Puntland Budget Execution: Key Underlying Challenges and Ways Forward

[Deeq A.]

Puntland is in the throes of a severe economic crisis. In light of the ramifications of this crisis, I dissect the key challenges to implementing Puntland’s budget, and attempt to discuss the ways forward.

Challenges

Poor budget planning, preparation and participation: Budget planning and preparation are the cornerstones of an efficient public expenditure management. In Puntland, the ministry does not provide sufficient time for budget preparation and planning which makes the implementation phase difficult. In addition, although the responsibility for preparing the budget usually lies with the ministry of finance with input from the line ministries, it is a sheer lunacy in the budgeting system that the Ministry of Finance does not provide adequate timeframes for consultation with other ministries. Furthermore, the House of Representatives failed to live up to the expectations of the public and hold public hearings.

Lack of prioritization and fiscal responsibility: An efficient budget should aim at making the government’s priorities clear, but in Puntland context, it is apparent that there is lack of allocative efficiency which resulted in the disbursement of public funds to non-essential activities. In the fiscal year 2019, Puntland TV was allocated $54,500 per month while the Ministry of Environment, Agriculture and Climate Change was planned to receive only $25,524. That is a prime example of resource misallocation and fiscal irresponsibility.

Biased forecasts: Biased forecasts are also a reason for setting budgets that do not reflect the state’s economic situation. This means that most of Puntland’s budget may be based on inconsistent macroeconomic assumptions. For example, the current tax system exposes dearth of an in-depth financial assessment before taxes are set, which led to the imposition of exorbitant taxes. Punitive taxes imposed on businessmen have resulted in the closure of many businesses, the loss of many jobs, and exacerbation of financial woes.

Corruption: Widespread corruption hinders Puntland’s budget implementation, erodes people’s trust in the ministry and its leadership, and undermines the financial stability. In Puntland, ‘FADLAN’ corruption has become a norm, and this malpractice means that anyone who is ordered by the president or the finance minister to be paid  will get paid without checking whether this order is in line with the budget.

Lack of staff motivation: Lack of motivation and lower salaries for the Ministry of Finance revenue collection staff have led to significant delays in staff performance and revenue collection. It is noteworthy that sometimes staff are not paid for certain months. Therefore, you can imagine the consequences of not paying your employees and expecting all collected revenues to be transferred to the ministry’s banks or relevant offices.

Lack of monitoring and review: Another critical aspect for the proper execution of the budget is monitoring and review. The ministry’s budget department rarely produces two reports that may be intended for monitoring; however, these reports do not cover all issues affecting the budget and the government’s finances in general. In the last few years, no one has held the ministry accountable for how it has implemented the approved budget and how it manages the entire state’s finance including the lingering currency crisis.

Ineffective audit: The Office of the Auditor General has become incompetent and that has severely damaged the accountability of the state’s financial institutions. Having an effective oversight and audit is a key step to achieving financial transparency, inclusive growth and preventing loss of revenues.

Weak leadership and institutional capacity:  Overall the capability of the state’s financial institutions to have the capacity to formulate strategies and policies is terribly weak. While writing this article, a friend of mine told me that seminars designed to improve the capacity of the ministry staff benefitted people who were not the right ones for the trainings. Currently, the Ministry of Finance has reached the nadir of its weaknesses owing to its inept minister who has neither the knowledge nor the skills to manage the payroll for a small business, let alone to direct the state’s fiscal policies. Apart from that, the ministry has several professional consultants and competent staff who could do much to improve public financial management under the right leadership.

Limited revenue sources: the scarcity of sources hampers the proper budget preparation and implementation. It is a pity that, with around three-quarters of the total budget being subsidized by foreign governments, our government has never considered creating new sources of revenue other than raising taxes.

The Way Forward

Reforms in the revenue collection and expenditure management: Reforming and modernizing the revenue collection system will help raise more revenue to finance essential social services, as well as facilitating financial transparency and accountability. Therefore, it is vital to carry out major reforms in expenditure management and resource allocation to lay the foundations for sound financial discipline and efficient service delivery.

Installing Robust IFMIS (Integrated Financial Management Information Systems): IFMIS is an approach that allows all revenues and expenses to be managed in one suite of applications. It will enable the transparent use of public resources through increased visibility of financial transactions and the reduction of extravagant use of public resources. Installing sound IFMIS systems can play an indispensable role in empowering the government to gain effective control over their finances, boost integrity and combat corruption.

Effective parliamentary oversight of budget implementation: In recent years, parliamentary oversight of budget management has been poor. To deal with the current rampant corruption, an effective parliamentary oversight must be put in place as it is crucial to implementing the budget and ensuring efficient service delivery to citizens.

Leadership and Institutional capacity: The ministry of finance suffers from low institutional capacity, with most of the ministry workforce lacking the tools and trainings needed to perform the duties. To overcome these barriers, it is necessary to map out policies and procedures to improve the knowledge, skills, and the competencies of the staff. Another step that must be taken is to replace the ministry’s leadership since they failed to address the challenges plaguing the ministry.

The fight against grand corruption and kleptocracy: Rooting out institutional corruption requires installing more transparent financial system, publication of user-friendly citizen’s budgets, building strong and independent audit, capacity building of the staff and reform of the recruitment system, strengthening parliament’s budgetary oversight, criminalizing kleptocracy, combating improper awarding of contracts and formulating anti-corruption policies. I firmly believe that corruption, which is currently a major hindrance to budget implementation, will decrease if we put all the above steps into effect.

In conclusion, there is a need for the government to address the key underlying challenges, and for that to materialize, the current leadership has to deliver the implementation of reforms that support improving Puntland’s public financial system.

By Abdullahi Sanco

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