Local Finance & Financial Management System of Sanaa - Sana a City Development Strategy (CDS)

Transcription

1 Cities Alliance Project Output Local Finance & Financial Management System of Sanaa - Sana a City Development Strategy (CDS) Sana a City: Medium to Long-Term City Development Strategy for Sustainable Development P This project output was created with Cities Alliance grant funding.

2 Cities Alliance Project Output Sana a City Development Strategy "Local Finance & Financial Management System of Sana a" Sana a City: Medium to Long-Term City Development Strategy for Sustainable Development P This project output was created with Cities Alliance grant funding.

3 REPUBLIC OF YEMEN Municipality of Sana a Sana a City Development Strategy (CDS) "Local Finance & Financial Management System of Sanaa" Final Version PREPARED BY: Khaled Zakaria Amin, Ph.D. Municipal Finance Consultant to Sana a Municipality August 2008 Sanaa s Page 1 of 47

4 Table of Contents Pages 2TINTRODUCTION2T...2T52T 2TI. LOCAL EXPENDITURE STRUCTURE2T...2T62T 2TII. LOCAL REVENUES: SOURCES AND STRUCTURE2T...2T212T 2TIII. FINANCIAL MANAGEMENT IN SANAA CITY: AN ASSESSMENT2T...2T372T 2TIV. SANAA FISCAL UPGRADING STRATEGY2T...2T432T Tables 2Table 1: Local Authorities Functions2T...2T62T 2Table 2: Local Expenditure in the Capital Amana between FY 2003 and 20062T...2T72T 2Table 3: Local Expenditure in Amana Center between FY 2003 and 20062T...2T82T 2Table 4: Local expenditure in all districts of the Capital- Amana ( )2T...2T102T 2Table 5: Compositions of National Investment Expenditures2T...12 Table 6: The Capital Amana s Incomplete Local Authorities Investments at the End of Plan (Infrastructure and public services sector / in 1000 YR)...14 Table 7: The Capital Amana s Completed Local Authorities Investments at the End of Plan (Infrastructure and public services sector / in 1000 YR)...15 Table 8: The Capital Amana s Local Authorities Investments: Incomplete versus Completed Projects (Investment Plan: / in 1000 YR)...17 Table 9: The Distribution of the Capital Amana s Investment Expenditure by Sector and Source of Finance (Plan Years: / in 1000 YR)...18 Table 10: Percentage of Sources of Finance on various sectors of the Capital Amana s Investment Expenditure (Plan Years: / in 1000 YR)...18 Table 11: The % Distribution of the Capital Amana s Investment Expenditure by Sector and Source of Finance (Plan Years: / in 1000 YR)...19 Table 12: Structure of District Budget...22 Table 13: Local revenues in all districts of the Capital- Amana ( )...24 Table 14: Local revenues in Capital Amana ( )...26 Table 15: Governorate Shared Revenues in Capital Amana between 2003 and Table 16: The Structure of Local Revenues in Amana Center between 2004 and 2007 (1000 YR)...30 Table 17: Governorate Shared Revenues in Amana Center between 2003 and Table 18: Structure of Revenues Assigned to Finance Local Investing Activities (National Vs. Sanaa)...32 Table 19: Revenue Sources of Sanaa s Cleaning and Improvement Fund (2004 to 2007 / in 1000 YR)...33 Table 20: Revenue sources of Sanaa s Cleaning and Improvement Fund ( / in 1000 YR)...34 Table 21: The Structure of Recurrent Uses of Sanaa s Cleaning and Improvement Fund(2004 to 2007 / in 1000 YR)...34 Table 22: The Structure of Capital Uses of Sanaa s Cleaning and Improvement Fund... (2004 to 2007 / in 1000 YR)...35 Table 23: Local Level Budgeting Cycle in Yemen...41 Table 24: Process of Estimating and Allocating Transfers to District Level...41 Sanaa s Page 2 of 47

5 Table of Figures Fig. 1: Structure of Expenditure in the Capital Amana ( )...8 Fig. 2: Structure of Expenditure for Amana Center ( )...9 Fig. 3: Distribution of Local Expenditure on the Capital s districts (FY 2006)...11 Fig. 4: Capital Amana: Composition of Total Local Revenue ( )...27 Fig. 5: Amana Center: Composition of Total Local Revenue ( )...30 Sanaa s Page 3 of 47

6 Abbreviations CCIF: FY: GESR: GOSR: GOY: LAs: LAL: LRR: MOLA: PPP: Cleaning and Cities Improvement Fund Fiscal Year General Shared Revenues Governorate Shared Revenues Government of Yemen Local Authorities The Local Authority Law in Yemen Draft Law of Local Revenue Resources The Ministry of Local Administration in Yemen Public Private Partnership Sanaa s Page 4 of 47

7 INTRODUCTION This study aims at assessing the fiscal condition of Sanaa city through examining the development of the city revenues and expenditure. Such an assessment would help: 1 - Determine the patterns of the city revenues and expenditures over the last four fiscal years. - Assess the city s ability to mobilize autonomous local revenue. - Analyze the nature of fiscal arrangements between the city and the central government. Assessing the fiscal condition of Sanaa city establishes a base-line, on which the impact of the projects conducted by the Sanaa Municipality, as expected output of the strategy, can be examined. This assessment, by focusing on the city s districts experiences in financially running their autonomous fund, sheds light on the city s potentials in managing and maintaining investments. In addition, this assessment highlights the under-spent types of expenditure and under-utilized bases of revenue. This study consists of three main sections. Sanaa s districts expenditures are analyzed in section one. Section two covers the components of the districts revenues. This section focuses on three types of revenues, local revenue, governorate shared revenue, and general shared revenue. Section three provides an assessment of the financial management system in Sanaa. 1 This study adopts an empirical approach to assess the fiscal condition of Sana a city. To achieve this objective, the final accounts of four fiscal years budgets, starting from 2003 to 2006, have been analyzed. For a more realistic analysis, the consultant preferred basing his analysis on actual rather than estimated figures. The study also covers the budgets prepared for the most recent fiscal years. Interviews have been used as a data collection tool. Interviews help understand the environment, in which the governorate operates, and interpret irregularities in budgets and final accounts. The consultant made sure that this study displays the following characteristics: Empirical: Based upon a robust and objective account of the present situation, its history, and the city s officers perceptions. Participatory: Reflecting the views of major stakeholders. Clear: Providing a concise, readable account and a precise assessment. Sanaa s Page 5 of 47

8 I. LOCAL EXPENDITURE STRUCTURE Several functions have been assigned and/or delegated to the districts and the governorates as a result of the LAL, including those of the executive organs technically affiliated to the central ministries. Table 1 presents the classification of these functions between the district and the governorate according to the LAL. Local authorities functions are translated into recurrent and investment expenditure. Recurrent expenditure includes the expenditures of Diwans, local councils, and executive organs. The recurrent expenditures are totally financed by the central government. Investment expenditure is financed by both local and central revenue sources. 2 Table 1: Local Authorities Functions The District Religious, primary and secondary schools, literacy centers, children day care centers, libraries, school teaching and handicraft workshops, health centers, motherhood centers, family planning centers, primary health care centers and rural health units, social development and subsidies for productive families, centers for agricultural and rural extension advice, husbandry for domestic animals and fish, veterinarian and agricultural services, seed preparation, nurseries and demonstration farms, agricultural dams, irrigation systems, electricity networks, children playgrounds and public parks, secondary highways and roads, bridges and parking, services and rest areas for public transportation users, slaughterhouses, public markets and toilets, cemeteries and public shelters, clearing land and planting trees environmental projects, local water supply and sewage systems, maintaining historic buildings and sites, beaches and tourists projects, local playgrounds, sports locations and swimming pools. Source: Yemen s Local Authority Law (No. 4 of year 1990) The Governorate Building, equipment and maintenance of technical and skilled manpower schools and centers, high schools for teachers, general and specialist hospitals, medical drug and equipment warehouses and medical laboratories, medical schools, centers for the handicapped, orphan and senior care, water supply dams and reservoirs, agriculture, veterinary and fishing institutes, agriculture and fishing natural museums, administrative buildings for Governorates and Districts, bridges and tunnels, cultural concerts, museums and libraries, art exhibitions, youth centers and sports stadiums. 2 Since this paper focuses on local administrative and fiscal governance, the attention is paid on the investment expenditure rather than recurrent expenditure, which is fully controlled by the central government. Sanaa s Page 6 of 47

9 LAs finance investment projects using their own revenues. However, the operation and maintenance of these investments are covered from the recurrent expenditures. The budget for recurrent cost is generally very restricted and already tied up with other specific expenditures thus causing investments to be generally not sustainable. The set up and the process of preparing local budgets are not flexible enough to allow for incorporating the increasing maintenance cost, despite the increase of local investment overtime. The MOLA, through its LRR proposal, pushes for financing maintenance and operation activities from the local revenues primarily within the health and education sectors. The major investments at the local level is centrally initiated, financed, and implemented. However, local authorities play a role in giving attention to potential investments through the process of preparing the 5-year national plan in Yemen. Table 2: Local Expenditure in the Capital Amana between FY 2003 and 2006 Years Expenditure Type 2003 Actual 2004 Actual 2005 Actual 2006Actual Total Expenditure 5,583,960,344 7,175,681,080 9,239,638,558 12,611,333,492 Recurrent Expenditure 4,323,522,582 5,247,167,218 6,491,456,308 8,120,828,284 Wages and Salaries 3,773,346,179 4,585,632,742 5,662,293,392 7,049,725,469 Goods and Services 62,818,249 64,235,028 97,166, ,471,750 Maintenance 10,586,022 8,304,277 15,683,952 18,633,381 Recurrent Transfers and Subsidies 476,772, ,995, ,312, ,997,684 Investment and Capital Expenditure 1,260,437,762 1,928,513,862 2,748,182,250 4,490,505,208 Source: Capital Amana Finance Office Table 2 shows the structure of the local expenditure in the Capital Amana between 2003 and Recurrent expenditure had a greater share compared to that of investment and capital expenditure. The share of the former averaged around 71% during the time compared to 29% of expenditure that financed investment and capital activities. Regarding the distribution of the recurrent expenditure, data indicate that expenditure on wages and salaries was the major line item as it accounted for about 62% of the total expenditure in average. Recurrent transfers and subsidies came next as it accounted for around 8% of total expenditure. The share of expenditure on purchasing goods and services and maintenance was just 1.2%. The table statistics show an increasing trend for Sanaa s Page 7 of 47

10 all expenditure line items. Total expenditure in the Capital Amana increased by around 7 billions YR between 2003 and 2006 (126%). While recurrent expenditure increased by 88%, investment and capital expenditure grew by almost 256%. 3 The above data and analysis (represented in table 2) is clearly delineated in the pie chart in fig.1. Fig. 1: Structure of Expenditure in the Capital Amana ( ) Capital Amana: The Structure of Expenditure ( ) Capital Expenditure 29% Recurrent Transfers and Subsidies 8% Wages and Salaries 62% Maintenance 0% Goods and Services 1% Table 3: Local Expenditure in Amana Center between FY 2003 and 2006 Years Expenditure Type 2003 Actual 2004 Actual 2005 Actual 2006 Actual Total Expenditure 6,073,418,957 6,035,771,486 5,922,860,000 7,631,860,939 Recurrent Expenditure 2,913,121,251 3,250,199,217 3,903,160,000 4,743,358,296 Wages and Salaries 1,837,087,293 1,926,468,844 2,493,729,000 3,051,617,785 Goods and Services 766,625,969 1,036,516,739 1,163,399,000 1,223,093,983 Maintenance 78,920,958 76,578,968 86,968,000 98,582,390 Recurrent Transfers and Subsidies 230,487, ,634, ,064, ,064,138 Investment and Capital Expenditure 3,160,297,706 2,785,572,269 2,019,700,000 2,888,502,643 Source: Capital Amana Finance Office 3 This increase seems very considerable even when inflation rates during the same period are considered. Sanaa s Page 8 of 47

11 The structure of local expenditure in Amana Center between 2003 and 2006 is displayed in table 3. The table statistics indicate that recurrent expenditure is accounted for almost 55% of total expenditure compared to 46% for expenditure on investment and capital activities. Around 34% of expenditure, in average, was allocated for wages and salaries, while purchasing services and goods had a share of 15%. Expenditure on recurrent transfers and maintenance accounted for 4% and 1% of total expenditure, respectively. The above data and analysis (represented in table 3) is clearly delineated in the pie chart in fig.2. All expenditure line items experienced a growing trend except for investment and capital expenditure. Total expenditure in Amana Center increased by around 1.5 billions YR between 2003 and While recurrent expenditure increased by about 63%, and investment and capital expenditure decreased by around 9%. Fig. 2: Structure of Expenditure for Amana Center ( ) Amana Center: The Structure of Expenditure ( ) Investment Expenditure 46% Wages and Salaries 34% Recurrent Transfers and Subsidies 4% Maintenance 1% Goods and Services 15% Table 4 shows the structure and the development of the local expenditure across all districts of the Capital Amana between 2003 and Sanaa s Page 9 of 47

12 Table 4: Local expenditure in all districts of the Capital-Amana ( ) Local Expenditure Item year Old Sanaa Azal Al-Safia Al-Wihda Al-Tahrir Maien El-Thawra Al-Sabien Shaoob Bani-El Haris Total Expenditure 287,333, ,355, ,768, ,781, ,164, ,993, ,891,447 1,097,499, ,332, ,839,460 Recurrent Expenditure 240,772, ,455, ,450, ,002, ,667, ,248, ,398, ,031, ,260, ,234,874 Wages and Salaries 208,724, ,345, ,604, ,274, ,716, ,209, ,249, ,918, ,593, ,710,648 Goods and Services 5,127,183 8,020,804 6,554,965 4,845,293 3,716,788 9,407,168 6,940,058 5,149,150 7,356,405 5,700,435 Maintenance ,900 2,464,160 1,034, , , ,960 1,762, ,180 1,601,360 1,040,062 Recurrent Transfers and Subsidies 26,332,207 29,625,086 31,256,846 52,442,589 38,803,834 61,785,708 52,446,491 76,586,655 57,708,987 49,783,729 Investment and Capital Expenditure 46,560, ,900,446 74,317,665 35,778,903 21,496, ,744,878 78,493, ,468, ,072, ,604,586 Total Expenditure 304,373, ,326, ,897, ,249, ,617, ,208, ,045,472 1,490,651, ,542, ,769,555 Recurrent Expenditure 263,357, ,065, ,774, ,460, ,776, ,512, ,639, ,450, ,406, ,724,725 Wages and Salaries 229,430, ,800, ,648, ,422, ,921, ,961, ,467, ,700, ,445, ,834,057 Goods and Services 6,181,442 7,933,780 5,745,796 5,061,029 4,349,453 8,864,042 6,157,885 5,499,144 7,033,376 7,409,081 Maintenance ,160 1,488, , , , ,638 1,156, ,770 1,160,846 1,040,920 Recurrent Transfers and Subsidies 27,041,344 35,842,964 38,605,439 62,554,180 43,942,690 78,029,475 69,857,226 97,914,453 75,766,733 59,440,667 Investment and Capital Expenditure 41,015, ,260, ,122,980 13,789, ,840, ,696, ,405, ,201, ,136, ,044,830 Total Expenditure 359,515, ,532, ,862, ,252, ,090,149 1,145,674, ,951,688 2,101,890,476 1,108,789,815 1,016,079,449 Recurrent Expenditure 315,896, ,359, ,663, ,989, ,083, ,407, ,140,248 1,086,351, ,696, ,868,006 Wages and Salaries 274,146, ,720, ,758, ,339, ,276, ,180, ,775, ,617, ,418, ,060,548 Goods and Services ,989,021 11,289,460 9,319,750 7,282,255 6,606,794 12,263,060 11,819,942 9,894,084 10,937,116 10,765,232 Maintenance 971,472 2,913,000 1,531, , ,906 1,279,180 2,150, ,984 2,232,394 2,007,223 Recurrent Transfers and Subsidies 33,788,912 44,436,221 47,054,501 75,574,895 53,205,894 92,684,433 85,394, ,028,635 92,108,833 69,035,003 Investment and Capital Expenditure 43,619, ,172, ,198, ,262,662 27,006, ,267, ,811,440 1,015,538, ,092, ,211,443 Total Expenditure 552,004, ,270, ,882,653 1,334,366, ,083,491 1,723,288,994 1,390,615,060 2,379,719,605 1,638,204,584 1,282,886,472 Recurrent Expenditure 360,335, ,909, ,221, ,938, ,304,694 1,103,087, ,680,385 1,375,633, ,300, ,407,058 Wages and Salaries 311,764, ,941, ,138, ,170, ,845, ,282, ,254,119 1,206,708, ,685, ,923,921 Goods and Services 7,967,166 12,549,388 22,493,906 12,202,554 9,550,963 14,410,234 15,022,097 12,048,783 13,361,335 23,865, Maintenance 968,126 2,986,884 2,208,238 1,098, ,140 1,269,933 2,143, ,932 2,245,717 3,959,589 Recurrent Transfers and Subsidies 39,635,767 55,431,564 55,381,329 96,467,421 65,917, ,124, ,260, ,112, ,007,453 99,658,224 Investment and Capital Expenditure 191,669, ,361, ,660, ,427, ,778, ,201, ,934,675 1,004,085, ,904, ,479,414 Source: Capital Amana Finance Office Sanaa s Page 10 of 47

13 Fig. 3: Distribution of Local Expenditure on the Capital s districts (FY 2006) The Distribution of Local Expenditure on the Capital's Districts (FY 2006) 45% 40% Percentage 35% 30% 25% 20% 15% Capital Expenditure Current Expenditure 10.63% 13.81% 10.26% 22.36% 14.38% 8.56% 10% 5% 0% 4.27% 4.44% 5.86% 6.19% 4.65% 6.30% 10.55% 5.21% 7.27% Old Sanaa Aza l Al-Safia Al-Wihda Al-Tahrir Maien El-Thawra Al-Sabien Shaoob Bani-El Haris Districts 13.58% 11.45% 16.94% 12.22% 11.06% Contribution of Each District in the Capital Amana to the Total Local Expenditure: El Sabien had the greatest average contribution to the total local expenditure with a share of 20.5%, followed by Maien and Shaoob with an average share of 12% each. Old Sanaa had the lowest share (4.4%). In the case of recurrent expenditure, El Sabien had the greatest share around 16.5%, followed by Maien and Shaob with average shares of 13% and 12.5%, respectively. In capital expenditure, El Sabien had the largest share estimated by 31% in average. Bani El Haris and Shaoob came next with average shares of 13% and 12%, respectively. The smallest share (3%) of capital expenditure was for old Sanaa. The above data and analysis (represented in table 4) is clearly delineated in the bar chart in fig.3. Sanaa s Page 11 of 47

14 Concerning the structure of local expenditure in each district separately, Table 4 shows that 58% of the total local expenditure in El Sabien was on recurrent expenditure, in average, where 42% were on capital expenditure. Such structure is favorable compared to the other districts structures in the Capital Amana, as the recurrent expenditure in those districts dominates the local expenditure. Capital expenditure in some districts, as El Tahrir and Al- Wehda, accounted for 16% of total expenditure. Azal follows El-Sabien in terms of having some kind of balanced expenditure structure. 67% of its total local expenditure was on recurrent line items, where 33% was on capital activities. Depending on the national data over fiscal years from 2003 to 2007, local investment expenditure, as suggested by table 5, accounted for almost 11.3% of the investment implemented at the local level. In other words, around 89% of the investment expenditure at the local level is financed and implemented by the central ministries and their technically affiliated local entities. 4 Table 5: Compositions of National Investment Expenditures Amounts in 1000 YER Type of Investment Actual 2004 Actual 2005 Actual Expenditures Budget Budget Local Investment Expenditure 18,659,894 20,882,018 20,900,585 29,114,058 31,048,858 Central Investment Expenditure 166,224, ,713, ,291, ,148, ,338,156 Total Investment Expenditure 184,884, ,596, ,191, ,262, ,387,014 % of Local Inv. Exp. to Central Inv. Exp % 10.20% 9.04% 14.40% 11.49% Source: Yemen s Ministry of Finance Table 6 displays the number of incomplete local authorities' investment projects and their cost in all the districts of the Capital Amana between 2002 and Projects of public works and city improvement constituted the largest share of the total cost of incomplete projects with a share of 72%. Water and Environment projects came next with a share of 18.88%, followed by educational 4 These investments are not necessarily managed by local authorities. They include the investments implemented and managed by the central authorities and agencies. Sanaa s Page 12 of 47

15 projects which contributed 6.57%. Agricultural projects and youth and sports projects had equal shares of 0.39 % each. The table suggests that the sectors of electricity, communication, technical education, and social affairs had no incomplete projects. This finding is explained by the short/medium term nature of the projects in theses sectors and by the fact that the budget designated for the sectors like technical education and social affairs by local authorities is quite limited. Almost 32% of the cost of the incomplete projects during the investment plan time period was for projects allocated in the district of Al-Sabien. Al-Thawra district came next with a share of 18%, followed by Al-Wihda, Bani-Al Harris and Shaoob districts with shares of %, % and 9.69 %%, respectively. Least allocated were Maien (3.40 %), Al-Safia 3.36 %), Al-Tahrir (2.72 %), Azal (1.58 %), and Old Sana (0.56 %). Sanaa s Page 13 of 47

16 Table 6: The Capital Amana s Incomplete Local Authorities Investments at the End of Plan (Infrastructure and public services sector / in 1000 YR) Districts Item Public Works & City Improvement Education Health Electricity Communication Old Cost 37, , , % Sanaa No. of projects Azal Cost 687, , , , % No. of projects Al-Safia Cost 1,777, ,756 40, ,027, % No. of projects Al-Wihda Cost 9,313, ,987 93, ,000 9,795, % No. of projects Al-Tahrir Cost 1,454,213 78,457 67,776 39, ,000 1,642, % No. of projects Maien Cost 1,106, , , ,055, % No. of projects Al-Thawra Cost 8,577, , ,078 1,816, ,000 10,808, % No. of projects Al-Sabien Cost 11,813, , , ,125, , ,855 19,326, % No. of projects Shaoob Cost 3,908, ,885 46,527 1,381,296 20, ,100 5,853, % No. of projects Bani-Al Cost 4,861, ,831 34,030 2,082,923 29, ,022 7,621, % Haris No. of projects Cost 43,536,910 3,969,690 1,040, ,405, , ,782 60,426, % Total No. of projects (%) 72 % 6.57 % 1.72 % % 0.39 % % 100 % Source: Capital Amana Investment Office Water and Environment Youth & Sport Techn. Educat. & Vocational Train. Social Affairs Agriculture Total % district share Sanaa s Page 14 of 47

17 Table 7: The Capital Amana s Completed Local Authorities Investments at the End of Plan (Infrastructure and public services sector / in 1000 YR) Districts Item Public Works city Improve. Education Health Electricity Communication Old Cost 861, , ,205 6,790 50, ,834 1,285, % Sanaa No. of projects Azal Cost 915,732 93,453 71, , , , ,133 2,564, % No. of projects Al- Cost 1,543, ,589 1,905, ,599 2,131,109 2,544, , ,535 8,583, % Safia No. of projects Al- Cost 1,145, , ,527 70,300 1,781, , , ,532 3,553, % Wihda No. of projects Al- Cost 1,195, , ,188 1,389,337 5,657, , ,858 9,938, % Tahrir No. of projects Maien Cost 2,295, ,383 1, , ,699, , ,856 29,068 5,236, % No. of projects Al- Cost 1,616, ,551 37, ,460 1,611,539 2,088, ,703 54, , ,279 7,206, % Thawra No. of projects Al- Cost 2,621, , ,933 3,077,647 5,155,072 1,879,011 42, ,498 13,813, % Sabien No. of projects Shaoob Cost 1,172, , , ,125 2,320, , , ,827 4,474, % No. of projects Bani-Al Cost 640, , , ,500 1,177,085 5,977, , ,871 51,704 21,893 10,216, % Haris No. of projects Cost 14,007,576 3,470,331 3,364,875 6,411,281 18,542,677 17,568,198 1,828, , , ,457 66,872, % Total No. of projects (%) % 5.19 % 5.03 % 9.59 % % % 2.73 % 1.03 % 0.71 % 0.76 % 100 % Source: Capital Amana Investment Office Water and Environment. Youth & Sport Technical Educa.& Vocational Traini. Social Affairs Agriculture Total % district share Sanaa s Page 15 of 47

18 Table 7 shows the number and the cost of completed/implemented investment projects in all districts of the Capital Amana during the investment plan time period between 2002 and The table highlights that the communication sector projects had the largest share of the total cost of implemented projects, 27.37%, followed by the water and environment sector projects, 26.3%. Public works and city improvement projects, 20.95%, followed by electricity projects, 9.59%. Sectors with the least percentage of implementation were sectors of education (5.19 %), health (5.03 %), youth and sports (2.73 %), technical education and vocational training (1.03 %), social affairs (0.71 %), and agriculture (0.76 %). The geographical distribution of fully completed investment projects over the plan time period, show Al-Sabien district hosting the largest share, %. Bani-Al Haris and Al-Tahrir districts come next, % and % respectively, while Al-Safeia district had a share of 12.84%. The districts of Al Wihda (5.31 %), Azal (3.83 %), and Old Sanaa (1.92 %) had the least shares of completed investment projects. Sanaa s Page 16 of 47

19 Table 8: The Capital Amana s Local Authorities Investments: Incomplete versus Completed Projects (Investment Plan: / in 1000 YR) Investment Sectors Share of the Cost of Relative Cost of Cost of Incomplete Projects Importance of Incomplete Completed of the Cost of Sectors in Terms Projects Projects Completed Projects of Cost Public Works an City Improvement 43,536,910 14,007, % 45.20% Education 3,969,690 3,470, % 5.84% Health 1,040,101 3,364, % 3.46% Electricity 0 6,411, % 5.04% Communication 0 18,542, % 14.57% Water and Environment 11,405,902 17,568, % 22.76% Youth and Sports 238,327 1,828, % 1.62% Technical Education and Vocational Training 0 691, % 0.54% Social Affairs 0 478, % 0.38% Agriculture 235, , % 0.59% Total 60,426,712 66,872, % % Source: Capital Amana Investment Office Table 8 indicates that the ratio of the cost of completed investments to that of incomplete ones was almost 1.1:1 between 2002 and The cost of incomplete investment of public works and city improvement accounted for almost 311% of the cost of completed projects in the same sector. It is noteworthy that the sector of public works and city improvement received almost 45% of total local authorities investment between 2002 and The table also reflects that local authorities are not efficient in spending investments. It is also noteworthy that the sectors of youth and sports (1.62 %), agriculture (0.59 %), technical education and vocational training (0.54 %), social affairs (0.38 %), are least important in investment allocation Sanaa s Page 17 of 47

20 Table 9: The Distribution of the Capital Amana s Investment Expenditure by Sector and Source of Finance (Plan Years: / in 1000 YR) Plan Years Sector Source of Finance External Governmental Local Total Education office 12,764,250 4,254,750 11,346,000 28,365,000 Health office 0 0 4,579,000 4,579,000 Roads and works office ,237,000 31,237,000 Technical Education & Vocational Training office 0 0 2,024,520 2,024,520 agriculture office , ,000 transportation office , ,000 Social affairs office , ,000 Youth and sports , ,000 Technical affairs 11,752,536 3,917, ,670,048 Water and sanitation 35,362,558 17,688, ,050,838 Total 59,879,344 25,860,542 51,636, ,376,406 %contribution of Sources of finance % % % 100 % Source: Capital Amana Investment Office Table 10: Percentage of Sources of Finance on various sectors of the Capital Amana s Investment Expenditure (Plan Years: / in 1000 YR) Plan Years Sector Source of Finance (%) External Governmental Local Education office 45 % 15 % 40 % Health office % Roads and works office % Technical Education & Vocational Training office % agriculture office % transportation office % Social affairs office % Youth and sports % Technical affairs 75 % 25 % 0 Water and sanitation % % 0 Source: Capital Amana Investment Office Sanaa s Page 18 of 47

21 Table 11: The % Distribution of the Capital Amana s Investment Expenditure by Sector and Source of Finance (Plan Years: / in 1000 YR) Plan Years Sector Source of Finance External Governmental Local Total Education office 21.32% 16.45% 21.97% 20.65% Health office 0.00% 0.00% 8.87% 3.33% Roads and works office 0.00% 0.00% 60.49% 22.74% Technical Education & Vocational Training office 0.00% 0.00% 3.92% 1.47% agriculture office 0.00% 0.00% 1.36% 0.51% transportation office 0.00% 0.00% 1.79% 0.67% Social affairs office 0.00% 0.00% 0.48% 0.18% Youth and sporting 0.00% 0.00% 1.11% 0.42% Technical affairs 19.63% 15.15% 0.00% 11.41% Water and sanitation 59.06% 68.40% 0.00% 38.62% Total % % % Source: Capital Amana Investment Office Table 9, 10, 11 show the distribution of the Capital Amana s investment expenditure budget per sector and source of finance over the five years (2006 and 2010). The tables suggest that water and sanitation Sector contributed 38.6% to the Capital Amana s investment expenditure budget, followed by the sectors of roads and public works and education, whose share is expected to be about 23% and 21%, respectively. The tables also suggest that almost 44% of the Capital Amana s investment budget will come from external sources over the five year plan. Local sources will finance around 37.6% of the plan investments, while the contribution of the central government through the local executive offices to the investment will be 18.8%. External sources will finance almost 45% of the total investment expenditure on education sector, while local sources will contribute to the sector by almost 40 %. For water and sanitation sector, external sources will share to 66.6%. It is noteworthy that in the Capital Amana the sectors of roads and public works, transportation, agriculture, technical education, social affairs, and youth and sports will be completely financed by local authorities. Sanaa s Page 19 of 47

22 The analysis conducted in the first section of this study reveals various areas where performance is quite inefficient. The results reveal a marked inability of local authorities to carry out the planned investments, particularly in the field of public works. There is also a clear lack of coordination between the investment plan and the executed investments. This is due to the lack of communication between planning offices and local authorities. It is stated by several officials in Capital Amana Investment Office that they often go to the Amana Finance Office to get the Amana s expenditure figures at the end of fiscal year rather than being the source of this sort of data. In addition, feasibility studies are either of a mediocre level or totally nonexistent in some cases. Local and central authorities do not communicate, leading to a lack of coordination regarding investment decisions. The analysis also reveals a serious need for reconsidering the rules of dealing with contractors and the systems of paying them. The analysis also reflects a real need of having a consolidated investment budget at the Amana level. The fact that several entities, central and/or local, are implementing investments in Amana makes the issue of tracking and assessing the investment plans incomplete and sometimes inappropriate. Sanaa s Page 20 of 47

23 II. LOCAL REVENUES: SOURCES AND STRUCTURE The current structure of local revenue in Yemen is very complicated in terms of the management of the revenue sources, the number of revenue line items under each source, and the overlapping between the central and local entities in setting these sources. According to the LAL, the district in Yemen has four major sources of revenue as follows: 5 1. One half of the local current revenues are derived from Zakat revenues, and fees such as registration, permits, licenses, and service fees. These fees are imposed by the central government and are administered by the district through the executive offices. They are fully retained at the district level. 2. One half of Governorate shared revenues (GOSR) come from Zakat revenues and taxes like Qat consumption with some other local nature taxes, fees and fines. The other half comes from the excess of annual collections over the planned local revenue. These taxes and fees are imposed by the central government and collected at the district level in favor of the governorate for some sources, and at the governorate level for others. 25% of these revenues are retained at the districts where they are collected. 25% of these revenues finance the governorate activities. The remaining 50% of these revenues are equally distributed over the rest of the governorate districts. Table 6 displays the structure of the GOSR from 2002 to General shared revenues (GESR) consist of centrally imposed resources that are collected for local councils and development funds like fees imposed on air and sea travel tickets and on gas and fuel stations supply. These revenues also include 30% of the annual revenues of three funds: Road Maintenance, Agricultural and Fisheries Production Promotion, and Youth Care and Sports. These revenues are distributed among all local administrative units, governorates and districts, according to specific criteria including population density; abundance or paucity of resources; social and economic growth; deprivation rate; and 5 Local Authority Law (Law No. 4 of 2000), articles from 123 to 125. Sanaa s Page 21 of 47

24 competence of local authority overall performance and its performance in collecting resources and spending them in an appropriate way Annual central investment subsidies are distributed among the local administrative units similarly to the GESR. The Government of Yemen (GOY) does not have a clear formula on which this source gets distributed. At the same time, the total size of these subsidies is not predictable. The subsidy pool is changed based on the GOY fiscal condition and preferences. District budget includes recurrent budget and investment budget (table 12). Recurrent expenditure covers the administrative cost of the district (local council and diwan) in addition to the operation and maintenance cost incurred by executive organs. Recurrent central subsidy is the only revenue source available to the district to finance its recurrent activities. However, the governmental financial system allows local authorities to receive recurrent grants from international and national non-governmental institutions. Table 12: Structure of District Budget Expenditure Recurrent Expenditure Wages and Salaries Goods and Services Maintenance Transfers and Recurrent Subsidies Capital Expenditure Fixed Assets Acquisition Land Acquisition Capital Transfers Source: Yemen s Budgeting Law Revenue Recurrent Revenue Central Recurrent Subsidy External Recurrent Grants Capital Revenue Local Revenue District Share of Governorate Shared Revenue District Share of General Shared Revenue District Share of Central Investment Subsidy External Capital Grants Capital expenditure covers establishing and preparing infrastructure service such as health centers, schools, roads, and pipelines networks. It also finances major maintenance and renovation of 6 Other criteria may be determined by the Council of Ministries. Sanaa s Page 22 of 47

25 existing public utilities. Districts are also allowed to give local grants for developmental investments implemented through local autonomous and cooperative initiatives. The above explained structure of local budget in Yemen links specific types of revenue to specific types of expenditure. However, the system itself does not link revenue to expenditure for the same type of services. The missed linkage is considered one of the conditions of having efficient public service provision at the local level. However, the system links all local revenues to local investments which is considered a step on the right way as long as the local investment decisions really reflect local citizens preferences and tastes. The structure of local revenues across all districts of the Capital Amana between 2003 and 2006 is displayed in table 13. Contribution of Each District in the Capital Amana to the Total Local Revenues: El Sabien had the greatest average contribution to the total local revenues in the Capital Amana. It recorded 15% followed by Maien and Shaoob that had average shares of 12.4% and 11.7%, respectively. Azal had the lowest share of the total local revenues (6.6%). El Sabien again had the greatest share of recurrent revenue averaged around 18.4%, followed by Maien and Al Wihda with an average share of almost 13% each. Regarding capital revenues, El Sabien had the largest share estimated by 31% in average. Shaoob and Al Thawra came next with average shares of 21% and 15%, respectively. The smallest share of capital revenue was recorded by Al-Safia whose contribution was only 0.1% in average, where Old Sanaa had zero contribution to the capital local revenues between 2003 and Sanaa s Page 23 of 47

26 Table 13: Local revenues in all districts of the Capital- Amana ( ) Local Revenue Item year Old Sanaa Azal Al-Safia Al-Wihda Al-Tahrir Maien Al-Thawra Al-Sabien Shaoob Bani-El Haris Total Local Revenues 450,934, ,210, ,781, ,176, ,691, ,144, ,460,354 1,004,260, ,843, ,724,807 Recurrent revenues 36,587,434 26,871,028 49,957,090 88,494,653 84,995,638 88,435,183 66,433, ,815,740 99,156,031 63,718,798 Total tax revenues ,738,457 8,312,169 21,235,969 40,355,242 21,965,645 24,539,763 21,296,064 46,544,709 19,892,875 23,961,565 Total non tax revenues 18,848,977 18,558,859 28,721,121 48,139,411 63,029,993 63,895,420 45,137,864 96,271,031 79,263,156 39,757,233 Capital revenues 0 407, ,200,000 2,700 Subsidies from other governmental levels Total Local Revenues 414,347, ,932, ,824, ,682, ,695, ,709, ,026, ,444, ,487, ,003, ,276, ,274, ,229, ,532, ,174,642 1,003,680, ,929,587 1,234,164, ,141, ,651,440 Recurrent revenues 58,212,041 43,402,187 77,423, ,503, ,769, ,694, ,493, ,234, ,496,510 83,344,767 Total tax revenues 36,649,892 14,597,377 43,721,028 87,998,475 66,985,798 58,197,788 63,678, ,142,893 41,268,668 31,212,704 Total non tax revenues ,562,149 28,804,810 33,702,548 68,505,215 77,783,843 89,497,158 70,815, ,091,530 86,227,842 52,132,063 Capital revenues 0 35, , ,862, Subsidies from other governmental levels Total Local Revenues 597,064, ,837, ,806, ,028, ,405, ,823, ,435,912 1,025,067, ,645, ,306, ,676, ,445, ,497,437 1,057,914, ,818,580 1,215,521,943 1,050,269,918 1,469,720,169 1,138,145, ,971,329 Recurrent revenues 47,614,615 50,708,857 59,376, ,945, ,257, ,901, ,323, ,958, ,337,281 92,571,951 Total tax revenues 25,404,094 9,679,093 23,878,950 53,437,145 34,186,433 37,198,533 48,177,092 61,244,709 25,328,055 33,855,654 Total non tax revenues ,210,521 41,029,764 35,497, ,508,550 88,071, ,702,635 73,146, ,714, ,009,226 58,716,297 Capital revenues 0 160, ,098,300 1,167, ,100 30,000 76,500 Subsidies from other governmental levels Total Local Revenues 681,061, ,576, ,121, ,968, ,560,870 1,059,522, ,779,448 1,259,060, ,778, ,322, ,271, ,107, ,302,349 1,197,114, ,448,197 1,480,393,639 1,203,093,286 1,772,356,396 1,306,794,962 1,160,886,334 Recurrent revenues 51,168,823 47,692,786 60,231, ,137, ,822, ,059, ,367, ,181, ,520,481 93,010,556 Total tax revenues 24,812,331 9,670,741 23,078,782 53,999,586 26,985,803 40,596,936 32,981,080 70,901,113 23,397,500 28,741,308 Total non tax revenues ,356,492 38,022,045 37,153, ,137, ,837, ,462,615 81,386, ,279, ,122,981 64,269,248 Capital revenues 0 350,000 17,000 1,575, , ,400 21,000 73,200 Subsidies from other governmental levels Source: Capital Amana Finance Office 628,102, ,064, ,053,452 1,039,402, ,625, ,088,241,170 1,537,571,971 1,156,253,481 1,067,802,578 Sanaa s Page 24 of 47

27 Structure of Local Revenues in Each District Separately: 85% of the total local revenues in Al Tahrir were from subsidies, while 15% were from recurrent sources. Al Sabien and Al Wihda had similar structures, as the share of subsidies to their total local revenues averaged 85% each. In the other districts of the Capital Amana, the share of subsidies exceeded 85%. Table 14 shows the structure and the development of the Capital Amana s local revenues between fiscal years 2003 and The table suggests that subsidies from other governmental levels were the major source of local revenues of the Capital Amana during the time period of analysis. These subsidies contributed to total local revenue by almost 88%. Recurrent central subsidy had the greatest share within this group, since its contribution was about 77% of the total intergovernmental subsidies followed by the share of governorate shared revenue (16%). Local Recurrent revenues came as the second major source of total local revenues in the Capital Amana as its share was about 12%. 8% of the local recurrent revenue generated from tax bases, compared to 4% from non-tax bases. Administrative charges and fees were the major sources of non- tax revenues followed by Contributions to pension and social welfare funds. On the other hand, Zakat revenue was the major source of tax- revenues in the Capital Amana (79.4% of tax revenue and 22% of local recurrent revenue). Capital revenues had a very small contribution to total local revenues (0.03%). Sanaa s Page 25 of 47

28 Table 14: Local revenues in Capital Amana ( ) Revenue Sources 2003 Actual 2004 Actual 2005 Actual 2006 Actual Total Local Revenues 6,707,229,205 8,358,073,930 9,804,088,274 11,242,928,659 Recurrent revenues 747,465,523 1,180,557,496 1,177,102,953 1,221,352,538 Total tax revenues 245,842, ,452, ,389, ,165,180 Zakat Revenue 148,698, ,400, ,916, ,818,072 Taxes on income, profits, and capital gains 25,417, ,125,891 29,409,120 29,612,170 Tax on Property Return 0 13,601,300 20,825,800 5,546,800 Taxes on goods and services 71,726, ,325,161 54,238,772 34,188,138 Total non tax revenues 501,623, ,104, ,713, ,187,358 Projects and possessions income 2,652,536 5,017,170 4,126,995 4,086,760 Administrative charges and fees 252,046, ,988, ,034, ,384,752 Fines and confiscations 30,901,407 54,946,931 76,854,822 75,940,480 Contributions to pension and social welfare funds 214,790, ,003, ,978, ,444,211 Other non tax revenues 1,231, ,240 2,718, ,155 Capital revenues 2,610,250 2,095,821 4,233,100 3,124,600 Subsidies from other governmental levels 5,957,153,432 7,175,420,613 8,622,752,221 10,018,451,521 Recurrent Central Subsidy 4,108,732,093 4,980,164,105 6,164,477,921 7,719,384,072 Capital Central Subsidy 554,400, ,702, ,190, ,095,000 Share of General Shared Revenues 44,743, ,884, ,933, ,138,451 Share of Governorate Shared Revenue 1,249,277,659 1,437,669,513 1,777,150,424 1,595,833,998 Source: Capital Amana Finance Office Sanaa s Page 26 of 47

29 Fig. 4: Capital Amana: Composition of Total Local Revenue ( ) Capital Amana: The Composition of Local Revenue ( ) Share of General Shared Revenues 2% Share of Governorate Shared Revenue 17% Total tax revenues 4% Total non tax revenues 8% Capital revenues 0% Capital Central Subsidy 6% Recurrent Central Subsidy 63% As fig. 4 shows, the highest percentage in the composition of local revenue of the Capital Amana, is achieved by recurrent central subsidy (63 %) followed by the share of governorate shared revenue (17 %), followed by total non tax revenues as 8 %. Sanaa s Page 27 of 47

30 Table 15: Governorate Shared Revenues in Capital Amana between 2003 and 2006 Revenue Sources 2003 Actual 2004 Actual 2005 Actual 2006 Actual Governorate Shared Revenue 489,699, ,294, ,247, ,139,976 Total tax revenues 397,828, ,678, ,738, ,369,052 Zakat Revenue 148,699, ,819, ,698, ,818,073 Taxes on income, profits, and capital gains 221,119, ,752, ,849, ,136,459 Taxes on labor salaries and wage 5,270,919 5,892,251 4,876,789 5,235,844 Property tax ,500 Taxes on goods and services 22,738,571 24,214,435 18,314,508 34,722,176 Total non tax revenues 91,870, ,616, ,508, ,770,924 Projects and possessions income Administrative Fees 64,226,181 91,847,247 98,673, ,842,706 Fines and Confiscations 27,644,668 31,297,229 28,262,872 34,207,054 Other non tax revenues 0 9,472, ,626 2,721,164 Source: Capital Amana Finance Office Sanaa s Page 28 of 47

31 Table 15 shows the structure of the governorate shared revenues in the Capital Amana between 2003 and The table suggests that tax revenues were the major source of governorate shared revenues with a share of 81%. Taxes on income, profits, and capital gains had the greatest contribution (44%) to the governorate shared revenue, followed by Zakat revenues (32%). Nontax revenue was the second major source of governorate shared revenues with an average contribution of 19%, of which administrative fees had the greatest share (74.6%). Governorate shared revenue of the Capital Amana grew by almost 53% between the two fiscal years to record almost 748 million in Total tax revenues and total non tax revenues also experienced a growing trend during the same time period by 51% and 59%, respectively. Table 16 shows the structure and development of total local revenues in Amana Center during the time period between 2004 and According to the table, subsidies from other governmental levels were the major source of total local revenues in Amana Center. Its share of the total local revenues averaged around 75%. Recurrent central subsidy had the greatest share within this group (almost 80%). Recurrent revenues came as the second major source of local revenues in Amana Center with a share of 25% in average (21% for tax revenue and 4% for non-tax revenue). Zakat revenue was the major source of tax revenues with a share of 79% (16% of total local revenue). It is noteworthy that capital revenues had zero contribution to the Amana Center s total local revenue. The table statistics indicate that total local revenues of the Center increased by 477 million YR (65%) between 2004 and Subsidies from other governmental levels, which are the major source of local revenue, experienced an increase of 76%. Sanaa s Page 29 of 47

32 Table 16: The Structure of Local Revenues in Amana Center between 2004 and 2007 (1000 YR) Revenue Line Items Total Revenue 4,968,619 6,145,841 5,124,031 6,037,367 Recurrent Revenue 1,092,471 1,610,746 1,163,493 1,299,210 Total Tax Revenue 1,028,645 1,515,445 1,101,255 1,215,632 Zakat Revenue 815, , , ,500 Other Taxes 213, , , ,132 Non-Tax Revenue 63,826 95,301 62,238 83,578 Transfers from other Governmental Levels 3,876,148 4,535,095 3,960,538 4,738,157 Central Recurrent Subsidy 3,158,786 3,903,160 3,163,197 3,792,501 General Shared Revenue 91,053 39, Governorate Shared Revenue 626, , , ,656 Source: Capital Amana Finance Office Fig. 5: Amana Center: Composition of Total Local Revenue ( ) Amana Center: The Composition of Local Revenue ( ) Share of General Shared Revenues 1% Share of Governorate Shared Revenue 12% Total tax revenues 21% Total non tax revenues 4% Capital Central Subsidy 0% Recurrent Central Subsidy 62% Capital revenues 0% Sanaa s Page 30 of 47