By Tanu Jalloh
Perhaps this is the first step to cushioning external shocks, given that global economic outlook still presents some risks to the economic outlook of Sierra Leone. The ministry of finance has proposed the most ambitious government budget since the war.
When a government faces several policy challenges, like it was the case in Sierra Leone in 2011, it sure will have some implications on budget management in terms of the initial financial and activity plans. The budget of a government is a summary of the intended revenue generation strategy and expenditures of that government. It basically means putting together a list of needs, if you like, and identifying ways to raise money to meet those needs within a given period. The emphasis here is getting the money to meet the needs of government within one year.
Let’s make this clear that a budget does not necessarily mean that this government has the money already stashed somewhere safe when the minister of finance and economic development, Dr. KaifalaMarah, says the government will expand the 2014 budget by hundreds of billions leones to expend trillions of leones on ambitious projects.
Budget simply means a plan with timelines and targets to find the money and undertake proposed activities. It also means that a government intends (or wishes) to do XYZ next year if it is able to raise the required amount of money to do so. My fear is that government may not be able to service a voracious budget when part of the resources it needs to do so is determined by external factors (the Bretton Woods organisations and donors), some of them with very fluid attitude to meeting commitments and can cause delays beyond government control. Even internally generated revenues are based on projections, which means the structures to harness these resources may also fail to meet their targets. Where the two unfortunate scenarios exist, a crisis sets in and manifests itself in many ways to affect deliverables and basic bread and butter issues.
But I am not surprised at all that an ambitiously bigger budget is in the offing based on the behavior of the 2013 budget, which proved obstinate in terms of how government controlled its spending. Thus, not matter how hard the government would later try to live within the available resources of the 2013 budget, exigencies set in and these would have to be addressed immediately because they hinged on credibility and governance. Yes I saw it coming when a supplementary budget was called for just few months into the 2013 financial year. The justification was to ease and take care of some roll over activity, mostly infrastructure development and in particular roads and energy. The truth is infrastructure developments are still being rolled out and they may roll over again.
Therefore, as you would expect, the wage bill will increase in 2014 to a significant percentage in GDP terms because of additional hiring in the public sector if only to create more jobs for the youth. When parliament this year (2013) unanimously agreed to a Le200 billion supplementary budget proposed by the ministry of finance under Dr. Marah, it was obvious he wanted to test the waters. So that come the following year, 2014, he would raise the stakes and justify the use of a supplementary purse the previous year. As a matter of fact budget supplements are normal with governments. But where the reason could not be adequately convincingly stated for the public to understand, then there is a problem. We hope a supplement is not an option with a budget as ambitious as the 2014’s.
The minister of finance and economic development, Dr. Marah, is on record to have said that just two months into the implementation of the 2013 budget, some unforeseen expenditure requirements emerged and that the assumptions on which the domestic revenue projections were based no longer existed. In 2014 the government has promised that such mistakes, as the ones that characterised last year’s, will be surmounted.
“We stand ready to take corrective measures should adverse shocks materialise and compromise the attainment of programmed objectives”, the government states in its 1 October, 2013 letter to Christine Lagarde, Managing Director of the International Monetary Fund, IMF, requesting that the Memorandum of Economic and Financial Policies (MEFP) be supported under a three-year arrangement under the Extended Credit Facility, ECF in an amount equivalent to SDR 62.22 million.
However, apart from making reference to external shocks and the fact that the previous ECF-supported program for 2010–13 had to be cancelled “to enable the newly elected government to take stock of progress in strengthening institutions, including procedures for public financial management, and to transition to a new economic program that would support the ‘Agenda for Prosperity’”, Dr. Marah and the Bank Governor, ShekuSmabadeen Sesay, did not clearly tell of any possible glitches.
I am sure Dr. Marah, as finance minister, does not want interest cost to exceed the budget allocations like it was in 2011 under his predecessor, Dr. Samura Kamara. But no matter how ambitious his budget for the country is in 2014, there will always be other unbudgeted expenditure demands, including from an increase in fuel subsidies to cushioning the impact of rising international oil prices, higher cost to complete the phase II of Bumbuna power station, plus additional money to parliament, Paramount Chiefs and all other public workers.
“These ambitious targets will be meaningless unless they translate into more money in the pockets of our workers and people. Hence, our desire to translate growth of the economy into improved living standards for all Sierra Leoneans remains our major objective”, Dr. Marah says in his budget speech to parliament.
Like it was in late 2010 and the years that followed, monetary expansion, combined with increasing food and fuel prices will continue to make it increasingly difficult to keep a pliable single-digit inflation as envisaged by the minister of finance. I don’t see a further monetary expansion, indicated in the call for an ambitious 2014 budget, as a panacea to the current economic problems. It nonetheless is a daring move by the minister to once again pump some money into the economy and make some disposable cash available to the working few.
Often government uses such developments as visibly imposing as roads and other tangibles to explain growth as something that is there for all to feel and see. But I hope domestically financed capital expenditures will not exceed the budget by a percentage margin that undermines the country’s GDP. When the budget cannot accommodate such frivolous expenses due to the acceleration of infrastructure projects year-in-year-out, we have a reason to be concerned. And when the activity becomes too ambitious it attracts supplementary budget or leaves the system with no option but to divert funds to meet other “pressing and urgent” demands.
An official explanation for spending beyond budgets and running into deficits was first given by former finance minister, Dr. Kamara and Bank Governor Sheku Sambadeen Sesay. In a letter of intent dated November 18, 2011 and addressed to the IMF in Washington DC, USA, they both confessed that generally “program implementation was uneven in the second half of 2010. While domestic revenue overshot projections by 0.3 percent of GDP, spending on infrastructure projects, fuel subsidies, wages, and goods and services led to higher–than-envisaged domestic financing. As a result, the ceiling for net domestic bank credit to government was exceeded”. I am not too sure whether the 2014 budget adequately takes care of spending on the ever expanding flagship infrastructure projects and the perennial food and fuel subsidies that worsen at the close of every year.
We want to see more effort at matching assured revenue generation with insured government spending. In essence I am saying that this government must try to live and spend within its means and reach. I once suggested in in 2012 that a possible way out of borrowing too much could include, but not limited to, a legal requirement that would limit central bank’s credit to governments.
When the Public Financial Management Oversight Committee approved the Public Financial Management Reform Strategy 2014- 2017 in June this 2013, the thrust was to ensure budget credibility, fiscal discipline and proper management including understanding those issues of force majeure. The committee predicts new challenges, particularly resource assets.
“The ultimate goal is to target improvements in the quality of public financial management which will have a positive impact on aggregate fiscal discipline, the strategic allocation of resources and the efficiency of public service delivery”, it says.
In spite of any progress being achieved in all of the above areas, the focus first should be on establishing budget credibility, comprehensive coverage, and fiscal reporting based on recognized international standards. In short, let’s establish basic control as a basis for medium-term planning, sectoral planning and resource allocation if service delivery should and must improve.
(C) Politico 17/12/13
