Bud­get fails fis­cal trans­parency test

Lesotho Times - - Opin­ion -

for­eign cur­ren­cies which is used not only to pay for gov­ern­ment ex­penses, but more crit­i­cally to sup­ply enough rand in Le­sotho to sup­port the one-to-one peg­ging of the Loti to the rand.

The gov­ern­ment does not dis­close enough de­tails on its fi­nanc­ing plans, but the In­ter­na­tional Mone­tary Fund (IMF) re­cently warned that Le­sotho could move into a for­eign cur­rently short­age sit­u­a­tion if its spend­ing plans, par­tic­u­larly on wages are not con­trolled.

Even if the gov­ern­ment be­lieved at the time of the speech it could main­tain macroe­co­nomic sta­bil­ity, po­lit­i­cal in­sta­bil­ity will com­pli­cate the man­age­ment of the econ­omy and ren­der the rev­enue pro­jec­tions op­ti­mistic. The min­is­ter con­cedes in Para­graph 90 the role of po­lit­i­cal in­sta­bil­ity in dis­rupt­ing the ex­e­cu­tion of gov­ern­ment plans.

Le­sotho has pre­vi­ously in­vested a lot of ef­fort in se­cur­ing macroe­co­nomic sta­bil­ity, but not enough on at­tain­ing a con­ducive in­vest­ment cli­mate and strong en­tre­pre­neur­ial ca­pac­ity. The Job Sum­mit process launched in Au­gust 2014 was in­tended specif­i­cally to ig­nite en­tre­pre­neur­ial en­ergy and un­der­take wide­spread in­vest­ment cli­mate re­forms. This was the process that would re­sult in dis­trict and na­tional in­vest­ment plans be­ing de­vel­oped to im­ple­ment the NSDP. It is thus re­gret­table to hear that the Job Sum­mit process has stalled, with the Min­istry of Devel­op­ment Plan­ning now look­ing for con­sul­tants to restart the process.

Growth pol­icy is con­tra­dic­tory The gov­ern­ment fore­casts a medium term (3-5 years) growth of 4.3 per­cent (Para­graph 23) and at the same time in­di­cates that the pro­posed ex­pen­di­tures tar­get the NSDP growth rate of 5-7 per­cent and cre­ation of 10 000 jobs per year (Para­graph 58). The anal­y­sis of growth in Para­graphs 18-33 demon­strate a bleak per­for­mance of the sec­tors that have tra­di­tion­ally sup­ported growth in re­cent his­tory. Con­struc­tion de­clined 10 per­cent, re­flect­ing the com­ple­tion of the civil works re­lated to health clin­ics and the Me­to­long Dam. Man­u­fac­tur­ing de­clined 11 per­cent, re­flect­ing eco­nomic slow­down in Le­sotho’s ex­port des­ti­na­tions and un­cer­tainty from po­lit­i­cal com

pli­ca­tions. Although min­ing grew sig­nif­i­cantly by 16 per­cent, it re­mains a small sec­tor that cre­ates a small num­ber of jobs. Go­ing for­ward, the gov­ern­ment has put its hopes on the min­istries of Home Af­fairs, En­ergy and Me­te­o­rol­ogy, Lo­cal Govern­ment and Chief­tain­ship Af­fairs and Min­ing to drive growth! But the pal­try 12 per­cent it has al­lo­cated to these pri­or­ity min­istries can­not en­er­gise the growth sec­tors suf­fi­ciently to reach na­tional out­put growth of 5-7 per­cent (see Para­graph 59).

At any rate, this is not even how a gov­ern­ment should think about growth — it is not the min­istries of gov­ern­ment in iso­la­tion that are go­ing to cre­ate growth, but rather large in­vest­ments by pri­vate in­vestors sup­ported by well-thought through poli­cies and sup­port­ive pub­lic in­vest­ment. Even this would still re­quire po­lit­i­cal and macroe­co­nomic sta­bil­ity and skilled and healthy work­ers.

The bud­get speech sees eco­nomic growth as driven by gov­ern­ment spend­ing through pub­lic pro­cure­ment, which is a long-stand­ing strat­egy of the key par­ties in the cur­rent gov­ern­ing coali­tion. But the fo­cus is mis­placed; decades of this pro­cure­ment-driven ap­proach bears tes­ti­mony that it is in­con­se­quen­tial for growth and poverty and dam­ag­ing for in­equal­ity.

In its press re­lease of 29 Jan­uary 2016, the IMF con­cludes that “un­em­ploy­ment rates have re­mained high, es­pe­cially among the youth, and the in­ci­dence of poverty is vir­tu­ally un­changed from a decade ago”. Is it not time for a change in ap­proach to some­thing that has a chance to work?

Poor health, poor ed­u­ca­tion, poor in­vest- ment cli­mate, and poor gov­ern­ment ca­pac­ity are the four fore­most bind­ing con­straints to Le­sotho’s in­vest­ment, growth and poverty re­duc­tion. Th­ese are iden­ti­fied by the Le­sotho NSDP (2013), Con­straints Anal­y­sis con­ducted by the Mil­len­nium Chal­lenge Cor­po­ra­tion in prepa­ra­tion for Com­pact II (2015), and the World Bank’s Sys­temic Coun­try Di­ag­nos­tic (2015).

A clear and force­ful fo­cus on these four should have been the fo­cus of this and fu­ture bud­gets, pro­vided long-term po­lit­i­cal sta­bil­ity is re­stored and risks to macroe­co­nomic sta­bil­ity are tamed. Granted, so­cial spend­ing in Le­sotho is very high, but the IMF ob­serves that “….there has been lit­tle progress in the fight against poverty and un­em­ploy­ment, de­spite con­sid­er­able spend­ing on so­cial sec­tors and trans­fers”.

The bud­get also does not ad­dress the risks to eco­nomic growth it iden­ti­fies. In fact in Para­graphs 28-30, it down­plays the risk of loss of in­vest­ments linked to Le­sotho’s el­i­gi­bil­ity to the Africa Growth and Op­por­tu­nity Act (AGOA). It is true that the United States of Amer­ica has so far not is­sued any warn­ing re­lated to Le­sotho’s el­i­gi­bil­ity to AGOA. But it is also not cor­rect to say that “there is no threat to Le­sotho’s con­tin­ued AGOA el­i­gi­bil­ity (Para­graph 30)” be­cause the con­tin­u­ing po­lit­i­cal strife, in­se­cu­rity and hu­man rights and rule of law vi­o­la­tions are per­sis­tent threats to AGOA el­i­gi­bil­ity.

But even more crit­i­cal is that in­vestor de­ci­sions are driven by mere per­cep­tions of risk. In­vestors are presently mak­ing as­sess­ments of the wors­en­ing po­lar­i­sa­tion of so­ci­ety and in­se­cu­rity and are con­sid­er­ing their op­tions. Many of these can ac­cess AGOA from many coun­tries in Africa where they al­ready have op­er­a­tions — it would be easy to mi­grate their pro­duc­tion ac­tiv­ity.

The King­dom of Swazi­land (ef­fec­tive Jan­uary 1, 2014) and the Repub­lic of Bu­rundi (ef­fec­tive Novem­ber 1, 2015) are ex­am­ples of coun­tries that have re­cently lost AGOA el­i­gi­bil­ity due to hu­man rights vi­o­la­tions. Also the speech notes, but does not pro­vide de­tails on how gov­ern­ment in­tends to deal with com­pet­i­tive risk ex­pected to come from the com­ing into ef­fect of the Transpa­cific Part­ner­ship Agree­ment with the United States bring­ing to­gether pa­cific rim coun­tries.

There are how­ever some wel­come de­vel­op­ments in the ar­chi­tec­ture of in­vest­ment cli­mate. The launch of the credit re­port­ing fa­cil­ity (Credit Bureau) and the Maseru Se­cu­ri­ties Mar­ket could in­crease the ease and fi­nanc­ing op­tions avail­able to Le­sotho in­vestors.

Although there are in­suf­fi­cient de­tails pro­vided, ac­cess to Arab Bank for Eco­nomic Devel­op­ment in the Africa (BADEA)’S pri­vate win­dow could com­ple­ment fi­nanc­ing for do­mes­tic in­vest­ment. In­vestors should how­ever be on the look­out for Le­sotho’s sov­er­eign risk com­pli­cat­ing their bor­row­ing rates. Fitch rat­ings down­graded Le­sotho in Oc­to­ber 2015 from sta­ble to neg­a­tive out­look, ob­serv­ing that “con­tin­u­ing po­lit­i­cal ten­sion is af­fect­ing gov­er­nance”.

Govern­ment spend­ing re­mains high South­ern African Cus­toms Union (SACU) rev­enues to Le­sotho are like oil to an oil pro­duc­ing coun­try — no amount of telling them not to de­pend too much on oil rev­enue ever works — un­til the price of oil col­lapses. Much has al­ready been said about the risks of Le­sotho de­pend­ing too much on SACU rev­enues. In its re­cent com­mu­ni­ca­tion, the IMF warns of the threat to macroe­co­nomic sta­bil­ity un­less Le­sotho im­ple­ments a ma­jor fis­cal ad­just­ment. By con­trast, the gov­ern­ment hopes to achieve a ris­ing spend­ing pro­file and macro-fis­cal sta­bil­ity de­spite a drop of 6 per­cent of GDP (M1.1 bil­lion) in SACU rev­enues (Para­graph 8). It is also sur­pris­ing that both Com­pany In­come Tax (CIT) and VAT are ex­pected to in­crease at the same time eco­nomic growth is ex­pected to slow down! Anec­do­tal data sug­gests that com­pany bal­ance sheets are get­ting tighter, prof­its are more likely to flat­ten out rather than grow, and for prop­erty own­ers, rents are col­laps­ing as ten­ants leave. More­over, donor sup­port is damp­en­ing largely as a re­sult of un­favourable po­lit­i­cal de­vel­op­ments.

In one of her mem­o­rable state­ments, the min­is­ter talks of “fill­ing an ocean us­ing a tea­spoon” (Para­graph 83). This ex­traor­di­nar­ily apt ob­ser­va­tion is ap­pli­ca­ble to other as­pects of the bud­get. Rais­ing non-tax rev­enue as out­lined in Para­graphs 53 to fill the hole cre­ated by the loss of SACU rev­enue is to fun­da­men­tally un­der­es­ti­mate the mag­ni­tude of the prob­lem.

Like­wise, ef­forts to con­trol spend­ing (Para­graphs 93-94) are hope­lessly in­signif­i­cant in re­la­tion to the fis­cal hole Le­sotho faces from SACU rev­enue losses. Fi­nally, the ef­forts to grow the pri­vate sec­tor, while wel­comed, are frag­mented and woe­fully in­ad­e­quate.

I wel­come the civil ser­vice re­view to be launched in March 2016 (Para­graphs 43 and 68) and hope it can deal with anom­alies as­so­ci­ated with Le­sotho’s wage bill man­age­ment I out­lined in June 2015 in the Le­sotho Times. I look for­ward to an ag­gres­sive im­ple­men­ta­tion of the project and hope again it will not fall prey to pop­ulism, pa­tron­age and politi­ci­sa­tion of the pub­lic ser­vice. In this re­spect, the pro­posed across the board salary in­crease of four per­cent is a bad omen as it sig­nals busi­ness as usual and wors­ens the prob­lem. More­over, the project seems tar­geted at rec­on­cil­i­a­tion of hu­man re­source and pay­roll data, which falls far short of what would be needed to re­duce the wage bill to well be­low do­mes­tic rev­enue col­lec­tions.

Com­mit­ment to re­form doubt­ful Govern­ment Fleet: The gov­ern­ment dis­closes in Para­graph 41 that it en­tered into a tra­di­tional short-term lease for six months! Pre­vi­ously, we were told the gov­ern­ment failed to reach an am­i­ca­ble set­tle­ment with Avis, as it de­manded un­ac­cept­able con­di­tions for ex­ten­sion of con­tract by six months. Why was the gov­ern­ment pre­pared to use tax-payer money to pay Bid­vest mul­ti­ple times more for the same fleet as pro­vided by Avis? The gov­ern­ment al­ways had the power and au­thor­ity to guide Avis to a set­tle­ment if it truly wanted that! Tak­ing into ac­count its fail­ure to man­age the Avis con­tract prop­erly, was it worth it in the eyes to stomp off the ne­go­ti­a­tion and in­stead pay so much more for the same ser­vice?

Why was the gov­ern­ment not able to put Avis to or­der for the 6 months it gave a short­term con­tract to Bid­vest un­der ques­tion­able af­ford­abil­ity con­di­tions? Was the gov­ern­ment’s re­ac­tion more emo­tional that log­i­cal? Should tax pay­ers now con­sider the ex­tra ex­pense jus­ti­fi­able? Did the gov­ern­ment ex­er­cise proper dis­cre­tion? A new fleet pro­vi­sion will com­mence in April 2016 ac­cord­ing to the speech. Will this be the con­tract led by Ba­sotho fleet own­ers as promised by the gov­ern­ment in 2015? Th­ese are the kind of ques­tions a Par­lia­ment do­ing its job of over­sight and not in­gra­ti­at­ing it­self to the gov­ern­ment should ask.

Queen ‘Mamo­hato Me­mo­rial Hospi­tal (QMMH): In my pre­vi­ous com­men­tary, I doubted that the gov­ern­ment would be able to re-ne­go­ti­ate the pub­lic–pri­vate part­ner­ship (PPP) con­tract with the share­hold­ers of the QMMH, point­ing out the com­plex­ity of the ar­range­ment. This time around, the min­is­ter merely con­cedes that the hos­pi­tal ex­pended out­side its bud­get and the gov­ern­ment had to pay. There is no longer the com­mit­ment to rene­go­ti­ate the QMMH con­tract! This can­not be ac­cept­able.

The gov­ern­ment must pre­pare a clear road map for shield­ing Ba­sotho against cost over­runs that arise from a poorly im­ple­mented con­tract. I wel­come the im­prove­ment of fa­cil­i­ties and ser­vices at the three fil­ter clin­ics ear­marked to man­age re­fer­rals to QMMH and hope in fu­ture the gov­ern­ment will run them at the level they were in­tended (Para­graph 34). Mean­while, an in­de­pen­dent and pro­fes­sional re­view of the fate of the Maseru District Hospi­tal should be un­der­taken and its re­sults pub­lished.

Public Sec­tor In­vest­ment Com­mit­tee: The es­tab­lish­ment of the Public Sec­tor In­vest­ment Com­mit­tee (PSIC) in 2013 was in­tended to elim­i­nate “a lot of un­der­spend­ing in some min­istries” the Min­is­ter points to in Para­graph 45. As de­signed, it would pre­vent un­nec­es­sary and un­der-de­signed cap­i­tal projects to be funded. It would also en­sure that cap­i­tal projects align well with pol­icy and make an im­pact. The gov­ern­ment should as­sess the ca­pac­ity of this com­mit­tee and strengthen it as soon as pos­si­ble to avoid per­sis­tent un­der­spend­ing.

Prim­i­tive bud­get doc­u­men­ta­tion and han­dling in Par­lia­ment: The doc­u­men­ta­tion pre­sented to Mem­bers of Par­lia­ment for scru­tiny is ar­chaic and pre­vents proper ex­er­cise of over­sight. Even though the rest of the world has moved to the more log­i­cal three-year bud­gets, the Par­lia­ment of Le­sotho has no choice but to con­sider one-year bud­gets. Public sec­tor in­ter­ven­tions are rarely fully im­ple­mented in one year; it is there­fore log­i­cal to be trans­par­ent to par­lia­ment about the full multi-year costs of an in­ter­ven­tion, which is pos­si­ble in a Medium Term Ex­pen­di­ture Frame­work.

For its part, Par­lia­ment has ac­cepted the re­spon­si­bil­ity to scru­ti­nise an­nual bud­gets with­out de­mand­ing full in­for­ma­tion in­clud­ing the full tim­ing and ge­o­graph­i­cal lo­ca­tion of the re­quested in­ter­ven­tions. By do­ing, this Par­lia­ment is fail­ing to re­quire ac­count­abil­ity from the Ex­ec­u­tive and act­ing more as part of Govern­ment rather than an over­sight body. Par­lia­ment should move ag­gres­sively to do its job by in­de­pen­dently se­cur­ing pub­lic fi­nan­cial man­age­ment ex­perts to un­der­take train­ing of MPS.

De­cen­tral­i­sa­tion: I wel­come the in­ten­si­fi­ca­tion of re­forms in de­cen­tral­i­sa­tion and hope that Le­sotho will get it right this time around. The re­forms should try to achieve best in­ter­na­tional prac­tice in the re-de­sign and in par­tic­u­lar aim to achieve both sub­sidiar­ity and de­cen­tral­i­sa­tion. As the re­forms will have far reach­ing po­lit­i­cal im­pli­ca­tions, they should be dis­cussed with all po­lit­i­cal group­ings as soon as pos­si­ble, as lo­cal gov­ern­ment elec­tions are also slated for this year.

The re­spon­si­bil­ity for ur­ban roads lo­cated at the Min­istry of Lo­cal Govern­ment and Chief­tain­ship Af­fairs (ML­GCA) ap­pears sen­si­ble at first. How­ever, since the ML­GCA is a min­istry in the cen­tral gov­ern­ment just like the Min­istry of Public Works and Trans­port, the trans­fer of road con­struc­tion re­spon­si­bil­ity from the lat­ter to the for­mer is not de­cen­tral­i­sa­tion, but rather merely trans­fer­ring re­spon­si­bil­ity from the one cen­tral gov­ern­ment min­istry that is a cen­tre of knowl­edge for road con­struc­tion to an­other that is not! In proper de­cen­tral­i­sa­tion where power and re­spon­si­bil­ity are gen­uinely de­volved, the re­spon­si­bil­ity for the con­struc­tion of ur­ban roads would fall un­der the ur­ban coun­cils them­selves as sep­a­rate and in­de­pen­dent sub­gov­ern­ments. The cur­rent de­sign of de­cen­tral­i­sa­tion is mainly decon­cen­trat­ing power

Con­tin­ues on page 21 . . .

Newspapers in English

Newspapers from Lesotho

© PressReader. All rights reserved.