local financial issues in algeria

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Local financial issues inAlgeriaZine M. Barka Professora University of Tlemcen , AlgeriaPublished online: 24 Jan 2007.

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Local Financial Issues in Algeria

ZINE M. BARKA

Local authorities have witnessed a number of modifications in the nature of theirresources, as well as their competencies. This has led to a rapid increase in localpublic expenditure. Yet, the financial resources remain very limited. In this veryspecific context, the following questions are worth mentioning. What are the causesof the current fiscal crisis? How are the drastic cuts introduced in the early 1990s toaffect the local dimension? Could they generate elements for a better management ata local level? This research is an attempt to shed light on the constraints that negativelyaffect a sound management of the local authorities.

Introduction

Today the local authorities1 play an important role in the public sector, and

have become, throughout the years, major actors in the country’s economic

development. In this respect, the existing quantitative indices are illustra-

tive of the role these local units play. The importance of the local budgets, the

ongoing flow, and the manpower employed by these authorities reflect the

growth of local fiscal resources.2

After Independence in 1962, the local authorities became new partners

in the state-run public policy, taking part actively in the local development

process. In this way, the local authorities have witnessed a number of modifi-

cations in the nature of their resources, as well as their competencies. These

were not solely restricted to the provision of public services, but also

covered aspects of socio-economic and cultural development. This has led

to a rapid increase in local public expenditure. Yet, the financial resources

remain very limited.

The different local resources fall under two headings: fiscal resources, in

effect the more important, represented by a number of duties and taxes allo-

cated to the local budget authorities; and the estate yields and proceeds,

which represent a minor part in the resources of the local authorities. These

Zine M. Barka is a Professor at the University of Tlemcen, Algeria. He has just finished a fieldinvestigation on tax administration and how to improve its efficiency and enhance tax collectionin Algeria. He is currently conducting research concerning the incidence of the Euro-Mediterra-nean Partnership and its effects on the Algerian fiscal system.

The Journal of North African Studies, Vol.9, No.3 (Autumn 2004) pp.40–59ISSN 1362-9387 print=1743-9345 onlineDOI: 10.1080=1362938042000325804 # 2004 Taylor & Francis Ltd.

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resources have witnessed a supportive improvement during the 1990s, thanks

to the measures that have been taken in the various finance acts. However,

local resources are still not sufficient compared to the great responsibilities

assigned to the local authorities, namely after the mass transfer of competen-

cies in 1984 – a date representing the last territorial division into 48 wilayat.

Arguably, the insufficiency of the fiscal means has created a critical situ-

ation for the local authorities which has led to debt. Consequently, this has

given rise to a disruption of the development programme, a loss of competen-

cies and an increase in fiscal dependence. The issue of debt possesses some-

thing of a problem for a large number of local authorities, rendering them

powerless to perform their role in local development. It is worth remembering

that the state allocated DA 14bn to clear an important part of the communes’

debt in 2000 and 2001.3 In this very specific context, the following questions

are worth mentioning. What are the causes of the current fiscal crisis that

strikes the local authorities? Is the fiscal crisis due to the inadequacy of

local fiscal resources in relation to growing expenditures?

However, to give the local authorities a new dynamism, a scheme of soli-

darity was implemented between the ‘rich’ and ‘poor’ communes through the

creation of what would be called the Local Authorities Common Fund, or Joint

Revenue Fund (Fonds Commun des Collectivites Locales, FCCL). This fund

serves a twofold function. First, it provides the poorest local authorities

with financial support (through grants and subsidies) in order to set up a ter-

ritorial balance, therefore reducing the effects of inequality between local

authorities’ fiscal resources. Second, it grants subsidies in order to encourage

and stimulate certain economic and social-oriented actions.

Unfortunately, these fiscal supports are not sufficient to put an end to the

issue of debt, which affects about 90 per cent of the communes nationwide.

Is the FCCL able to bridge the fiscal gap resulting from the weaknesses and

disparities of the financing resources? What is more, the steep fall in hydro-

carbon prices in 1986 (which represent 97 per cent of Algeria’s main exported

resources) compelled the state to undertake programmes of stabilisation and

structural adjustment (1991–94), with the IMF in particular. These pro-

grammes aimed at reducing the foreign deficit through cuts in the budgets of

public investments and current budgets including those of the local authorities.

How are these drastic cuts to affect the local dimension? How could they intro-

duce elements for better management at a local level? This article is an attempt

to shed light on the constraints that adversely affect sound management of the

local authorities. It also tries to redraw the scheme of reform of local fiscal

policy to give back the communes, in particular, their twofold vocation:

1. The institution wherein the citizen takes part in the management of local

public matters. Actually, the local authorities, which are in touch with

LOCAL FINANCIAL ISSUES IN ALGERIA 41

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the citizens, play an important role in rebuilding confidence through

concrete and durable actions covering many aspects of socio-economic

development.

2. The institution that contributes to local development is suffering from a

striking reduction in allocated investments. Having an institutional recog-

nition, the commune is, undeniably, the determinant pole of economic

development and social stability.

The analysis of local public resources, in the light of the country’s current

changes, begins by examining the commune through its attributes and expen-

ditures. In the second section, we analyse the various resources and modes of

management of the local units.4 The final part presents a short assessment of

the financial resources.

Place and Attributes of the Commune

Since its publication in 1967, the Communal Code underwent a number of

modifications, reflecting the changes that occurred at political, economic

and constitutional levels.5 A new vision of the commune was inscribed in

the 1989 extension to the Constitution. The commune became a geographical

area of ‘rent allocation’, particularly through its economic and social func-

tions. It was, indeed, during those years that the communes created a large

number of local public enterprises in various activities which ‘vanished’

soon after the fall in the 1986 rent.

The 1990 Communal Code, with its different modifications, represented

significant differences compared to the 1967 one with respect to the following

articles:

1. Article 1 stated that the commune was henceforth endowed with a moral

personality and fiscal autonomy. In other words, the commune now had

the necessary legal means as regards its administrative, economic and

social policies.

2. ‘The commune represents the frame of expression and local democracy’

and ‘the place wherein the citizen can participate in the management of

the public matters’ (Article 84).

3. Article 133 defined different modes of management relating to the local

public services, such as concession and administration of property.

Magnitude of Local Resources

The assessment of the commune in relation to central government can be

carried out through a glance at the evolution of the ratio representing local

fiscal resources compared to the state’s taxes from 1990 to 1997, as shown

in Table 1 below. It varies between 13 per cent and 32 per cent.

42 THE JOURNAL OF NORTH AFRICAN STUDIES

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It is worth noting some characteristics of that period:

. Serious economic crisis in 1987 as a result of the steep fall in oil prices.

. The publication of a new Constitution in 1989.

. The Communal Code reformed and implemented in April 1990.

. The first pluralist communal elections in June 1990.

. Reform of the ‘National Tax System’ in 1992 with the introduction of

Value Added Tax (VAT), whose revenue will be allocated as follows:

85 per cent for the state, 8 per cent for the communes and 7 per cent for

the FCCL.

. The dissolution of the elected Communal Popular Assemblies (Assemblee

Populaire Communale, APC) in 1993 and their replacement by the desig-

nated Communal Executive Delegations (Delegations Executives Commu-

nales, DEC).

. An unstable political situation engendering insecurity and violence and

hampering the development process.

Legal Attributes of the Commune

Being in direct contact with the citizen’s various preoccupations and concerns,

the commune is the place wherein appreciations of the authorities’ actions and

deeds are formulated. It is the focus point of all forms of economic and social

claims and popular protests, even if a fair number of these demands cannot be

met at the communal level.

Article 86 defines the series of socio-economic attributes assigned to the

commune, which can be summarised as follows:

. planning and local development;

. town planning and equipment of infrastructures;

TABLE 1

COMPARATIVE EVOLUTION OF TAXES: CENTRAL

GOVERNMENT – LOCAL AUTHORITIES

Year Central Government Taxes� Local Taxes %

1992 108.9 14.0 12.9%1993 117.4 27.7 23.6%1994 172.7 45.0 26.1%1995 245.8 77.7 31.6%1996 288.6 70.2 24.3%1997 317.0 72.2 22.8%

The figures are given in DA bns.� Oil taxation not included.Source: Ministry of Finance.


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. basic education and pre-schooling;

. socio-collective equipment, housing;

. environment issues, hygiene and public health;

. economic investments.

In addition to these, the commune is also responsible for the satisfaction of

some collective needs, such as:

. water supply;

. sewage disposal;

. garbage collection;

. management of marketplaces and public weight;

. implementation of public transport networks;

. management and maintenance of cemeteries and funeral services.

To fulfil these public services successfully, the law authorises communal

authorities to manage them:

. directly through a communal service;

. under the form of administration of property;

. by creating public communal bodies; or

. through concession.

Admittedly, the provision of these public services requires important human,

material and fiscal resources. In addition to efficient organisation of com-

munal administration, these attributes and missions also require some

degree of autonomy at the local decision-making level. Curiously, the

reality shows there are instances in which communal authorities have to

consult the central authority. The approval before execution of the budget

illustrates this.

Precedence of the Central Authority over the Local Authority

Although Law 90–08 considers the communes an institution ‘endowed with a

moral personality and fiscal autonomy’, it is worth remembering the motto

conveyed by the former communal codes: ‘to communes execution, to the

centre decision’.

Empowering local government units is a very sensitive issue. However, the

prerogatives to levy taxes as well as to provide subsidies are exclusively

those of the central authorities. What is more, the local tax system is often

viewed, by some communes, as supplying little financial contribution.

These communes do not have the economic bases sufficiently structured to

discount substantial revenues. Also, the annual adjustment financial resources

allocated to communes are based on criteria which are not always in favour


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of the communes that really need them; their amount is determined by taking

into account the following criteria:

. tax collections that depend upon an often insufficient economic potential;

. property receipts whose assessment and update are not always conducted

for various reasons;

. communal population based on a ten-year census.

Such observations reflect the urgency of the issue of local public resources

reform. On the other hand, they put into reconsideration the role of the

commune as a local focus for implementing the development process, and

not merely as a second-class institution. Reform of local public finance

would redefine the relationship between the central and local authorities in

a global strategy of development wherein the communes could play an

active role in the promotion of socio-economic aspects of development.

Arguably, fiscal resources represent the most important part of the local

current budget (about 60 per cent for some communes).6 This is another

way of saying that the communes are unable to accomplish all the different

missions imparted to them. For some of them, the lack of means is, in

effect, an impediment to providing successfully the most basic public services

(water supply, sewage disposal and so forth). They are entirely dependent

upon external financial subsidies coming from the central budget. It is therefore

difficult to speak about decentralisation in such conditions. What is more, the

development programmes depend totally upon extra-communal sources:

. subsidies;

. appropriations from the state budget as part of the Communal Plans of

Development (Plans Communaux de Development, PCD), which have

multiplied by four between 1990 and 2000 (with reference to the current

value of the Algerian Dinar).7

Rigidities in the Allocation of Fiscal Resources

It is worth noting that resources are often received too late by the local

authorities; this state of affairs is due to the bureaucratic complexity that

characterises the Algerian administration. The elaborate process of the devel-

opment programmes obeys a highly centralised hierarchy. The ministries set

up their programmes and the local authorities have to content themselves

with following through and supervising public services. In this respect,

there are instances in which the local popular assemblies refuse to execute

decisions they neither took part in nor to which they gave their approval.8

In such cases, the central government decides according to priorities and

budgetary constraints without referring to local units.


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The management system of the local authorities is thus largely dependent

upon a highly centralised administrative framework and outdated methods,

representing a serious handicap to any effort of integrated development.

The prevalence of this system has rendered sterile many well-intended local

initiatives and engendered contradictions; many projects are registered

though they neither meet the needs of the communal life, nor respond to the

potentialities and financial resources of the commune. Concretely, the

commune, which is to be the main actor in the town planning management

and local development, faces a number of constraints which severely hinder

any development effort and well-intended initiatives. The difficulties are

due to the following bureaucratic complexities:

. inadequate regulations and legislative mechanism which hinder all form of

individual or collective initiatives;9

. inadequacy between the regulations, decisions and strategies of organi-

sational management and development and the local context;

. excessive centralisation of choices and decisions relating to opportunities

and priorities of local development actions;

. the lack of experience of the commune DECs in the late 1990s, giving rise

to a form of management that squandered the local land property without

taking charge of the citizens’ real living conditions; one may add to this a

plethora of non-qualified workers.

The Growing Expenditures

The communal expenditures, both current and capital, are much more adapted

to traditional missions and decentralised-oriented authorities: building of

schools, refuse collection, road maintenance and so on. They have increased

as a result of the proliferation of high-density population areas whose needs

in terms of basic infrastructure are on the increase (water supply, sewage dis-

posal, road maintenance and so on). This increase in local expenditures is also

motivated by a high-urban population growth which shifted from 6,686,785

inhabitants to 16,966,937 inhabitants, representing a rate of growth of 154

per cent between 1977 and 1997.10

An analysis of the current expenditure11 (Table 2) shows that the chapter

relating to ‘staff expenditures’ is the most important, though slightly decreas-

ing in the allocation of expenses: 69 per cent in 1994 against 65 per cent in

1996. The chapter ‘maintenance and repairing’ is on the decrease and shifted

from 8.14 per cent in 1994 to 7.03 per cent in 1996. Similarly, the chapter

‘road maintenance, refuse collection and public lighting’ shifted strikingly

from 10.13 per cent in 1994 to 7.52 per cent in 1996.

A close study of the evolution of capital expenditure (Table 2) demon-

strates a quasi-stagnation of the amounts between 1994 and 1996 (with


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reference to the current value of the Algerian Dinar). The structure of the

expenditure also shows that the PCD’s share represents about 60 per cent of

the total expenditure; however, this share is on the decrease. This can

be explained in terms of the destructive violence of the ‘armed groups’ on

the state-run infrastructures, particularly in the remote rural areas. Similarly,

the socio-cultural and leisure infrastructures have ‘been let down’ for the

same reasons; they represent less than 1 per cent of the equipment expenditure.

The issue of reforming local public finances in the light of the new

political, economic and social realities is not only a matter of a number of

claims related to an increase in the allocated financial resources from

central government, but also a matter of giving more power to the local

authorities to set up and implement new fiscal resources.

Financing the Local Authorities

A study of the local resources shows that it is closely related to the issue

of decentralisation and puts into question the dichotomy of state–local

TABLE 2

EVOLUTION OF EXPENDITURE 1994 – 96

Nature of Expenditure 1994 % 1995 % 1996 %

1. CURRENT EXPENDITURE 7.1 100.0 12.2 100.0 11.7 100.0Wages and salaries 4.9 69.3 6.9 56.9 7.6 65.4Maintenance and repairing 0.6 8.1 0.9 7.7 0.8 7.0Youth and sport 0.4 5.4 0.6 4.7 0.6 5.2Social matters 0.2 2.6 2.0 16.4 1.1 9.4Road maintenance, refuse collection

and public lighting0.7 10.1 0.8 6.3 0.9 7.5

Social establishments 0.06 0.9 0.2 1.3 0.1 1.1Fuel 0.1 1.7 0.2 1.7 0.3 2.1Maintenance of mosques 0.05 0.8 0.06 0.5 0.06 0.5General administration 0.07 1.0 0.5 4.5 0.2 1.7

2. CAPITAL EXPENTIDURE 14.4 100.0 17.2 100.0 15.5 100.0Educational institutions 1.3 9.1 1.8 10.3 2.0 12.4Health centres 0.07 0.5 0.1 0.7 0.09 0.5Road maintenance 1.6 11.2 2.2 12.4 2.1 13.2Water supply and public lighting 1.1 7.7 1.4 8.0 1.5 9.3Sport infrastructures 0.02 1.1 0.03 1.7 0.05 3.4Cultural centres and libraries 0.04 0.3 0.07 0.4 0.09 0.6Tourist and Leisure infrastructures 0.02 0.1 0.02 0.1 0.02 0.2Social infrastructures 0.03 0.2 0.08 0.4 0.03 0.2PCD 10.2 69.8 11.5 66.0 9.6 60.2

TOTAL (in DA bns) 21.5 – 29.4 – 27.2 –

Source: ‘La Refonte du Systeme Fiscal’ pp.9, 15, CENEAP, internal document.


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authorities. In Algeria the balance of power has always been a permanent

quest conditioned by the central authority to grant some higher degree of

autonomy or to make the local authorities obey slavishly. The autonomy of

the local authorities, whose endpoint is de-centralisation, is conditioned by

the implementation of fiscal power. In this regard, the communes can have

recourse to taxes to finance their expenditure. However, their fiscal power is

very limited, as they do not have the right to create new taxes and to fix the

rates and methods of collection. The fiscal power of communes is merely to

vote the amount of taxes and duties conforming strictly to the law.

The concept of a local tax system has no raison d’etre unless the commune

undertakes bottom-up processes on the details of implementing taxes which

finance its own budget. The lack of such a system demonstrates that the com-

mune’s fiscal autonomy is nothing but to receive a part of what the national tax

system has collected. In order to cover their expenditure, the local authorities

can make use of two types of financing: internal and external.

Internal Financing

The internal financial resources of the local authorities fall into two broad

categories: the fiscal resources and the local authorities’ own resources. The

predominance of the fiscal resources represents about 90 per cent, whereas

the authorities’ own resources, that is, communal properties, rarely exceed 7

per cent out of the total receipts of the local authorities. These financial

resources still remain far too low. The communes’ fiscal resources are not

homogenous; rather they are made up of various types of taxes, different in

their incidence as well as their productivity.12 Since the beginning of the

1990s, the situation of the commune’s own resources as well as that of the

local taxation system has been deteriorating, engendering many problems.

The Fiscal Resources of the Local Authorities

The local authorities fulfil heavy duties as a result of the role imparted to them.

To accomplish these tasks successfully, they need important resources. To this

end, the communes have recourse to taxes to finance their growing expen-

diture. However, fiscal power is limited, as it does not involve the ability

to decide on the creation, modification or abolition of a form of tax. This

prerogative is part of the competencies of the legislative power.13 The local

authorities’ fiscal autonomy is therefore limited in the sense that the local

communes have the privilege to collect fiscal resources, but in no way can

they collect a tax that is not legally defined.14

The local fiscal system consists of three types of taxation: the first type

refers to the yield that is shared between the state and the local authorities.

The second type is the yield that is integrally paid in to the local authorities.


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The third type is the yield that is collected exclusively by and for the

communes.

Taxes Collected by the State and Shared with Local Authorities. We can dis-

tinguish three main types. Value Added Tax (VAT) is allocated as follows:

state budget 85 per cent, communes 10 per cent, and FCCL 5 per cent.15

VAT yielded between 6 and 11 per cent of fiscal receipts to the Commune

of Tlemcen from 1997 to 2001. The road tax yielded an influx of 80 per

cent to the local authorities’ budget. Finally, the slaughter tax, introduced

for the first time in edict no.69/107 (30 December 1969), was appended to

the 1970 Fiscal Act.

Taxes Collected in Aid of the Local Authorities. The communes and wilayat

receive their share in the product yielded by the three direct taxes: the Tax

on Industrial and Commercial Activities (Taxe sur l’Activite Industrielle et

Commerciale, TAIC), the Tax on Non-Commercial Occupational Activities

(Taxe sur l’Activites des Professions Non Commerciales, TANC) and

Inclusive Instalment (Versement Forfaitaire, VF). However, TAIC and

TANC were abrogated by the 1996 Fiscal Act,16 and replaced by one tax:

the Tax on Occupational Activities (Taxe sur l’Activite Professionnelle,

TAP).17 The complementary 2001 Fiscal Act reduced the TAP rate from

2.55 per cent to 2 per cent. The fiscal depreciation resulting from the decrease

in the TAP rate is to be compensated to the local budget by aids from the state

budget. It is worth noting that of all the local taxes, TAP represents, for the

communes, the most productive financial resource. Its share swung between

55 and 64 per cent for the Commune of Tlemcen from 1997 to 2001.

The inclusive instalment, whose share varies between 22 and 32 per cent

for the Commune of Tlemcen, is a tax that is owed by any individual and

legal entity, associations and bodies living or working in Algeria and who

pay wages, salaries, benefits, fees and emoluments, including the value of

in-kind advantages. Initially, the inclusive installment was a state tax.

However, the yield of this tax has been allotted integrally in aid of the local

authorities since the 1996 complementary Fiscal Act. During the last few

years, the inclusive instalment rates have witnessed many decreases. These

relief measures are part of the new fiscal policy aiming at encouraging invest-

ment and employment opportunities.

It is worth remembering that the last decrease measure stated by the 2002

Fiscal Act refers to a reduction in the inclusive instalment, from 5 to 4 per

cent; this relief will engender a fiscal depreciation of DA 4.3bn for the local

authorities and will be compensated for by the state budget.18

Taxes Exclusively Collected in Aid of the Communes. As regards the direct

taxes, the commune collects the yield of two taxes: the property-built and


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non-built tax and the cleaning-up tax, which together represent between 4 and

11 per cent of the resource of the Commune of Tlemcen. The cleaning-up tax

consists of two sub-taxes: the refuse collection tax, which is collected in aid of

the communes to finance the service in charge of this task; and the sewage dis-

posal tax, which is also collected in aid of the communes.

Local Authorities’ Other Financing Resources

The growing importance of the role of the local authorities in social and econ-

omic development has led to a continuing growth of local public expenditure.

This growth is due to the increase first in current expenditure, and second in

capital expenditure. To meet the needs of this growth in expenditure, the

local communes have other resources represented by some yields coming

from eventual use and exploitation of their patrimony. These yields fall into

four categories:

. The exploitation yields represent a financial resource from services

provided to clients by the local authorities.

. At the level of the patrimonial receipts, the communes have witnessed for

many years a loss of their patrimony resulting from a series of political

decisions, first in 1972, with the appropriations of agricultural and building

lands by the Fonds National de la Revolution Agraire (Agrarian Revolu-

tion National Fund), and then in 1980, with the transfer of assets of state

buildings for dwelling and professional use. However, the communes

that still own properties do not assess them; the tariffs and auction

amounts should be regularly reassessed depending on whether the commu-

nal rights are exploited under state control or rented – the assessment

should account for the annual rate of inflation. However, a significant

number of communes used to the financial aid affluence of the 1970s

and 1980s do not undertake fiscal initiatives to increase their revenues.

. The fiscal yields. The local authorities have the right to invest their non-

spent receipt surplus. These investments can be realised under the form

of government securities or treasury bonds. It should be noted, however,

that the existence of such fiscal yields in the local budgets is very rare, or

almost non-existent due to the fiscal crisis of a high number of communes.

. Self-financing aims at ensuring annually a minimum of investment. The

rate of levy, fixed to 10 per cent by the decree of 31 December 1967,

was considered a minimum rate, and was increased in 1987 to 20 per cent.

The Local Authorities’ External Financing

The local authorities’ internal fiscal resources cannot cover all the local expen-

diture. To rely on other means of financing to realise their local development

projects becomes, therefore, sine qua non. For this reason, the state grants


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fiscal supports annually in aid of the local authorities, within a system of soli-

darity operating through the Local Authorities Common Fund (FCCL). These

fiscal supports are implemented to re-establish territorial balance, aiming at

bridging and/or reducing the fiscal gaps between the ‘rich’ and ‘poor’ local

authorities. On the other hand, the state grants equipment and investment

subsidies ensuring the continuity of the local development process. Finally,

the state can intervene by granting loans through the channel of fiscal insti-

tutions to meet the needs of the local development. Though rarely implemen-

ted, the recourse to loans could be, in effect, an option for the local authorities

to pave the way for wealth-producing investment.

The Local Authorities Common Fund

The Local Authorities Common Fund (FCCL) was established conforming to

Decree 73–134 (9 August 1973) in accordance with Article 27 of the 1973

Fiscal Act. It underwent an amendment in 1986 (Decree 86–266, 4 November

1986) related to the organisation and functioning of the FCCL. It is a public

institution, endowed with a legal entity and fiscal autonomy. It is set up

under the auspices of the Ministry of Domestic Affairs. The FCCL was estab-

lished to ensure the stabilisation of local resources. Supported by various

forms of taxes, the FCCL represents the local authorities’ major resource.

In effect, its main objective is to promote solidarity between the communes

through a centralised allocation of fiscal resources under the form of appro-

priations and subsidies, allowing local authorities to settle their compulsory

expenditures.

The State’s Fiscal Support to Local Authorities

It is obvious that the system of local finance has been conceived to support a

local power closely linked and subordinated to a central power. This depen-

dence, somehow, thwarts the decentralisation processes, although it is recog-

nised constitutionally. The state grants fiscal assistance to the local authorities

through a two-way channel:

. the current global appropriation and subsidies, devised to ensure a terri-

torial and budgetary balance;

. the equipment global appropriation and subsidies, devoted to promoting

local development.

The Current Global Appropriation. The accomplishment of a mission of

public service by the local authorities implies compulsory expenditures that

should be settled whatever their costs. To cover these expenses, the local auth-

orities commonly have recourse to their own resources. Yet, at the practical

level, their fiscal situations leave a lot to be desired; this can be attributed


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to the inequality of wealth due to natural factors likely to condition the level of

economic activities. In addition to this, one might add the unbalanced devel-

opment of local authorities resulting from a national industrial economic

model adopted and located on great urban cities. These very factors determine

the source of fiscal potential conducive to community fiscal wealth.

In this very specific context, the implementation of the FCCL aims at

adjusting19 the resources of the ‘poor’ local authorities with those of the

‘rich’ ones in order to ensure the running of their public services. Conse-

quently, the adjusting subsidies aim at discarding the local and regional unba-

lance. In this respect, the state can transfer supplementary financial resources

to bridge the existing fiscal gaps between ‘rich’ and ‘poor’ communes. What is

more, to assure a balance in the budget of the local authorities, the state grants,

through the FCCL, exceptional subsidies to in-deficit local authorities,20 or

additional subsidies to face unexpected events.

The different interventions of the FCCL, as regards the assistance devised

to assure a balance between the communes, illustrate a significant progression.

This is another way of saying that the number of communes suffering from the

consequences of a fiscal crisis is on the increase, particularly after 1994, as

shown by Table 3.

The FCCL is also in take charge of the Communal Police, created in 1994.

This burden has given rise to a growing number of in-deficit communes, as

illustrated in Table 3. On the other hand, we should note that this situation

leaves only a few means to allocate to the in-deficit communes, since the

salaries of the Communal Police represented 43.44 per cent of the FCCL

budget in 1997 and 1999.

TABLE 3

EVOLUTION OF DEFICIT RECORDED BY COMMUNES AND AMOUNT OF FISCAL AID

GRANTED TO FCCL

YearNumber of

In-deficit CommunesAmount

of DeficitAmount ofAssistance

AssistanceCoverage Rate

1990 164 0.3 0.3 100.00%1991 620 2.0 2.0 100.00%1992 660 1.9 1.9 100.00%1993 792 3.8 3.8 100.00%1994 779 3.5 2.9 82.04%1995 929 6.5 4.9 75.40%1996 1,090 8.7 6.7 76.87%1997 1,159 11.6 8.0 68.96%(in DA bns)

Source: ‘La Refonte du Systeme Fiscal’ pp.9, 15, CENEAP, internal document.


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It is worth noting that the amounts reserved by the FCCL for the different

subsidies are always insufficient. This weakness can be explained in terms of

the high number of poor communes, stemming from the 1984 territorial divi-

sion of the country, which was mistakenly undertaken, since it did not take

into account the economic realities of the regions.21 Indeed, the 1984

spatial reorganisation is one of the main causes of the serious fiscal situation

of the communes. It erected into communes areas that are entirely discarded

from the economic development network. From the economic standpoint,

most of those communes are not viable (they have neither a patrimony/prop-

erty, nor enough equipment). They have, so to speak, no raison d’etre without

the state subsidies. This communal scattering further widened the gap between

the communes’ financial resources. What is more, the large-scale industrialis-

ation policy of the 1970s led to a concentration of activities in certain geo-

graphical areas. The appearance of centres of attraction engendered higher

rates of economic development in some areas than in others. This cleavage

between more or less developed regions has given rise to great differences

in the fiscal potential of the communes.

Investment and Equipment Subsidies. The development programme is based

on investment decisions, which have a direct impact on the creation of

long-term sources of wealth. In this respect, the state intervenes though the

subsidies to promote local development in two different ways: through

the communal plan of development and the credits registered in the state

budget; and through the equipment and investment appropriations of

the FCCL. We should note, however, that these fiscal supports granted by

the state to local authorities are not reimbursed; they constitute, therefore, a

substantial financing source.

Financing through Loans and the Quest for Fiscal Autonomy

To have recourse to financing through loans can be motivated, on the one

hand, by the insufficiency of permanent financing resources, and on the

other, by the important role played by the authorities in local development.

Thus, the option of loans lies in the wide variety of programmes set up by

the communes within the national plans of development. To have recourse

to loans is a very exceptional instance; this is another weakness of the local

fiscal system.22

The loan option has a distinctive characteristic: unlike other financing

resources, it is always a resource attributed to local authorities who have

not benefited from any specific appropriation. The local loan is granted

either by the state or by fiscal institutions. For state-granted loans, they are

provided by the public funds under the form of borrowings or overdrafts to


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communes. To this end, special treasury accounts are opened: borrowing

accounts or overdraft accounts. As far as bank credits are concerned, the prin-

cipal institutions that finance the equipment and local investment operations

are the Caisse Nationale d’Epargne et de Prevoyance (a building society)

and the Banque de Developpement Local.

The Nature of the Loan Option. The establishment of the Banque de Develop-

pement Local in 1985 was aimed mainly at financing local enterprise oper-

ations, as well as the investment operations initiated by the communes.

However, this endeavour did not deliver the expected results, due to the

amendments introduced by the Algerian banking system.

In this respect, the loan policy has witnessed many amendments which

have heavily affected the relationship between the local authorities and

lending organisms on the one hand, and on the amount of the local loan on

the other. The first amendment was introduced by Law 88–06 (21 January

1986),23 related to the banking reform, which put into question the terms of

credit grant. The second amendment was introduced by the 1990 monetary

reform,24 and went back to the classical credit grant, that is, solvency, profit-

ability and guarantee.

The local loan is facing many constraints which impinge upon its impact

on development and consequently on the local development process. Here

are two instances:

. The obligation to inform the central authorities, especially if the project is

not registered within the national plan of development.

. The amount of the loan is determined in relation to the annual financial

resources realised by the local authorities. The actual fiscal situation

does not allow the local authorities to request financing through loans.

This requirement has undeniably paralysed local loans because most of

the local authorities are insolvent and heavily in debt.

The Quest for Local Fiscal Autonomy. As legal units different from the state,

local authorities have a fiscal autonomy vis-a-vis the central authority.25

Indeed, fiscal autonomy implies the recognition of a minimum of power in

the local authority’s fiscal management. Yet, the true fiscal autonomy is,

first of all, the availability of fiscal means along with free utilisation,26 as

opposed to the actual local authorities’ fiscal autonomy, which is characterised

solely by an administrative autonomy represented by their own local elected

institution – the Communal Popular Assembly – and a material fiscal auto-

nomy represented by a budget that is closely under state supervision and

control.


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A Brief Assessment of the Local Financial Resources

If the issue of local budget deficits actually brings to notice the question of the

respect of the budget discipline to be observed in a context of austerity caused

by a fall in financial resources, it also brings into question the problem related

to the nature of the relationship between central government and the local

authorities in the management and implementation of local development in

light of the current ongoing institutional transition.

Reform of local public finance, touching on the procedures of elaboration,

execution and control of financial resources and local expenditure, can provide

a pseudo-answer to the fundamental question of communal management. It is

worth remembering that central government has the constitutional right to

levy the most profitable taxes, that is to say, the taxes that have a bearing

on income (commercial and industrial profit, non-commercial profit, wages

and salaries), on expenses via VAT, on capital (registration of capital transfer

operations) and hydrocarbons (oil taxation system). As regards the local taxa-

tion system (except TAIC and TANC), it still makes use of more or less fixed

rates. This is the case with the property/land tax, whose taxable income is

made up of the rental value rather than the market value.

They are Insufficient

The local tax system is characterised mainly by the relatively low number of

taxes whose yield is collected and integrated in the local budgets. In addition

to this, not all the local authorities can benefit from the set of taxes brought

into operation by the fiscal legislation. In fact, these taxes are applied only

to some types of activity (fishing, agriculture, transport, slaughtering).

There are a few communes that have all the aforementioned activities, and

they collect only the taxes related to the existing activities on their territory.

Because of the fact that the number of these activities is low in many commu-

nes, the number of taxes to collect is therefore low. On the other hand, when

these activities do exist, the central government, very often, exonerates them,

either totally or partially, for a specific period of time.

All in all, the local authorities’ fiscal resources are insufficient. Yet, they

are relatively important for the coastal cities (Algiers, Oran, Annaba), but

they are much lower in rural communes and other remote mountainous or

desert areas, to the extent that local authorities’ fiscal collection seems insuffi-

cient not only to ensure the running of the necessary public services (registry

office, public order, public health), but also to fulfil their role as a social and

economic agent, the mission they have been assigned. In such situations, the

tax system cannot solve, on it own, the problems of local authority manage-

ment, consequently leaving the fiscal crisis widening and impacting adversely


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on local development. It is imperative for the survival of these communes to

seek other financial sources of income.

A Tax System far below Productivity and Equity Requirements

Although the state undertakes considerable effort to supply the local auth-

orities with financial resources to assure some form of equity in the allocation

of local tax yield, it seems that this tax system falls far below meeting the

requirements of profitability and equity.

A weak Productivity of the Local Tax System. Indeed, the large variety of

taxes does not necessarily imply profitability in terms of fiscal income. Argu-

ably, it can be the source of complexity and heaviness in a system which slows

down any endeavours to raise productivity. The growth in the costs of low-

profitability tax administration undeniably discourages local initiatives. As

for state taxes that are earmarked for local authorities, their share in the decen-

tralised budget remains low, as mentioned above. On the other hand, commu-

nal receipts are characterised by a very low rate of collection.27

An Unfair Distribution of the Fiscal Yield between the Decentralised

Entities. The wide variety of economic, social and demographic structures

engenders a form of wealth inequality between local authorities. The role of

the tax is to account for the natural disparities to adjust, through fiscal

levies that would be more adapted to the context and local specificities in

terms of fiscal pressure, tax bases and rates and collection methods.

However, the current local tax system in force seems to ignore these factors

and adapts a standard tax system applicable to nearly all the local authorities.

A Tax System Managed either by Decentralized Services or Devolved

The slicing up of the tax system is carried out at the management level by two

administrative services taking control of collection: the decentralised admin-

istration and the devolved administration. The former possesses only an

embryonic fiscal service whose administration is headed by a communal tax

collector, who very often has neither qualified human potential nor adequate

material, and it faces problems at the level of identification, inventory, clear-

ance and collection of the taxable matter.28 The devolved services, placed

under the Ministry of Finance, keep their traditional control over the admin-

istration and collection of state taxes ceded back to the communes.

This local fiscal management often leads to conflict between the local auth-

orities and the central authority, on the one hand, and the devolved services on

the other. Consequently, problems of communication and exchange of infor-

mation are commonplace. In addition to this, it is the communal civil servants

who bring up-to-date the tax bases and the taxmen who set up the roles. It is


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very likely that such circumstances would lead to some under-valuations.

What is more, we can explain, to a greater extent, the weakness of the financial

resources through the social policy implemented by the local authorities,

which assume that their role consists in managing public services to meet

their citizens’ needs. They fulfil these tasks without any, or only a little, finan-

cial compensation.

Finally, is the town council efficiently managed? The absence of debt or its

being kept to a minimum and that of the fiscal over-balance is usually a sign of

efficient and successful management. This is not the case of the Algerian local

authorities. The local budget deficit is mainly due to the lack of sound manage-

ment of the expenditure in a context characterised by a lack of insufficient

fiscal and human resources.

The reassessment of local resources, being low and unable to keep abreast

of the rapid and ongoing growth in local expenditure, is of capital importance.

The raising of fiscal yields – the principal local resource – is, to a larger

extent, dependent upon supports from the central authority. Yet, does the

central authority accept the emergence of local democracy by empowering

the local elected representatives, thus giving away much wider autonomy?

As far as the local financial resources, whose yield remains extremely low,

their revaluation is mainly a matter of local management. In other words, it

is one of the local authority’s duties.

The state should take strict measures conducive to a decentralised manage-

ment in the true sense of the word, and make the communes aware of their

responsibilities. In this respect, it is imperative to empower the local auth-

orities with sufficient financial resources and effective control with regular

assessment. The reform of the local tax system is becoming increasingly

urgent.

In conclusion, what matters most is the implementation of a modern

fiscal system as soon as possible, a system characterised by both simplicity

and more adaptability to the real contributive capacities of the local and

regional activities. The current system is unable to assure sufficient resources

to the local authorities. In fact, in most communes it is the lack of a taxable

base which is the sole cause of local poverty. The reform of the national and

local tax system would give the expected results, which in turn contribute to

the boosting of the economy. Admittedly, tax income, both at the local and

central levels, is closely related to the country’s economic development. The

state should implement an efficient mode of management towards the com-

munes; it is at this level that the economic reforms undertaken since 1990

could be concretely seen. The communes have been, in the past, passive

institutions of the national policy at a local level. What would be their

role in a context characterised by a market-oriented economy and political

pluralism?


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NOTES

1. The terms ‘local authorities’ and ‘local units’ are used here to refer to the Communal PopularAssembly (Assemblee Populaire Communale, APC) and Popular Assembly of the Wilaya(Assemblee Populaire de Wilaya, APW), which are defined by Laws 90–08 and 90–09(7 April 1990), Journal Officiel, 15, 11 April 1990.

2. The APC and APW employ around 5,800,000 civil servants, according to the daily newspaperEl Watan, 13–14 Dec. 2002; the central administration employs a total of 1,400,000 workers.

3. US$1 ¼ DA 83.08 (May 2003).4. It should be noted that we did not have access to detailed statistical data for a longer period. In

effect, the Direction of Tax Collection at the Ministry of Finance systematically refuses topublish the administrative accounts of the communes, as well as the fiscal operations of thelocal authorities, for no obvious reason. However, this is not an impediment to research;we had recourse to statistical data supplied by the Commune of Tlemcen, and a survey con-ducted by the Centre National d’Etudes et d’Analyses pour la Planification (CENEAP) cover-ing a sample of 350 communes.

5. For example, the revision of the Communal Code in 1981, after the death of PresidentBoumedienne (1965–78), was part of the liberal reform process introduced by the newregime. At the same time, the state undertook a territorial reorganisation in order to ensurea closer rapprochement between the citizen and the administration. Subsequently, thenumber of communes was increased from 703 in 1977 to 1,541 in 1984. This new territorialdivision was based much more on political considerations than economic criteria.

6. Nearly 90 per cent for the Commune of Tlemcen in 2000.7. The Fiscal Act allocated DA 8bn and 36.1bn in 1980 and 2001 respectively.8. The lack of competencies is important at the local level; qualified workers represent only 3 per

cent of the total number.9. One may consult Cherif Rahmani’s didactic manual, Les Finances des Communes

Algeriennes (Alger: Casbah Editions 2002), in which he describes the elaborate rules of thebudget and the modalities of its execution. He proposes a set of reforms aiming at bridgingthe gap between the implementation of fiscal schemes and the requirements of modernmanagement.

10. The rate of urban population shifted from 31.4 per cent in 1966 to 40 per cent in 1977, then tonearly 50 per cent in 1987 and finally to 58.3 per cent in 1997: Office National des Statistiques,Donnees Statistiques 311.

11. According to a survey carried out by CENEAP (Algiers) on a sample of 350 communes, cf.‘La Refonte du Systeme Fiscal’, an internal document.

12. Said Benaissa, L’aide de l’Etat aux collectivites locales (Algiers: Editions OPU 1983) p.109.13. M. Bouvier, Finances locales, 4th edn. (Paris: LGDJ, 1996) p.23.14. Art. 260, Communal Code.15. Art. 95, 1992 Fiscal Act, modifying art. 161 of the value added tax code appended to the 1991

Fiscal Act, Journal Officiel 57, 31 Dec. 1990.16. Art. 21, 1996 Fiscal Act.17. The TAP yield is allocated as follows: commune: 1.30%, wilaya: 0.59%, FCCL: 0.11%.18. Economiste d’Algerie 60, March 2002.19. If the community has a wealth ration lower than the national standard ration, it benefits from

the adjusting subsidy; conversely, if its wealth ration is higher it does not receive any fiscalassistance.

20. Art. 136, Law 90–09 (1990) relative to the wilayat.21. Hachemi Graba, Les Ressources fiscales des collectivites locales (Algiers: Editions ENAG

2000) p.53.22. Rahmani (note 8).23. Law 86–06 (12 Jan. 1986) related to the scheme of banks and credits.24. Law 90–10 (14 April 1990) related to money and credit.25. Art. 1, Law 90–08 (7 April 1990) relating to the wilayat.26. Bouvier (note 13) p.88.


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27. A worth praising action was undertaken by the Mayor of the Commune of Sedrata aimed at‘getting back all the public monies; this action inflated the 1993 receipts which amounted to321 million centimes, representing three times the total sum of that of 1992 and which were106 million centimes’.

28. We should note that the training personnel composed mainly of execution agents (80 per cent)do not have the necessary and required skills and qualifications to carry out the task they havebeen assigned. The Algerian communes, including the principal cities and town, have neverbeen a centre of interest for university-degree holders.


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local financial issues in algeria

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