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 wit hin 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 redirecti ng expenditure or making
changes in both revenue and expenditure. That
flexibility calls for br oad 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 st arts
with President’s vision shared and committed by the
cabinet and tunneled down through government hierarchy.
Leadership provides prioritized resource allocation and
targets on soci al, 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 confidenc e 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 continuou s
undertaking to make it achievable. It reflects more than
anything else, the desire of the gov ernment 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 commo n good.
Dedication to financial efficiency both at collection
and distribution of government rev enue, played a
momentous role in this colossal increase.
ü Medium term fiscal planning is a new approach to most
countries. United Kingdom adopted t his rolling-budget
recently, yet the World Bank and IMF insist to develop
the same replica in ma ny 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 suc h a short
time. I believe we need more time to develop and
structure up a system of data coll ection, 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 depar tments and
agencies.
For better forecasting the following are necessary:
Departments and sub-sections should prepare their
rolling three year budgets within the guid elines
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 m ost 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 goo ds. A
drop in the unemployment level will have the same effect
as it will increase direct tax rev enue. 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 minist ers.
• 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 dev eloped 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 citiz ens at the lowest level of economy ladder.
Ahmed H Arwo
Somaliland Presidential Senior Economic Advisor
eci.advisor@gmail.com
https://www.facebook.com/aharwo
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