Bud­get fails fis­cal trans­parency test

Lesotho Times - - Opinion & Analysis - Dr Moeketsi Ma­joro

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 . . .

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