Laws and the Minister of Finance
Business Page
Christopher Ram
Stabroek News
April 4, 2004
Introduction
According to the Minister of Finance, "the Government [has] enacted the most comprehensive piece of legislation [Fiscal Management and Accountability Act 2003] on budgeting ever formulated in this country." He goes on to say in his 2004 budget speech that the act which he loosely referred to as the new "budget law" provides for a modern legislative framework for managing public finances, and includes a number of provisions of this legislation aimed at widening the scope of fiscal reporting to the National Assembly, thereby fostering transparency, efficiency and effectiveness of public financial and economic management. If only reality could be half as good as the Minister's flowery language, then yes, Guyana would be on the way to achieving the potential my grandmother's father told his wife about in persuading her to come to Guyana.
But we need to look deeper into the speech for some reality. "The Government is currently negotiating with the IDB, a loan of US$32.8M for a project to support the rational and transparent management of its fiscal and financial affairs. Implementation of the project will start later this year." After twelve years in government and billions of a combination of taxpayers' money and loans - which in the long run are one and thesame - the Minister now promises to impose another $6.4B debt burden on taxpayers to bring accountability to this impoverished nation. But that is not all. He informed the nation that the government had secured a grant of US$1M from the IDB to "support the design of the institutional and operational model for proper project cycle management system" - a term that despite the extravagant language begs the question about the model we currently use to meet this objective.
Praise for the budget shortfall
The President in his address last Friday evening praised the Finance Minister and his 2004 Budget team for "coming up" with "a well-put together" National Budget for this year, describing it as one which sets the tone for a massive capital programme that entails billions of dollars to be spent on improving the social sectors in the country. While this column has previously commented favourably on the team at the Ministry of Finance, surely spending billions of dollars in an environment where there is no "institutional and operational model for proper project cycle management system" is a regrettable indictment of those who committed the expenditure. Before rushing to extend praise, the President should have asked for explanations regarding the consistent failure to achieve capital expenditure targets which have been growing and which in 2003 reflected an under-achievement of the budgeted capital expenditure of $22,247.2B, or 22 per cent, similar to the shortfall in 2002.
The crux of our financial problem is a policy of tax, beg, borrow and spend. After all, the press has now joined our politicians in (mis)leading the nation into believing that bigger is better - a not uncommon fallacy. When it comes to public finances this is not only wrong, but is downright dangerous.
We are all aware that lean and clean has been corrupted by greed rather than need, but is the concept dead as well? Must we now accept as normal and proper the creation of new ministries for the less than successful (Messrs Reepu Daman Persaud, Rohee and Sash Sawh), positions for those who served the PPP/C government well (Laurie Lewis, Robert Persaud, Manniram Prashad and Feroze Mohammed), and super salaries for the chosen few? And is it just an oversight that the word 'accountability' was not used by the Minister to speak of the legislation?
But there is another fallacy which appears to dominate the mindset of the politicians and that is, that all one has to do to address a problem is to pass legislation. Hoyte enacted the Offshore Banking Act in 1986 but how many off-shore banks did we attract?
And last year we had the Kidnapping Act but have the police or the DPP applied this in any way and has it been of any effect? And how have we fared since the introduction of the Domestic Violence Act? People and their managers solve problems, not money and legislation.
Unfortunately, it appears that even the President now equates value with huge chunks of money, while the international donor community indulges in a mad spree of disbursing moneys to countries to enable it to extend its loan portfolio and report on its contribution to good governance and accountability in the recipient countries.
The return of the Auditor General's report
The return of the Auditor General's report on the national finances was not brought about either by new law or the PPP/C but by a courageous and determined Anand Goolsarran who was appointed Auditor General by President Desmond Hoyte, and who was willing to challenge the powers in the Ministry of Finance including Minister Carl Greenidge who were unhappy with the intrusive and professional approach signalled by Mr Goolsarran.
I recall an exercise in which I participated more than two decades ago in Grenada along with the Accountant General Angus Smith, ACCA and the Auditor General Godfrey Bain, FCCA.
Broadly, the exercise had as its aim repealing and replacing the Financial and Stores Rules and the Financial Administration and Audit Act which were considered by the Peoples' Revolutionary Gov-ernment of Maurice Bishop as archaic and irrelevant, and for good measure an "unacceptable legacy of the colonial past."
That exercise which did not have any significant incremental cost - we all had our substantive duties - could find nothing inherently wrong with the elements of internal controls existing in those rules and it is embarrassing to admit that the results were little more than cosmetic changes, such as replacing Financial Secretary with Permanent Secretary, and Accounting Officer with Chief Financial Officer.
The Minister has never given any indication of his familiarity with the findings and comments in the annual Report of the Auditor General. However, an understanding of those reports would better inform the Minister that it is not so much that we need more legislation - one is even tempted to call for a moratorium on new legislation pending the implementation of that which has recently been passed - but rather better governance and management, clearly defined and articulated policies, integrity, competence, non- interference by the politicos in the day-to-day administration of the government, and ministers being held responsible for their non-compliance with laws.
Failed legislation
Where is the debt strategy when we beg for debt relief one day and then borrow and inefficiently spend an almost equal amount the next? Would it not be instructive if the Minister in reviewing all the great achievements since 1992 could tell us that we have borrowed externally some US$900M since then, and that despite the usual song and dance of debt write-offs, the internal debt excluding the non-interest bearing debentures has increased since 1992 from $18.9B to $61.9B or 230 per cent, while the Guyana dollar equivalent of external debt, despite all the write-offs, has only reduced from $247.9B to $214.6B, or 13 per cent.
The Integrity Act has failed to arrest the corruption in political and public life due as much to politics as to the general cynicism and widespread corruption in the society. How many money launderers and narco-traders have been placed before the courts let alone put behind bars for blatant infringements of recent laws?
The review of the Auditor General's report will also reflect some other serious cases of laws being completely ignored by past and present ministers, including the very Minister who is now telling us about the virtues of more legislation. Let us look at some of those cases.
In his 1996 report the Auditor General identified the need for the complete re-organisation of the Central Tender Board. The 2002 report stated that the Procurement Act 2002 had received presidential assent, but because of deficiencies therein it was "replaced" in 2003 by another Procurement Act, yet all the Minister could report in 2004 is that "the regulations to accompany the new Procurement Act will be drafted this year."
Next year, no doubt, we will hear that they have been drafted and are being reviewed.
It's the people, not the system
The 1997 report repeated the urgent need for a review of the entire financial management system, and while noting some initial reforms in the budget process, the report emphasised the need for a more comprehensive and all-embracing approach to financial management reform.
This was repeated in the 2000 and 2002 reports with the latter report indicating that the Ministry of Finance was in the process of drafting new legislation to improve the government financial administration.
The Minister would find as well that there are several deficiencies reported by the Auditor General which have to do with people simply ignoring the laws - assured of the absence of sanctions against them.
The majority of ministries/departments/regions violated Section 36 of the FAA Act, which requires all unspent balances as at December 31 of every year to be surrendered to the Consolidated Fund. In some instances, cash books are kept open well into the new year while payments were backdated.
The proceeds of the Guyana lotteries continue to be retained in a special bank account outside the Consolidated Fund, which is a clear violation of the law and which has been abused by the President and his ministers.
Serious deficiencies are reported annually at the Ministry of Home Affairs which in one year transferred unspent balances on three capital programmes to the Deposits Fund bank account, instead of the Consolidated Fund, a serious breach of the Parliamentary approval to incur expenditure; breaches in the Tender Board Regulations at the Guyana Defence Force and the Supreme Court of Judicature; the awarding of several contracts by the Ministry of Agriculture which could not be properly audited because of the unavailability of the related files, advances unaccounted for at the Ministry of Education, large number of the ships' files at the Customs and Excise not available to the auditors, an official of the Ministry of Public Works and Communication being in collusion with certain contractors and several cases of overpayments on a contract as well as several contracts being awarded through a selective tendering process.
Next week, we will conclude this article by highlighting the several deficiencies in the Fiscal Management and Accountability Act 2003, and refer to the number of cases of legislation for which the Minister has responsibility and which are routinely being breached.
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.