Business Page – January 26th, 2003

Improving The National Budget Process

Introduction

Despite the silence from the Ministry of Finance, preparations for the 2003 Budget of the country must be well underway. Of course even if the Budget were to be published tomorrow, it would still be late. Most of Guyana, including Focus on the Budget published by Ram & McRae has been saying this for years with little notice taken by the government. This point has now been taken up in a report of the World Bank titled Guyana Public Expenditure Review dated August 20, 2002. among the recommendations of which is that ‘a new budget preparation timetable should be implemented. For the budget to be approved before the beginning of the fiscal year, the budget preparation process should start in earnest during or at the end of the first quarter of the preceding fiscal year instead of the beginning of the third quarter as is currently the case’.

Commenting on the 1995 Budget Ram & McRae noted that it was “time that Parliament deal with fiscal planning and management in a cohesive and modern manner. Legislation setting out the principles of responsible financial management and the articulation of a budget policy would help.” Ram & McRae went on to suggest a number of measures to make the process more efficient including: the articulation of the country’s long term fiscal objectives; the government’s explicit intentions for key fiscal aggregates for the current and next two following years; the government’s broad strategic objectives for the coming budget and a fiscal strategy report.  Focus returned to the subject again in 1996 calling for the passing of a Budget Law. Not surprisingly, little notice was taken of any of those recommendations.

Impatience

The word is that both the World Bank and the IMF are becoming impatient with the rate of legal, administrative and financial reform in Guyana and while their language continues to be the model of diplomacy, the message is clear – the quality of the management of the country’s finances is far from satisfactory. The Report notes that the preparation of the budget has ‘improved over the past few years, that elements of multi-year budgeting are in place and that the multi-period strategic plans in several Ministries form the basis of their annual submission.

Having said that however, the Report identifies several limitations and recommendations intended to improve the system of financial controls which include such functions as strategic planning, budgeting, tendering and expenditure controls.

The Report notes that “a number of intermediate steps which are required to set the budget within a real forward-looking medium term expenditure framework are not followed” and “estimates for future years are not discussed jointly with the current year's budget, and future fiscal implications of current year policy decisions are not systematically discussed during budget preparation.” 

On what is a more than mere putting together of numbers the World Bank notes that ‘the macroeconomic implications of sectors' budget submissions and the overall budget is not systematically known’. In any private sector and non-governmental organisation, one certain content of the budget circular would be the assumptions to be followed on variables like new stores/products, inflation, exchange rates, interest rates and projected wages and salaries cost.  The Report however notes that the “budget circular gives no information on projected growth rate, exchange rate, inflation rate, interest rate, wage increases and other employment issues.” This means that budgets prepared by different spending ministries may be prepared using different assumptions on some critical variables.

Unbelievable Insensitivity

We are aware perhaps anecdotally, of schools being built without any consideration of the associated recurrent costs. This too has been confirmed by the Report which notes that the current and capital expenditure budgets are prepared separately, without planning for future recurrent costs (such as operation and maintenance) associated with investment projects. One exception identified the Ministry of Health where efforts are being made at integrating the planning of current and capital expenditures.

The Report is also critical of the tender procedures which is a major function of expenditure control. This government displays unbelievable insensitivity and cynicism towards the country’s concern about the tender process in the public sector. The authors of the Report must have been aware of the passage of the Procurement Act, 2002 passed in the National Assembly on May 29, 2002. That Act is still not in force as it requires the Minister to appoint a date for that purpose. Like so many pieces of legislation dealing with ethical conduct such as the Integrity Commission Act, the Procurement Act is more cosmetic than real. All seven members of the National Procurement and Tender Administration to be established under that Act are to be appointed by the Minister of Finance.

It is assumed however that in describing the present arrangements for tendering and procurement as ‘archaic and cumbersome’ the Report was probably considering the existing arrangements. It notes that procurement activities are often carried out in a hurry and very diplomatically refers to ‘a perception of impropriety and questionable practices employed in the process of tendering and procurement’

The Report also highlights the ‘heavy reliance on contingency and other supplemental funds on the one hand, and significant deviations between voted budget and executed budget on the other hand’ citing as examples that expenditures financed by the Contingency and other Supplemental Funds represented an additional 27 percent of expenditures on average during 1996-2001 with a peak of 43 percent in 1997.

To improve the budget process, a new Budget Manual was issued in 1998 but the report notes that it has not been implemented. The new manual laid out in precise details the periods for initiating and concluding different phases of the budget cycle. The proposed new budget cycle recommended has not been implemented and consequently nothing has changed.

Auditor General

The Government needs to convince the public that the recent constitutional reform measure enabling the Auditor General to present his report directly to the Speaker of the National Assembly is more than cosmetic by providing the means to improve the institutional and technical capacity of the Auditor General’s Office. Indeed, if the Government is really serious it should move to accelerate the draft Audit Act which will give the Auditor General real independence. As the report states ‘holding the Executive accountable is fundamental if fiscal policy and expenditure management are to be sound’

Parliament Not Spared

Another recurrent complaint made about the process is performance of Parliament. Despite the grandstanding and point-scoring in which MP’s engage, there is no case within the past fifteen years where the debate has led to any change in the Budget. The report notes that ‘perhaps because the budget does not provide adequate information on project selection and scope or implementation benchmarks, Parliamentarians spend an inordinate amount of time querying about movements in the budgetary line items instead of concentrating on programs and their potential development impact. The report recommends that the ‘National Assembly should be equipped with adequate staff and information to undertake a thorough examination of the Budget Estimates and provide proper oversight of the budget, indeed of all economic and financial matters, as elaborated in the Country Financial Accountability Assessment (CFAA)’. This indeed may be a function of the Public Accounts Committee although it would require changes in the Standing Orders of Parliament and probably legislative changes as well.

Conclusion

The Report covers more than just financial management as an accounting function. It considers how various sectors, including the social sector, can be re-oriented to ‘better serve the poor and revive economic growth’. It comments for example on the disparity of educational expenditure across regions and notes that in that sector there is a pro-rich bias – quite an anomaly given that the government boasts about the significant increases in expenditure in that sector.

Whether the Government will act now that the World Bank has put its concerns in the public domain is yet to be seen. The Government has shown no seriousness in putting this matter on the national (public) agenda. What is clear is that the World Bank has really said nothing new or revolutionary and we have to assume that the deficiencies were so glaring that they could not have escaped the attention of the Ministry of Finance. That this situation has been allowed to continue for so many years and across elections is a serious comment on our electoral system. No entity and certainly not the largest enterprise in the country where all citizens and voters are shareholders should be allowed to be run like this. Unfortunately, while shareholders can sell their shares, taxpayers cannot legally withhold their taxes. 

At a minimum, the Minister of Finance should tell the nation how he proposes dealing with the Report.