Budget fails fiscal transparency test
Introduction THE reading of the 2016/2017 budget speech last Friday has presented an opportunity to comment on the policy proposals the government of Lesotho is making to Parliament for consideration and approval. As was the case last year, I take this opportunity to share a few observations on the speech and accompanying information.
Does the budget follow international
best practice and principles? A full appraisal of any public sector budget must pit it against basic principles of international best practice. As the budget is a statement of policies financed by tax-payer resources, it must achieve credibility by presenting genuine agreed and ready-toimplement policies accompanied by accurate financial estimates. Large variations in policy and financial commitments between any two years signals lack of credibility of the budget, which undermines confidence.
The 2016/2017 budget raises serious issues that speak to the principle of credibility. In May 2015, the government indicated that it planned to run a budget deficit of four percent of national output.
The government is now predicting a surplus of 0.3 percent, implying that actual financial operations have deviated from the budget by some 4.3 percent of national output, equivalent to many millions of Maloti. This summary measure alone points to many large deviations in both revenue and expenditures during the 2015/2016 budget year.
Public sector budgeting must also be fiscally transparent. The executive must disclose to Parliament and the public as much information as possible regarding budget policy and the associated financial data. Based on the two budget speeches of 2015/2016 and 2016/2017, the government is demonstrating a worrying lack of fiscal transparency. The 2016/2017 budget speech does not disclose the political context underlying the proposals as well as the macroeconomic policy that underpins it.
In particular, it ignores the political instability that has persisted since 2014, both in terms of the needed policy changes, the allocations required to restore normalcy to Lesotho and more critically that the uncertain political environment renders the budget itself uncertain.
Finance Minister Dr ‘ Mamphono Khaketla recognises this only in passing when in Paragraph 90, she says that reforms “have started at a very slow rate due to unfortunate incidents that befell our country in the last year”. At least three tables disclosing macroeconomic intentions that appeared in the 2015/2016 budget speech have been excluded in this speech, thus undermining fiscal transparency.
On the posture of macroeconomic policy, although there is mention of the level of deficit, there is insufficient information on how the deficit of M2.7 billion is to be financed in a manner that does not ignite a debt spiral and endanger macroeconomic stability.
The government suggests it will use domestic borrowing and foreign currency reserves, but does not say how much of each source will be used and what impact this will have on the target of Net International Reserves of $600 million (Paragraph 17).
The government also does not disclose the instruments it wishes to use to borrow domestically and how domestic lenders will be willing to lend large amounts of money to the government of Lesotho during a period of political uncertainty. Equally, the government does not disclose the increase in public debt that will result from implementation of the budget as proposed. Parliament should seek clarity on the mix of financing and the increase in public debt expected from this budget.
Also evident is the lack of accountability for financial resources appropriated by Parliament. As indicated in my previous commentary in June 2015, the actions (and lack thereof) of the government on one hand to produce and Parliament on the other to require proper public accounts are contributing to poor accounting for financial resources appropriated by Parliament.
For its part, the government of Lesotho has failed to present credible public financial accounts since 1975. Each year, the government tables in Parliament audited public accounts which do not represent the true financial position.
Each year, Parliament appropriates the next budget, without demanding accurate public accounts for the previous financial years. By not forcefully and persistently requiring accurate public accounts, Parliament is failing in its duty to exact accountability from the Executive.
Evidence from other countries shows that democracy fails when Parliaments do not perform their constitutional duty of oversight and elect instead to protect sitting governments from scrutiny and accountability.
The budget proposal ignores Lesotho’s
political and other challenges Good governance and a good budget are important contributors to the attainment of economic growth and reduction of poverty. To increase economic growth and reduce poverty, Lesotho needs to have in place at the same time political stability, macroeconomic stability, a conducive investment climate, and strong entrepreneurial capacity.
For most of its 50 years of independence, Lesotho has lacked political stability and this speaks eloquently to the continuing underdevelopment, poverty and extreme inequality. The semblance of political stability that seemed to gain momentum in recent years was rudely interrupted in 2014, leaving Lesotho in the clutches of a government that has since March 2015 focused on deaths, insecurity and strenuous attempts to wish these away.
It is sensible to assume that the implementation of the recent SADC Commission of Inquiry resolutions will also occupy government for a good part of the budget year, once again denying it the time it needs to devote to preparing an implementation plan for the National Strategic Development Plan (NSDP).
To the extent that the financial data proposed in the budget is accurate, the budget deficit of 9.9 percent of national output (M2,732 million shortfall) could endanger at least two constituent elements of macroeconomic stability, namely a rise of public indebtedness and loss of Lesotho’s stock of
Continues on page 20 . . .