21 January 2014

Liberia Budget Perspective - From Sayeh to Ngafuan to Konneh


Monrovia — Managing Liberian economy has become a big headache for all ministers of finance. The 14-year civil war seems to have set Liberia back nearly 100 years, a claim that was made in 1990 by former Assistant Secretary of State Cohen.

He cautioned Liberians then that if the war were to continue the economy and infrastructure of Liberia could be set back 100 years. Clearly, giving the current realities and the struggle the ministry of finance is in to revitalize a damage economy seem to give credence to Cohen's argument.

Economists reviewing and analyzing the budget performance spanning three ministers points to some similarities, but a lot of guided variations.

Revenue Growth Year over Year

The current Liberia budget is $582.9 million. In 2005/2006, it was $84 million when the Ellen Johnson Sirleaf assumed office. FY06/07 - $148.9 million; FY07/08 - $207.7 million; FY08/9 - 234.9 million; FY09/10 - 288.0 million; FY10/11 - 387.9 million; FY11/12 - 477.2 million; and FY12/13 - $554.2 million.

No doubt the budget has gradually increased year over year. But given the huge demand to reconstruct the entire country after 14 years of war and to provide basic services to the people of Liberia, such as quality healthcare and education, the revenue intake has not been sufficient to meet the huge demand in expenditure. For instance, the current expenditure demand from all public agencies is US$2 billion on revenue on the $582.9 million.

Budget Recasting

The recasting of the Liberian budget has been consistent amongst all the three Finance Ministers that have served in the Ellen Johnson Sirleaf-led Government. There are many factors that have led to the budget shortfall, wherein revenue forecasts are adjusted downwards.

The Legislature has a played a role in creating the problem year over year, because they have increased the revenue portion of the budget beyond what is usually submitted by the Executive.

During her tenure the Ministry of Finance, Former Finance Minister Antoinette Sayeh submitted each year in January a supplementary budget, adjusting the budget forecast.

But the growing pain in adjusting the budget and carrying out a broad across the board cut in the budget of line ministries and agencies began in 2009/2010 when Augustine K. Ngafuan assumed the position as Minister of Finance. Unlike previous when the budget was delayed because of the legislative rigorous review of the national, such as in 2006/2007 Budget which was not passed until September 2007.

On December 27, 2009 the New Democrat reported this "After months of denials, Finance Ministry officials have conceded that the 2009/10 fiscal budget is in a mess, and that it recast is imminent.

Finance Minister Augustine Ngafuan, contacted, informed the paper that the budget is facing "difficulties" and that government's inability to borrow money to finance the budget amidst shortfall is a problem.

"Deputy Finance Minister for Revenue, Elfreda Tamba, approached on the problem, Tamba, also confirmed that the budget is experiencing hitches in both tax and non-tax revenue.

In an exclusive interview she revealed that, custom, maritime are amongst revenue sources where the shortfall is being experienced as of 30 November. "... non-tax revenue, which you alluded to, shows a shortfall of US$986, 000 dollars, Maritime revenue showing a shortfall of us$1. 8 million dollar and internal revenue US$150.000; Custom we have a shortfall of US$3.1 million," the minister indicated.

She attributed the negative trend in revenue inflow to drop in cost insurance fright's(CIF) value, delay in tonnage revenue and those from the telecommunications sector, general state of the economy and "leakages' in tax collection most especially real estate."

Because of the difficulties and the uncertainty created in the budget process due to the additional revenue added to the budget by the Legislature, the National Legislature realized it and created a provision in the Public Financial Management Law (2009) to address the issues of revenue shortfalls. Section 18 (subpart 3), 'Modification of Proposed Budget by the Legislature,' states that "The Minister of Finance shall submit to the Legislature a mid-fiscal year review of the implementation of the Budget in the middle of February each year, including an analysis of the revenue collections and expenditure performances in the first six months of the fiscal year, and, if necessary, a proposed supplementary budget for approval by the Legislature.

According to information obtained from budget data on the Ministry of Finance's website, the last budget year during Minister Ngafuan was also recast. The approved budget for Fiscal 2011/2012 was $516.43 million, but was recast in $449.51. This was a downward adjustment to the budget to the tune of $66.92 million during 2011/2012.

Budget Deficits/Surpluses

Economists say budget surpluses/deficits are part of financial management both in the private and public sectors. Prior to the 2010/2011 budget, Liberia was still undergoing through the HIPC process.

During the HIPC process, Liberia was required to have balance budget since it could not borrow to finance deficit spending on Legacy items like roads, electricity etc. In 2009/2010, Minister Ngafuan complained that his inability to borrow to finance the deficit was a big problem.

Instead, he was forced to make deep cuts in the budget to meet the balanced budget requirement, sometimes being so conservative in his cuts that it created a budget surplus than a balanced budget in a country that needed every available fund to finance investment in infrastructure.

At the time, some financial experts criticized Minister Ngafuan for having a budget surplus in a country where there was a need finance investment to improve public services. It was a paradox to have a surplus in a country with so many needs that remained unfunded.

But all of this change during the last two years of Minister Ngafuan leadership in the Ministry of Finance. Liberia achieved HIPC and it was now allowed to borrow and spend. Minister Ngafuan became the first Minister of Finance to borrow to spend on the deficit.

According to budget information obtained at the Ministry of Finance's website, below is the budget performance under Minister Ngafuan in the last two years before assuming a position as Minister of Foreign Affairs:

Economists have argued that budget deficits are not in themselves a bad thing. Instead, how is the deficit being spent?

The Ministry of Finance has argued that it has reprogrammed the budget since it introduced multi-year budgeting to spend more of tax dollars on LEGACY programs and projects, meaning those that have long term direct impact on the lives and living conditions of Liberians.

Many Financial experts and economists commend the Ministry of Finance for this change, as in the past the recurring expenditure on such things as travel, gas coupons etc., took a huge chunk out of the government budget.

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