Business Page – April 11, 2004

Laws and the Minister of Finance (Conclusion)

 Introduction

This two-part article which concludes today was influenced by the passage of the Fiscal Management and Accountability Act (FMA) which received presidential assent and therefore became law, but not operational, on December 16, 2003. The act replaces certain sections of the Financial Administration and Audit Act and provides for the preparation and execution of the annual budget, the receipt, control and disbursement of public monies and "such other matters connected with or incidental to the efficient management of the finances of Guyana."

It is a major piece of legislation with considerable scope and depth. It has eighty-seven sections in some fifteen parts, and one Schedule entitled 'Budget Agencies' including quite controversially the Guyana Elections Commis-sion and other constitutional bodies including the Office of the Ombudsman, the Auditor General's Office and the Supreme Court. Any suggestions which these bodies might have entertained about independence are shattered by this 'modern' legislation which puts their financial well-being firmly under the Minister of Finance and Cabinet. It is extremely ironic that the chief tax-collecting agency of the government is not a budget agency, while the elections commission is.

Donor-driven  legislation

The act provides that different sections of the act may come into operation by Order prescribed by the Minister of Finance, but no later than one year after its enactment. Imagine the absurdity inherent in legislation which imposes duties on a particular minister but which allows that same minister to decide when he will begin to meet those obligations and execute those duties. Those in the private sector would love to have a job description which allows them to decide when they may regard themselves bound by any specific matters on their list.

The FMA is another in-the-stream piece of legislation which is largely driven by the donor community, but for which the Government takes all the credit. The donor community has obviously been very concerned about the absence of accountability and transparency in government expenditure, a significant portion of which is financed by debt forgiveness, grants and loans. This lack of transparency in Government's financial affairs was a key focus of recent studies of the World Bank, including the Governance Report which drew such a hostile reaction from the Government. This column is not convinced, however, that our accountability problems have anything to do with legislation which is analogous to and reminiscent of those CEOs who point to ambiguities in the law to explain their poor governance practices. Since there is nothing in the FMA which the Government could not do simply as a matter of good practice, its commitment is questionable, and the guarantee of the legislation achieving its objective cannot be taken for granted.

Ethics in government

The legislation is also interesting in identifying three levels of responsibility in the Ministry of Finance - those of the minister, the ministry for which he holds constitutional responsibility and the finance secretary who ranks as the permanent secretary of the ministry. (Does this mean that the position of secretary to the treasury now held by Mr Neermal Rekha has been made redundant?) The separate descriptions of these responsibilities seem to confuse more than educate, and it is hard to believe that there was so little debate on the bill passed in Parliament on December 15 and incredibly assented to by the President the very next day. Could it be that Cabinet had fully discussed the bill in advance, and how does this differ from other legislation which is delayed sometimes for months for want of presidential assent? Many believe that the passage of the act was a precondition for the E-HIPC approval a few days later, which the President described as Guyana's best Christmas gift. Whatever it was, Business Page invites someone from the Government, preferably the Minister of Finance to explain this act to the nation. Can someone also explain why Part III includes in its title "... And Presentation to the National Assembly" when that is in fact done in Part IV?

In assigning responsibility for the use of public funds to the head of each budget agency, Section II speaks not only of efficient and effective use, but also introduces without any definition or clarification the concept of ethical action! The question here is who has the right to bring an action against the head of a budget agency for action not considered ethical action? Cabinet is not regarded as a budget agency, but has considerable authority to direct particular action in, for example, political appointments under special contracts that are difficult to justify on efficiency grounds. Who under this act will be held responsible?

Gap

There does appear to be a gap between the budget submission by the agency (section 14) and the annual budget proposal submitted to the National Assembly (section 17) and no room for the Public Accounts or Economics Committee of the National Assembly. Legislative commitment on this would have made the whole process more efficient and given the opposition in the assembly some assurance that the commitment to shared governance is more than talk.

The new law does not explicitly require the budget to be presented and approved before the beginning of the budget year, although section 15 provides that the annual budget proposal "shall include a) the annual financial plan for the next ensuing fiscal year." The budget proposal, and accompanying presentation which is not referred to in the FMA, should cause less sleep in the National Assembly when the budget speech is read, as at least some of its contents must now be very specific and include several, but not all of the matters for which this columnist has been calling for more than a decade. The proposal is required to include "tabulations and analyses of actual and projected" expenditure, including investments and tax, non-tax and other revenues, all for "the past relevant years, and the current year, the next ensuing fiscal year, and the next three fiscal years, including proposed changes to the Government's revenue bases required to support the expenditure proposals of the government," and "a discussion of any new or changed expenditure policy by the government."

Will this all be 'waffle,' or can we expect serious planning and substance from a Minister who has so far disappointed by his failure to understand his primary responsibilities under several important pieces of legislation? And can the nation expect the Minister to explain shortfalls in both revenue and expenditure and why policy decisions have not been given effect to?

Lottery Fund

Where the act is still deficient is in requiring the Minister to state his expectations with respect to tax changes; the ambiguities with respect to a term such as a statement, which is merely a tabulation or an explanation; what "details of the fiscal relationship between the Government and the regions" really means; and whether the accounting standards referred to in the definition section of the act are the international standards applicable to the public sector, or some nebulous standards used purely for convenience. And where it is particularly troubling is under section 39 where it is permissible for an extra-budgetary fund to be created by an act funded by specific earmarked funds that operate apart from the Consolidated Fund and whose "transactions are not included in the annual budget." It is hard when one reads this not to think of the lottery funds which continue to be used unlawfully.

The act also provides for the preparation and approval of the budgets of statutory bodies (defined as "a public entity established by law") which the Minister of Finance must submit to the National Assembly no later than the time of the submission of the annual budget proposal. It provides as well for the submission of annual reports and audited financial statements to the concerned minister who must then present these to the National Assembly within two months.

Flouting the law

This is a welcome development but one which does not apply to the Minister of Finance who continues to flout the law in respect of submitting to the National Assembly reports of the NIS and the GRA, among others. The act is also silent on timelines and penalties, and despite its objectives, it is far too permissive to make a whole lot of difference to a politician who is not over-enthusiastic about the niceties of legislation. Does administrative law impose any constraints on a minister who fails to comply with a statutory requirement, or is this a matter of executive conduct which even the threat of elections does not influence?

The responsibilities of the Minister of Finance are set out in several pieces of legislation and range from appointing members of the governing bodies, giving direction, approving salaries, receiving reports and seeking advice, etc, under such acts as the Bank of Guyana Act, the NIS Act, the Money Laundering Act, the Guyana Revenue Act, all the tax acts, the Statistical Bureau Act, parts of the Companies Act, the Financial Institutions Act, the Securities Industry Act, etc. The evidence is that the Minister has signally failed to make these acts truly effective, and to believe that the Minister will be better at the FMA than he has been at ensuring compliance and effectiveness with other legislation is to display unwarranted optimism.

Coming after legislation such as the Integrity Act and the Procurement Act, the FMA is already being met with cynicism fed by the Minister's unwillingness to pull out all the stops to bring it into early effect. The Government has already announced that the key sections will not come into effect until December this year. Does this mean then that at best the new budget preparation arrangements which would have begun no later than July 1, 2004 for 2005 will not be in place? Does this then mean that the 2005 Budget will not be prepared in accordance with the FMA? Can the over-silent Minister of Finance please save the nation the uncertainty?

Conclusion

This act is both ambiguous and ambitious, but the major threats to its effectiveness are a Minister of Finance who has failed to impress the nation with his energy, imagination and initiative; a President who continues to interfere in the administration of the ministry; a paucity of relevant skills; and the absence of sanctions to deal with underperformance and failures. There is no Finance Secretary in place and the planning and policy-making capacity of the ministry is either non-existent or very limited. Its greatest strength lies in the Budget Division which is only a small part of the financial architecture.

Perhaps the single most important challenge with respect to the national revenues and expenditure falls well outside of any financial laws we may pass, and that is having an executive President who is the de facto Finance Minister, who is not a member of or accountable to the National Assembly. Under this arrangement the Finance Minister has the unenviable task of fetching water in a basket.

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