|Somaliland: Fiscal and Budget Reforms|
|Thursday, 30 January 2014 17:17|
By: Ahmed H Arwo
Somalilandsun - The idea of planning for medium term is a fundamental step towards better budgeting and within the principle of better accountability. It is cornerstone for enhanced resource management and strengthening good governance.
It ought to give an amble time for consultation, review and discussion prior to its approval in Executive and the Legislative bodies. On the other hand, nearly every item in the budget is flexible, and the government has the possibility of redirecting expenditure or making changes in both revenue and expenditure. That flexibility calls for broad involvement and practical participation of line Ministers throughout its preparation.
The departing point for long term budgeting is an economical decision as well as a political. It starts with President's vision shared and committed by the cabinet and tunneled down through government hierarchy. Leadership provides prioritized resource allocation and targets on social, economic and industrial activities of the nation.
The Fiscal policy has to be developed and properly linked with National Development Plan. There ought to be coordination between all government departments in executing their duties to serve a common purpose and to realize leadership vision. Above all cooperation between MoF(Ministry of Finance) and MoP (Ministry of Planning) is a requisite for a viable and visionary plan that can be tied up with fiscal frameworks both medium and operational.
KULMIYE government lead by HE President Ahmed Mohamed Silanyo, improved public confidence in government. Expectation was high and rightly this government realized it by taking bold decisions to enhance economic and social conditions of the public. An ambitious budget was formulated from inception. It was and is a highly stretched budget that calls out for continuous undertaking to make it achievable. It reflects more than anything else, the desire of the government to reserve no energy in serving the public for better quality of life. A budget increase from a mere 45 Million US Dollars in 2010 to over $212 Million for 2014 budget is beyond normal growth.
It carries hefty political risk taken only by audacious and determined leadership for the common good. Dedication to financial efficiency both at collection and distribution of government revenue, played a momentous role in this colossal increase.
Medium term fiscal planning is a new approach to most countries. United Kingdom adopted this rolling-budget recently, yet the World Bank and IMF insist to develop the same replica in many developing nations where capacity and technical know-how is comparably low. With that in mind, the medium term fiscal framework is a project too early to engage this year in Somaliland.
The system we inherited did not provide us necessary data to build upon a credible medium term forecasting. It is yet to be found verified and reliable actual figures for all past budgets.
This is aggravated by the fact that, we committed ourselves to a strait-jacket budget in such a short time. I believe we need more time to develop and structure up a system of data collection, prior to adopting a three year rolling budget.
As it entails a longer period, forecasting becomes difficult and needs careful and in-depth analysis of all variables and factors that influence both macro and micro-economy.
A comprehensive and inclusive planning covering all sectors of government departments and agencies is necessary.
The following has to be considered for an input:
Economic parameters i.e. future rate of inflation, and exchange rate.
Macroeconomic statement, covering GNP and employment level.
Coordinated and shared Budget priorities
Departmental ceilings and targets.
Regional and district sub-budgets (Devolution)
Agreed organization of budget preparation (Timeline schedule)
All these necessitates inter-ministerial coordination and across board cooperation of all departments and agencies.
For better forecasting the following are necessary:
• Departments and sub-sections should prepare their rolling three year budgets within the guidelines provided by their immediate direct authority.
• Line ministers are responsible and liable for drawing and implementing policies in their sector. In line with overall targets and priorities, they should be responsible for developing sectional policies and budgets.
• Ministries should have professional capacities and information needed for trade-offs among projects and programmes.
• They should be responsible to formulate guidelines for their departments and dissecting their draft budgets.
• Ministry of Finance has the leading role in budget preparation, coordination, reporting, monitoring and controlling.
• MoF should have sufficient authority and power to ensure both fiscal targets and strategic prioritization among sectors.
• MoF establishes guidelines for preparing Ministries' programmes.
• It reviews line ministers' requests, scrutinizes, and adjusts against fiscal policies.
• MoF facilitates decisions on major policy choices and allocation of resources, but do not make these decisions all alone.
• Equally MoF has to review and screen requests, and not prepare them.
Complex interdependency of macroeconomic constraints as well as government revenue and expenditure needs technical and statistical in-depth analysis. A higher economy growth will most likely lead to increased employment and a corresponding increase in income tax revenue. Higher incomes tend to increase consumption with a resulting increase in custom duties of goods. A drop in the unemployment level will have the same effect as it will increase direct tax revenue. Vice versa results will be achieved from opposite economic trend.
• The medium term fiscal framework needs more in-depth and diverse input from all line ministers.
• It has to be linked with medium term plan and National Development Plan.
• Leadership visionary input must be the guiding principle and should be physically present.
• Regional involvement will enhance democratization of national resources allocation.
• Due to lack of technical capacity in most Ministries and with good faith, MoF is obliged to extend its contribution taking an extra burden to complete budgetary processes.
• Complete practical review of budget system in each and every level is necessary in order to improve fiscal management.
• A full-fledged civil service reform to raise public sector efficiency is positive and essential contribution to good governance and accountability needed for better budgeting and efficient resource management.
Tax reforms are essential to enhance the principle of affordability where direct taxation is developed to reduce the tax burden of the poor as reflected by dependence of unfair indirect tax. A progressive system of taxation will reduce the heavy burden of indirect tax on the citizens at the lowest level of economy ladder.
Ahmed H Arwo
Somaliland Presidential Senior Economic Advisor