Align budget to country’s economic reality, House committee tells government

Set the national budget based on the country’s means and realistic income targets, Parliament has urged the Federal Government warning pegging the budget on unconfirmed pledges and ambitious domestic income estimates was causing the country unnecessary financial strains.

The Parliamentary Committee on Budget and Oversight of Financial Institutions said the Finance Minister should institute fiscal discipline in designing the budget to ensure all monies budgeted can be accounted  for while calling for robust domestic income mobilization.

“The ministry must prepare a budget reflecting the economic reality and income capacity of the country while considering the model and the legal limit of the necessary duration of the budget,” the Committee said in a report presented to the Lower House this week as Finance Minister Abdirahman Beyle tabled the 2018 national budget.

The minister presented a $274.6 million budget which is an increase from last year’s $260 million.

UNMET TARGETS

The report cites a number of unmet targets in the 2016 budget ranging from deficits accruing from domestic income estimates, bilateral and multilateral grants to absorption capacity of government ministries and departments.

The report echoes a similar warning by the IMF in July which cautioned against budgetary allocations not based on realistic projections or confirmed grants leading to accumulation of domestic arrears.

In its Staff Monitored Programme report July, the IMF said Somalia missed the ceiling on the accumulation of new domestic arrears by $25.6 million. “Despite remedial measures agreed to at the time of the first review, delayed payments, and domestic arrears continued to accumulate through the end of 2016,” the lender noted citing weak tax collection, lower than-projected grants, and still-poor public financial management (PFM) as root causes.

DEFICITS

The 2016 budget was set at $248.3 million against a total income of $171.1 million occasioning a $77.3 million deficit which translated to 31%, the Parliamentary report noted. The deficit, the committee said meant crucial budget areas such as security, administration and public affairs were adversely affected.

Salary arrears weighed in on public servants morale, the report noted. Out of the budgeted $113.1 million to offset staff salaries, only $79.3 million was realized creating a gap of $33.8 million

Out of a projected $17.2 million grant, slightly more than half or $9.4 million was realized hence a difference of $7.8 million which translates to 45% deficit, the report says.

ABSORPTION CAPACITY

The absorption capacity of the government ministries and departments also caught the attention of the House Committee whose docket also covers Finance Planning, International Cooperation and Financial Oversight of Public Institutions.

In the 2016 budget, the Minister allocated $15.3 million for capital expenditure but only $5.9 million was expended as a whopping $9.4 million had to go back to the exchequer. The respective departments did not meet the conditions to access the funds, the Committee said.

Capital expenditure, also abbreviated CAPEX, is an amount spent to acquire or upgrade productive assets (such as buildings, machinery and equipment, vehicles) in order to increase the capacity or efficiency of a company for more than one accounting period.

WAY FORWARD

To cure the shortcomings, the Committee is proposing a raft of measures including robust tax mobilization strategies to increase domestic income in line with the constitution and strict allocation based on absorption to avoid return of money to the exchequer which would otherwise have been properly utilized in other areas.

The Finance Minister must submit the supplementary estimates at the right time, the Committee advises while calling for involvement of parliament on allocation of contingency funds to establish need and legality. The Committee observed that most of the contingency funds allocations are not utilized as intended.

In regards to grants-both bilateral and multilateral, the Committee notes they should only be factored in if there is written pledge from the donors. Finance Minister Beyle is budgeting for $118.6 from bilateral and multilateral donors. Turkey and Saudi Arabia (the only two bilateral donors captured) are expected to chip in $20 million and $32.4 million dollars respectively for the 2018 fiscal budget.

Do not spend money until it comes in, the Committee also notes warning all payments must be made in conformity with the law and financial regulations therein.

The Committee is also urging government to strengthen the budget process, financial management and prudent fiscal practices.