these programs; the remainder of the budget funds is used to resolve other operational matters and to address unplanned circumstances that 12 Article 16 of Law 34, 2008 on “Social and Fiscal Responsibility” establishes that it is mandatory for the government to prepare a strategic plan in the first six months of its administration, describing the economic and social strategy, five-year financial programming, and the public investment plan for that period. The current plan was published in the official gazette on January 12, 2010. 44 typically arise from systemic administrative inefficiencies. In this manner, the initial budget contains “central” elements that are rigid and “peripheral” elements that are flexible and subject to numerous budget modifications during the year. For example, MINSA stated that it might annually prepare some 200+ budget modifications, while DIPRENA stated that it annually processed more than 1,000 budget modifications. Table 3.3.11.1 Regulatory framework of the Panama budget system Legal Framework Standards and Budget Instructions Constitution of the Republic Guidelines for Accounting issued by CGR Annual General State Budget Law Government Accounting Standards Social and Fiscal Responsibility Law Framework Manual for Preparing the Preliminary Proposal Fiscal Code of the Executing Unit Budget Classifications Manual Fiscal Closure Instructions Source: DIPRENA. 129. MEF does not establish budget ceilings for ministries, departments, agencies, and other applicable institutions; instead, each institution autonomously prepares its budget taking into account the five-year Government Plan and their sector and institutional needs. The entities deliver their initial budget proposals to MEF, which first analyses the unalterable aspects (Government Plan priority programs and programs being executed that cannot be halted); after which, all the other aspects are subject to negotiation with each entity, to establish a final amount for each institution that is compatible with the availability of resources estimated by the State. (Occasionally, the draft proposal for of an institution’s budget may exceed threefold the budget finally negotiated.) Once this negotiation is completed, the entity is precluded from any further negotiation until they explain their budget to the NA’s Budget Commission. 130. The amounts negotiated by MEF with the entities are then submitted to the Council of Ministers for discussion, where it is possible that adjustments in the redistribution of institutional funds may occur. Finally, MEF prepares the Budget proposal, which after final discussion and approval by the Council of Ministers, is submitted to the NA. 131. During the examination and discussion process in the NA, each entity can request changes to the Budget proposal to justify receipt of additional funds or a better distribution of these within its own budget. Legislators can also request that MEF modify the Budget in ways they deem prudent. In this manner, the final approved Budget may differ considerably from the original proposal presented to the NA. 132. As previously noted under PI-2, it is common that toward the end of the year, when the Budget is finally approved, and institutions have a better sense of the programmed activities that they have not been able fully to complete in the current year, institutions prepare budget modification requests before the new budget term even begins so as to be able to include in their new budget activities programmed but not completed in the period now ending. This adds uncertainties with regard to the recently adopted Budget, which continue throughout the year. 133. SIAFPA lacks a budget formulating tool, thus DIPRENA has developed an Internet-accessible EXCEL spreadsheet model (SIPRES) that enables entities to formulate their budgets through a standard 45 procedure that also enables subsequent consolidation of all information used to prepare the Government Annual Budget. i) Existence of and adherence to a fixed budget calendar 134. This dimension assesses whether there is (i) an adequate calendar for the budget formulation process and (ii) sufficient adherence to the calendar to enable institutions to prepare accurate estimates for budget execution in the coming year. The analysis of this dimension is focused on the last budget approved by the National Assembly (2011). 135. The critical dates of the budget calendar are established in the circular issued by MEF in the first working days of the year, which enables institutions to coordinate their systems and processes for budget preparation. This circular is sent to all government authorities, to the NA, and to CGR. For the 2011 budget approval, the circular was issued on January 4 and set the following calendar: Table 3.3.11.2 Budget calendar for preparing and approving the 2011 Budget Event 2010 Preliminary Amount Estimation April 19-30 Delivery of Preliminary Project May 20-31 Analysis, Discussion, and Approval June 1-29 Analysis by Institution June 1-11 Internal Institution Consultations June 14-18 Approval by Head of Institution June 21-25 Closure of Preliminary Balance June 28-29 Visits by MEF to Public Institutions July 2-9 First Draft of the Law Proposal July 12-14 Preparing the Law Proposal July 15-17 Approval by Cabinet Council July 19-22 Presentation to the National Assembly July 26-30 Discussion and Approval/Rejection by the NA August 5-December 5 Source: DIPRENA. 136. Since agencies autonomously formulate their budget without being subject to any budgetary ceiling, institutions can begin budget formulation at any point of the year and have until the end of the month of May to complete it. At that point institutions have no certainty regarding how much of their current budget they will be able to execute in the next seven months (because of the aforementioned administrative inefficiencies in budget execution that frequently preclude timely expenditure transfers to support budgeted activities); therefore they cannot determine how many of these activities will have to be re-programmed to be executed in the following year and hence the extent to which potential new activities can be programmed. Thus, although the formulation period is formally reasonable, as a practical matter it is purely notional because it is over before realistic budget estimates can be made. 137. The calendar is clear and complete, including all steps, from coordination prior to the formulation process through the presentation of the proposed Budget Law to the NA. It not only includes activities that institutions will undertake in the formulation process, but all inter-institutional Budget coordination processes. Additionally, periods are established for later reviewing and consolidating the government budget, as well as preparing the Budget Law. 46 Table 3.3.11.3 Adherence to the Budget calendar 2011 Budget Budget Activity Calendar Actual Delivery of budget proposal by the institutions to MEF May 31 May 31 Delivery of Budget Proposal Law to the NA July 30 July 27 Score: C. Although the budget calendar is clear and provides a timetable that, theoretically, is sufficient for budget preparation at the institutional level (six or more weeks), it is prepared so long before term closure that it precludes realistic and meaningful budget estimates. Score C is applied taking into account that Score B requires that agencies can produce meaningful estimations for budget preparation; this is not the case in Panama. ii) Clarity and comprehensiveness of instructions on preparation of budget submissions (budget circular or equivalent) and political involvement in that guiding task 138. This dimension assesses whether institutions receive adequate instructions to properly formulate their budget proposals, so that these are compatible with government budget policies, with development plans, and with available fiscal resources, thereby allowing the institution’s budget proposal to be integrated within the overall Government Budget proposal and subsequent efficient execution of the Budget. The analysis of this dimension is focused on the last budget approved by the National Assembly (2011). 139. As is mentioned in the PI-6 analysis, policies and budgetary assumptions are included in the five- year Government Plan, which is public, as are its revisions and updates published during the first quarter of each year. Despite the need for circulars containing budget ceilings, these are not issued by MEF; consequently institutions do not receive specific instructions for budget preparation, although they can obtain these from existing publications. Practice has shown that in many cases, as this Report has repeatedly indicated, institutions prepare budgets that are subsequently drastically adjusted and then re- adjusted, through numerous modifications, during execution. 140. MEF has produced a manual, “Macro for Capturing the Preliminary Projects of Executing Units”; however, this does not provide budget preparation ceilings and instructions, but only guidance as to how to prepare initial institutional proposals in a standardized manner (see previous commentary on SIPRES). 141. Internationally accepted best practice recommends that at the start of budget preparation process, institutions receive from the government instructions regarding maximum expenditure limits to which they must adhere, thereby enabling realistic programming of technically and financially viable activities, and enabling them to maintain the control of budget execution. Score: D. A budget circular is not issued with institutional budget ceilings, nor are specific instructions given for preparation of budgeted activities. In many cases, institutional budgets that are finally approved by the NA deviate significantly from the initial budget proposals of the entity. 47 iii) Timely budget approval by NA 142. This dimension assesses the final budget approval dates of the NA relative to the forthcoming fiscal year. The analysis of this dimension focuses on the last three Budgets approved by the National Assembly (2009, 2010, and 2011). The budgets of the last three years were approved before the beginning of the budget term. Table 3.3.11.4 National Assembly budget approvals Budget Approval Date 2009 December 4, 2008 2010 October 28, 2009 2011 November 2, 2010 Source: Budget Laws approved by the Congress. Score A. The budget was approved in a timely manner in the three years analyzed. Indicator Assessment Justification PI-11 C+ Scoring Method M2 There is a clear annual budget calendar, but it is rudimentary and its execution can be subject to frequent delays. The calendar allows ministries, departments, (i) Score: C and agencies (MDAs) such a short time to make detailed estimations that many do not complete them on time. A satisfactory circular in not issued to the MDAs, or the Cabinet only takes part (ii) Score D in the approval process of allotments immediately before detailed estimations are sent to the NA, therefore there is no possibility to introduce adjustments. (iii) Score A In the last three years the NA approved the budget before the new Budget term. PI-12. Multi-year perspective in fiscal planning, expenditure policy, and budgeting 143. This indicator assesses the extent to which fiscal and budget projections that are analyzed from a multi-year perspective are linked to expenditure and budget policies, with the intent to facilitate improved macroeconomic performance, promote greater discipline and fiscal responsibility among the different government institutions and levels, and agree on public expenditure objectives that match anticipated financial resources. 144. The Constitution of the Republic of 2004 establishes in Article 268 that, “[t]he budget will cover an annual period and will contain the total amount of investments, revenue and expenditures of the public sector, which includes the autonomous entities, semi-autonomous entities and state enterprises.” 145. Law 97 that created the Ministry of Economy and Finance in December, 1998, establishes in Article 2, sub-paragraph C that MEF would have the following as part of its functions: “Regarding public finance (i) direct the State financial administration; (ii) prepare and periodically update the State financial programming, of short, medium and long term, which will be the basis for the preparation of the preliminary General State Budget proposal for controlling financial management…” 146. Article 16 of the Social and Fiscal Responsibility Law of June 2008 establishes that governments should prepare, at the beginning of their administration, a Government Strategic Plan that would cover 48 five years “which must include a social and economic strategy, five-year financial programming as well as a five-year public investment plan that will establish criteria for channeling public expenditure toward national-level priority sectors, programs, and projects.” The current administration was the first to put into practice this stipulation; in December 2009 it published a five-year plan. 13 i) Preparation of multi-year fiscal forecasts and functional allocations The analysis of this dimension is centered on the last two completed budget terms (2008 and 2009). 147. The multi-year budget vision is cited only in the 2008 Social and Fiscal Responsibility Law, and because of the change in administration in 2009 the projections that the outgoing government made for the second half of 2008 and the first half of 2009 were superseded by events. A review has been made of different documents published between 2004 and 2008 that showed a multi-year development intention (“2005-2009 Strategic Plan against Corruption”; “Strategic International Cooperation Guidelines for Development, 2008-2013”; “Strategic Economic Development Vision to 2009”), but none of these quantify any public resource allocations to the proposed plans, or fiscal aggregates on the main categories of economic classification, nor make reference to annual or multi-year budgets. During the period under analysis, it can be said that the multi-year budget vision was restricted to monitoring of budget results (surplus/deficit) and not toward public expenditure distribution with multi-year criteria in its sector, operational, or institutional objectives. 148. Because circulars on budget ceilings are not issued nor are institutions informed regarding budget limits, institutional plans as well as possible multi-year expenditure projections are not linked to the multi-year program prepared by MEF. Score: D. In 2008 and 2009, multi-year projections were prepared on a roll-over basis within five-year projections, but only to enable monitoring of the fiscal deficit or surplus. A link has not been found with institutional or sectoral expenditure projections. ii) Scope and frequency of debt sustainability analysis The analysis of this dimension focuses on the last three completed fiscal years (2007, 2008, and 2009). 149. The Social and Fiscal Responsibility Law of June 2008, Article 2, states: “Regarding public financial matters, this Law has as its objective: 1. Increasing current savings of the Non-Financial Public Sector to reduce dependency on debt instruments to finance public investments and guarantee sustainability of the net public debt, by means of a gradual reduction of it as a percentage of the Gross Domestic Product. 2. Establish debt and deficit growth limits for the Non-Financial Public Sector…” 13 The preceding government, in the last month of its mandate (June 2009), published a “Plan Indicating Non-Financial Public Sector Investments 2009-2014” that was superseded six months later when the present administration published its 2010-2014 Government Plan. The preceding government also prepared a document called “Strategic Economic Development Vision to 2009,” that described the strategy to be followed from 2005 to 2009; however, this document, although it influenced how various international organizations formulated their assistance policies and strategies for Panama, was not linked to the Budget or reflect a multi-year perspective, rather it was only linked to different management indicators (poverty, deficit/surplus, savings) and to development areas (such as health and education) without formulating specific plans or assigning State resources. 49 150. The same Law, in Article 18.2.e, establishes that MEF will update in the first quarter of each year the estimated macroeconomic data for the next five years, including preparing a sustainability analysis of public debt. The first of these analyses was developed as part of the 2010 budget preparation at the beginning of 2009, as is established in the Law. 151. The Public Credit Directorate of MEF has a mathematical model based on the IMF’s "Staff Guidance Note on the Application of the Joint Fund-Bank Debt Sustainability Framework for Low- Income Countries” (October 2008) that enables periodic analysis of debt sustainability to be made through simulation of diverse scenarios of macroeconomic parameters and the behavior of the interest and monetary market. On an ongoing basis, the Public Credit Directorate maintains an updated analysis of the behavior and sustainability of public debt, as well as an analysis of its principal sustainability indicators. 152. The World Bank and Inter-American Development Bank have produced different public debt sustainability analyses, as part of credit operations approved by these entities for the Government of Panama during 2007 and 2008. Score: A. In the three years analyzed, evidence has been found of external and internal public debt sustainability studies. iii) Existence of sectoral strategies with multi-year costing of recurrent and investment expenditure The analysis of this dimension focuses on the last completed budget (2009). 153. 2009 was a “sui generis” year in reference to strategic planning because halfway through the year there was a change in administration and in the rules regarding planning processes. In applying the Social and Fiscal Responsibility Law, the Government Plan becomes the priority strategic planning tool; therefore sectoral and institutional planning must align with the activities prioritized by the Government Plan. Although some of the sectoral plans are included in the Government Plan, the concept of sectoral planning is diminished and there may be no resources for their execution unless they align with the new governing framework. The Government Plan includes a five-year vision for recurrent and capital expenditures. 154. Another changing aspect in the period analyzed related to the Public Investment System that established the Projects Bank and a specific standard to monitor and evaluate projects. Thereafter, institutions had to condition all their investment plans to the new standard and to the requirements contained in it to incorporate investment projects into the Budget. In June 2009, the Investment Programming Directorate of MEF published a “Public Sector Non-Financial Investments Plan 2009- 2014.” This was the first investment strategy planning exercise of the outgoing Government, but it was shortly superseded by the Government Plan that the new government published in December of that year. 155. The 2008 Budget was subject to one of the highest levels of modifications in recent years, (see Table 3.1.2.1 in the PI-2 analysis). In these circumstances, it is not possible to quantify the congruence between the primary expenditures of the main sectors with the fiscal estimations for that year, and it is also not possible to state that a complete estimate of costs was undertaken for recurrent expenditure and investment expenditure. 50 Score NA. The special circumstances of 2009 preclude a representative measurement. iv)Linkages between investment budgets and forward expenditure estimates The analysis of this dimension centers on the last complete budget (2009). 156. In May 2008 the Investment Programming Directorate of MEF issued its “Generic methodology for formulating and evaluating public investment projects.” in which it establishes the requisite material to be included in public investment programming portfolios for them to be approved and incorporated within the investment projects data bank, for later execution. In various chapters of this document reference is made to future operations or related operational costs that must be calculated and explicitly shown in the document, as well as the source from which the needed resources will come to cover these costs. Additionally, the investment programs must have an investment sustainability analysis, with a cost- benefit analysis and with the pertinent licenses and approvals. Since June 2008, all projects must satisfy these requirements to be included in the public investment projects covered by the Governement Budget. The new methodology was in place for the period under analysis referred to last completed year (2009). 157. Although this standard is clear and investment projects must formally estimate future expenditure to be approved, the linkage is not fully achieved when the annual budget is prepared. The fact that both the budget system and public investment are responsibilities of MEF permits higher levels of coordination to be achieved than in many countries, where the stewardship of each falls to different public institutions; however, this close coordination does not guarantee that these estimations will factor into the allotment of additional resources to an institution. In the end, the responsibility falls on the executing unit that obtains these resources through a redistribution of its budgeted funds. 158. No evidence has been found that operational expenditures of investments in 2009 would have generated additional institutional resources in proportion to those estimated in their pre-investment studies. Neither has evidence been found that institutions had received any specific instructions on this subject from MEF. Score: D. Although investments are systematically selected on the basis of sectoral strategies and Government priorities, and their future operational costs have been calculated and reported, their inclusion in the 2009 budget could not be established; if it were included, it was not explicitly stated in the Budget, nor were specific instructions issued for institutions. Indicator Assessment Justification PI-12 C Scoring Method M2 (i) Score: D No forward estimates of fiscal aggregates are undertaken. An annual debt sustainability analysis is undertaken on the external and internal (ii) Score: A debt. A representative assessment of the 2009-year management has not been (iii) Score NA possible. Budgeting of investment expenditures and recurrent expenditures constitute independent processes, and there is no evidence of incremental operational (iv) Score: D costs (associated with investments) being included in agency budgets for the period under analysis. 51 Sub-Section3.4. Predictability and control in budget execution PI-13. Transparency of taxpayer obligations and liabilities 159. This indicator assesses the extent to which (i) legislation and tax procedures, including customs, are sufficiently clear and comprehensive; (ii) taxpayers have access to information on their tax responsibilities and on compliance procedures; and (iii) administrative resources and contentious taxes operate in an adequate and transparent manner for taxpayers. 2010 is the reference period for analyzing this indicator. Legal framework 160. Laws approved by the NA establish national taxes and contributions, as well as tariffs and custom duties. According to the Constitution, no taxes or contributions are levied on those exercising liberal professions or crafts and arts, or on anybody who has not been legally incorporated, or on anyone whose tax collection was undertaken in a manner not established by law. (In the case of local governments, approval or elimination of taxes, contributions, duties, and tariffs is an attribute of the Municipal Council.) The legal and standards framework of Panama provides that the tax and fiscal system is applied by means of laws, decrees, and standards, principally through the following: • The Constitution of the Republic of Panama reformed in 1978 and subsequently by the Constitutional Act of 1983, and legislative acts of January 1983, February 1984, and February 2004. • The Fiscal Code, which includes laws that regulate each tax, reformed through Law No. 8 of March 15, 2010. • The Annual Budget Law approved by the National Assembly. • Regulations as established by tax laws. 161. This legal framework defines the tax system structure, which comprises direct and indirect taxes. Tax revenue together with non-tax revenue is the current revenue that, together with capital revenue, comprises the State General Budget. i) Clarity and comprehensiveness of tax liabilities. 162. The following brief description of the tax system identifies the most important taxes in Panama and establishes whether they are comprehensible to taxpayers. Tax system 163. In 2009, the total collection of direct taxes, indirect taxes, and other non-tax revenue was equivalent to 18.2% of GDP, which was broadly in line with regional comparators. 14 164. With respect to the relative weight of various taxes, the most important direct tax is the enterprise revenue tax, which was equivalent on average to 2.0% of 2005-2009 GDP. In the case of indirect taxes over the same years, those collected by the Tax on Transfer of Real Estate and Services Rendered (ITBMS) were equivalent to 2.3% of GDP. A unique aspect of Panama’s fiscal revenue is the weight represented by the profits of the Panama Canal Authority (ACP), which for the period concerned were 14 For example, in 2008, the tax load in GDP terms was 20.7% for Belize, 17.8% for Honduras, 17.7% for Nicaragua, 13.7% for El Salvador, and 10.2% for Guatemala. 52 equivalent to 1.8% of GDP (which was close to the average of the enterprise revenue tax and slightly above import collections). Table 3.4.13.2 depicts the relative importance of the total central administration tax revenue in relation to total overall tax revenue for 2005-2009. Table 3.4.13.1 Tax revenue, 2005-2009 (as a percentage of GDP) 2005 % 2006 % 2007 % 2008 % 2009 % Direct taxes 4.6 6.0 5.7 5.8 6.5 Revenue tax 3.0 3.5 3.5 3.9 4.7 Individual 0.2 0.2 0.1 0.1 0.2 Corporate 1.3 1.8 1.9 2.2 3.0 Payroll 1.5 1.5 1.5 1.6 1.6 Real estate tax 0.4 0.3 0.4 0.4 0.4 Other direct taxes 1.2 2.1 1.8 1.5 1.4 Indirect taxes 4.3 4.6 5.0 5.4 5.2 ITBMS 1.7 1.9 2.1 2.3 2.3 Sales 0.9 1.0 1.0 1.1 1.2 Import 0.8 0.9 1.1 1.2 1.1 Imports 1.6 1.6 1.9 1.8 1.6 Petroleum derivatives 0.4 0.5 0.5 0.7 0.7 Other domestic transaction taxes 0.7 0.6 0.6 0.7 0.7 Non-tax revenue 5.4 7.3 7.2 7.7 5.8 Tariffs, duties, and others 2.1 2.8 2.8 3.2 2.1 Public enterprise dividends 3.3 4.4 4.4 4.5 3.7 of which the Canal is the largest 1.3 2.0 2.3 1.8 1.8 Other current revenue 0.7 0.6 0.6 0.5 0.7 Total 15.0 18.4 18.6 19.5 18.2 Source: MEF, DGI. Table 3.4.13.2 Central Administration tax revenue, 2005-2009(as a % of collection) 2005 % 2006 % 2007 % 2008 % 2009 % Direct Taxes 30.4 32.3 30.8 29.9 35.7 Revenue tax 19.7 19.1 19.1 20.2 26.0 Individual 1.0 1.0 0.8 0.7 0.9 Corporate 8.9 10.0 10.1 11.4 16.3 Payroll 9.7 8.0 8.2 8.2 8.8 Real estate tax 2.4 1.9 2.0 1.8 2.3 Other direct taxes 8.3 11.3 9.7 7.9 7.4 Indirect Taxes 28.8 25.1 27.1 27.9 28.8 ITBMS 11.0 10.2 11.4 11.8 12.5 Sales 5.9 5.2 5.6 5.5 6.6 53 2005 % 2006 % 2007 % 2008 % 2009 % Import 5.1 5.0 5.8 6.3 5.9 Imports 10.4 8.7 10.0 9.3 8.8 Petroleum derivatives 3.0 2.7 2.4 3.4 3.8 Other domestic transaction taxes 4.4 3.4 3.3 3.5 3.8 Non-tax revenue 36.1 39.4 38.8 39.4 31.9 Tariffs, duties, and others 14.0 15.4 15.1 16.5 11.6 Public enterprise dividends 22.1 24.1 23.7 22.9 20.3 of which the Canal is the largest 8.6 10.6 12.6 9.2 9.7 Other current revenue 4.7 3.1 3.3 2.8 3.6 Total 100.0 100.0 100.0 100.0 100.0 Source: MEF, DGI. 165. Table 3.4.13.1 data indicates that if the structure of the ITBMS is considered with respect to import tax and sales tax, respectively, count for almost 50% of total tax revenue. As can be seen as well, non-tax revenue (which principally derives from public enterprise dividends, whose results do not depend directly on tax policies but rather on profitability) represents on average about 37% of Central Government revenue. 166. To assure greater sustainability of public revenue, the Government, through Law No. 8 of March 15, 2010, introduced changes in the Fiscal Code to raise greater revenue to fund large infrastructure investments, such as the metro transportation system of the City of Panama. The new standard enhances the implementation of regulations on exemptions and exonerations. Finally, Law No. 8 (Article 156) created the Tax Administration Tribunal (TAT) as the independent, specialized, and impartial entity within the executive branch that became operational in 2012, replacing DGI’s Appeals Commission. TAT responds to the need to enhance the credibility and fairness of tax administration, in order to balance the significant discretionary faculties of current tax and customs administration. During the period covered in this report, there was a high degree of administrative discretion in assessing tax liabilities, which is not limited by any independent and autonomous appellate mechanisms. Clarity and comprehensiveness of indirect taxes and revenue taxes Indirect taxes 167. ITBMS is the principal indirect tax, and recent fiscal reforms increased its rate, from 5% to 7%, by including some services previously not taxed and by levying a 10% tax on hotels or lodging. Additionally, the exemption for residential telephone landlines and lubricants was eliminated. However, exemptions remain for cargo and passenger transport, excluding air navigation (air fares) that is now taxed at 7%. ITBMS is applied both on imports as well as on domestic market sales declarations. 168. The main import taxes (where differing rates may apply) are levied on tobacco and liquor manufacturing, on stamps, scientific measurement and control instruments, food or animals and vegetables, animal and vegetable fat and oils, and industrial and agricultural machinery. Revenue tax 169. With the new fiscal reform contained in Law No. 8, new rates for the income tax (ISR) are applied, which vary between 25%-30% on corporations and 10%-25% on individuals, according to the category and level of revenue for individuals and corporations. 54 Score C. Although legislation and applicable procedures for the principal taxes are comprehensive and clear, the fairness of the system is called into question because of the significant discretionary faculties of the tax entities involved. ii) Contributor access to information on responsibilities and administrative procedures on tax matters 170. The Law presumes that because tax legislation is published in the Official Gazette it is of general knowledge, and hence, as in almost every polity, ignorance of the law is not a valid excuse for contravening it. Moreover, DGI has instruments to assist and guide taxpayers on tax matters. Although there is no menu of “frequently asked questions” to facilitate consultation with citizens, there is an administrative department for taxpayer assistance, as well as a call center and the DGI/MEF Webpage (www.dgi.gob.pa) to receive and address concerns. On average, DGI assists 300 taxpayers daily. 15 The officials responsible for addressing citizens’ concerns recognize that they have insufficient training and up-to-date knowledge, especially on contingent issues, which undermines efficient assistance. 16 DGI also intermittently provides information via national media circulars on the application of new tax legislation. 171. There are no ongoing tax surveys or tax education campaigns. The few campaigns that have been undertaken mainly shared information on the introduction or modification of some particular tax. For example, the recent changes to the Fiscal Code were supported by a media campaign to guide taxpayer compliance with their responsibilities. The media campaigns mainly focused on the capital city, where the majority of taxpayers is concentrated, and only employed the Spanish language. There are no training sessions or special meetings with taxpayers to expand their knowledge, nor are information bulletins or guideline publications of tax procedures (such as taxpayer registration, tax forms, billing, or CAIR- Alternative Income Tax Calculation Method) produced. Score C. Taxpayers have some access information on legislation and tax payment procedures for the most important taxes, but the value of this is limited because the information available is not entirely up-to-date, is largely limited to urban and peri-urban areas, and is only produced in Spanish. iii) Existence and operation of tax resource mechanisms 172. There are legal resources to defend tax taxpayer interests. For the period covered by this assessment, the taxpayer could appeal a tax decision through two established channels: the DGI Appellate Commission and the Supreme Court of Justice. As was previously noted, the Tax Administration Tribunal was created in 2010 and just began to function as an independent Tax Administration organization replacing the DGI Appellate Commission. Score C. Taxpayers have access to appeal mechanisms with respect to tax and customs administration decisions; however, these are not totally independent, and a final and independent alternative in the judicial system takes an excessive amount of time to resolve cases (2007-2009/2010). 15 CAPTAC, May, 2010. 16 CAPTAC, May, 2010. 55 Indicator Assessment Justification PI-13 C Scoring Method M2 Legislation and procedures in reference to some major taxes are comprehensive (i) Score C and clear, but the fairness of the system is questionable because of substantial discretionary powers of the public entities involved. Taxpayers have access to some information on tax liabilities and administrative (ii) Score C procedures, but the usefulness of the information is limited to coverage of selected taxes only and to Spanish speakers, and may not be up - to- date. A tax appeal system of administrative procedures has been established, but (iii) Score C needs substantial redesign to be fair, transparent, and effective (this does not speak to the TAT’s performance, as it is a new entity). PI-14. Effectiveness of measures for taxpayer registration and tax assessment 173. This indicator assesses (i) the degree to which the taxpayer registry is reliable and can reasonably establish the corresponding tax liability estimates, and (ii) the degree to which the risk and audit systems contribute effectively to tax payment responsibilities. The reference period for analyzing this indicator is that of execution at the moment of assessment (2010). i) Application of controls in the taxpayer registry system 174. Tax identification in Panama is articulated through an information technology system called e- TAX, which has been in operation since 2001. This system allows a series of automatic services for tax administration and users. The taxpayer registry procedure is quite simple. In the case of individuals, taxpayers that intend to undertake commercial, industrial, independent, or similar activities must first register in the Sole Contributor Registry (RUC). In addition, corporations are required to register in RUC within 30 days of having registered in the Public Registry. In both cases, registration in RUC is free and can be accessed online at www.dgi.gob.pa or in DGI’s provincial offices. 175. The National Bank of Panama, the Cadaster and Real Estate Directorate, and the Electoral Tribunal also use the RUC for identification purposes. DGI is negotiating an electronic link with the Public Registry and other national banks for checking identification information. In addition, DGI surveys potential taxpayers to establish whether the RUC is aligned with the universe of potential taxpayers. Table 3.4.14.1 disaggregates taxpayers by type and amount collected in 2007-2009 as controlled by the DGI. Table 3.4.14.1 Tax contributor disaggregation by type and amount collected (numbers, B/. millions, percent) 2007 2008 2009 Amount Amount Amount No. % % No. % % No. % % Collected Collected Collected Large 427 1 284.2 74 423 1 346.6 76 431 1 393.4 77 Medium 426 1 20.4 5 422 1 26.5 6 428 1 28.6 6 Small 2,261 7 34.0 9 2,265 7 39.6 9 2,279 6 43.5 8 Micro 30,922 91 45.2 12 30,665 91 45.1 10 32,588 91 47.4 9 Total 34,036 100 383.8 100 33,775 100 457.8 100 35,726 100 512.9 100 Source: DGI. 56 176. Additionally, there is a private, secret and non-transferable tax ID number (NIT) that enables access to the information and tax procedures portal at www.dgi.gob.pa If the taxpayer has a RUC, the system performs the exclusive procedure to authorize the NIT. If a taxpayer is not registered, the system simultaneously performs the inscription of the RUC procedure and NIT authorization. The RUC (individual, corporation, and farm number) is used as reference for all procedures with DGI. However, as the NIT is a personal access code, the tax administration does not have access to it. 177. Unfortunately, the taxpayer registry has serious deficiencies, which affect the tax administration’s control capacity of taxpayer compliance. For example, the data provided by the taxpayer, such as address or activity, is typically not validated nor is there any other means of verifying the information submitted, for example reviewing invoices of basic services. Moreover, there are no visits to taxpayers as a prior step to their incorporation, to verify the quality and accuracy of information subsequently provided. Thus, DGI has difficulties when it tries to place, with accuracy, the personal or commercial address of a taxpayer, a situation exacerbated by the frequency with which small and medium-size entities fail to declare economic activities. The poor quality of registry database information means that there is no effective definition of taxpayer responsibilities or ability to determine future control on compliance. Score D. The RUC contains inconsistent information at the taxpayer level and is not updated. Also, there is no certainty of the potential universe of taxpayers. ii) Effectiveness of penalties for non-compliance with registration and declaration obligations 178. Although Article 752 of the Fiscal Code lists a series of incidences that would constitute taxpayer fiscal fraud, should these ever be established (among which are false or fraudulent declarations), as a practical matter there are no effective penalties for taxpayer non-compliance with fully accurate registration. This seriously undermines the quality of information of the taxpayer roll and leads to a system replete with false information that precludes effective management. To this must be added the shortcomings of the e-TAX system, which enables transactions with entities “defined” by invalid or false data. Significantly, the majority of declarations in 2008 and 2009 were filed electronically, as is shown in Table 3.4.14.2. The use of electronic means for submission impacted positively the number of submissions. Table 3.4.14.2 Types of taxpayers by type and tax submission media Taxpayer/Media Electronic Paper Magnetic Total Individual 136,924 31,053 217,061 385,038 Corporate 263,799 5,944 130,091 399,834 Total 2008 400,723 36,997 347,152 784,872 Percentage 51 5 44 100 Individual 249,123 17,366 204,889 471,378 Corporate 402,214 3,306 89,145 494,665 Total 2009 651,337 20,672 294,034 966,043 Percentage 67 2 30 100 Source: DGI. 57 179. Tax declaration and payment is consolidated, complying with the commercial banking sector standards Despite extensive filing of declarations by electronic and digital means (97%), the cases of follow-up on those that omit the declaration is only operating at the level of a small scale pilot plan, which undermines taxpayer perception of adequate control, and likely further encourages gaming the system. If DGI had a group of specialists dedicated fully to tracking non-compliance, this would strengthen management of the tax system and facilitate the establishment and consolidation of a credible risk assessment system, which in turn would reduce non-compliance. Score D. Penalties for non-compliance effectively are absent or are set too low to deter inappropriate taxpayer behavior. iii) Planning and monitoring of tax audit programs and fraud investigation 180. DGI does not produce annual monitoring plans. Audits are planned punctually on a monthly basis but are not based on risk criteria. In general, cases are selected and communicated by DGI management without major details on the objectives. In this sense, the DGI’s control area (Área de Fiscalización) defines the monitoring objective and conducts the specific audit work plan. Audits conducted during 2008 and 2009 were equivalent to 0.3% of the known taxpayer universe, with a 0.25% productivity impact with respect to annual revenue collection. 17 181. DGI employs an analysis tool called “Fisca Masiva” to parse data. On the basis of analysis performed, DGI selects cases for massive or sectoral oversight (DGI’s legal framework provides ample oversight faculties to obtain information and conduct audits). Its main shortcomings are the lack of specialized staff assigned to control programs, a lack of specialized training, scarce IT equipment for executing audits, and inadequate logistical resources (per-diem, lodging, transport), which together render operations ineffective. With respect to the highest income taxpayers, audits are rare indeed, with no more than two in 2009 and only six up to mid-2010. 182. Finally, DGI does not have a paper-based billing control system. Invoice pads are subject to existing regulations, with no requirements for documents to be authorized or printing control. Score D. Tax audits and fraud investigations are undertaken on ad-hoc basis, not on risk-assessment criteria. Indicator Assessment Justification PI-14 D Scoring Method M2 Taxpayer registration is not subject to any effective controls or enforcement (i) Score D system. 17 In tax administrations of greater effectiveness, coverage is measured by segments, but on average 4%-5% of total taxpayers are audited; however, if measured in the higher taxpayer segment, the coverage may reach 33% (with higher income taxpayers monitored at least once every three years). 58 Penalties for non-compliance are effectively absent or ineffective (i.e., set far (ii) Score D too low to deter inappropriate behavior). (iii) Score D Tax audits and fraud investigations are undertaken on an ad-hoc basis. PI-15. Effectiveness in collection of tax payments 183. This indicator assesses (i) the capacity of the tax administration to establish accurately delayed tax debts and their collection, so as to produce accurate estimates of tax collections, including tax arrears, (ii) the reasonableness of tax collection transfers to the Treasury, so that programmed public expenditure is available, and (iii) the frequency and precision of collection settlements, including tax debts between the tax administration and the Treasury. i) Collection ratio for gross tax arrears, being a percentage of existing tax arrears at the beginning of a fiscal year, which was collected during that period 184. The reference period for analysing this dimension is the last two completed fiscal years (2008 and 2009) and derives from DGI information on tax arrears collection. 185. Although DGI works through collection awareness campaigns to motivate taxpayers to pay their tax arrears, the results have not been totally satisfying. Administrative-type collection efforts derive from a general system review of debtors identified in the database. However, the data is often unreliable; therefore in 2007 detailed revisions were made to clear current accounts and proceed to assign enforced collection cases. However, since the RUC has shortcomings with respect to taxpayer addresses, enforced collections were delayed and in some cases are not even initiated. Enforced collection currently manages some 10,000 files, with assigned staff clearly insufficient for the workload (although Table 3.4.15.1 below suggests increased efficacy over the surveyed years perhaps due to enforced collection). Despite of these collection limitations, enforced collection prioritizes management of relevant cases in coordination with the administrative collection stream. The procedure for enforced collection is effective when the taxpayer puts forward a bond, since this secures negotiation of payment agreements and compliance on quotas. DGI has decided to privatize collection management of tax debts, to improve tax collections and heighten the sense of risk in delinquent taxpayers. Table 3.4.15.1 2007-2009 Stock of taxes in arrears (number of cases and millions of B/.) 2007 2008 2009 Tax No. Amount No. Amount No. Amount Real Estate 96,423 1,356 98,089 1,579 99,402 1,701 Sole Rate 381,609 795 426,182 856 427,348 857 Stamp 6,368 260 6,456 260 6,540 260 Judicial Revenue 34,594 149 34,989 202 35,448 258 Natural Revenue 86,611 134 86,739 135 86,865 136 ITBMS-Sales 12,459 50 12,583 51 12,732 54 Education Insurance 153,498 48 153,769 48 153,984 48 Fuel Consumption 6 25 7 29 7 29 Commercial License 68,284 26 68,544 27 68,776 28 Complimentary 21,168 12 21,448 16 21,838 20 Free Zone Revenue 898 10 914 12 926 13 Profit from Value Expropriation 62 13 68 13 73 13 Profit from Real Estate Expropriation 4,251 11 4,288 11 4,315 12 Asset Transfers 6,709 3 6,738 3 6,766 4 Liquor Consumption 3 2 7 2 8 2 Payroll 15 1 117 1 161 1 59 Cigarette Consumption 4 0 6 0 7 0 Other Revenue 6 0 158 0 462 0 Wine Consumption 3 0 7 0 8 0 ISC, Cable TV, Microwave, and Mobile phones 8 0 10 0 11 0 ISC Jewelry and Fire Arms 7 0 9 0 10 0 Liquor Consumption 3 0 6 0 7 0 Soft-drink Consumption 7 0 10 0 11 0 Gambling Games 1 0 1 0 3 0 Beer Consumption 2 0 5 0 6 0 Total Arrears 2,895 3,247 3,437 Net Term Collection 1,660 1,986 2,330 Net/Arrears Collection % 57.3 61.2 67.8 Average 2007-2009 % 62.1 Average 2008-2009 % 64.5 Source: DGI. Score C. The average rate of arrears tax collection for the last two years (2008 and 2009) was 64.5%. ii) The efficiency of tax collection transfers to the Treasury by the fiscal revenue administration The reference period for analysis of this dimension is that of management as executed at the moment of assessment (2010). 186. Internal and customs tax collection is undertaken through the Banks and Provincial Revenue Administrations (API) of the DGI in the country. The collection process is entirely under DGI’s jurisdiction with both the control and transfer of collections to the National Treasury is undertaken by DGI, along with the settlement between collections and transfers. It was not possible to ascertain either the average transfer period of time between the DGI and the Custom National Authority (ANA) to the Treasury, or what this transfer means in operational terms (the transfers are made to the Single Treasury Account or other accounts managed by the Treasury). In the case of internal taxes, there is an average of seven days between when declarations made are paid and when the Treasury becomes aware of them (five days between presentation to and acceptance in the ANA system, and two days for information on the accounts to be registered in the Treasury system). In the case of internal taxes collected by commercial banks, there is typically a period of two or three days before for the information is sent to Treasury in a daily Excel format. These banks discount 0.25 cents as commission for tax collection; thus, the Treasury receives the net amount of collection after discounting the commission. 187. However, the indicated terms are only those of the collections made through the banking system, in particular that of the National Bank. Although it is the case that (i) the Tax Accounting section of DGI settles the collections received in each API and checks their deposit of those funds in the National Bank of Panama, and (ii) the e-TAX system creates reports on the date of payment and entry into the National Bank of Panama, it is still not clear how long the delay of the transfer is from each API to Treasury. Score NR. There is no information available to determine the duration of delays in collected fund transfers to the Treasury accounts. 60 iii) The frequency of complete account settlements by the Treasury, between tax assessments, collections, arrears, and revenue registers 188. The reference period for analysis of this dimension is that of management as executed at the moment of assessment (2009). 189. The General Treasury Directorate (DGT) monitors transfers on a daily basis, exclusive of delays. The e-TAX system can produce, on a daily basis, closing reports and settlements. Score D. There is no complete reconciliation of assessments, collections, delays, and transfer of taxes to the Treasury. The only settlements are those undertaken by the banking system and DGI offices. Indicator Assessment Justification PI-15 NR Scoring Method M1 The coefficient of debt collections in the two most recent terms was between (i) Score C 60% and 75%, and the aggregate amount of tax arrears is significant. (ii) Score NR Sufficient information has not been found to evaluate the dimension. The complete settlement of tax assessments, collections, arrears, and transfers (iii) Score D to the Treasury is not undertaken annually or is undertaken with delays of more than three months. PI-16. Predictability of the availability of funds for commitment of expenditures The period of reference for the analysis of this indicator is that of the last completed fiscal period (2009). 190. This indicator assesses the extent to which the MDAs that are part of the Annual Budget, and depend on budget allocations and funds from the National Treasury, receive timely information on these in order to program payments, pay for commitments, and cover their operational plans. It also assesses whether there are clear rules of funds management by the Treasury when there are collection difficulties or seasonal constraints on liquidity, and how funds are assigned or corresponding adjustments made in response to these circumstances. i) Extent to which cash flows are forecast and monitored 191. At the beginning of the year, the Financial Analysis and Programming Department estimates cash flow on the basis of the current Budget Law. To do so, the cash availability of the prior year is combined with estimates of forthcoming collections and other revenue and then Budget allocations of a current nature (such as salaries and wages) are subtracted, yielding a net cash flow at the start of the fiscal year. Daily monitoring is given to the Central Government operations cash flow, and the annual cash flow is updated monthly taking into account modifications to the State General Budget and revenue performance. Score A. MEF prepares a cash flow at the beginning of the fiscal year, which is updated monthly on the basis of actual cash inflows and outflows. 61 ii) Reliability and horizon of periodic in-year information provided by ministries, departments, and agencies (MDAs) on ceilings for expenditure commitments 192. The degree of reliability of MEF information provided to the different institutions to comply with their commitments and accumulated expenditures could not be determined. Basically, MEF controls the maximum amounts of expenditures (current and of capital) on a monthly basis reflecting the execution schedule given to institutions. Monthly assignments are approved by MEF, based on work programs, the schedule of activities, and the provisions on revenue behavior (General State Budget Law for the current term, and Budget Administration Standards of Law 75 of November 2, 2010, Official Gazette 26655-A). Score C. On a monthly basis, institutions are provided commitment ceilings and payment of expenditures for implementing their commitments. iii) The frequency and transparency of adjustments to budget allocations that are decided above the level of MDAs 193. The frequency and transparency of adjustments to budgets allotments or cash was not evident at MEF or the NA levels. Score D. There is no information to determine the frequency and transparency of budget or cash allocation adjustments because they are not done in a transparent manner from a MDA perspective. Indicator Assessment Justification PI-16 D+ Scoring Method M1 A preliminary cash flow is prepared for the fiscal year that is updated monthly (i) Score A on the basis of the actual revenue and outflow of cash. MDAs are given commitment ceilings for periods of less than a month, or else (ii) Score C no trustworthy data is given on the actual availability of funds to address commitments. (iii) Score D Insufficient information has been found to evaluate this dimension. PI-17. Recording and management of cash balances, debt, and guarantees 194. This indicator assesses the degree to which (i) public debt administration is undertaken in a timely manner and based upon accrued and updated information to contribute to an adequate program budget commitments (payment of interest and amortizations), (ii) cash needs are supported by updated information on the availability of cash in the Treasury accounts to minimize further public debt, and (iii) the issuing of contingent guarantees is registered in a transparent and timely manner to ensure information on the implicit fiscal risk. i) Quality of debt data recording and reporting 195. The reference period for the analysis of this dimension is that executed at the moment of assessment (2010). The registry and delivery of reports on internal and external public debt is complete and of a high quality, it is updated and disaggregated by type of debt and creditor in a series of up to 10 years. 18 18 A complete presentation on the annual balance of the public debt is published at: http://www.contraloria.gob.pa/archivos_informesdelc/InformeContralora1marzo2010/intro.html and more frequent reports (quarterly and monthly) are available at http://www.mef.gob.pa/credito_publico/inicio/informes.asp. 62 196. The fact that Panama is a completely dollarized economy has facilitated the registry of public debt since it does not have significant variations due to the type of exchange. Furthermore, the fact that there is no national currency or central bank precludes the use of monetary policy instruments, and therefore macroeconomic stability is strongly linked to fiscal performance. In this context, an adequate registry of public debt and commitments is essential to supporting sustainable economic stability. Table 3.4.17.1 displays the total public sector debt for 2005-2009. Table 3.4.17.1 Total public sector debt (millions of US$) Creditor 2005 2006 2007 2008 2009 Internal Public Sector Debt (a) 2,651.64 2,664.33 2,195.04 1,960.11 822.18 Private Sources 1,263.54 1,312.50 995.21 827.60 519.35 Treasury Bills 192.06 249.84 206.78 59.00 220.75 Treasury Notes 775.08 815.13 565.13 565.13 265.13 Internal Bonds 21.51 12.24 2.18 2.18 0.00 Recognition Bonds 269.63 231.92 198.79 165.65 0.00 Private Financing 2.71 2.13 22.33 35.64 33.47 Loan Documents 2.55 1.24 0.00 0.00 0.00 External Public Sector Debt 7,579.70 7,788.33 8,275.59 8,477.29 10,150.15 Multilateral 1,136.11 1,183.01 1,235.37 1,349.85 1,638.08 Bilateral 259.19 237.20 223.96 210.26 222.74 Commercial Banks 79.61 8.34 6.49 169.63 218.78 Bonds 6,104.79 6,359.78 6,809.78 6,747.55 8,070.55 Total Public Sector Debt 10,231.34 10,452.66 10,470.63 10,437.40 10,972.33 a Does not include the balance of government sources or inter-institution financing. Source: MEF, Public Credit Directorate. Score A. Domestic and foreign debt records are complete, updated, and settled on a monthly basis. Additionally there are comprehensive debt reports, which include debt service, stock, and operations that are produced on a quarterly basis. ii) Extent of consolidation of the government’s cash balances 197. The reference period for the analysis of this dimension is the administration as executed at the moment of assessment (2010). 198. The measurement of government cash balances settlements could not be reviewed in a manner for this information to allow optimizing the financial requirements, both in the medium and long term. There is a treasury system in place but the proliferation of bank accounts (over 6,000) out of the control of the treasury managed by the MDAs that difficult the cash balance consolidation. Score NR. There is no information to enable adequate measurement of the government accounts balance total settlements. 63 iii) Systems for contracting loans and issuance of guarantees The reference period for analysis of this dimension is last complete fiscal year (2009). 199. The Social and Fiscal Responsibility Law No. 34 of Panama, dated June 5, 2008, and its Regulation Decree No. 50, dated June 26, 2009, regulate the contracting of loans and the issuance of guarantees by SPNF entities. 200. Since 2009, Panama has obtained an investment grade rating issued by the main rating agencies, largely because of the transparency and stringency of its foreign debt management. To this end, legislation is clear and emphatic that the Central Government does not issue guarantees to any SPNF entity without first analyzing the economic and financial solvency of the requesting entity and without a socioeconomic investment foundation. MEF assesses the levels of debt each endorsement or guarantee issued would have in relation to total debt. MEF reserves the right to recommend or reject the guarantee. When the Central Government honors a debt of another SPNF entity because of a guarantee, it can condition transfers to debt payment. Additionally, the entity will not have access to new credits or financing until the debt is totally paid. Score A. Central Government’s contracting of loans and issuance of guarantees are made against transparent criteria and fiscal targets are prepared by MEF in all cases. Indicator Assessment Justification PI-17 NR Scoring Method M2 Domestic and external debt registers are complete, updated, and settled on a monthly basis, with data that are considered extremely reliable. At least on a (i) Score A quarterly basis, management and accurate statistical reports (that include debt service, volume, and operations) are issued. (ii) Score NR Insufficient information precludes an assessment of this dimension. The Central Government contracts loans and issues guarantees in accordance (iii) Score A with transparent criteria and fiscal goals. And all loans and guarantees are always approved by a single responsible public entity. PI-18. Effectiveness of payroll controls This indicator evaluates the personnel register integrity and the efficiency of administrative processes of human resources and the government payroll process. 201. The Constitution of the Republic establishes in Title XI the human resource system of the State and its different career streams. Article 294. “The people named temporarily or permanently in positions of the Executive, Legislative and Judicial Powers are public servants, as well as are those of the Municipalities, autonomous or semi-autonomous entities, and in general those who receive State pay.” 64 Article 300. “The following careers of public servants are instituted according to the merit principle system: administrative; judicial; teaching; diplomatic and consular; sanitation; and military; and others that the Law may determine. The Law shall regulate the structure and organization of these careers according to the needs of the administration.” Article 301. “The official dependencies will function based on a Procedures Manual and another of Job Position Classification.” 202. Law 9 of 1994 Administrative Career Law and its Regulations regulate the rights and duties of public servants and “is the supplementary source of the right for other public careers and special laws” (Law 9, Article 2). Each of the careers established by the Constitution has its own standards. Law 9 establishes an administrative human resource system of the State, which is defined as follows: Article 6. “The higher Entities of the administrative careers are: The General Administrative Career Directorate; the Technical Administrative Career Board; the Board of Appeals and Conciliation; the Institution Offices of Human Resources.” 203. The entity in charge of the system is the Administrative Career General Directorate (DIGECA) of the Ministry of the Presidency, which has standards-setting and regulatory functions. The Technical Board is an advising entity of the Presidency in human resource affairs. The Board of Appeals and Conciliation is an entity to solve labor conflicts. Each institution administers and executes its own system. 204. The system establishes a Job Classification that describes the hierarchy, functions, and salary scale for each job position. This classifier is defined by DIGECA and administered by MEF; it establishes hierarchy and salary structure for each institution. In this manner, institutions may have their own salary scale; thus the same labor category may have differing salaries in each institution. Additionally, each institution has its own labor regulations. 205. Each institution administers its own payroll and maintains its own personnel registers. Therefore, the professional record of public officials is distributed in the different entities in which they have been employed. CGR monitors the system in its payroll aspects as well as in the broad registry of human resources; thus CGR has a registry of public officials with basic information on the official and his or her salary history, but it does not have his or hers professional work history. Since Law 9 of the Administrative Career covers only 53 of the 73 Budget entities, there are entities that have their own Administrative Career Law and administer their payroll outside of the Central Government system. 206. The payment of public officials included in the Administrative Career stream is undertaken in a centralized manner from the Treasury Directorate upon the request of CGR, which consolidates payment requests issued by the 53 public entities into one payment order, which is executed through a bank transfer or by check. Table 3.4.18.1 details the payment of a biweekly payroll. Annex 2.3 lists the 53 institutions that are part of the Administration Career stream that is overseen by CGR and paid by the Treasury Directorate. Table 3.4.18.1 Summary of the payment of the State payroll (August 2010 – B/.) Entity Total Paid by Bank Transfer Total Paid by Check 65 # B/. # B/. Central Government Salaries Ministries 216,628 46,435, 948.11 37,353 10,017, 352.24 Decentralized 9,352 2,662, 949.25 1,702 588,732.49 Additional 28,614 2,227, 444.64 Payment to retirees and public relations expenditure Retired 2,343 1,951, 496.06 3100 472,621.24 Representation 12,089 1,117, 716.68 375 368,142.98 expenditures Payment of salaries and P.R. expenditure of decentralized entities that reimburse the Treasury Salaries 27,461 8,047, 560.68 Representation n.d. 37,838.91 expenditures Payment for 13th month Central Government 103,328 12,411,032.32 15,569 1,687,197.28 Decentralized 1 4,632 551,518.80 693 72,494.06 Decentralized 2 10,394 1,714,037.16 Source: Treasury Directorate. i) Degree of integration and reconciliation between personnel records and payroll data 207. The analysis of this dimension is focuses on payroll management as is undertaken at the moment of the assessment (2010). This dimension assesses the procedures that assure consistency between payroll registries that reflect payment history; personnel files that detail personal, work, and professional data; and the classification of work positions (scale) that describes the functions, duties, responsibilities, and salary of public officials. There is also a verification process to cross-check the consistency of the information contained in these files. 208. However, since entity administers its own data bank and there is no single, comprehensive personnel database, because there is a single position classifier for government positions that is directly linked to the Budget, and because CGR’s Monitoring Department oversees the process of prior review and settlement of the State payroll, there is a final reconciliation of the institution’s personnel registry, the record of positions and salaries, and payroll payments. The oversight process that begins when a worker joins the entity, assures that the basic personal information of the civil servant (not the service record), salary category, and job position are compatible; if this is not the case, a request for incorporation is annotated or rejected by CGR. This review also assures that CGR registers the worker in its database. With each payment, CGR reviews whether there is agreement between the professional classification and the contractual terms found in its database. The entity, through its human resources department, is responsible for calculating the amount the worker is to be paid, registering personnel activities he or she undertook, and updating personnel files. 209. Thus, as noted immediately above, although there is no single, comprehensive personnel database, CGR has a database with a basic personnel file and the entire history of payment to every civil servant that receives or has received a government salary across all institutions that fall under CGR monitoring. Moreover, any change in payroll records, in the contractual terms of service, or in the definition of job position must be first reviewed by CGR and then by MEF and/or DIGECA. Thus the reconciliation between these records including establishment list, personnel records and payroll, is comprehensive and permanent. 66 210. Institutions must ensure that the information that they process is accurate (that is, that all workers that appear on the payroll are actually working). To ensure this, many public entities have automatic systems or even biometric controls, but very few entities have audited their human resource and payroll systems. Score A. The personnel database and payroll are directly linked to ensure data consistency and monthly reconciliation undertaken by CGR prior review. ii) Timeliness of changes to personnel records and the payroll 211. The analysis of this dimension focuses on the management as it is undertaken at the moment of assessment (2010). This dimension assesses the efficiency of the administration of personnel and payroll records, in order to ensure that records are correctly updated and that there is timely payment of all workers. 212. A review of payroll records and modifications to CGR’s personnel registries and those of some representative entities suggests that there are delays in updating files, particularly in smaller, decentralized entities in areas far from the capital city, which suffer from communication challenges; even in cases of regional entities, there are observed cases with reconciliation delayed for than three months. 213. Although the institutional regulating framework mandates approval from higher bodies (executing entity, CGR, DIGECA, or MEF) before offering a contract to personnel or creating a position, there are instances when personnel have begun their employment before the authorization process was concluded, as well as cases of personnel whose files have been rejected after they have been working for several weeks. 214. Although we cannot state that such cases are common throughout the public sector, or establish the number of such incidences, there is evidence of these in at least two central government public entities, which showed process delays of more than three months, showing that those cases are not infrequent. Score C. Some institutions have experienced delays in updating payroll records, typically of three months duration or so, but occasionally of more than six months. These delays, when they occur, frequently lead to retroactive adjustments. The tardy updates commonly arise from delays in the delivery of data by, or to, institutions and irregular practices that permit workers to start working before the requisite approval has been received. 67 iii) Internal controls on changes to personnel and payroll records 215. The analysis of this dimension focuses on management as it is undertaken at the moment of the assessment (2010). This dimension assesses the efficiency of controls on payroll and personnel registries; these controls begin with the initial system entry (often computerized) and continue step-by-step through an institution’s administrative procedures, and include the assignment of specific duties for officials responsible for payroll and personnel administration. Responsibility for administration of payroll and personnel records is clearly defined and is assigned only to persons that have the authority to approve movement in or changes to these records. The classifiers of positions and categories as well as CGR’s oversight do not permit duplication of functions or responsibilities for staff registered in the system, excepting only those established in Law, which occasionally exempts civil servants in sectors such as education and health, who rarely may hold two public positions if their schedules are compatible. Score B. All public entities, under the Administrative Service Law or other standard, have a human resource unit that is solely responsible for administering, recording, and processing the institution’s payroll. The persons authorized to register changes in personnel files or payrolls are not the same as those who authorize or approve the initial registry entry. Law 9 of the Administrative Career clearly defines the authority and the basis for introducing changes in personnel records and payroll, as well as all the procedures for recording and updating information. iv) Existence of payroll audits to identify and control weaknesses and/or ghost workers 216. The analysis of this dimension centers on administration as was undertaken during the last three completed fiscal years (2007, 2008, and 2009). This dimension assesses the frequency with which personnel registers and payroll are audited, with respect both to the recording of data and administrative procedures, and whether these procedures are applied consistently across the government. 217. No evidence has been found that any integrated and full audit of personnel or payroll records was undertaken in the last three years under analysis. CGR has confirmed that, as part of the institution audit process at institution level during its external audit function, the payroll is reviewed for errors, mainly those that are formal, administrative, or data entry. However, such review is not a complete, formal audit since the information provided by the institution is not verified for accuracy, but merely for administrative conformity with procedural norms. Score C. CGR undertakes reviews at the institutional level that can be considered as partial payroll audits. Indicator Assessment Justification PI-18 C+ Scoring method M1 Personnel database and payroll are directly linked to assure agreement on data (i) Score A and monthly reconciliation. There are delays of up to three months in updating changes to the personnel and (ii) Score C payroll records and payroll, which lead to frequent retroactive adjustments. (iii) Score B Authority and basis for changes to personnel and payroll records roll are clear. Partial payroll audits or staff surveys have been undertaken within the last three (iv) Score C years. 68 PI-19. Transparency, competition, and complaints mechanisms in procurement 218. This indicator assesses the quality and transparency of the public procurement regulatory framework, with respect to how well the use of competitive procedures is promoted, the impact of the use of less competitive procedures, and the availability of efficient and impartial mechanisms to resolve differences. 219. This assessment reviews data available in the procurement systems for 2007-2009. The information in the procurement system is unreliable, which precludes effective monitoring of budgeted purchases. This shortcoming arises from the existence of differences between the planning and executing phases of budget management, on one hand, and purchases acquired through the PanamaCompra system, on the other. 220. With respect to planning: State agencies do not use procurement plans as a tool to order purchases and establish budget estimates that are aligned with them. With respect to bidding invitations: although a specific budget allocation ensuring the availability of funds is a legal prerequisite for the initiation of any procurement procedure, 19 the PanamaCompra system only registers procurement notices and, subsequently, the amounts allocated; it does not record contracts or payments made that are registered outside of the procurement system. Because of this and considering that administration of the procurement process may cover more than one fiscal year, it is not possible annually to account in a compatible manner for the amounts of the budget executed with the final contracting and paid amounts of these acquisitions, since purchases registered in a specific year do not necessarily correspond to the budget executed that year. Moreover, the government can contract works in a specific fiscal year through the “turnkey financing” model, and subsequently register them in the fiscal year in which the corresponding payment has been made for the contracted budgeted commitment. 20 In these circumstances, there is no secure evidence that executed procurement budgets equate to purchases in the PanamaCompra system, or that true budget deficits are shown. i) Transparency, comprehensiveness, and competition in the legal and regulatory framework 221. The regulating and standards-setting body for Panama’s public purchases and contracts, the General Directorate of Public Contracting (DGCP), has a clear hierarchical structure of authority and follows in precedent the priority order: the Constitution, Public Procurement Law (No. 22), regulatory Decrees issued by the Executive, and DGCP Decrees and Circulars. There are also internal procedural manuals created by the procurement entities. 222. The legal framework essentially rests on Law No. 22, from June 2006. This Law regulates public contracting and includes standards commensurate with international accepted best practices, and it in turn is regulated as regards implementation by Executive Decree 366 of 2006. This Law establishes the electronic system of public contracting, PanamaCompra, and introduces new models of acquisitions. It has been amended by several laws. 19 Article 2 of Law No. 22, Glossary for the Law. 20 The 2011 Budget proposal’s Statement of Objectives states: “The National Government has proceeded to conduct or program “Turnkey” contracting for a series of projects that are not included in the 2011 Budget Project.” Because these have been contracted by the Government (and the excluded sums are significant), the deficit amounts shown may not correspond to the actual situation. 69 223. All laws and regulations regarding public contracting are published and are easily and freely accessible to the public on the open source portal www.PanamaCompra.gob.pa (and on other official online State Websites) as are publication of contract awards and information on avenues to resolve procurement process and decision concerns through DGCP and the Public Contracting Administrative Court (TACP). 224. The Law does not apply to all goods, works, and services contracted by the State using Government funds. Excluded are Social Security Savings (CSS), Social Investment Funds (FIS), and municipalities and community boards, although in these latter cases, the Law can be applied in a supplementary manner. There is a special regime that regulates Ministry of Education (MEDUCA) purchases and the adoption of a similar regime for the Ministry of Public Works (MoP) has been considered. This restricts the range of the Law’s application. 225. Individuals or corporations can present a claim against what they perceive to be illegal acts or omissions or acts that may constitute arbitrary decisions during the selection process, before the contract is signed; these can only be addressed by DGCP. Article 104 of Law 22 established TACP as an independent and impartial entity to be addressed as the only entity for complaints against contracts being assigned, declarations of cancelling bids, or an act or resolution by means of which proposals are rejected in the selection of contractor’s procedures. Appeal resources are also included against administrative resolutions. A bond must accompany all claims (Article 90 of Law 22). Only after these avenues have been exhausted, can appeals be submitted to the Supreme Court of Justice. Table 3.4.19.1 Total claims and complains presented, 2008-2009 Year Claims Complaints 2008 90 45 2009 59 24 Totals 149 69 Source: Information supplied by DGCP and TACP. Score B. Although the regulatory framework has improved, and includes standards that align with some international standards, the body of norms is incomplete and is not applied to every procurement made with public funds. The absence of procurement plans is a significant constraint for planning procurements and for broadcasting business opportunities. ii) Use of competitive procurement methods 226. As previously noted, the legal and regulatory framework identifies specific cases of public contracting for which exemption authority can be given for direct contracting processes without competition. The authorizations for these processes are conceded in specific instances and based on the amount of the contract. 70 227. The Constitution states in Article 266 that national works carried out with national funds by any of the autonomous or semi-autonomous entities or the municipalities will be undertaken through Public Bidding, except for those exceptions outlined in Law No. 22. DGCP sets standards and guidelines. The Law identifies 11 public act exceptions that would justify Direct Contracting. 21 Justifications can be based on evident urgency, such as situations caused by natural disasters (prior to being declared as such by the Executive), in cases that are under special laws, and in cases of local urgency or social benefit (the two last criteria being difficult to prove). During 2008 and 2009 the use Direct Contracting rose as regards contracted amounts. 228. There is no reliable data on the frequency of direct contracting under acceptable exemption justifications. 229. During 2007-2009, procurement using competitive methods tended to decline while direct contracting rose significantly, particularly during 2008 and 2009. There is insufficient reliable information to explain this behavior. Score D. The absence of reliable information precludes verification that incidences of direct contracting have met the legal exemption standard. There is an unexplained increase in direct contracting simultaneous with a decline competitive bidding during 2007-2009. iii) Public access to complete, reliable, and timely procurement information 230. The PanamaCompra system is freely accessible to any person anywhere and at any time, with the current exception of connection constraints in some areas of the interior of the country. This system provides information on bidding and awarding contract notices, but does not enable budget monitoring to be undertaken of these procurements. It is not possible to establish a percentage that would describe both the information supplied on the value of the contracts and whether it is reliable. 231. There is information on resolutions regarding claims presented by participants in State procurement processes. Since government agencies do not use the Procurement Plan as a planning tool, the system does not offer this type of information, which limits a wider knowledge of business opportunities. Score D. Although the system publishes bidding and procurement notices, it neither provides information on procurement plans, nor does it enable budget monitoring of procurements to establish a value percentage of procurements substantially based on reliable information. With respect to claims and complaints presented, and the corresponding resolutions issued, information was obtained that could not be effectively verified. 21 Article 56 of Law No. 22. 71 iv) Existence of an independent administrative procurement complaints systems 232. The Panamanian public sector does not specify the capacities and knowledge required to serve as a procurement specialist (hence, strictly speaking there are no true “specialists”); in lieu of a definition of professional skills and abilities there are manuals that prescribe general positions and attendant titles. 233. All claims 22 are addressed exclusively by DGCP and all complaints by TACP. Each of these entities is composed by three government-appointed lawyers, without private sector or civil society participation. Claims presented to DGCP may lead to suspension of the procurement concerned until the case is resolved within the term established by the Law. 234. Complaints are made before the TACP for resolution. A bond must accompany every complaint; currently the amount of the bond is 15% of the value of the disputed proposal. The number of complaints presented in the last two years of the review period is relatively low (see Table 3.4.19.1 ), which suggests that the bond deters frivolous or speculative access to TACP. 235. Law No. 22 forbids officials involved in the resolution of claims or complaints to participate in acquisition processes, or of their transactions, or in adjudication decisions; no evidence of violations against these proscribed activities has been found. 236. Information supplied by DGCP and TACP indicates that to date both have addressed matters presented for their consideration within the timeframe established by the Law. A review of the 2008 procurement system 23establishes that TACP decisions have endorsed institutions in 70% of the cases registered, with 30% of its decisions favoring suppliers. Decisions on claims and complaints are based on the proof presented by the interested parties. 237. The appeal processes to TACT were usually slow and costly and government entity compliance with economic restitution was delayed, 24 on the grounds of alleged insufficient budget availability. Score D. The claims/complaints on procurement processes, and almost the entire procurement function are not staffed by professionally defined procurement specialists. The exclusion of private sector and civil society representatives, who are key stakeholders in the outcomes of procurement processes, weakens the independence and transparency of the function. The failure to meet this criterion affects the rating precluding a higher score, even though participants have avenues to address claims or complaints with respect to government procurement processes participants exist. Indicator Assessment Justification PI-19 D+ Scoring Method M2 (i) Score B The legal framework meets four or five of the six requirements. 22 There is a distinction between claims and complains, claims are presented before the award and complains are presented after the contract is awarded. The first attended by DGCP and the later by the TACT. For further details see: http://www.panamacompra.gob.pa/portal/reclamosEImpugnaciones.aspx 23 Second Assessment of the System of Public Acquisitions of P anama – as measured by OECD methodology indicator 10e. 24 Ibid, indicator 10b. 72 When contracts are awarded using means other than open competition, they are (ii) Score D justified in accordance with legal requirements in less than 60% of the value of contracts awarded, or when reliable data is not available. The government lacks a system that would generate substantial and reliable (iii) Score D coverage of key procurement information or does not systematically make key procurement information available to the public. The system for processing procurement claims does not meet the PEFA Measurement Framework criteria (i) and (ii) for this dimension as well as one (iv) Score D of the other five applicable criteria, or there is no independent procurement complaints review body. PI-20 Effectiveness of internal controls for non-salary expenditure This indicator measures the existence of, comprehension of, and compliance with internal controls of non- salary expenditure at the moment of assessment. 238. Governing body. Per its Constitutional and legal attributes, CGR is the Governing Body of Internal Control for the public sector of Panama, and through Decree Number 106 of May 5, 1998 it established the Government Internal Control Standards (NCIs). 239. Area of application. The NCIs apply to all entities that are responsible for keeping or managing funds or assets of the Panamanian State, such as Central Government Entities, Semiautonomous and Autonomous Entities, Public and Mixed Enterprises, and Municipalities and Community Boards, including Non- Governmental Organizations (NGOs), when they are keeping or managing public funds. The NCIs comprise the basic requirements for an acceptable internal operation control structure with which the government public sector must comply. 240. These standards are applicable to any type of management, operational, or administrative function and are not limited exclusively to financial operations. Moreover, they also serve for all systems, automatic or manual. Minimum acceptable standards are those that provide institutions with guidelines to implement internal controls and provide auditors with criteria to evaluate them. 241. Objectives and components. The NCIs establish that an internal control system must be represented by five components: (i) Control Environment, (ii) Risk Assessment, (iii) Information and Communication, (iv) Control Activities, and (v) Monitoring. These components support the efficiency and effectiveness of public resource management, the protection of State assets, the reliability of information for accountability, and compliance with laws and regulations. 242. Responsibility. The head of each MDA is responsible for establishing, developing, reviewing, and updating an adequate system of internal control. The application of methods and procedures as well as the quality, efficiency, and efficacy of internal controls is also be the responsibility of each civil servant, in accordance with his or her function. 243. Internal Control, as is established in the legal framework of the Public Sector of Panama, has a crosscutting scope across all environments and operations, including formulating and executing the 73 budget, 25 and safe-guarding State assets. The scope of this PEFA assessment includes commitments of expenditures and payments for goods and services, the salaries of temporary workers, and the discretionary fringe benefits of personnel. Thus, in principle, the internal control legal framework is commensurate within the international standard of COSO/INTOSAI for the public sector. 244. With respect to Budget controls, particularly the Budget schedule and amounts and consistency between commitments and cash balances. 26 while these may be complied with in practice, the internal control system may not be fully implemented if the control activities are not linked to the inherent risks of the objectives of each entity and if knowledge and comprehension of internal control standards is not widespread throughout the entity. Thus, although the legal framework of internal control in Panama reflects the international standard, implementation is at the initial stage. i) Effectiveness of the expenditure commitment controls 245. Through the 2010 Budget Law, the control standards related to expenditure commitments and congruency with cash balances administered by DGT have been defined. Similarly, the NCIs establish controls for the use of Cash Flow in Financial Planning. 27 246. DGT manages the flow of funds under the Single Treasury Account, 28 but the model of “One Single Account” has not yet been established (although the Single Treasury Account exists, there is no single account system as there are more than 6,000 accounts outside Treasury management.) DGT places the funds in current accounts only in the National Bank of Panama 29 in accordance with monthly approved assignments for each item of the Ministry of Economy and Finance, based on work programs, activity schedules, and estimates of revenue behavior. 30 247. In practice, each entity controls its Budget Schedule as it proceeds with purchase orders, because there is no unified control from a “One Single Account.” 248. On the other hand, the SIAFPA does not allow a payment to proceed if Budget availability is not registered beforehand as well as the expenditure, and if the DGT has not assigned the corresponding funds according to the programming of monthly needs. These controls are verified before a payment is made by CGR’s delegation (called the “Fiscal Control”) in each central government entity. Charts 3.4.20.1 and 3.4.20.2 depict the flow of information according to the SIAFPA manual. 25 Articles 206, 208, 218, and 219 of Law No. 63/09, establish basic requirements for the control and execution and due respect for Budget times and management of funds availability. 26 NCI 3.3.1.3 “…The amounts committed must not exceed the established expenditure program limit, nor the commitments schedules that were approved in the budget assignment.” 27 NCI 3.3.2.2. 28 NCI 3.3.2.1. 29 According to Article 216 of Law 63/09, the National Bank of Panama is the official depository of public funds, and CGR is responsible for their supervision so that, under no circumstances, will any accounts be open in other financial entities. 35 According to Article 219 of Law 63/09. 74 Chart 3.4.20.1 Information Flow Chart for Cash Purchase Order Chart 3.4.20.2 Information Flow Chart for Credit Purchase Order 75 Score B. Budget execution through SIAFPA has adequate controls, but an important part of the budget (PI-7) is executed from inherently less effective institutional accounts. ii) Comprehensiveness, relevance, and understanding of other internal control rules or procedures. 249. As previously indicated, internal controls include a wide range of actions executed across the entire public administration, including financial management, and the basic foundations of the NCIs are consistent with the international standard defined by the integrated structure of Internal Control issued by COSO, 31 which was adopted and recommended by INTOSAI for Higher Oversight Entities (EFS). 250. Since the NCIs were issued, no other guidelines or directives have been issued to support the implementation or adjust the process of these public entity standards. 251. Implementation of the NCIs. According to Article 4 of Decree 106/98, the NCIs were to be implemented beginning in May 1998. However, implementation has been slow in the four participating entities. 32 The controls that are presumed to be operating are of Component No. 3 Control Activities, developed in NCI No. 3.3.1 for Budget and 3.3.2 for Treasury. 252. In interviews with ministries participating in the PEFA assessment and with CGR, the responsible Internal Control entity, it was confirmed that the Internal Control Standards as defined in the legal framework have not been fully implemented. Furthermore, there are no CGR or MDA’s Internal Audit Unit (IAU) reports that provide information on the status of Internal Control, the level of implementation, or its effectiveness. Score C. The current NCIs define a system of Internal Control based on five components, the most widely implemented of which is “control activities,” a series of integrated controls that are but partially understood. However, other important components, such as Assessment of Risks and Control Environment, are in an initial implementation stage. iii) Degree of compliance with rules for processing and recording transactions 253. Only MEF’s Internal Audit Unit (IAU) provides non-compliance rates; the IAUs of other entities that participated in this assessment do not; hence, it is not possible accurately to measure the relative importance of inconsistencies in their reports, which mainly cover internal control findings focused on a 31 Committee of Sponsoring Organization, of the Treadway Commission of the United States Congress is a joint initiative of private sector organizations dedicated to developing frameworks and guidance to enterprise risk management, internal control and fraud deterrence.. 32 MEF, Ministry of Health (MIINSA), Ministry of Education (MEDUCA), and Ministry of Public Works (MoP). 76 process or area of interest, but do not quantify them or assess their impact. It is considered that the IAUs of MEF 33 and MINSA meet acceptable compliance and control standards. 254. Although the IAU of CGR and the IAUs of the other participating entities cannot confidently confirm the quality of ex-ante control or oversight, they report that they have confidence that they are not in violation of pertinent internal control standards. 255. In 2009, as a result of its internal control ex-ante interventions, CGR 34 rejected payments for an amount of US$2.5 billion (equivalent to 25% of the total accrued expenses of the entire public sector arising from almost 405,000 objections). (This value is for the central government and other levels of the public sector.) However, CGR cannot statistically establish the level of rejections addressed or the ones that persisted, so as to permit an inference to be drawn with respect to significant under-execution of the budget. Score C. The majority of transactions comply with pertinent rules (with important exceptions reported by IAUs and CGR, which are not quantified and thus preclude measurement of their relative importance. Indicator Score Justification PI-20 C+ Scoring Method M1 Expenditure commitment controls are in place and effectively limit commitments (i) Score B to actual cash balances and approved budget allocations for most types of expenditure. Other control procedures consist of a basic set of rules for processing and recording transactions, which are understood by those directly involved in their (ii) Score C application. Some rules and procedures may be excessive, while controls may be deficient in areas of minor importance. Standards are complied with in a significant majority of transactions, but use of (iii) Score C simplified/emergency procedures in situations that cannot clearly be justified is an important concern. PI-21 Effectiveness of internal audit This indicator measures the extent of coverage and benefit obtained from internal audits, based on the last available (2009) financial and operational information. Legal and regulatory framework 256. In Article 3, the NCIs place the responsibility of internal control review and assessment on the IAUs; they are to determine reliability and issue recommendations to increase administrative efficiency and efficacy, without compromising the internal control assessment authority of CGR. 33 A follow-up analysis prepared by MEF’s IAU reveals that in 2009, 66% of their recommendations on internal control were adopted. 34 Source: Executive Management Report of Carlos A. Vallarino R., Comptroller General of the Republic, December 2009. 77 257. The function of internal audit is basically defined in the NCIs, which establish that internal auditors are appointed and removed by the head of each institution,who must assure their independence, provide resources for their operation, and prevent their participation in administrative tasks that they may have to evaluate. 35 258. Technically, the internal audits must comply with current Panamanian Government Audit Standards (NAGs). These Standards apply to both internal and external audit practices and specifically define or address any distinction between the two audits. 259. According to current NCIs IAUs must send to CGR, before November 30, their annual plan and activity schedule for the following year, approved by the head of that institution. In the case of reports, IAUs must direct them to the head of the institution, but it is not mandatory to send them to CGR, except at their discretionary request. 36 Supervision of the internal audit practice 260. NAG 211.07, establishes that the External Auditor will coordinate and evaluate the activities that the IAUs execute throughout the entire process, in order to save time, money, and resources. Additionally, with independence and objectivity, s/he will evaluate the organization, quality, and timeliness of these activities. In CGR, notwithstanding the preceding formal requirement, no evidence was found of quality control or similar reports on IAU practices, and the IAUs reported that they did not have quality control systems nor did they submit their practices to independent quality reviews. i) Coverage and quality of the internal audit function 261. There are 679 Internal Auditors in the government sector covering the 33 IAUs of the Central Government, Decentralized Entities, Public Enterprises, Financial Intermediaries, and Municipalities. Table 3.4.21.1 displays their distribution by sector. Table 3.4.21.1 Internal audit personnel by sectors Sectors Auditors Supervisors Heads Total Central Government 223 22 31 276 Decentralized Entities 145 27 41 213 Public Enterprises 54 4 10 68 Financial Intermediaries 76 17 17 110 Municipalities 8 2 2 12 Total 506 72 101 679 Source: CGR Department of Internal Audit Coordination (DECAI), 639-2010 of October 22, 2010. 262. IAUs partially comply with the NAGs. Their interventions are not supported in internal audit plans based on risk analysis; they basically have a transactional focus on investigating presumed 35 NCI 325.03 and 325.04. 36 NCI 3.2.5.11. 78 irregularities. No IAU presents a report stating the quality of the internal control in general or that of the internal control of Budget execution. Even though the NCIs establish that IAU will send their plans to CGR, IAU performance is not satisfactory. In fact, CGR’s Department of Internal Audit Coordination (DECAI) reports 37that in 2010 only 14 of the 33 Central Government IAUs (42%) sent their audit plan. Furthermore, MDA IAUs do not have structured systems of quality control and their professional practice is not yet evaluated by an independent entity. Score D. Although there are IAUs in all Central Government entities, their performance falls short of professional norms. They basically focus on transactions and not on monitoring of systems. ii) Frequency and distribution of audit reports 263. The NAGs state that the results of internal audits must be officially communicated through reports directed to the entity administration of the area examined. As previously noted, neither the IAU nor the entity audited is not mandated to submit such reports to CGR (except at its formal request), nor must audit reports be sent to MEF directly. At October 2010, only two central government entities (6%) sent copies of their reports to CGR. 38 Score C. The majority of the central government entities regularly issue audit reports, but these are often not be sent to CGR or MEF. iii) Extent of management response to internal audit findings 264. According to the NAGs and NCIs, after the recommendations in the IAU reports should have been discussed and accepted, it is the responsibility of the head of the Institution Head to apply them. This is a mandatory responsibility the failure of which CGR may sanction, in accordance with its Organic Law. 265. Even though the NAGs establish that IAUs must include as part of their audit plans a timely monitoring implementation recommendation to ensure strengthened administrative functioning of public sector entities, CGR and the IAUs of institutions participating in the PEFA exercise do not have monitoring systems that would enable a statistical measurement of the extent of recommendation implementation. 266. Notwithstanding this lacuna, during interviews with MEF’s IAU it was stated that there was an adequate degree of implementation of recommendations, while the IAU of MINSA stated that their recommendations were partially applied, and the IAU of the CGR indicated that no follow-up is being undertaken. 37 Source: CGR Department of Internal Audit Coordination (DECAI), 639-2010 of October 22, 2010. 38 Source: CGR Department of Internal Audit Coordination (DECAI), 639-2010 of October 22, 2010. 79 Score C. Although the NAGs and NCIs mandate adoption of IAUs’ recommendations, there is not a system in place to ensure compliance as institutions lack monitoring to track this with statistical precision; and in the institutions observed, prompt action is not evident. Additionally, neither CGR nor the IAUs have monitoring systems to track recommendation implementation. Indicator Score Justification PI-21 D+ Scoring Method M 1 Although there are IAUs in all Central Government entities, their performance (i) Score D falls short of professional norms. In the case of the majority of central government entities, reports are issued (ii) Score C regularly, but they may not be given to the MoF or the CGR. Many officials act to address the main problems, though they tend do so with (iii) Score C delay. Sub-Section 3.5. Accounting, recording and reporting PI-22. Timeliness and regularity of accounts reconciliation 267. This indicator assesses the extent in which suspense accounts and advances are regularly reconciled, adjusted, or cleared to ensure that financial and government institution statements adequately reflect a true fiscal picture. The reference period for the analysis of this indicator is administration as executed at the time of assessment (2010). 268. Although the Government Accounting Manual mentions the subject of bank reconciliations, it does not deal specifically, regulate, or describe the reconciliation process. However, the Government Internal Control Manual is quite specific and describes in detail the banking reconciliation process, as well as the timeframe and manner in which results are recorded. In the Internal Control Manual, reconciliation matters are described in the following sections: • Banking Reconciliations (Section 3.3.2.3) • Public Debt Reconciliations (Section 3.3.3.2) • Loan Disbursement Reconciliations (Section 3.3.3.3) • Balance Reconciliations (Section 3.3.4.3) • Control of pending balances and accountability (Section 3.3.4.4) i) Regularity of bank reconciliations 269. The MEF Treasury Directorate, (DGT) does not have a single account system implemented (see PI-20 (i) discussion); therefore each public entity has and administers its own accounts in the National Bank, which currently reports to the DGT on a monthly basis the balances of the more than 6,000 government accounts that are outside the single treasury account system. (A significant number of these accounts belong to the 3,300 MEDUCA schools that have at least one bank account in order to receive transfers sent by the DGT). 80 270. The TD presently manages six funds: 39 General Fund, Tax Returns and Other Fund, Credit Fund Pending Claims, Division and Compensation Fund, National Development Fund, and CSS Disability Risk Trust Fund. 271. Bank accounts are reconciled through the SIAFPA settlement method, which allows comparing accounting information recorded in the system, with bank account statements. An audit report issued on April 12, 2010 by MEF’s Internal Audit and Monitoring Office reviewed the DGT bank account reconciliation efforts from January 2009 to March 2010 and found that reconciliations of the General Fund Account were not made promptly, showing a tendency to prepare settlements on a quarterly rather than monthly basis (see Table 3.5.22.1). Table 3.5.22.1 Timeliness of conciliations of the DGT General Fund account Month Date reconciliation is presented January May 8, 2009 February May 12, 2009 March May 14, 2009 June August 12, 2009 November January 18, 2010 December Pending Source: Internal Audit and Monitoring Office of MEF. 272. Information recorded in public entities visited also shows a weakness in account settlement processes. Because entities can have decentralized units that administer their own accounts, and with whom communication access is limited, the process of settling these accounts is inefficient and typically tardy. The bank statements usually arrive quite late at many dependencies. MEDUCA documents issued on October 13 show a consolidation of accounts for the period April 1 to September 30, 2010 with a note that it only contains data up to August 31 because they had still not received the bank statements of September. MINSA also reported that many of the bank accounts of the sector from decentralized entities are not settled in a timely manner. 273. Although the standard framework establishes monthly settlements of bank accounts, the standard is met only infrequently. Because these entities have to present quarterly reports, there is a tendency that reconciliations are sent each quarter, but sometimes settlement reports periods can extend to five-six months. Score C. Typically, Government Treasury managed bank accounts are settled usually quarterly. (ii) Regularity of reconciliation and clearance of suspense accounts and advances 39 The existence of an additional fund called “MEF Fund-National Treasury Privatizations” (Fondo MEF-Tesoro Nacional Privatizaciones), has been reported, but is not administered by the DGT. 81 274. The administration of current and advances accounts is the responsibility of each institution. The Annual Budget Law of 2010, Article 243, mandates that before an advance payment can be made, the beneficiary must first present a guarantee for 100% of the amount it will receive. 275. Article 3.3.2.6 of the Government Internal Control Standards establishes that the DGT cannot make any payment before receiving the applicable bond and establishes the terms of this guarantee. This article places the responsibility for, and administration, of this guarantee on the DGT. The same standards, in Article 3.3.4.4 (“Pending Balances in Accountability and/or Refunding”), states: “The accounts that represent fund advances for expenditures must be adequately controlled, in order to supervise the appropriate documented accountability or reimburse the funds not used.” This Article establishes that institutional accounting monitor advances to “avoid the accumulation of funds without timely and appropriate accountability. Its role is fulfilled when frequent reports are made on the situation, terms and nature of this type of operation. The accounting area must implement control and information procedures on the situation, aging and amount balances that are subject to accountability or refunding, in order to provide management with information to allow the correction of deviations that would affect an efficient management.” 276. Thus, each institution is responsible for managing and monitoring the advances it issues. The Government Accounting Manual includes within its accounts, “28” (Deferred payments account) and”284” (Advances payments account). 277. In the 2010 Comptroller’s Annual Report, the balances of advances are reported in an overall manner under “Asset Accounts – Expenditures Paid in Advance.” And as that report states in Note 7 of the Government financial statements: “The Public Debt Trust Fund is used to reflect commitments, liquidation of payments and disbursements subject to a future liquidation.” 278. Quarterly financial reports of institutions show the status of advance payments for, both operational expenditures and investment expenditures. For example, the Ministry of Public Works in a report issued on October 20, 2010 (which covers the period ending in September of the same year) under “Other Assets. Public Infrastructure,” details by item the advances issued. The Accountant Note J in this report explains that the amounts: “Include the non-current part of expenditures paid in advance, the intangible investments, non- current guarantee deposits and other items of a similar nature. Highways, Bridges and Other Constructions: these accounts, once finalized are transferred to become part of the fixed assets of this Ministry, in spite of these structures being handed over to the communities for public use.” In the same report, the Accountant in Note H reports on the deferred payment account, states: “Include[es] the expenditures, that signify future services, which are going to be converted into expenditures during the fiscal year period. Advances given for different reasons are considered the same as disbursements subject to future liquidation. 279. Mention is also made that balances from prior years (including 2000) and other funds sent by the United Nations Development Programme are being reviewed, these require payment documents to make the corresponding reductions. 82 280. Therefore, at least annually the Comptroller reports on the reconciled and compensated advance payment balance and that of accounts to be accounted for. And institutions reconcile and report such balances at least quarterly. Score B. Monitoring of advance accounts is undertaken quarterly and is reported in the month following the closure of the reported period. Reconciliation and clearance occurs annually, within the first three months of the new term, as is evident in the Annual Comptroller Reports. Indicator Score Justification PI-22 C+ Scoring Method M2 The settlement of all banking accounts administered by the Treasury takes place (i) Score C quarterly, in general within eight weeks following the end of each quarter. The current account reconciliation and clearance is undertaken at least quarterly (ii) Score B following the end of the period. The balances of some accounts not cleared and reconciled are brought forward to next fiscal year. PI-23. Availability of information on resources received by service delivery units 281. This indicator assesses whether there is consolidated and reliable information available on all resources received by service delivery units, such as schools and primary healthcare centers, and whether such information is used to monitor the resources. Fiscal years 2007, 2008, and 2009 are assessed. i) Collection and processing of information to show the resources that were actually received – in cash or in kind – by the most common frontline service delivery units (focus on primary school and primary health clinics) in relation to the overall resources made available to the sector(s), irrespective of which level of government is responsible for the operation and funding of these units. 282. The Comptroller’s Organic Law (Law No. 32 of 1984) in its “Chapter II Accountability” establishes: Article 17. Every person that receives, handles, safe-keeps, or administers public funds or assets is under the obligation of accounting for these to the Comptroller General, in the manner and terms that this Entity or through regulations may determine. This obligation also includes persons that manage a public entity, third-party funds or assets and representatives of corporations or associations that receive subsidies from said public entities. Regarding this law, the scope of employees which such responsibilities also includes all public servants or employees of a state enterprise that is authorized by law to assume economic commitments, approve expenditures or pay for loans in the name of or as representative of a State entity or dependency, or a state enterprise. The managing agent, in this same manner, are all persons that not being public officials receive, collect, handle, administer, invest, safe-keep, care for, control, approve, authorize or pay moneys of a public entity or, in general, administer its assets. Article18. Accountability, in addressing this law, is the report rendered by the person referred to in the previous Article, regarding actions related to the funds and assets that it receives, handles, safe-keeps or manages within a certain period, including the corresponding financial report of the pertinent state dependency. The Comptroller, when deemed necessary, may request the delivery of pertinent documents. 83 Article 19. When terms or periods for these have not been set, every account regarding funds must be accounted for on a monthly basis, within the first fifteen days of the following month. 283. Therefore, to comply with the Law, all centers of primary service delivery of the State are under the obligation of presenting a monthly accountability report to its “parent” sector institution and to CGR. 284. In the case of MEDUCA, each of the schools presents a monthly (often bulky) report documenting its financial administration. Starting in 2010, when MEDUCA was granted a special administrative regime that exempted it from ex-ante CGR oversight, the schools present a more detailed monthly report described in the “Accounts Accountability Plan” that mandates the entirety of this process. 285. The content of these reports is defined in the “Content of the Report” section that among other aspects and as summary states: Content of the Report 286. The account(s) details that are reported to the Comptroller General of the Republic must state the denomination and, banking or budget reference of the account, identifying its class (revenue or expenditure), and indicating the office and place, together with information on the agent or employee that holds the position of responsibility for such accounts and should be accompanied by the documents that support the account and those that the Comptroller may deem pertinent. Importantly, the accountability report should include indicators of progress and outcome, so that a clear determination can be made whether or not the projected goals were achieved. Also the accounting document(s) must state the difficulties encountered and what continuous improvements are required for these to be surmounted. 1. Accountability of actions on funds, resources and public goods… a. Of funds … b. Of human resources … c. Of furniture and equipment resources … d. Other resources … e. Of financial information … 2. Accountability of pre-procurement and procurement actions … a. Of pre-procurement actions … b. Of procurement actions … 3. Guarantee accountability … 4. Others … 287. In addition, MEDUCA publishes on its Website, for each one of the schools, and following territorial organization, each and every one of the bank transfers that have been made to the school bank accounts, identifying the amount transferred, the account in which funds were deposited, and the transfer code. In this manner, all transfer of resources to schools and the accountability for their use are clearly identified and updated on a monthly basis, and this information is freely accessible to the public via the Internet. 288. In the case of MINSA, procedures are similar, although only in the initial part. MINSA mandates monthly reports, but not so in the application of the “Accountability Plan,” since MINSA is still under CGR’s ex-ante monitoring regime. Monthly reports of MINSA primary service deliverers are received 84 periodically, although there have been indications that on some occasions some units have not been able to present them within the first 15 days of the following month as established in Article 19 of Law No. 32. Nonetheless, this does not affect the monthly character of the reports from these entities. Information on transfers differs from the MEDUCA norm, since the information cannot be viewed on the MINSA Website. 289. Transfer requests are sent by MEDUCA and MINSA to the DGT, which transfers the funds in an aggregated manner to the sector entities, which then make the specific transfers to each of their operating units. In this manner the control of transfers falls on the same entity responsible for the transfers. The use of the funds is documented in monthly accountability reports. 290. The institutional financial reports as well as government accounting shows the transfer of resources to primary service delivery units; therefore, detailed information exists and can be reported. There is no evidence that a specific report on the matter is routinely prepared, but this does not exclude that these may be issued at the request of a party. 291. Quarterly reports presented to the NA show this information in an aggregated manner by regions or programs, but not in detail by service delivery unit. This also occurs with MEF and CGR annual reports presented to the NA. Notwithstanding this, at the moment of the approval of the annual budget, the NA receives from MEDUCA and MINSA documents that support their budgets, with detailed information on funds to be assigned to the primary units, which can later be verified through budget execution. 292. The PEFA standard establishes that to be able to achieve Scoring ‘A,’ information on resources received should be published at least annually in special reports. The objective of these reports is to provide monitoring on the funds received by those units in order to ensure that they can deliver the desired services. In the case of Panama, monitoring is continuous and complete obviating the need to produce a specific report, since both the sector institution and CGR provide monthly comprehensive monitoring. Moreover, all information is registered in the government accounting. Therefore, in the case of this assessment, it is considered that the lack of a specific report is irrelevant, since the monitoring objective is substantively met. Score A. Information on resources received and used in all primary service provision units is complete, accurate, and is updated on a monthly basis, allowing constant monitoring of the receipt and use of resources sent to units. CGR and sector institutions monitor on a monthly basis. Indicator Score Justification PI-23 A Scoring Method M1 Current data collection or accounting systems provide reliable information on all types of resources received in cash and in kind, by both primary schools as well (i) Score A as primary health-care clinics in the entire country. The information is compiled into reports, at least annually. 85 PI-24. Quality and timeliness of in-year budget reports 293. This indicator assesses the extent to which budget execution reports, prepared in 2009 adequately reflected transactions and enabled pertinent institution and sector authorities to monitor management and, if necessary, implement timely corrective measures that might have been required. The reference period for the analysis of this indicator is the last completed fiscal year (2009). 294. Central government budget management is entirely undertaken through information technology processes (mainly SIAFPA), 40 whose various procedures enable consulting, unloading, and generating updated automatic reports of budget execution. 295. Government budget execution reports are clearly defined in the Annual Budget Law. In the case of the 2009 Annual Budget Law, Articles 253 and 254 regarding Terms and Reports established that MEF and CGR must present these to the Presidency or the National Assembly Budget Commission (see Table 3.5.24.1). 296. In addition to the reports established within the Annual Budget Law, the Social and Fiscal Responsibility Law, in Article 20, established the following: Regarding accountability, the report on the Results of the Fiscal Balance of the Non-Financial Public Sector and of the Central Government will be presented annually during the month of March, and will be part of the General National Treasury Account report of the fiscal year ended on December 31 of the previous year. After each quarter is ended, and not more than 45 days later, the Ministry of Economy and Finance will publish a report on the Consolidated Fiscal Balance of the Public Non-Financial Sector and the Central Government and its relation with the programmed goals of the year, that will serve as an indication of fiscal performance, including Central Government accounts payable. The institutions must send the information needed to prepare the report to the Ministry of Economy and Finance, no later than twenty-one calendar days after the closing of each month. 297. The Constitution, in Number 8 of Article 155, states: “Examine and approve or establish responsibility on the General Treasury Account that the Executive Branch will present, together with the Comptroller General of the Republic.” Table 3.5.24.1 Terms and reports Established by the annual Budget Law Entity Recipient Report Reporting Period Term by Law MEF Budget execution Each month All entities within the CGR By day 20 of the Institution financial Annual Budget Law NA – Budget following month statements Commission Quarterly Consolidated analysis of Within 45 days of the MEF and CGR PRES public sector budget end of the reported jointly NA – Budget execution period 40 The entities not in the SIAFPA system have their own systems that send their information to SIAFPA through interfaces or different electronic means. After receiving this information, SIAFPA then has the total of government information. 86 Entity Recipient Report Reporting Period Term by Law Commission Physical and financial execution of public MEF sector investments Public debt status and its service PRES Financial statement of CGR NA – Budget public administration Commission NA – Budget The concluded Within 60 days after MEF Budget closure Commission fiscal year fiscal year conclusion Source: 2009 annual Budget Law. 298. CGR has the responsibility of presenting to the NA within the following month reported, a monthly report on State Payroll payments containing the accumulated term information. Similarly, it must present to the NA within 90 days of the end of the reported period, a quarterly report (Comptroller’s Report) describing the behavior of the main fiscal, economic, and budget parameters. i) Scope of the reports in terms of coverage and compatibility with budget provisions 299. This dimension analyzes two fundamental aspects of budget information: (i) whether the classification of the approved budget and the classification used in budget execution reports are compatible, allowing a direct comparison of both values; and (ii) whether the information in budget execution reports clearly enables the identification of commitment and payment or accrued expenditure stages. 300. In the first case, since the classification of the approved budget and budget reports are the same, the comparison is quick and immediate. In the second case, SIAFPA records and reports all budget and accounting stages, and does not allow a stage to be recorded if the previous stage record has not been completed. In this manner, SIAFPA records the voted budget and modifications, as well as budget and accounting execution in its commitment, accruals, and paid stages. However, this record does not adequately reflect the status of transactions, as mentioned in indicators PI-4 and PI-7, since what is recorded as executed has often not been executed, nor has what appears as paid always been paid. This aspect will be considered in the third dimension of this indicator and does not affect the scoring of this dimension. Score: A. The comparison of budget reports with approved reports is direct and evident since the same formats are used. Reports show all budget and accounting phases, including the voted budget and modifications, as well as commitments, accruals, and payments. ii) Timeliness of the issue of reports 301. All government institutions included in the Annual Budget Law, whether central government, decentralized entities, or autonomous institutions, following the Annual Law mandate, and report monthly, quarterly, or annually their budget and accounting execution to MEF or CGR or the Budget Commission of the NA (for details of the reports, see Table 3.5.24.1 above). No evidence has been found 87 of the existence of systematic or recurring delays in the presentation of any of the 17 reports mentioned in the Law for the year 2009. Therefore, these reports are presented in a timely manner within the terms established by the Law (20 days for the monthly reports, 45 days for quarterly reports, and 60 days for budge execution report). Score: B. Different types of budget reports are prepared monthly or quarterly, which are presented within six weeks following the end of the reported period. The 45-day term is considered to be equivalent to the six weeks established by the PEFA methodology. iii) Quality of information 302. From the perspective of fiscal revenue, the information registered in SIAFPA, except for a few minor exceptions that are not recurrent, is complete and timely; therefore reports contain complete and updated data on revenue. 303. However, as noted in the analysis of PI-7, budget information on expenditure as shown in the intermediate budget execution reports does not reflect expenditure appropriately; therefore this information does not enable convenient monitoring, nor does it enable identification of situations that may need corrective measures. The assessment of objective compliance and of the adequate use of public funds is also limited because of this weakness, even if the reports are prepared using the budget structure and budget estimates. 304. In PI-7 different inconsistencies on information found in budget reports were described, including inconsistencies between institutional accounting and budget records showing negative balances of budget execution. Deficiencies were also identified with respect to amounts reported in budget execution by SIAFPA, because these included institutional banking transfers where funds were deposited but not used for payment of budget execution, creating distortions in execution amounts that could reach 29% of the amount reported. Similarly, the amounts in payments did not necessarily reflect actual payment made, but only the issuance of the payment order, which could have been in process for more than three months in the Treasury. Score: D. Information of budget execution recorded in SIAFPA shows weaknesses that could affect its quality. Indicator Score Justification PI-24 D+ Scoring Method M1 Data classification allows direct comparison to the original budget. Expenditure (i) Score: A coverage includes commitment and payment stages. Quarterly reports are prepared and presented within six weeks period of the end of (ii) Score: B the period. (iii) Score: D Data is too inaccurate to be useful. 88 PI-25. Quality and timelines of annual financial statements 305. This indicator assesses the degree to which the reports on the financial statements of the central government (including decentralized and autonomous institutions) are germane, complete, timely and appropriately based on adequate accounting standards. 306. Public institutions are responsible for their own accounting and for the quarterly presentation of their financial statements to CGR. Law No. 32 of 1984 establishes as one of the attributes of CGR, the following: “The Comptroller will also keep the national public accounting; will prescribe the accounting methods and systems of public dependencies; will direct and make national statistics.” 307. The responsibility of public accounting belongs to CGR. However, MEF through its National Accounting Directorate produces the consolidated institutional financial statements that are the basis for the production of the overall consolidated financial statements of the public sector, which includes information on the central government, decentralized entities, public enterprises, and municipalities. 308. CGR that presents the financial statements of the public sector and other relevant statistical information to the NA as part of the Annual Comptroller’s Report. MEF presents the consolidated financial statement of the public sector to the NA as part of the General Treasury Accounting Report covering the fiscal behaviour of the year. 309. Decree 355 of December 17, 1992 issued by CGR establishes the regulations for preparation of the financial statements of non-financial public enterprises. Decree 4 of January 8, 1993, also issued by CGR, 41 establishes the regulations for preparation of the financial statements of the central government, of non-enterprise decentralized entities, corporations, and development projects and of the municipal sector. In this way, all public sector entities prepare their financial statements within the same norms and apply the same standards. 310. The financial information is registered by institutions in SIAFPA; however, because this system is not installed in all entities, some entities must process the information on systems that do not necessarily directly link to SIAFPA, necessitating manual or semi-automatic processes to transfer that information. 311. The accounting system has inconsistencies, some of them with accounting technique. For example, accounting entities have been found failing to comply with basic requirementse. SIAFPA does not adequately satisfy the operational requirements of the government, since its participation in administration does not include all requisite aspects. For example, transactions made from banking accounts administered by the Treasury fall into SIAFPA’s environment, and the transactions of more than 6,000 institutional current accounts fall outside the system. 41 Decree 4 of 1993, states in one of its paragraphs: “That, while the accounting system is designed and implemented in the Panamanian public sector within the Financial Administration Reform framework, there is a need to approve a Regulation for the preparation and presentation of uniform financial information of the central government entities, the public decentralized institutions (not enterprise), corporations and development projects as well as municipalities that currently have accounting systems; with the favorable opinion of the Systems and Procedures Directorate of the Comptroller General of the Republic.” 89 312. The accounting standard is of a basic and general character. The accounting classifying structure is based on a group of main accounts (‘parent accounts’) common to all institutions, each of which then acts like a sub-account of the ‘parent’ accounts, generating a voluminous account plan that is difficult to administer. (i) Completeness of the financial statements The period of analysis of this dimension is the last annual financial statement revised by the audit (2009). 313. As is mentioned in the analysis of PI-7, some inconsistencies have been detected in quarterly institutional reports, between budget and accounting information. In the analysis of PI-22, inconsistencies were found in the banking account settlement process; these directly affect the quality of financial statements. The recording of assets also shows some weaknesses with respect to the capitalization of the public investment programs, since the amounts are not easily identified in institutional reports. The record of payments is also inadequate, since it includes transfers, as was mentioned in the analysis of PI-7. In general, the accounting information provided by institutions does not always adequately express the current administrative status. Score D. There are significant omissions with respect to information on expenditures, assets, and account balances. ii) Timeliness of submission of the financial statements The period of analysis of this dimension is last annual financial statement revised by the audit (2009). 314. As is noted above, each entity prepares its financial statements, CGR presents government financial statements according to information recorded by institutions, and MEF consolidates these to present them as the consolidated public sector financial statement. 315. Institutional reports are presented to MEF within the terms established by Law No. 32 of 1984. MEF prepares its General Treasury Accounts Report and quarterly reports on the consolidated financial statements, in accordance with the established regulatory framework. CGR prepares its “Annual Report on Public Management,” with the government’s financial statements. All reports are presented in a timely manner and many times take advantage of the opportunity to note the quality of the information in institutional reports. As is mentioned in the analysis of PI-24, these reports have clearly defined legal terms. 316. The consolidated financial statements of the public sector are annually prepared by MEF are included in the “General Treasury Accounts Report”, which is presented to the NA each March. Articles 213 and 214 of the “Organic Regulation of the Internal Regime of the National Assembly” describe the presentation, revision, and approval procedures of that report. This report is not audited by CGR. 317. As noted previously, public sector financial statements are prepared and presented to the NA by CGR; thus the entity that typically audits the report’s constituent elements, also prepares the report. Hence, these financial statements are not externally audited by a third party and the NA does not receive 90 comments from an independent organization on their quality. PEFA Fieldguide issued on May 3, 2012 clarifies that if no external audits for the accounts are submitted to the legislature; to score this indicator it should be taken the submission of the public accounts to the legislature by the MoF instead. Table 3.5.25.1 Date of submission of Government accounts to the National Assembly Public Sector Financial Date submitted to the Date of the Audit Statements NA Report General Treasury Account March 29, 2010 The reports are not 2009 subject to an external Government Financial March 2010 audit Statements Score A. Government financial statements are submitted to the NA within six months of the end of fiscal year. iii) Accounting standards used The period for the analysis of this dimension is that of the last three completed fiscal years (2006, 2007, and 2008). 318. Government Accounting Standards were made official through Decree 234 of December 22, 1997. In addition, on September 26, 2005 CGR issued its Government Accounting Manual. Curiously, the Accounting Manual only makes two references to the Government Accounting Standards: (i) when it describes the “Account 21, Project Investments” of the Government Accounts Plan it makes reference to the “Standard 14, Intangible Investments” of the Accounting Standards; and (ii) when in Chapter IV of the Manual the accounting processes are described in Number 2, which mentions, “The main books will be subject to their being registered, numbered and stamped in the Accounting Methods and Systems Directorate, in conformity with what is established in paragraph 10 on Government Accounting Standard No. 3,“Obligatory Nature of the Application of Governmental Standards and Accounting System.” Although the Government Accounting Manual includes in its bibliography the International Financial Reporting Standards (IFRS), in the text no specific reference has been found to any of these. However, financial statements are presented in a consistent format over time based on national approved accounting standards. 319. A new Government Accounting Manual is in the process of being reviewed. A comment issued by the KPMG firm in August 2010 regarding the proposed new Manual mentions, among other things, the convenience of modifying its structure to conform with the IFRS structure, the need for its own government-selected policies that diverge from IFRS described in the disclosure requirements of the financial statements, and some inconsistencies with what is stipulated in IFRS 12 and 17. 320. As noted above, the accounting problem lies in the regulatory area, but rather in the recording of information and in the accounting chart of accounts, whose multitudinous elements render difficult to administer. Score A. Although IFRS are not applied, national standards are applied and cover the entire public sector. 91 Indicator Score Justification PI-25 D+ Scoring Method M1 A government-consolidated statement is not prepared annually, or the essential (i) Score D information is missing from the financial statements, or financial records are too incomplete to enable audit. Government financial statements are submitted to the NA within six months of the (ii) Score A end of fiscal year. (iii) Score A IPSAS or national standards are applied to all statements. Sub-Section 3.6. External scrutiny and audit PI-26 Scope, nature, and follow-up of external audit This indicator principally measures the coverage, quality, and timeliness of external control of budget execution; the period of analysis is the last audited year (2009). Legal framework 321. Article 279 of the Constitution establishes that CGR will be led by a Comptroller General, who will be named for a period equal to the presidential term (five years), within which this person cannot be suspended or removed, except by the Supreme Court, in response to legally defined causes. 322. The Comptroller of the Republic must be a Panamanian citizen by birth, have a university degree, be over thirty-five years of age, and have no criminal record of five or more years as a result of a court sentence. 323. The legal framework that directs CGR’s performance in accordance with the attributes assigned to it by the Constitution includes the CGR Organic Law, 42 CGR Regulations, and other complimentary legal Standards. CGR’s professional practice is also guided by the Government Audit Standards, Manuals, and Guidelines, which are broadly aligned with the recommendations of the International Organization of Supreme Audit Institutions (INTOSAI). 324. The Organic Law establishes CGR as an autonomous technical organization whose mission is to oversee, regulate, and control (through financial audits, out-turns audits and other professional interventions) the movement of funds and public assets, and review, intervene, close, and judge their accounts. The Comptroller also prescribes the accounting standards and methods, and directs the collection and production of national statistics. 325. CGR’s scope of responsibility covers all persons and organizations that are charged with the custody or handling of State funds and assets, or those of Municipalities, Community Boards, State Enterprises, and Autonomous and Semi-autonomous Entities, in the country or overseas. It also has authority over persons or organizations in which the government economically participate, persons that receive subsidies or assistance from the government, and those who collect funds for public objectives. 42 Law No. 32 of November 8, 1984. 92 326. These various functions, as well as those known as ex-ante controls and payment validations, do not meet the standard of internationally accepted best practice because CGR, as a Directorate within MEF, does not have the independence of a Supreme Audit Institution. Thus, CGR has started a process of transferring the ex-ante control functions to institutions, in accordance with the authority granted by its Organic Law. i) Scope/nature of the audits performed (including conforming to auditing standards) 327. Although CGR is authorized to audit budget execution in an integrated manner (through its function of “Accountability review” or its authority to address the NA and the Executive with respect to the Public Administration Financial Statement), to date it has not done so; it thus does not produce an audited annual report with a professional opinion on the accuracy of public accounts. As part of the functions assigned to CGR are the one to judge public accounts and to oversight public sector accounting. Ex-post control 328. Although CGR does not prepare a general status report, it undertakes various types of audit interventions, as can be seen in Table 3.6.26.1. Table 3.6.26.1 Types of external audit interventions Year Types of Audits 2007 2008 2009 Planned Executed Planned Executed Planned Executed Special Audit - 178 136 193 126 235 Financial Audit - 4 61 3 52 5 Special Financial Audit - 283 77 89 85 60 Special Operation Audit - - 13 - 25 - Total Audits - 465 287 285 288 300 Source: DNAG Management Reports 2007, 2008, and 2009, and Annual Audit Plan 2008 and2009. 329. According to CGR’s General Audit Directorate (DNAG), ex-post control coverage of budget execution is limited, as in recent years precedence has been given to performing special audits and investigations. 330. The Financial Statement of the Social Security Agency (an entity that does not fall under the central government rubric) is audited annually by CGR and a professional opinion is issued, the last audited report published in the CSS webpage corresponds to 2008 43. Ex-ante control 331. CGR has offices in all central government institutions in which ex-ante controls are exercised focused on documentary compliance of payment processes. This activity is being phased out by CGR officials, because it has not achieved its intended purposes and the performance burden is great. 43 http://www.css.gob.pa/informacionfinancierapresupuestaria.html 93 332. In a hand-over management report, a former Comptroller notes: “The annual increase of the State General Budget has impacted the volume of transactions and documents that are addressed by our Ex-Ante Control Offices, and accumulated cases in the last three years have reached a total of 5,013,652 documents reviewed for an amount of B/.38,605,345,484.70. Mention must be made that within this oversight procedure, documents for oversight examination were presented that do not comply with the requirements of the standards and dispositions that regulate the management and use of public goods, which were rejected by our Offices for correction. In this sense, the Ex-Ante Control Directorate (Dirección de Fiscalización) has returned to institution administrations a total of 404,807 corrections that represented a total of B/.2,559,091,600.10. From the above, it follows that the State as a whole does then not perform timely audits on a great percentage of the annual budget, due to errors, failures in applying procedures, and non- compliance of standards that regulate public management for each one of the rejected transactions.” 333. It is noteworthy that this document does not indicate, the percentage of errors or inconsistencies that have had to be corrected, nor the effective percentage of the annual budget not executed because of these circumstances. In addition, currently there is no register that indicates the results of follow-up of inconsistencies and their final resolution. Audit standards 334. CGR has issued Audit Standards, which are partially consistent with the International Auditing Standards (IAS). These concise standards are partially put into practice by CGR’s professional personnel. Nevertheless, there is not a system of quality control for audit execution nor has the professional practice of CGR been submitted to an independent quality control review. Score D. There are no Budget execution audits undertaken, and hence no such reports are issued; instead, in the main, presumed irregularities are investigated. ii) Audit report presentation opportunity to the NA 335. CGR’s Organic Law requires that CGR present an annual report of its activities to the Executive and the NA. Although a delivery deadline is not legally established, in practice this report is presented in March of the year following. Broadly comparable reports (not audit reports) are also presented quarterly. The annual report consists of a compilation of unaudited information (as CGR clearly states in its reports) presenting details of the behavior of Panama’s economy and the magnitude and tendencies of the key macroeconomic variables. The Fiscal Balance chapter measures financing needs as a product of the net changes of the public sector financial position, and presents details of public sector Budget execution (including the Central Government, the Decentralized Sector, Municipalities, Panama Canal Authority, and the Public Sector Payroll). The Public Debt Statement, Exonerations, Subsidies, and Concessions chapter details the fiscal costs of these items. 94 Score NA. CGR does not issue an annual audit report, nor are reports of audits of individual entities sent to the NA. iii) Proof of follow-up of audit recommendations 336. CGR does not have a system to monitor or measure the extent to which ex-ante and ex-post control recommendations are implemented. According to DNAG, approximately 80% of their recommendations are addressed, but they indicate that they do not have formal corroborative elements available to establish with any certainty this assertion. In addition, there is no procedure in place that would require a formal written response from the audited entity on its relevant post-audit actions. Score D. A formal response from audited or investigated entities is not obtained. No evidence was found of any formal follow-up of recommendation implementation rates. Indicator Score Justification PI-26 D Scoring Method M1 Central government entities are audited that are responsible for at least 50% of total (i) Score D expenditure, or the audit coverage is higher, but does not highlight the significant issues. (ii) Score NA No external audit reports are submitted to the NA. (iii) Score D There is little evidence of response or follow-up. PI-27 Legislative scrutiny of the annual Budget Law 337. This indicator assesses the faculties that the Legislature possesses to scrutinize, debate, approve, and monitor the budget, as well as ensure strict compliance of the established standards to that effect. The assessment is undertaken based on the 2009 budget term. 338. The legal framework for the relationship between the NA and the Budget is set out in Title IX, Chapter 2, of the Constitution, and in Articles 79-85 of Law No. 49 of 1984 (the Organic Internal Regulation of the NA). 339. The organizational, structural, and procedural aspects for reviewing matters related to revenue and budget formulation are contained in the NA Regulations, which assign responsibility for such matters to the Budget Commission (BC). The structure and functions of the Commission are well defined in the Regulations, facilitating analysis of the budget proposal and timely presentation of that analysis to the NA Plenary. The BC is supported by an advisory Technical Budget Secretariat composed of four economic and financial experts and a legal advisor. i) Scope of NA scrutiny 340. The NA Regulations include deadlines for review and approval, and clarification of the authority and functions of ministers, the Comptroller, NA Members, and other relevant parties. 95 341. The Budget Law proposal that the BC receives for review is composed of two parts: (i) financial and (ii) regulatory, plus a brief exposition of objectives and auxiliary documents such as details of the revenue and functional expenditures of central government entities, decentralized entities, public enterprises, and financial intermediaries as well; and lists of public investment projects by Institution, Province, Circuit, District, County, and sector; and a list of projects financed by the yields of the Development Fiduciary Fund. 342. The BC review does not cover fiscal policies, the medium-term fiscal framework, or the medium- term priorities. Score C. The Legislature’s review covers details of expenditure but does not include revenue or fiscal policies, or the fiscal framework and the medium-term priorities. ii) Extent to which legislative procedures are well-established and respected 343. The administrative procedures included in the NA Regulations for review of the Budget Law proposal are respected and there is evidence in the minutes of compliance with them. However, those procedures only covers some aspects of the review and there is no body of procedures to guide a technical analysis of the meaning of the information submitted nor that comply with norms of accepted best practices for such an analysis. 344. Although the reports from the “Technical Secretariat” are taken into account in the decisions of the BC, they do not include opinions or recommendations. Score C. Some procedures exist for the Legislature’s budget review; while these are respected, they are not comprehensive or of a formal technical nature. iii) Adequacy of time for the Legislature to provide a response to budget proposals, both the detailed estimates and, where applicable, proposals on macro-fiscal aggregates that emerge earlier in the budget preparation cycle (time allowed in practice for all stages combined) 345. Ordinarily, the NA receives the Budget Law proposal for the ensuing fiscal year before the end of the first month of the legislative calendar (i.e., at the latest on July 31 of each year, except in years when there is a change in government; see Article 184, Number 7, of the Constitution). 346. This budget must be approved, approved as modified, or rejected before the first day of the corresponding fiscal year, so that it takes effect on the first day of the fiscal year (Article 272 of the Constitution); thus, December 31 becomes, in practice, the deadline to vote on the Budget. 96 347. When there is a change of administration, the Constitution provides 40 additional days after inauguration (the NA work week runs from Monday to Thursday) for the Executive to present the Budget proposal. 348. If the NA neither approves nor rejects the Budget by December 31 deadline, the Constitution establishes that it be approved as originally sent by the Executive. If the Budget is rejected, the former year Budget remains valid, until a new Budget is presented and approved. However, the commitments related to debt service and public investment financing that were previously authorized are maintained as were originally proposed by the Executive (see Article 272 and 273 of the Constitution). 349. According to Articles 79-85 of Law No. 49 of 1984 (Organic Regulations of the NA), in the first debate of the Budget Law proposal, 30 working days are available, which may be extended for an additional 10 days. The second debate is limited to 10 working days. Score A. The Legislature has at least two months to review budget proposals, increases, clarifications, and hold hearings on the Budget Law proposal in all review cycles. iv) Rules for in-year amendments to the budget without ex-ante approval by the Legislature 350. Modifications made to the total amount of the State General Budget by means of additional loans or transfers of items are not restricted; it is up to the Executive to set the number and amounts to present to the NA for its consideration. The maximum limit is given by revenue collection, financing, and the financing limits established by the Social and Fiscal Responsibility Law (Law No. 34 of 2008, and Law No. 32 of 2009). This matter is regulated in Title VI of the Law, which deals with General Budget Administrative Standards (specifically the section on Modifications in budget execution). 351. The specific requirements and procedures for Budget modification are set out in each annual Budget Law. 44 Table 3.6.27.1 displays the general types of modifications and corresponding approval levels. Table 3.6.27.1 Types of modifications and approval environments Type of Definition Amount B/. Approval Modification 300,000 or more NA Budget Commission Is the transfer of resource in Budget items that have Less than MEF Budget a fund balance or unused funds available, and others 300,000 and in Documents must remain allocation that may have been left with insufficient balances or the case of available to the Budget transfer that do not have a budget allocation. national Commission in case they emergency, require explanations. 1,000,000 44 For 2010, this is dealt with in Articles 251- 258. 97 Type of Definition Amount B/. Approval Modification Are those that increase the amount of the State General Budget and are divided into two types: Extraordinary and Supplementary. Extraordinary are those that are approved to assist Additional un-estimated and urgent causes as well as All BC of the NA credits expenditures that would demand the creation of a service and/or project not provided in the Budget. Supplementary are those used to supply insufficiencies in existing Budget items. Budget modifications Reduction of the amount of one or more institutions, between in order to increase the assignment for another or All MEF Institutions others, by means of the item transfer procedure. 352. According to the legal framework, increases in expenditure are an Executive decision that should be proposed to the NA; final approval lies with the BC as endorsed by the NA. Score B: Clear rules exist for in-year budget amendments by the Executive and are usually respected, but they allow extensive administrative reallocations. Indicator Score Justification PI-27 C+ Scoring Method M 1 The Legislature’s review covers details of expenditure and revenue, but only at a (i) Score C stage where detailed proposals have been finalized. Some procedures exist for the Legislature’s budget review, but they are not (ii) Score C comprehensive and are only partially respected. (iii) Score A The Legislature has at least two months to review the budget proposals. Clear rules exist for in-year budget amendments by the Executive and are usually (iv) Score B respected, but they allow extensive administrative reallocations. PI-28 Legislative scrutiny of external audit reports This indicator assesses the efficacy of the Legislature’s functional oversight of the Executive, based on the analysis and information on this administration provided by CGR. 353. The scrutiny of external control reports by the NA is not explicitly defined in the Constitution and legal framework, and as was indicted in the analysis of PI-26, CGR does not send audit reports to the NA. However, the internal regulations of the NA do not limit its review of external audit reports, which are to be undertaken by CGR at the request of the NA’s President. 354. The reports issued by CGR (see PI-26 analysis) are annotated disaggregation of budget execution and other aspects of public economy and finance, with an explicit CGR warning that the information included in its annual report has not been audited. These reports originate from the interpretation of Article 280 of the Constitution that establishes CGR’s function No. 9: 98 “Report to the National Assembly and to the Executive Branch on the Financial Statement of Public Administration and issue appreciations regarding the viability and convenience of subscribing to more supplementary or extraordinary credits…” In a like manner, the Organic Law, number 13 of Article 11, 45 establishes that CGR: “Will present to the Executive Branch and to the Legislative Assembly a report on its activities.” 355. Neither the Constitution nor the relevant regulations regarding the NA functions define actions in relation to CGR reports. In some cases, because of public complaints or initiatives from NA Members, CGR is required to conduct inquiries and provide reports on specific cases, but dates or procedures are not established by the NA in relation to the results of CGR’s work, nor are statistics available on the nature and impact of these investigations. i) Timeliness of examination of audit reports by the Legislature (for reports received within the last three years) 356. As previously noted, CGR does not issue an annual statement or report directed to the NA in which the result of audits related to budget execution are addressed, rather its Annual Report is an unaudited summary with comments, not opinions, nor conclusions or recommendations (see discussion of PI-26). Over the last three years analysed in this assessment, these reports have been sent to the NA before March 30 of the previous year summarized. The summary of information received from CGR is one among many inputs that the NA receives through its Finance Commission. Score D. No audit reports are submitted to the NA by the CGR. The NA neither scrutinizes CGR’s annual report submitted to nor issues any deadlines for receipt or review of CGR reports. ii) Extent of hearings undertaken by the Legislature on key findings 357. Evidence is not available regarding: • Specific hearings to discuss the conclusions in CGR reports or in its annual report, among others, because these reports are not conclusive; their character is more related to conveying data or directed toward separating or detailing the evolution of public financial management, and used as input for the Budget Commissions and Finance Commision’ analyses. • Hearings as a product of information included in CGR reports or from their recommendations, among others; because audit reports are ex-post, the investigations of presumed irregularities and administrative oversight (with exceptions) are not reported to the NA. 358. As previously noted, CGR issues external control reports on an institution’s operations. These are sent to the pertinent entity (in the hope that CGR’s recommendations will be implemented), or to the NA when it has requested an investigation. Although the CGR does not issue an annual audited report the legislature occasionally holds hearings on a MDA based on findings from CGR’s annual report. 45 Law No.32 of 1984. 99 Score C. Only occasionally does the NA hold in-depth hearings on key findings arising from data contained in CGR’s annual report. iii) Issuance of recommendations from the Legislature and implementation by the Executive. 359. The Legislature does not issue recommendations for the Executive. Score D. The NA does not issue recommendations for the Executive based on CGR reports, or at least specific evidence is not available to confirm this. Indicator Score Justification PI-28 D+ Scoring Method M 1 The Legislature does not examin audit reports or these are completed in more than 12 (i) Score D months. In- depth hearings are occasionally undertaken regarding the main conclusions; these (ii) Score C hearings include only some of the audited entities, or may only include Ministry of Finance officials. (iii) Score D No recommendations are issued by the Legislature. Sub-Section 3.7. Donor Practices D-1 Predictability of Direct Budget Support 360. This indicator establishes the variations on budget support actually received compared to that programmed by financial or donor agencies. Direct budget support is comprised of all assistance provided to the Treasury to support the general public budget, or for specific sectors, and it includes resources coming from donations and loans. The analysis of this indicator covers 2007-2009. i) Annual deviation of actual budget support, from the forecast provided by donor agencies at least six weeks prior to the Government submitting its budget proposals to the Legislature. 361. In all cases, funds provided for budget support are from loans, as are estimated budgets/disbursements (which are agreed upon from the moment negotiations start between the Government and Donors). Table 3.7.D1.1 depicts the status of donor budget support, 2007-2009. Table 3.7.D1.1 Amounts of Direct Budget Support, 2007-2009 (US$ millions) 2007 2008 2009 Development Partner Budget Disbursed %Change Budget Disbursed %Change Budget Disbursed %Change A C IDB ti 0 0 0.00 0 0 0.00 100 100 0.00 World Bank 60 60 0.00 75 75 0.00 180 180 0.00 TOTAL 60 60 0.00 75 75 0.00 280 280 0.00 Source: Inter-American Development Bank and World Bank. Note: Budget: Budgeted fund to be disbursed; Disbursed: Amount disbursed; % Change: Difference between funds actually disbursed/estimated funds. 100 362. Note must be made that starting in 2010, the IADB signed a Country Program document, which includes a detailed program of operations for the year and its implementation. 363. As can be appreciated in Table 3.7.D1.1, there were no variations between program estimates and actual disbursements for budget support. Score A. No deviation was observed between forecasts and actual disbursements. ii) In-year timeliness of donor disbursements (compliance with aggregated quarterly estimates) 364. Because the loans under discussion were fast-execution loans, donor disbursements were single- tranche, without considering quarterly estimates. Budget support loans are committed in IADB and World Bank country assistance strategies and programmed but there are not quarterly estimates. Score D. There were no quarterly estimates; a single disbursement was made. Indicator Score Justification D-1 D+ Scoring Method M1 In not more than one of the last three years has direct budget support out-turn (i) Score A fallen short of the forecast by more than 5%. Quarterly disbursement estimates have been agreed with donors at or before the (ii) Score D beginning of the fiscal year, and actual disbursement delays have not exceeded 25% in two of the last three years. D-2 Financial information provided by donors for budgeting and reporting on project and program aid 365. This indicator evaluates the integrity and timeliness of donor budget estimates in project support, and the frequency and coverage of the reports presented on cash flows for that purpose. IADB and the World Bank, Panama’s main donors 46, have directly supplied the information used for this assessment, returning a detailed questionnaire prepared by the team The reference period for the analysis of this indicator is that of the last completed fiscal year (2009). i) Completeness and timeliness of budget estimates by donors for project support 366. Typically, international cooperation agencies reach an agreement with the Government on the disbursement and execution plan, during project negotiation, which is incorporated in a formal agreement and used as the basis for program execution. To the extent that programming becomes a dynamic process, any modifications also are agreed on with the Government, and the modifications are included in the Budget proposal. The annual estimation for project resources is the responsibility of the Government through the executing entity that formerly requests that it be incorporated into the Budget, consistent with the Government´s budget classification. 46 According to the 2009 CGR annual report, Panama’s main donors are IADB (65%), World Bank (27%), and CAF Latin America Development Bank (5%). 101 Score A. The main donors provide budget estimates for disbursements for project aid during the fiscal year, so that it can be included in the Budget proposal. The project executing entity is responsible for ensuring that project funds are included in the Budget under the proper classification.. ii) Frequency and coverage of reporting by donors on actual donor flows for project support 367. According to the agencies concerned, during 2009 US$214.8 million was disbursed for project support, with US$196.2 million (91%) from IDB funds and the remaining 9% (US$18.6 million) from the World Bank. 368. The IADB does not formally present to the Government quarterly reports on disbursements, but all such information is available on the IDB Extranet, which can be accessed by executing entities and governments. Since executing entities must present semi-annual progress and account settlement project reports, there is reasonable security on the quality of this information 369. The World Bank presents a monthly report to the Government on project disbursements at the end of each month. The reports provide information based on the disbursement categories defined in the Project Document and the Loan Agreement; that have been agreed with the Government and are consistent or could be reconcile with the Government budget classification. Score A. The main donors have information available on the total of disbursements made, and a significant percentage of the breakdown is consistent with the Government budget classification. Indicator Score Justification D-2 A Scoring Method M1 All donors (with the possible exception of a few donors providing insignificant (i) Score A amounts) provide budget estimates for disbursements of project aid at stages consistent with the government’s budget calendar, and with a disaggregation consistent with the government’s budget classification. Donors provide quarterly reports within one month of end-of-quarter on all (ii) Score A disbursements made for at least 85% of the externally financed project estimates in the budget, with categories consistent with the government budget classification. D-3 Proportion of aid that is managed by use of national procedures 370. This indicator establishes the overall proportion of aid funds both from donations and loans that are managed through national procedures with respect to: (i) procurement, (ii) payment/ accounting, (iii) audit, and (iv) reporting. The information used for this assessment was provided directly by IADB and the World Bank, who responded to a detailed questionnaire prepared by the PEFA assessment team. The reference period for the indicator analysis is the last completed fiscal year (2009). i) Overall proportion of aid funds to central government that are managed through national procedures 102 371. Unlike donor direct budget support, donor-provided funds for investment projects and programs are not managed through national procedures (see Table 3.7.D3.1). The 56% of total donor support is considered to use national procedures, and this fact reflects the country’s relatively high amount of budget support received during the period. Table 3.7.D3.1 Use of National Procedures for Government Support Funds, 2009 (US$ millions) Budget Support Projects Development Partner National Procedures National Procedures Total Assistance Disbursement Disbursement IDB 100.0 YES 196.2 NO 296.2 World Bank 180.0 YES 18.6 NO 198.6 Total 280.0 214.8 494.8 Proportion of Assistance Managed through National Procedures 56 % 372. With respect to increasing donor use of national systems, the National Secretariat for Science, Technology and Innovations, executor of IDB’s Project No. 1987/OC-PN, is participating as a pilot institution in implementing the SIAFPA project module that MEF is developing with the intention of confirming the feasibility of using SIAFPA for managing donor-funded projects; if successful, this would support the use and strengthening of national systems. Score C. Some 56% of aid funds to central government are managed through national procedures. Indicator Score Justification D-3 C Scoring Method M1 (i) Score C At least 50% of aid funds to central government are managed through national procedures. 103 Section 4. Public Sector Reform Process 373. Despite some recent progress in improving the administration of budget management and public finances, substantial challenges remain with respect to efficient budget preparation and execution. 374. Panama’s financial administration model was based on control and management by CGR, which simultaneously had to perform administrative and monitoring tasks. CGR transferred resources to ministries and executing agencies, which executed and reported the expenditure through accounting records that were consolidated at CGR. Thus, CGR was responsible for the consolidation of the accounting, which simultaneously regulated the accounting and controlled the proper appropriation and registration of expenditures through ex-ante controls undertaken for every expenditure, commitment, disbursement, and payment; this confirmed the adequacy of the accounting process. 375. In reforming the conceptual framework model, an attempt was made to transfer resource execution to government entities, through an integrated management system (SIAFPA). 47 This transfer of responsibilities and functions to MEF and other government entities proved difficult, in some cases it was extemporaneous and in others it was not completed; thus, the entities they have some functions, such as ex-ante control, while revenue registrations and administrating the state payroll are still with CGR. Some of these functions are incorporated in the current legal framework at different levels, starting with the Constitution, the CGR Organic Law, and others. Although over time and as a consequence of continuous efforts of successive governments some progress has been made toward comprehensiveness and transparency of budget monitoring and execution, with the result that there is now more timely, transparent, and extensive information on financial yield publically available, there remains some expenditure outside of the budget. 376. The increased responsibility and transparency of public sectors rests on a stronger legal framework and enhanced administrative processes as they impact service delivery, which would further build citizens’ confidence in their government. Notable achievements over the last decade in increasing transparency and combating corruption include passage of the Social and Fiscal Responsibility Law (Law No. 34 of 2008), improvements introduced to the Procurement Law (Law No. 22, 2006), and the Access to Information Habeas-data Law (Law No. 16, 2002). Strong compliance with these initiatives, combined with better service delivery, should help minimize public perceptions of endemic corruption perceived in the country within a reasonable timeframe. It is essential to strengthen citizens’ confidence that governments can reduce tax evasion and improve overall compliance with regulations and laws. Sub-Section 4.1: General description of recent and on-going reforms 377. The Government through its Strategic Plan seeks to improve the efficiency and transparency of public expenditure. To this end, the plan specifies that the institutional capacity of MDAs must be strengthened to help produce strategies, policies, and development programs linked to a multi-year, results-based budget. This requires effective implementation of the Social Fiscal Responsibility Law, with the consequent institutional capacity to: i) develop cost-estimated strategic programs, 47 SIAFPA Conceptual Model, Panama, 2002. 104 ii) program public investments that align with strategic programs that reflect recurring expenditures and perform the necessary prior studies, iii) reconcile the elements mentioned above with the annual budget, and iv) link the Budget to procurement plans. 378. The Strategic Plan notes that although many transactional controls have been implemented in Panama, these do not seem to have been notably successful in reducing corruption and have sometimes diluted the responsibilities of institution officials. The Plan calls for an integrated review of the control and oversight framework, in order to only selectively implement previous control (based on risk). 379. The Strategic Plan also recognizes the need to develop and strengthen information systems to guide decision-making. Within this vision, the GoP has developed a New Government Financial Administration Model (MAFG) to support the policy of national development within a aggregated fiscal discipline framework; its aim is to strategically assign public resources through an adequate budget structure that would enable monitoring of execution and achievement of objectives so as to provide value for money within a framework of transparency and accountability. 48 As part of this initiative, a reform of government financial administration is underway, intended to develop an integrated financial administration system guided by government resource planning. Key Components of Financial Management 48 Conceptual Design Note: Planning System of the Government Resources, DNC, 2011. 105 Technical Conceptual Model for Financial Management Systems (PRG) Sub-Section 4.2. Institutional factors that support reform planning and application 380. The consolidation of the core financial management functions in MEF and completion of proposed reforms are critical to ensuring greater efficiency and transparency in the use of public financial resources. Natural resistance to change and institutional dispersion undermine pending reforms and make their application difficult. The leadership of MEF in this process is essential if success is to be achieved. The GoP has an agenda with ambitious objectives that when executed will transform Panama’s public administration, positively affect investment processes, and support the country’s growth. Time is an element of risk because there is a need to complete the first phase of reforms in a short period, in order to consolidate the reform agenda, show results, and generate support rather than resistance. All this demands consistent and substantial political support, shifting the reform initiative from rhetoric to action. 381. The PFM reform agenda is led by MEF, within the framework of an ongoing dialogue with CGR, a key institution in Panama’s PFM system. This dialogue is crucial for reform success in two ways: (i) to reach agreement on reform objectives and support them, and (ii) to strengthen the new roles and functions in the new administrative framework so that they are congruent with internationally accepted best practices and help ensure Panama exemplifies public financial administration reform. This dialogue has substantially advanced, and CGR has expressed an initial predisposition to reorganize the PFM system within a structure that would reflect internationally accepted best practices. The PEFA assessment contribution to this process is, therefore, vital. The PEFA assessment could be used by all reform stakeholders to provide a shared platform for understanding the challenges ahead and consolidation of the political commitment to reform. 106 Annex 1. Summary of Performance Indicators Indicator / Scoring of Scoring of each Dimension Justification Method the Indicator I II III IV A. PFM-OUT-TURNS: Credibility of the Budget Score: PI-1 (M1) A --- --- --- Dimension i) 2008 was the only year, within the period of analysis from 2007 to 2009, during which actual expenditure deviated by A more than 5% of the budgeted expenditure approved by the NA. Dimension i)Variance in expenditure composition exceeded 10% in no more than one of the last three years.. Score: Score: PI-2 (M1) B+ --- --- Dimension ii) Budget expenditure charged to the contingency vote was less than 3% of the Budget approved by the NA in the three B A years analyzed. Score PI-3 (M1) D --- --- --- Dimension i) Actual revenue collection exceeded collection goals in 2007 (118%), 2008 (130%), and 2009 (108%). D Score: Dimension i) The indicator cannot be evaluated because there is insufficient information. PI-4 (M1) NR NR --- --- D Dimension ii) Information on payment delays in the Government entities cannot be accurately determined. B. KEY CROSS-CUTTING ISSUES: Comprehensiveness and Transparency Score: Dimension i) The Budget classification includes administrative, economic, and functional classification codes, even though not PI-5 (M1) B --- --- --- necessarily at the sub-functional level of detail recommended in the United Nations Public Administration Functions Classification B (CFAP). The budget classification system permit uniform reports to be created that compatible with MEFP 1986. Score: Dimension i)Six of nine evaluated parameters of the indicator are available to the legislature, although some of them are not included in PI-6 (M1) B --- --- --- B the budget submissions sent to the National Assembly they fulfill the information requirements established by the PEFA methodology Dimension i) The level of expenditures not reported or inadequately declared in the end-2009 fiscal reports is above 5%, but does not Score: Score: exceed 10% of the executed budget amount: However, the level of non-reported or inadequately declared expenditure during the year PI-7 (M1) D --- --- is easily above 10% of government total expenditure, thereby precluding an appropriate budget execution follow-up. D D Dimension ii)Weaknesses in fiscal reports mean that it is not possible to provide complete information on revenue and expenditure of projects financed through loans. Dimension i)There are no clear, transparent, and accepted rules, such as formulas, to enable sub-national governments to predict the transfers they will receive from the central government. Score: Score: Score: Dimension ii)The information about fund allocations given to municipalities is reliable and is delivered before the municipalities PI-8 (M2) C --- D A D complete their own budgets. Dimension iii)Central government, general government, and SPNF fiscal information does not include the consolidation of operations performed by municipal governments. The information on municipal operations is audited by CGR but is not included in the SPNF consolidated fiscal balance. 107 Indicator / Scoring of Scoring of each Dimension Justification Method the Indicator I II III IV Dimension i) Autonomous and decentralized entities and public enterprises annually present their financial information to MEF, but Score: there is no complete consolidation of fiscal information, especially regarding public enterprises. PI-9 (M1) C C C --- --- Dimension ii) Sub-national governments annually present their financial information to CGR, so the latter can control expenditures, accountability, and accounting consolidation. However, MEF does not prepare a complete consolidation of the municipalities’ fiscal position. Score PI-10 (M1) A A --- --- --- Dimension i) The central government publishes the information of five of the six elements indicated. C. BUDGETARY CYCLE C i) Policy-based budget Dimension i) Although the budget calendar is clear and provides a timetable that, theoretically, is sufficient for budget preparation at the institutional level (six or more weeks), it is prepared so long before term closure that it precludes realistic and meaningful budget estimates. Score C is applied taking into account that Score B requires that agencies can produce meaningful estimations for budget Score: Score preparation; this is not the case in Panama. C+ D --- PI-11 (M2) C A Dimension ii) A circular is not issued with budget ceilings for institutions, nor are specific instructions given for institutions to prepare their budget projects. In many cases institution budgets that are finally approved by the NA are different from the initial budget proposals of the entity. Dimension iii) The budget was approved in a timely manner in the three years analyzed. Dimension i)In 2008 and 2009, multi-year projections were prepared on a roll-over basis within five-year projections, but only to enable monitoring of the fiscal deficit or surplus. A link has not been found with institutional or sectoral expenditure projections Score: Score: Score Score: Dimension ii)In the three years analyzed, evidence has been found of external and internal public debt sustainability studies C PI-12 (M2) D A NA D Dimension iii) The special circumstances of 2009 preclude a representative measurement Dimension iv) Although investments are systematically selected on the basis of sector strategies and government priorities, and their future operational costs have been calculated and reported, their inclusion in the 2009 budget could not be found, since if it does exist it is not explicitly shown in the budget nor are specific instructions issued for the institution. C ii) Predictability and Control in Budget Execution Dimension i)Although legislation and applicable procedures for the principal taxes are comprehensive and clear, the fairness of the system is called into question because of the significant discretionary faculties of the tax entities involved. Dimension ii)Taxpayers have some access information on legislation and tax payment procedures for the most important taxes, but the Score Score Score C --- value of this is limited because the information available is not entirely up-to-date, is largely limited to urban and peri-urban areas, and PI-13 (M2) C C C is only produced in Spanish Dimension iii) Taxpayers have access to appeal mechanisms with respect to tax and customs administration decisions; however, these are not totally independent, and a final and independent alternative in the judicial system takes an excessive amount of time to resolve cases (2007-2009/2010) Dimension i)The RUC contains inconsistent information at the taxpayer level and is not updated. Also, there is no certainty of the Score Score Score D --- potential universe of taxpayers. PI-14 (M2) D D D Dimension ii)Penalties for non-compliance effectively are absent or are set too low to deter inappropriate taxpayer behavior. Dimension iii)Tax audits and fraud investigations are undertaken on ad-hoc basis, not on risk-assessment criteria. 108 Indicator / Scoring of Scoring of each Dimension Justification Method the Indicator I II III IV Dimension i)The average rate of arrears tax collection for the last two years (2008 and 2009) was 64.5% Score Score Score NR --- Dimension ii) There is no information available to determine the duration of delays in collected fund transfers to the Treasury accounts. PI-15 (M1) C NR D Dimension iii)There is no complete reconciliation of assessments, collections, delays, and transfer of taxes to the Treasury. The only settlements are those undertaken by the banking system and DGI offices. Dimension i)MEF prepares a cash flow at the beginning of the fiscal year, which is updated monthly on the basis of actual cash inflows and outflows Score Score Score D+ --- Dimension ii)On a monthly basis, institutions are provided commitment ceilings and payment of expenditures for implementing their PI-16 (M1) A C D commitments. Dimension iii)There is no information to determine the frequency and transparency of budget or cash allocation adjustments because they are not done in a transparent manner from a MDA perspective. Dimension i)Domestic and foreign debt records are complete, updated, and settled on a monthly basis. Additionally there are Score Score Score comprehensive debt reports, which include debt service, stock, and operations that are produced on a quarterly basis. NR --- PI-17 (M2) A NR A Dimension ii)There is no information to enable adequate measurement of the government accounts balance total settlements. Dimension iii)Central Government’s contracting of loans and issuance of guarantees are made against transparent criteria and fiscal targets are prepared by MEF in all cases Dimension i)The personnel database and payroll are directly linked to ensure data consistency and monthly reconciliation undertaken by CGR prior review. Dimension ii) In some institutions, delays of a few months have been identified, typically for about three months but occasionally for more than six months, in updating payroll records. These delays cause retroactive adjustments that occur with some frequency. These adjustments and updating derive from delays in the delivery of information by institutions and irregular administrative practices that Score Score Score C+ A allow a worker to start working before the needed approval has been received. PI-18 (M1) C B C Dimension iii)All public entities, under the Administrative Service Law or other standard, have a human resource unit that is solely responsible for administering, recording, and processing the institution’s payroll. The persons authorized to register changes in personnel files or payrolls are not the same as those who authorize or approve the initial registry entry. Law 9 of the Administrative Career clearly defines the authority and the basis for introducing changes in personnel records and payroll, as well as all the procedures for recording and updating information. Dimension iv)CGR undertakes reviews at the institutional level that can be considered as partial payroll audits Dimension i)Although the regulatory framework has improved, and includes standards that align with some international standards, the body of norms is incomplete and is not applied to every procurement made with public funds. The absence of procurement plans is a significant constraint for planning procurements and for broadcasting business opportunities Dimension ii)The absence of reliable information precludes verification that incidences of direct contracting have met the legal exemption standard. There is an unexplained increase in direct contracting simultaneous with a decline competitive bidding during 2007-2009 Score Score Score Score Dimension iii)Although the system publishes bidding and procurement notices, it neither provides information on procurement plans, D+ PI-19 (M2) B D D D nor does it enable budget monitoring of procurements to establish a value percentage of procurements substantially based on reliable information. With respect to claims and complaints presented, and the corresponding resolutions issued, information was obtained that could not be effectively verified Dimension iv)The claims/complaints on procurement processes, and almost the entire procurement function are not staffed by professionally defined procurement specialists. The exclusion of private sector and civil society representatives, who are key stakeholders in the outcomes of procurement processes, weakens the independence and transparency of the function. The failure to meet this criterion affects the rating precluding a higher score, even though participants have avenues to address claims or complaints with respect to government procurement processes participants exist 109 Indicator / Scoring of Scoring of each Dimension Justification Method the Indicator I II III IV Dimension i)Budget execution through SIAFPA has adequate controls, but an important part of the budget (PI-7) is executed from inherently less effective institutional accounts Score Score Score Dimension ii)The current NCIs define a system of Internal Control based on five components, the most widely implemented of which is PI-20 (M1) C+ --- “control activities,” a series of integrated controls that are but partially understood. However, other important components, such as B C C Assessment of Risks and Control Environment, are in an initial implementation stage Dimension iii)The majority of transactions comply with pertinent rules (with important exceptions reported by IAUs and CGR, which are not quantified and thus preclude measurement of their relative importance Dimension i)Although there are IAUs in all Central Government entities, their performance falls short of professional norms. They basically focus on transactions and not on monitoring of systems Score Score Score Dimension ii)The majority of the central government entities regularly issue audit reports, but these are often not be sent to CGR or PI-21 (M1) D+ --- MEF. D C C Dimension iii)Although the NAGs and NCIs mandate adoption of IAUs’ recommendations, there is not a system in place to ensure compliance as institutions lack monitoring to track this with statistical precision; and in the institutions observed, prompt action is not evident. Additionally, neither CGR nor the IAUs have monitoring systems to track recommendation implementation. C iii) Accounting, recording and reports Dimension i) Typically, Government Treasury managed bank accounts are settled usually quarterly. C+ Score Score Dimension ii) Monitoring of advance accounts is undertaken quarterly and is reported in the month following the closure of the PI-22 (M2) --- --- C B reported period. Reconciliation and clearance occurs annually, within the first three months of the new term, as is evident in the Annual Comptroller Reports. Score Dimension i) Information on resources received and used in all primary service provision units is complete, accurate, and is updated on PI-23 (M1) A --- --- --- a monthly basis, allowing constant monitoring of the receipt and use of resources sent to units. CGR and sector institutions monitor on a A monthly basis Dimension i) The comparison of budget reports with approved reports is direct and evident since the same formats are used. Reports Score: Score: Score: show all budget and accounting phases, including the voted budget and modifications, as well as commitments, accruals, and payments. PI-24 (M1) D+ --- Dimension ii) Different types of budget reports are prepared monthly or quarterly, which are presented within six weeks following the A B D end of the reported period. The 45-day term is considered to be equivalent to the six weeks established by the PEFA methodology. Dimension iii) Information of budget execution recorded in SIAFPA shows weaknesses that could affect its quality Dimension i) There are significant omissions with respect to information on expenditures, assets, and account balances D+ Score Score Score PI-25 (M1) --- Dimension ii) Government financial statements are submitted to the NA within six months of the end of fiscal year. D A A Dimension iii) Although IFRS are not applied, national standards are applied and cover the entire public sector. C iv) External Scrutiny and Audit Dimension i) There are no Budget execution audits undertaken, and hence no such reports are issued; instead, in the main, presumed Score Score Score irregularities are investigated PI-26 (M1) D --- Dimension ii) CGR does not issue an annual audit report, nor are reports of audits of individual entities sent to the NA D NA D Dimension iii) A formal response from audited or investigated entities is not obtained. No evidence was found of any formal follow-up of recommendation implementation rates 110 Indicator / Scoring of Scoring of each Dimension Justification Method the Indicator I II III IV Dimension i) The Legislature’s review covers details of expenditure but does not include revenue or fiscal policies, or the fiscal framework and the medium-term priorities Dimension ii). Some procedures exist for the Legislature’s budget review; while these are respected, they are not comprehensive or of a C+ Score Score Score Score formal technical nature. PI-27 (M1) C C A B Dimension iii) The Legislature has at least two months to review budget proposals, increases, clarifications, and hold hearings on the Budget Law proposal in all review cycles Dimension iv) Clear rules exist for in-year budget amendments by the Executive and are usually respected, but they allow extensive administrative reallocations Dimension i) No audit reports are submitted to the NA by the CGR. The NA neither scrutinizes CGR’s annual report submitted to nor Score Score Score issues any deadlines for receipt or review of CGR reports PI-28 (M1) D+ --- Dimension ii) Only occasionally does the NA hold in-depth hearings on key findings arising from data contained in CGR’s annual report. D C D Dimension iii) The NA does not issue recommendations for the Executive based on CGR reports, or at least specific evidence is not available to confirm this D. DONOR PRACTICES Score Score Dimension i)No deviation was observed between forecasts and actual disbursements. D-1 (M1) D+ --- --- A D Dimension ii)There were no quarterly estimates; a single disbursement was made. Dimension i)The main donors provide budget estimates for disbursements for project aid during the fiscal year, so that it can be Score Score included in the Budget proposal. The project executing entity is responsible for ensuring that project funds are included in the Budget D-2 (M1) A --- --- under the proper classification. A A Dimension ii) The main donors have information available on the total of disbursements made, and a significant percentage of the breakdown is consistent with the Government budget classification. Score D-3 (M1) Score C --- --- --- Dimension i)Some 56% of aid funds to central government are managed through national procedures. C 111 Annex 2. Indicator Data 112 Annex 2.1 Summary of Budget Execution for 2007, 2008, and 2009 and Budgetary Outcomes Summary of Budget Execution for 2007 (Values in B/.) Total Accrued to Paid to Paid to Difference Modified Total approved by December December April 30, approved total assigned the NA 31 31 2008 minus paid Assembly 51,805,000 60,798,610 60,798,610 57,572,048 54,210,723 57,572,048 -5,767,048 Comptroller 46,898,100 47,868,311 47,868,311 44,182,155 41,649,062 44,182,155 2,715,945 Presidency 157,971,600 222,126,763 222,126,763 201,382,153 150,922,722 201,382,153 -43,410,553 Government and Justice 258,683,400 287,074,997 287,074,997 269,530,302 239,768,645 269,530,302 -10,846,902 Foreign Relations 40,386,900 46,308,282 46,308,282 44,533,320 43,821,105 44,533,320 -4,146,420 Education 790,738,700 829,183,873 829,183,873 808,793,029 755,399,443 808,793,029 -18,054,329 Commerce & Industry 39,767,500 45,589,800 45,589,800 38,897,156 30,923,424 38,897,156 870,344 Public Works 299,158,700 301,128,420 301,128,420 254,233,539 156,939,004 254,233,539 44,925,161 MIDA 88,795,800 136,948,094 136,948,094 123,127,520 110,316,652 123,127,520 -34,331,720 Health 626,689,800 734,133,541 734,133,541 687,917,800 638,592,186 687,917,800 -61,228,000 Labor & Social Welfare 89,299,100 89,821,566 89,821,566 87,158,425 55,852,847 87,158,425 2,140,675 Housing 40,432,000 49,246,565 49,246,565 46,366,178 36,621,698 46,366,178 -5,934,178 Economy & Finance 260,707,280 270,759,278 270,759,278 211,245,783 129,963,585 211,245,783 49,461,497 Social Development 39,469,100 47,904,140 47,904,140 44,285,029 40,971,815 44,285,029 -4,815,929 Judicial Entity 54,616,900 57,024,702 57,024,702 53,543,794 49,865,862 53,543,794 1,073,106 Electoral Tribunal 29,707,800 31,266,114 31,266,114 30,330,158 26,867,500 30,330,158 -622,358 Remaining Expenditures 68,995,500 70,917,158 70,917,158 66,512,043 62,048,217 66,512,043 2,483,457 Public Sector Debt 1,392,408,400 1,363,492,015 1,363,492,015 1,362,503,662 1,362,503,662 1,362,503,662 29,904,738 Total 4,376,531,580 4,691,592,229 4,691,592,229 4,432,114,093 3,987,238,152 4,432,114,093 -55,582,513 Total without Debt 2,984,123,180 3,328,100,214 3,328,100,214 3,069,610,432 2,624,734,491 3,069,610,432 -85,487,252 Source: Comptroller General of the Republic. SIAFPA. 113 Summary of Budget Execution for 2008 (Values in B/.) Total Accrued to Paid to Paid to Difference Modified Total approved by December December April 30, approved total assigned the NA 31 31 2008 minus paid Assembly 53,595,800 79,870,234 79,870,234 73,530,424 68,432,863 73,530,424 -19,934,624 Comptroller 51,381,500 54,312,348 54,312,348 50,267,555 46,941,617 50,267,555 1,113,945 Presidency 173,144,700 275,373,765 275,373,765 240,115,835 185,030,523 240,115,835 -66,971,135 Government and Justice 299,030,400 453,477,655 453,477,655 382,052,540 325,574,159 382,052,540 -83,022,140 Foreign Relations 41,325,900 44,998,618 44,998,618 42,752,171 40,800,553 42,752,171 -1,426,271 Education 904,604,600 1,028,332,421 1,028,332,421 975,707,724 901,698,354 975,707,724 -71,103,124 Commerce & Industry 42,019,000 85,459,171 85,459,171 64,273,894 56,862,397 64,273,894 -22,254,894 Public Works 334,424,100 407,344,999 407,344,999 330,518,352 275,229,981 330,518,352 3,905,748 MIDA 108,153,900 146,273,427 146,273,427 104,057,362 90,431,758 104,057,362 4,096,538 Health 787,720,800 867,050,830 867,050,830 796,767,076 719,660,401 796,767,076 -9,046,276 Labor & Social Welfare 90,437,700 99,243,883 99,243,883 86,406,588 37,563,118 86,406,588 4,031,112 Housing 51,063,700 57,697,924 57,697,924 40,993,417 33,848,440 40,993,417 10,070,283 Economy & Finance 394,223,000 559,136,785 559,136,785 440,883,839 300,082,442 440,883,839 -46,660,839 Social Development 68,843,100 84,285,319 84,285,319 74,460,293 69,573,389 74,460,293 -5,617,193 Judicial Entity 60,891,300 68,378,965 68,378,965 58,395,994 53,853,789 58,395,994 2,495,306 Electoral Tribunal 52,649,400 56,362,204 56,362,204 55,581,684 43,309,006 55,581,684 -2,932,284 Remaining Expenditures 73,757,200 72,617,063 72,617,063 64,265,153 59,980,834 64,265,153 9,492,047 Public Sector Debt 1,302,389,427 1,291,682,923 1,291,682,923 1,290,635,398 1,290,632,963 1,290,635,398 11,754,029 Total 4,889,655,527 5,731,898,533 5,731,898,533 5,171,665,299 4,599,506,586 5,171,665,299 -282,009,772 Total without Debt 3,587,266,100 4,440,215,610 4,440,215,610 3,881,029,901 3,308,873,623 3,881,029,901 -293,763,801 Source: Comptroller General of the Republic. SIAFPA. 114 Summary of Budget Execution for 2009 (Values in B/.) Total Accrued to Paid to Paid to Difference Modified Total approved by December December April 30, approved total assigned the AN 31 31 2008 minus paid Assembly 57,687,700 84,774,409 84,774,409 78,784,314 73,540,589 78,784,314 -21,096,614 Comptroller 57,234,500 56,772,738 56,772,738 50,809,045 47,308,173 50,809,045 6,425,455 Presidency 176,799,500 281,739,068 281,739,068 253,984,122 204,975,512 253,984,122 -77,184,622 Government and Justice 382,584,100 415,671,114 415,671,114 356,751,249 332,870,483 356,751,249 25,832,851 Foreign Relations 51,225,800 53,491,835 53,491,835 45,021,123 43,706,063 45,021,123 6,204,677 Education 968,231,800 1,098,790,501 1,098,790,501 1,052,719,055 965,387,408 1,052,719,055 -84,487,255 Commerce & Industry 65,953,000 67,911,699 67,911,699 51,019,793 41,239,395 51,019,793 14,933,207 Public Works 482,917,100 608,128,574 608,128,574 557,537,371 512,760,083 557,537,371 -74,620,271 MIDA 104,191,900 107,149,740 107,149,740 93,859,274 89,433,892 93,859,274 10,332,626 Health 866,214,000 965,997,105 965,997,105 902,925,467 812,183,269 902,925,467 -36,711,467 Labor & Social Welfare 89,610,000 103,763,258 103,763,258 49,476,590 41,929,799 49,476,590 40,133,410 Housing 61,219,100 76,695,872 76,695,872 48,207,088 38,819,089 48,207,088 13,012,012 Economy & Finance 465,399,700 475,356,603 475,356,603 325,293,270 296,695,551 325,293,270 140,106,430 Social Development 97,523,700 131,315,417 131,315,417 121,059,853 107,830,802 121,059,853 -23,536,153 Judicial Entity 61,774,600 66,097,139 66,097,139 64,020,033 60,858,911 64,020,033 -2,245,433 Electoral Tribunal 60,147,000 60,110,056 60,110,056 59,052,052 54,051,915 59,052,052 1,094,948 Remaining Expenditures 70,765,800 79,125,767 79,125,767 69,162,497 63,426,322 69,162,497 1,603,303 Public Sector Debt 1,426,510,100 2,359,377,138 2,359,377,138 2,288,623,156 2,288,623,156 2,288,623,156 -862,113,056 Total 5,545,989,400 7,092,268,033 7,092,268,033 6,468,305,352 6,075,640,413 6,468,305,352 -922,315,952 Total without Debt 4,119,479,300 4,732,890,894 4,732,890,894 4,179,682,196 3,787,017,257 4,179,682,196 -60,202,896 Source: Comptroller General of the Republic. SIAFPA. 115 Sectoral distribution of Expenditure as a Proportion of Total Accrued expenditure 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 2 3 General Services 9.6% 10.4% 9.0% Justice and Security Sector 8.5% 9.5% 7.3% Production Sector (Agro, Industry, Finance) 8.4% 11.8% 7.3% Infrastructure Sector 5.7% 6.4% 8.6% Housing Sector 1.0% 0.8% 0.7% Labor and Social and Employment 2.9% 3.0% 2.6% Development Sector Health Sector 15.5% 15.4% 14.0% Education Sector 17.5% 17.7% 15.2% Debt Service 30.7% 25.0% 35.4% Source: Comptroller General of the Republic Office. 116 0 0.2 0.4 0.6 0.8 1 1.2 0 0.2 0.4 0.6 0.8 1 1.2 National Assembly National Assembly Source: Comptroller General of the Republic. General Comptroller of the Republic General Comptroller of the Republic Source: Comptroller General of the Republic. Ministry of the Presidency Ministry of the Presidency Ministry of Governance and Justice Ministry of Governance and Justice Ministry of Foreing Affairs Modify Ministry of Foreing Affairs Modify Ministry of Education Ministry of Education Ministry of Comerce and Industries Ministry of Comerce and Industries Budget Budget Paid up to Dec. Ministry of Public Works Ministry of Public Works Paid up to Dec. Ministry of Agro-Cattel Ministry of Agro-Cattel Development Development Ministry of Health Ministry of Health Execution Execution Paid Paid up to Apr. Ministry of Labor and Employment Ministry of Labor and Employment Development Development 2008 2007 up to Apr. Ministry of Housing Ministry of Housing Budget Execution, 2008 Budget Execution, 2007 Ministry of Economy and Finances Ministry of Economy and Finances Budget Law Ministry of Social Development Ministry of Social Development Budget Law Judicial Organ Judicial Organ Public Ministry Public Ministry Electoral Tribunal Electoral Tribunal Rest of Expenses Rest of Expenses Debt Service Debt Service 117 0 0.2 0.4 0.6 0.8 1 1.2 National Assembly Source: Comptroller General of the Republic. General Comptroller of the Republic Ministry of the Presidency Ministry of Governance and Justice Modify Ministry of Foreing Affairs Ministry of Education Ministry of Comerce and Industries Paid up to Dec. Ministry of Public Works Ministry of Agro-Cattel Development Ministry of Health Paid up to Apr. Ministry of Labor and Employment Development Budget Execution 2009 Ministry of Housing Budget Execution, 2009 Ministry of Economy and Finances Budget Law Ministry of Social Development Judicial Organ Public Ministry Electoral Tribunal Rest of Expenses Debt Service 118 Annex 2.2 Summary of Current Revenue Collection Administration, 2007-2009 2007 2008 2009 Budget Revenue Item Budgeted Executed Budgeted Executed Budgeted Executed Current Revenue 3,133,525,945 3,682,164,280 3,370,000,000 4,389,932,513 4,178,500,000 4,492,344,428 Tax Revenue 1,679,007,000 2,132,803,503 2,067,324,000 2,484,569,502 2,677,000,000 2,897,867,135 Direct Taxes 881,807,000 1,134,342,323 1,077,724,000 1,302,842,314 1,428,000,000 1,605,004,477 Indirect Taxes 797,200,000 998,461,180 989,600,000 1,181,727,188 1,249,000,000 1,292,862,658 Non-Tax Revenue 1,334,018,945 1,427,348,526 1,185,176,000 1,779,258,687 1,378,000,000 1,433,732,343 Tariffs, Duties, and Other 487,255,345 556,033,966 526,618,900 746,253,574 568,260,000 522,521,419 State Enterprise, Profit Participation, & Contributions 846,763,600 871,314,560 658,557,100 1,033,005,113 809,740,000 911,210,924 Other Current Revenue 120,500,000 122,012,251 117,500,000 126,104,324 123,500,000 160,744,950 Annual Budget Revenue Goal Variations % 2006-2007 2007-2008 2008-2009 Current Revenue 119 108 124 Tax Revenue 113 123 129 Non Tax Revenue 130 89 116 Other Current Revenue 101 98 105 Achievement of Budget Goals % Current Revenue 118 130 108 Tax Revenue 127 120 108 Non Tax Revenue 107 150 104 Other Current Revenue 101 107 130 Impact on Revenues % Direct Taxes 28 31 32 30 34 36 Indirect Taxes 25 27 29 27 30 29 Tariffs, Duties &Other 16 15 16 17 14 12 State Enterprise Profit Participation & Contributions 27 24 20 24 19 20 Other Current Revenue 4 3 3 3 3 4 Source: Comptroller General of the Republic. 119 Annex 2.3 Payroll Payments Made by the Treasury Directorate as Requested by CGR (October 2010) Payroll # Servers Regular Payments Second Fortnight October, 2010 Amount # Servers Payroll Amount Traffic & Land Transport Authority 983 307,718.00 National Assembly 2,039 881,287.34 National Public Service Authority 219 149,240.00 General Comptroller 3,818 1,517,921.52 National Environment Authority 1,527 604,488.05 Ministry of the Presidency 3,567 1,466,291.20 National Customs Authority 1,313 397,597.50 Ministry of Government and Justice 3,795 1,156,977.15 Gorgas Commemorative Institute 254 126,329.34 Ministry of Foreign Relations 816 840,421.50 Ministry of Education 49,432 17,447,955.71 Consumer Protection Authority 518 199,980.33 Ministry of Commerce and Industry 939 371,381.83 Panamanian Fire Fighters 616 235,077.21 Ministry of Public Works 3,241 907,690.92 Santo Tomas Hospital 2,350 1,211,325.52 Ministry of Agro Cattle Development 2,477 1,122,516.01 Children’s Hospital 1,214 611,594.29 Ministry of Health 12,410 6,276,081.95 Obaldia Hospital 716 328,884.33 Ministry of Labor & Work Development 1,009 379,446.17 I.F.A.R.H.U 840 241,862.80 Ministry of Housing 1,769 582,510.93 National Handicapped Secretariat 212 95,248.20 Ministry of Economy & Finance 2,806 1,301,991.01 National Cancer Institute 593 300,937.95 National Police 18,429 6,137,622.42 Physical Medicine National Institute 107 43,184.75 Ministry of Social Development 2,282 630,170.92 Judicial Entity 3,324 1,655,082.93 Panamanian Food Security Authority 288 127,173.95 National Attorney General 2,983 1,261,755.28 Water Resources Authority 371 182,458.50 Administration Attorney General 134 70,026.22 Public Contracting 82 56,765.00 Electoral Tribunal 1,787 591,260.86 Public Contracting Tribunal 40 26,512.50 Electoral Attorney General 157 77,548.50 National Institute of Culture 1,343 447,945.50 Other Administration Expenditures 697 351,500.00 Radio & Television System 267 96,189.50 Accounts Tribunal 92 63,580.00 National Science & Technology Secretariat 121 93,399.00 Accounts Attorney General 95 72,596.66 National Women’s Institute 69 38,500.83 Peoples Defense 169 78,489.50 Children, Adolescence & Family Secretariat 132 59,996.67 Total 118,267 45,242,106.53 National Sports Institute-INDE 905 248,825.92 National Professional Education & Training Inst. 738 327,060.00 Panamanian Special Entitlement Institute 1,596 757,398.52 Panamanian Public Registry 646 326,689.03 Sole System of Emergency Management 268 117,275.00 International Maritime University of Panama 171 119,048.00 Maritime Authority 1,284 655,375.27 Total 19,783 8,534,081.46 120 Annex 2.4 Public Sector Entities Central Government Decentralized Institutions Public Enterprises National Assembly Authority of Small & Medium Enterprise (AMPyME) Tocumen International Airport, S.A. (AITSA) General Comptroller of the Republic Authority of Traffic and Land Transport (ATTT) Maritime Authority of Panama (AMP) Ministry of the Presidency National Authority of Public Services National Bingos Ministry of Government& Justice National Environment Authority (ANAM) Civil Aeronautics Authority (AAC) Ministry of Foreign Relations National Customs Authority (ANA) National Aqueduct and Sewage Institute (IDAAN) Ministry of Education Social Security Bank (CSS) Agro Cattle Marketing Institute (IMA) Ministry of Commerce & Industry Gorgas Commemorative Institute of Health Studies (ICGES) Electrical Generating Enterprise, S.A. (EGESA) Ministry of Public Works Consumer Protection & Competition Authority Electrical Transmission Enterprise, S.A. (ETESA) Ministry of Agro Cattle Development SIACAP Administration Council National Benefice Lottery Ministry of Health Peoples Defense Colón Free Zone Ministry of Labor & Work Development Training and Use of Human Resources (IFARHU) Special Economic Area Agency Panama-Pacific Ministry of Housing National Handicapped Secretariat (SENADIS) Ministry of Economy & Finance Panamanian Food Security Authority (AUPSA) Ministry of Social Development Agro Cattle Investigations Institute (IDIAP) Judicial Entity Panamanian Water Resources Authority (ARAP) Public Attorney National Public Contracting Directorate Attorney General Administrative Tribunal of Public Contracting (TACP) Administration Attorney General National Cultural Institute (INAC) Electoral Tribunal State System of Radio and Television (SERTV) Administration General Oversight Science, Technology & Innovation Secretariat (SENACyT) Accounting Tribunal National Women’s Institute (INAMU) Accounting Oversight National Secretariat of Children, Adolescents and Family (SENNIAF) National Sports Institute (INDE) National Institute of Professional Education and Training for Human Development (INADEH) Autonomous University of Chiriquí (UNACHI) University of Panama Administrative Tribunal of Public Contracting Specialized University of the Americas (UDELAS) Technological University of Panama (UTP) International Maritime University of Panama (UMIP) Barú Duty Free Zone Financial Intermediaries 92 Municipalities partitioned in 9 Regions and 5 Commonwealths Banking Superintendence Bocas de Toro (4) Panamá (12) Agro Cattle Development Bank (BDA) Coclé (7) Veraguas (13) National Mortgage Bank (BHN) Colón (6) Commonwealths of Kuna Yala (2) National Bank of Panama (BNP) Chiriquí (14) Commonwealths of Embera-Wounnam (3) Savings Bank Darién (3) Commonwealths of Ngöbe-Buglé (8) National Stock (Exchange) Commission (CNV) Herrera (8) Commonwealths of Kuna de Wargandí (2) Agro Cattle Insurance Institute (ISA) Los Santos (8) Commonwealths of Kuna de Madugandí (2) 121 Annex 2.5–Public Procurement vs. Annual Budget, 2007-2009 Public Procurement, 2007-2009 vs. Government Annual Budget (Amounts in B/.) Year 2007 2008 2009 2007 - 2009 Model Number Amount B/. Number Amount B/. Number Amount B/. Number Amount B/. Small Purchases 59,424 135,852,534 82,917 168,254,402 51,683 102,635,813 194,024 406,742,749 Best Value Public Bid 148 563,322,292 114 149,411,258 98 57,550,743 360 770,284,293 Public Bid 1,310 613,992,580 1,591 398,131,432 770 129,383,848 3,671 1,141,507,860 Framework Agreements 4,356 24,842,413 16,485 55,376,435 30,783 49,390,775 51,624 129,609,623 Subtotal Competitive 65,238 1,338,009,819 101,107 771,173,527 83,334 338,961,179 249,679 2,448,144,525 Direct Contracting 1,503 93,620,362 3,801 218,930,682 3,093 238,035,331 8,397 550,586,375 Total for the Year 66,741 1,431,630,181 104,908 990.104,209 86,427 576,996,510 258,076 2,998,730,900 INDIVIDUAL PERCENTAGES OVER ANNUAL TOTALS Small Purchases 89.0 9.5 79.1 17.0 59.8 17.8 75.2 13.6 Best Value Public Bid 0.2 39.3 0.1 15.1 0.1 10.0 0.1 25.8 Public Bid 2.0 42.9 1.5 40.2 0.9 22.4 1.4 37.8 Framework Agreements 6.5 1.7 15.7 5.6 35.6 8.6 20.0 4.4 Subtotal Competitive 97.7 93.5 96.4 77.9 96.4 58.7 96.7 81.6 Direct Contracting 2.3 6.5 3.6 22.1 3.6 41.3 3.3 18.4 Total Percentage 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 NATIONAL BUDGET (thousands of B/.) Annual Budget Law 7,375,976 8,321,689 9,763,326 25,960,991 Modified Budget 8,050,011 9,531,608 11,364,743 28,946,362 Executed Budget 7,382,505 8,575,546 10,136,879 26,094,930 CONTRACTING PERCENTAGES OVER ANNUALEXECUTEDBUDGET Competitive Contracting 18.1 9.0 3.3 9.4 Direct Contracting 1.3 2.6 2.4 2.1 Total Contracting 19.4 11.6 5.7 11.5 Sources: Contracting: Technical Note for Fiduciary Strategy of the IDB in Panama, June 2010. National Budget: Budget Administration Department of the Central Government General Services. National Budget Directorate. 122 Annex 2.6 Principal Modifications of the Procurement Legal Framework 1. Law No. 21, of April 15, 2008. States measures of fiscal equity. Contracting made by the Social Investment Fund (FIS) is excluded from the scope of Law No. 22 of State Procurement. The exclusion of the Social Security Bank is maintained (it is governed by its Law No. 51), but the entity has decided to include its catalogue of purchases into the General Public Procurement System (March, 2008). 2. Law No. 41, of July 10, 2008. Introduces reforms that set limits to the Law No. 22 application environment, for the selection and procurement of consultancies below B/.300,000 and allows direct procurement of these services up to that limit. This Law also allows activities to be implemented through public interest groups, which are referred to in Number 4 of Article 64 of the Civil Code. 3. Law No. 69, of 2009. Modifies the bidding terms for the invitations for contracts between B/.30,000 and 175,000, and increases the amounts of the guarantees for complaints and introduces the concept of ‘abbreviated bid’. 4. Law No. 12. Introduces changes in the Opening of Envelopes procedures for bids of over B/.20 millions (separate assessment) and establishes price ranges, up to 20% of the price. It also allows for the rejection of bids at the Opening Act. 5. Law No. 18 of 2010. 6. Law No. 66 of October 26, 2009. Introduces modifications regarding dispute guarantees, increasing by 10% to 15% of the value of the disputed proposal. 7. Executive Decree No. 188 of December 27, 2009. Regulates the procedure for selecting contractors via Internet in the PanamaCompra system. 123 Annex 3. Effects of Performance in Public Financial Management Mutual links between the six dimensions of an open and ordered PFM system and the three levels of Budget results Aggregated fiscal discipline Strategic assignment of resources Efficient provision of services In addition to forcing changes to plans, Although Budget management was successful administrative delays led to prolonged delays in from the fiscal perspective, it was inefficient from the payment to suppliers for services rendered. In the perspective of planning and resource In the 2007 to 2009 period, the main priority of the 2007 to 2009 period. A high level of budget distribution. Delays in administrative processes the government was to achieve a stable and transactions were paid only after several months did not allow the budget to be executed sustainable fiscal position and to substantially of delay (some payments were delayed until the adequately, with activities left trapped in Budget credibility increase GDP growth. The government was able following fiscal year), with many of these related interminable processes and obliging institutions to to go from a budget deficit position with a high to providing community services in sectors such as modify their plans and budgets in order to public debt/GDP ratio, to a position of fiscal Education, Presidency, Health, Labor, Governance, execute their budget allocations. The original equilibrium and an adequate debt/GDP ratio. and Justice (in some cases more than 30% of the plans in many cases were modified, which annual budget was paid in the following fiscal constrained the efficiency of the budget as an year, reaching 60% in the case of the Ministry of application tool of government policy. Labor in 2008). Although the standards of ex-ante control and information systems do not allow payments that The lack of coordination between budget and have not been budgeted, the budgeted payments accounting systems precludes proper monitoring of contracted commitments are not always of expenditure and verification that resources Although reports on decentralized management registered in a timely manner, but rather when arrive in a timely manner at their destination and are prepared and presented to primary service the payment is actually undertaken. Therefore enable expenditure objectives to be achieved. providers, they are not consolidated at the central the budget shows “equilibrium and fiscal Budget reports show amounts paid when funds level, but rather in the regional entity, which discipline” regarding payments to be made are still in institutional banking accounts. independently administers its information. Comprehensiveness during the year, but does not include contacted and transparency commitments (even if these they may not imply In general, budget resources directed to Primary services, in general, have sufficient payment, they do implicate budget execution or supporting decentralized and autonomous resources to assure service provision. Even so, possible contingencies). entities responds to national priorities reflected since there is no budget based on results, the in projects or programs intended to achieve efficiency regarding service provision cannot be The maintenance of aggregated fiscal discipline is priority objectives. Moreover, sectors know to a established. a critical matter for Panama, since it does not large degree and in a timely manner about have monetary or exchange policy options to resources that are to be used to ensure provision counteract unwanted effects on the economy. of social services. Therefore, fiscal policy and its instruments 124 Aggregated fiscal discipline Strategic assignment of resources Efficient provision of services constitute a reference framework to guarantee economic and fiscal stability. In general, the country has useful and understandable information at the level of SPNF, which helps improve economic policy decision-making. Nevertheless, the decentralized and autonomous entities and the Panama Canal Authority (ACP) are not part of this consolidated information, which to a certain degree precludes having complete information regarding maintaining fiscal discipline. This is despite efforts that the country has undertaken regarding transparency and in sharing key macroeconomic information. The weaknesses of budget preparation and execution, and the lack of precision in estimated institutional expenditures (and thus of the The manner in which the budget is prepared, distribution of budget resources), have reduced executed, and monitored allows resources meant the function of the budget to a registry of to satisfy fixed expenditure needs to be relatively commitment and payments. Therefore, predictable. However, program needs of goods The former and the present governments have institutional or sectoral planning intended to and services will be difficult to procure in a timely administered the aggregated fiscal budget guide the strategic expenditure and and complete manner, even when these are aspects in a satisfactory manner and have been implementation of government policies have been Budgeting based on important elements for the provision of able to maintain fiscal discipline according to the either limited or precluded. Institutions prepare policies community services. fiscal deficit limits set by the Social and Fiscal their budgets according to their own criteria and Responsibility Law, substantially improving the with no central coordination. These are later Although priority programs have assigned budget government fiscal position. subjected to inter-institutional negotiations and resources, they are subject to the same cuts, so that budgets that are finally approved are administrative deficiencies, which make the not in line with institutional plans. During achievement of their goals also uncertain. execution, these budgets continue to be modified in response to administrative inefficiencies. As a result, the budgets finally executed do not reflect the original institutional intention. Given a tax structure system that is heavily Despite increased collections, the entities Service provision of collection entities needs Estimation and influenced by the presence of Indirect Taxes and responsible for executing the programmed improvement. There are no mechanisms for control of budget contributions from the ACP, tax liabilities can be budget have not improved expenditure independent administrative appeals of tax execution considered as being transparent to taxpayers efficiency because of the low level of funds administration verdicts. Additionally, and therefore collection goals assured regarding execution. This shows that there is an incorrect institutitonal weaknesses continue to undermine 125 Aggregated fiscal discipline Strategic assignment of resources Efficient provision of services the aggregated performance of the economy. assignment of funds, since these remain in bank the efficiency and effectiveness of the tax Additionally, the recent fiscal reform has accounts that do not pay interest. administration. simplified the tax system, ensuring resources for the programmed budget. Notwithstanding, from The lack of procurement plans undermines The procurement system provides users the administrative point of view, there is a need orderly and strategic procurement. It becomes information on bids and amounts adjudicated, as for reform and modernization to support the harder to establish a resource budget well as on the resolution of claims or complaints efficiency of collection. Regarding budget assignment that would accurately and reliably that are presented during the procurement execution, the handling of cash balances meet estimated purchases. This situation processes. Public dissemination of laws and requires progress in consolidating the CUT to introduces the risk of wrong estimates in budget regulations on purchases is undertaken in an improve the administration of these funds items that would endanger the corresponding adequate manner. However absence of (which have been functioning reasonably well payment of contracted commitments, causing a procurement planning limits the public thanks to increases in collection). On the other flow of special contingency assignments to cover awareness about business opportunities, as well hand, prudent management of public debt has these deficiencies. The severe impact upon as making it difficult to verify the rational and contributed significantly to maintaining budget management performance precludes an efficient use of the resources used for aggregated fiscal discipline. effective assessment of that performance, acquisitions. rendering it difficult to identify and implement From the administrative point of view, efforts timely remedial actions. The deficiencies in the management of human are needed to achieve compatibility between the resources at the decentralized level, combined registry for annual budget acquisitions and the Because of the moderate growth of the payroll with the present oversight processes, sometimes registry of acquisitions executed within the and its declining portion of total costs, the lead to delays in payments and in the registration PanamaCompra system. This would enable a assignment of budget resources to cover it has of transfers and contracting. However, such comparative analysis of procurement been undertaken satisfactorily. Though incidences are rare and have no significant performance compared to the assigned budget. integrated payroll audits have not been impact as measured against the volume of the It is not possible to establish whether the undertaken, the monitoring procedures applied State payroll amounts allocated are adequate nor linked them ensure an adequate control of it. to the budget source that finances those Weaknesses in NCI implementation result in acquisitions. The extensive non-compliances of internal frequent irregular practices in expenditure controls and regulations, as well as presumed management and of investments, affecting on The public sector payroll has progressively fraudulent behavior identified by the CGR, the opportunity and quality of service provision. grown, though moderately in recent years; this constitute a consistency risk between the growth has been less than the growth of current strategic assignment of resources and the revenue collection, and as a consequence its degree of their practical effectiveness. As a proportion of total expenditure has fallen from result, the existing control systems do 62% in 2004 to 33% in 2009. notprovide reasonable security that non- authorized expenditures that are fraudulent The NCIs have not been completely payments will be eliminated. implemented, and they have large exceptions in 126 Aggregated fiscal discipline Strategic assignment of resources Efficient provision of services the application of control standards and procedures, and the internal audit function principally focuses on transactions, increasing the risk of budget execution above the authorized limit. The proliferation of institutional bank accounts Existing inconsistencies between accounting An efficient provision of services depends to a (more than 6,000 accounts in 2010) promotes an registry and budget undermine the credibility of great degree on there being sufficient funds inefficient handling of public funds as well as the available financial information. The budget is when services are rendered, and on the quick inadequate reporting of expenditure. Evidence subject to innumerable modifications, and execution of corrective measures when these has been found that immobilized funds in these budget reports are not clear and often do not are necessary. Since resources that appear as Accounting registry accounts have had amount balances equivalent reliably indicate actual funds expenditure (the delivered can still be held in bank accounts, and and information to 30% of the executed budget, which precludes funds may still be held in bank accounts). because financial and administrative reports do a proper monitoring of fiscal discipline policy Therefore it is not possible to verify in a timely not allow for a timely identification of when compliance by these institutions. manner that the original objectives and these resources arrived at their destination, it is strategies were achieved. not possible to adequately monitor the capacity to provide services, nor is it possible to take timely corrective action. CGR does not perform a technical or audit examination of MEF reports, including the report The examination undertaken by the Budget Among other responsibilities, the Budget of the Treasury General Account. Commission on behalf of the NA includes the Commission analyzes the Budget proposal. Their Scrutiny and details of expenditures, but it does not include examinations are not guided by formal technical The annual report that CGR presents to the NA is effective external revenue, fiscal policies, the fiscal framework, or review procedures. summarizes the economy and public finances, audits the medium-term priorities. but it is not an audit report. CGR does not undertake budget execution audits; its interventions are basically those of investigating presumed irregularities. 127 Annex 4. Summary of Information Sources Indicator Concept Sources of Information - Information provided by DIPRENA and CGR - Annual Budget Laws 2007, 2008, & 2009. The Constitution of the Republic. The Fiscal Code. Aggregate expenditure out- The Oversight Guidelines of CGR. The Government Accounting Standards. The Government PI - 1 turn compared to original Strategic Plan. approved budget - Comptroller’s Report of fiscal years 2007, 2008, & 2009. - SIAFPA information on Budget execution 2007, 2008, & 2009. - Information provided by DIPRENA and CGR. - Annual Budget Laws 2007, 2008, & 2009. The Constitution of the Republic. The Fiscal Code. Variance of expenditure out- The Oversight Guidelines of CGR. The Government Accounting Standards. The Government PI - 2 turn compared to original Strategic Plan. approved budget - Comptroller’s Report of fiscal years 2007, 2008, & 2009. - SIAFPA information on Budget execution, 2007, 2008, & 2009. - Information provided by DGI and CGR. Aggregate revenue out-turn - Annual Budget Laws for fiscal years 2007, 2008, & 2009. PI - 3 compared to original - Comptroller’s Report of fiscal years 2007, 2008, & 2009. approved budget - SIAFPA information on Budget execution 2007, 2008, & 2009. - Information provided by DIPRENA, DGT, MEDUCA, MINSA, MoP. - Annual Budget Laws for fiscal years 2007, 2008, & 2009. (Standards Section). PI - 4 Stock and monitoring of - Public Procurement Law. expenditure payment arrears - Comptroller’s Report of fiscal years 2007, 2008, & 2009 - SIAFPA information on Budget execution 2007, 2008, & 2009. - Information provided by DIPRENA, DINACO, MEDUCA, MINSA, MoP & the CGR. - Public Finance Statistics Manuals 1986 & 2001 (MEFP). PI - 5 Classification of the budget - Public Administration Function Classifications of the UN (CFAP). - Public Expenditure Budget Classifications Manual. Comprehensiveness of - Information provided by DIPRENA, and the Budget Commission of the AN. PI - 6 information included in - The Constitution of the Republic. Social and Fiscal Responsibility Law. Documents from the budget documentation Annual Budget Law Proposal for 2011. Government Strategic Plan 2010-2014. - Information provided by DIPRENA, DGT, MEDUCA, MINSA, MoP. Extent of unreported - Annual Budget Laws for fiscal years 2007, 2008, & 2009. Social and Fiscal Responsibility Law. PI - 7 government operations - Comptroller Quarterly Reports (2010). - Consultant Carmen Zuleta Report (2010). Consultant Armando Orellana Report (2010). - Information provided by DGP of MEF. Transparency of inter- PI - 8 - Review and analysis of the legal dispositions regarding transfers and inter-government fiscal governmental fiscal relations relations. Oversight of aggregate fiscal - Information provided by Economic Policy Analysis Directorate. PI - 9 risk from other public sector - SPNF definitions of the Social and Fiscal Responsibility Law. entities. - SPNF consolidated statements of 2010. Public access to key fiscal PI -10 - Review of Web Portals of MEF, CGR, and National Assembly. information - Information provided by AN, DIPRENA, MEDUCA, MINSA, MoP. - The Constitution of the Republic. Social and Fiscal Responsibility Law. Documents from the Orderliness and participation PI -11 Annual Budget Law Project for 2011. Government Strategic Plan 2010-2014. in the annual budget process - Framework for Capture of the Executing Units Preliminary Project. - Budget schedule for budget preparation of years 2010 & 2011. - Information provided by DCP, DIPRENA, DIPROIN, MEDUCA, MINSA, MoP. - The Constitution of the Republic. Social and Fiscal Responsibility Law. MEF organic Law. - Strategic Vision of Economic Development to 2009, Anti-Corruption Strategic Law 2005-2009, Multi-year perspective in Strategic International Cooperation Guidelines for 2008-2013 Development, Government PI -12 fiscal planning, expenditure Strategic Plan 2010-2014, Indicative Plan of Investments in the Non-Financial Public Sector policy and budgeting 2009-2014. - Staff Guidance Note on the Application of the Joint Fund-Bank Debt Sustainability Framework for Low-Income Countries (FMI). 128 Indicator Concept Sources of Information - Information provided by DGI. - CAPTAC-DR reports on visit to DGI on May 17-21, 2010. Transparency of taxpayer - Review of consultation report of Article IV of the IMF, Report No. 10/314 of October 2010. PI -13 obligations and liabilities - Information and comments on fiscal reform presented by the AMCHAM of Panama in the Fiscal Reform Forum, April 13, 2010. - Information and various comments on Law No. 8 taken from various Websites. - Information provided by DGI. - CAPTAC-DR Report on the visit to DGI on May 17-21, 2010. Effectiveness of measures for - Review of consultation report of Article IV of the IMF, Report No. 10/314 of October 2010. PI -14 taxpayer registration and tax - Information and comments on fiscal reform presented by the AMCHAM of Panama in the assessment Fiscal Reform Forum, April 13, 2010. - Information and various comments on Law No. 8 taken from various Websites. - Information provided by DGI. - CAPTAC-DR Report on the visit to DGI on May 17-21, 2010. Effectiveness in collection of - Review of consultation report of Article IV of the IMF, Report No. 10/314 of October 2010. PI -15 tax payments - Information and comments on fiscal reform presented by the AMCHAM of Panama in the Fiscal Reform Forum, April 13, 2010. - Information and various comments on Law No. 8 taken from various Websites. Predictability in the PI -16 availability of funds for - Information provided by DGT of MEF. commitment of expenditures - Information provided by DGCP of MEF. Recording and management - Social and Fiscal Responsibility Law. PI -17 of cash balances, debt and - Review of Web Portals of the DGCP, CGR, and National Assembly. guarantees - Review of consultation report of Article IV of the IMF, Report No. 10/314 of October 2010. - Information provided by the CGR, DGT, MEDUCA, MINSA, MoP. Effectiveness of payroll - The Constitution of the Republic. Social and Fiscal Responsibility Law. Law of Administrative PI -18 controls Career. - Position Classifier. - Law No. 21, of April 15, 2008; Law No. 41, of June 10, 2008; Law No. 69, of 2009; Law No. 12, Competition, value for of 2010; Law No. 18 of 2010; Law No. 66 of October 2009; Executive Decree No. 188 of PI -19 money and controls in December 27, 2009. procurement - Information provided by the Public Contracting Administrative Tribunal (TACP) and the Public Contracting General Directorate (DGCP). - Information provided by CGR (DINAG, DINAI), MEF, and MINSA. - Internal Government Control Standards. - CGR Management Report 2007, 2008, & 2009. - Assessment Questionnaires prepared by the UAIs of CGR, MEF, and MINSA. - Information from Websites. Effectiveness of internal - Executive Management Report of Carlos A. Vallarino R. Comptroller General of the Republic, PI -20 controls for non-salary December 2009. expenditure - Administrative and Fiscal Procedures Manuals, 2003–2010. - Basic Guidelines on Accountability Procedures. - Annual Budget Law 2010. - SIAFPA User Manual. - SIAFPA Directorate, Functions Manual. - Information provided by CGR (DINAG, DINAI), MEF, & MINSA. - CGR Organic Law – Law 32/84. - Government Audit Standards. - Internal Government Control Standards. PI -21 Effectiveness of internal audit - Executive Report on the UAIs - Memorandum No. 639-2010-DINAG-DECAI. - Strategic Plan, Audit Plans, and Management Reports, DINAI. - Assessment Questionnaires prepared by UAIs of CGR, MEF, and MINSA. - UAI MEF Plans, Programs, Questionnaires, & Reports. - Internal Audit in Panama - RISCCO-IIA Study. - Information provided by DINACO, DGT, MEDUCA, MINSA, MoP. - Government Accounting Manual. Government Internal Control Manual. Timeliness and regularity of - Audit Report issued April 12, 2010, by MEF Internal Audit and Oversight Office, on banking PI -22 accounts reconciliation account settlements of DGT in the period January 2009 to March 2010. - Annual Budget Law 2010. - Annual Comptrollers Report, 2007-2009. Availability of information on - Information provided by the MEDUCA, MINSA, MoP. PI -23 resources received by service - CGR Organic Law. delivery units - Accountability Plan (CGR, MEDUCA) 129 Indicator Concept Sources of Information - Information provided by the NA, DINACO, CGR, MEDUCA, MINSA, MoP. Quality and timeliness of in- PI -24 - The Constitution of the Republic. Budget Annual Law 2010. Social and Fiscal Responsibility year budget reports Law. - Information provided by DINACO, CGR, MEDUCA, MINSA, MoP. - CGR Organic Law. Annual Budget Law 2010. Quality and timeliness of PI -25 - Annual Public Management Report (CGR, 2007-2009). Treasury General Account Report annual financial statements (MEF, 2006-2008). Annual Public Management Report. - Government Accounting Standard. Government Accounting Manual. - Information provided by CGR (DINAG). - The Constitution of the Republic. - Government Auditing Standards. - DINAG Management Plans 2007, 2008, & 2009, and the Annual Audit Plan 2008 and 2009. - CGR Management Report 2007, 2008, & 2009 - CGR Organic Law – Law 32/84. Scope, nature and follow-up PI -26 - Assessment Questionnaire prepared by DINAG. of external audit - Information from Website. - Executive Management Report of Carlos A. Vallarino R., Comptroller General of the Republic, December 2009. - Internal Regulations. - Oversight Guidelines - CGR Flow Chart. - Information provided by the Budget Commission of the Legislative Assembly & CGR. - The Constitution of the Republic. - Assessment Questionnaires prepared by the Legislative Assembly Budget Commission. - Brief guidelines on the State General Budget Project Law, of the Panama Canal Authority, and Legislative scrutiny of the work of the Budget Commission. PI -27 annual budget law - CGR Organic Law – Law 32/84. - Information from Website. - Annual Budget Laws 2008, 2009, 2010. - Organic Regulations of the Internal Regime of the National Assembly – Law 49 of 1984. - Social and Fiscal Responsibility Law – Law 34, 2008. - Information provided by the Economic & Finance Commission of the Legislative Assembly and CGR. - The Constitution of the Republic. - Assessment Questionnaires prepared by the Economic and Finance Commission of the Legislative scrutiny of PI -28 Legislative Assembly. external auditor reports - CGR Organic Law – Law 32/84. - CGR Management Report 2007, 2008, & 2009. - Information from Website. - Organic Regulations of the Internal Regime of the National Assembly – Law 49 of 1984. Predictability of direct budget - Information provided by donors (WB & IDB) and DCP of MEF. D-1 support - Information from DCP and MEF Websites. Financial information provided by donors for - Information provided by donors (WB & IDB) and DCP of MEF. D-2 budgeting and reporting on - Information from DCP and MEF Websites. project and program aid Proportion of aid that is - Information provided by donors (WB & IDB). D-3 managed by use of national - procedures Non-Governmental Information Inter-American Development Bank International Bank for Reconstruction and Development 130 Annex 5, Bibliography Constitutional and Legal Framework Constitution of the Republic of Panama (2004) Law 34-2008, Social and Fiscal Responsibility Law 54-2006, State General Budget for Fiscal Year 2007 Law 51-2007, State General Budget for Fiscal Year 2008 Law 69-2008, State General Budget for Fiscal Year 2009 Law 63-2009, State General Budget for Fiscal Year 2010 Law 75-2010, State General Budget for Fiscal Year 2011 Law 22-2006, Public Procurement Law 9-1994, Administrative Career Law 97-1998, establishing the Ministry of Economy and Finance Fiscal Code (2002) Law 21 - 2008. Law 41 - 2008. Law 69 - 2009. Law 12 - 2010. Law 18 - 2010. Law 66 - 2009. Executive Decree No. 188 of December 27, 2009. Standards, Manuals and Management Guidelines Government Accountability Standards (1997) Government General Accounting Manual (CGR, 2005) Oversight Guidelines (CGR, 2009) Government Internal Control Standards (CGR, 1998) Public Expenditure Budget Classification Manual (MEF, 2008) Budget Structure Preparation Manual (MEF, 2008) Budget Preliminary Project Preparation of the Executing Unit (MEF, 2008) Instructions for Fiscal Closure (MEF, 2008) SINIP of Panama Standards and Procedures, 2010 (MEF, 2009) Brief Guideline on the General State Budget Law Project, of the Panama Canal Authority, and the Work of the Budget Commission (NA, 2010) Generic Methodology for the Formulation and Assessment of Public Investment Projects (MEF, 2008) Methodological Guidelines to Drive the Monitoring and Assessments of Public Investments (MEF, 2008) Reports and Other Documents Government Strategic Plan 2005-2009 (Gov. President Torrijos, 2005) Strategic Vision of Economic Development and Employment towards 2009 (Gov. President Torrijos, 2005) Government Strategic Plan (Gov. President Martinelli, 2009) Plan Indicating Non-Financial Public Sector Investments 2009-2014 (MEF, 2009) Report on the General Treasury Account, Valid from Fiscal 2004 (MEF, 2005) Report on the General Treasury Account, Valid from Fiscal 2005 (MEF, 2006) Report on the General Treasury Account, Valid from Fiscal 2006 (MEF, 2007) Report on the General Treasury Account, Valid from Fiscal 2007 (MEF, 2008) Report on the General Treasury Account, Valid from Fiscal 2008 (MEF, 2009) Comptroller General of the Republic Report, Year 2007 (CGR, 2008) Comptroller General of the Republic Report, Year 2008 (CGR, 2009) Comptroller General of the Republic Report, Year 2009 (CGR, 2010) Comptroller’s Quarterly Report (CGR, 2010) Monthly and Quarterly Reports of Payroll (CGR, 2010) Budget Execution Monthly Report (CGR, 2010) 131 Consultant Report Carmen Zuleta, September 2010 Consultant Report Armando Orellana, September 2040 Staff Guidance Note on the Application of the Joint Fund-Bank Debt Sustainability Framework for Low-Income Countries (FMI, 2007) Staff Guidance Note on the Application of the Joint Fund-Bank Debt Sustainability Framework for Low-Income Countries (FMI, 2008) Technical Note for Fiduciary Strategy of the Bank with Panama, June 22, 2010 Second Assessment Report on the Public Acquisitions System of Panama, with the OCDE/CAD methodology, October 2008 Strategic Plans for Public Acquisitions in Panama, Public Procurement General Directorate, 2009 Minutes 2009-2010 of the Public Contracting General Directorate, PanamaCompra, October 31, 2010 Publication “ “Entérate de lo que PanamaCompra,” Edition No. 32 of January/February, 2010 Publication “Entérate de lo que PanamaCompra,” Edition No. 32 of January/February, 2011 132