Somaliland:
Fiscal and Budget Reforms
Ahmed H Arwo
Somaliland Presidential Economic Advisor
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.
ü 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.
ü 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.
ü 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.
ü 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.
ü 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.
CONCLUSION:
·
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
eci.advisor@gmail.com
https://www.facebook.com/aharwo
https://www.youtube.com/watch?v=yVrl29MSJbw
https://www.youtube.com/watch?v=EfvHkCAsxQA
https://www.youtube.com/watch?v=ZN-9catb93I
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