26 March 2014

Liberia: Finance Minister Takes Responsibility for Budget Shortfall

Monrovia — Finance Minister Amara Konneh says, he takes responsibility for the shortfall in the 2013/2014 budget. Speaking to journalists at a special press briefing organized by the Ministry of Information, Minister Konneh says as head of the institution responsible for crafting the budget, he takes the blame.

Critics yelled as the Liberian economy landed in the red for the third time, due to yet another budget shortfall in fiscal year 2013/2014, this time, US$47 million something that was announced through a Ministry of Finance January 2014 notification calling on the heads of government ministries and agencies to tighten their belts for the long haul.

Despite claims in some quarters that the legislature was partly to blame for this year's shortfall due to the changes made to the draft budget submitted to it by the ministry, Konneh has put himself in the line of fire for the shortfall.

"I am the Minister of finance, I am responsible; yes, it's nobody; I am today the Minister of finance of the republic of Liberia in charge of implementing our fiscal policy. Whether the numbers change in the legislature on the draft budget that was submitted to the legislature, I am the custodian of the national budget and I am responsible," says Konneh.

"And that is why I am working with my colleagues across the government to make sure that the government continues to operate; continues to invest in the public sector programs to keep the economy stable."

Term misunderstood

Minister Konneh says the approved budget for FY2013/2014 amounted to US$582.9 million, which was revised downward to US$560.3m, based on assessed revenue risks. He says when the term 'revenue shortfall' is used it means that the government expected to generate a particular amount but was not able to do so.

The Minister says that people often misinterpret the term budget shortfall attributing it to something that has continuously occurred over a period of three years; something the Minister said is erroneous adding that the government is on track in achieving the goals it set out.

"We sense that, in some quarters, the term is being misunderstood as being an overall reduction in the revenue generated, as compared to previous years, which is not the case," says Konneh.

"In fact, overall, the Government has steadily increased its revenue intake over the last four years. In FY10/11, the total revenue collected was US$387.9 million; in FY11/12, collections amounted to US$477.2 million; in FY12/13, the total revenue collected was US$559 million. Today, once again, we project US$560.3m come June 30th. And based on that number, we have already collected US$344.5m. However, it is important to make sure you know why the US$22m shortfall occurred, in which areas, and what steps we are taking to meet our new target of US$560.3m."

Reasons for shortfall

Minister Konneh says some of the government's projections for the various kinds of revenue were exceedingly ambitious, and were based on the assumption that the good performance of the FY2012/2013 within each revenue category would continue, although some of those revenues were only one-time payments.

He says Legislative adjustments to the original draft budget unrealistically increased targets and in other cases, poor infrastructure, bureaucracy and bottlenecks in the executive branch hindered the timely realization of the amount projected and this resulted in dire consequences.

"On the tax revenue side income and profit taxes, especially withholding taxes on non-residents were over projected based on last year's good performance owing to non-recurrent investment activities in the telecommunications and mining sectors," says Minister Konneh.

"For tax on goods and services, maritime revenue fell short by US$3m from our target of US$22.5m down to US$19.4m; and motor vehicle taxes were over-projected by US$2.6m over the initial US$5.87m targeted in the draft budget submitted to the Legislature."

The Minister of Finance also disclosed that tax on international trade suffered due to a nearly 20% decline or US$163m loss in customs duties on international trade. He says Duty exemptions largely on capital equipment imported by mining and agriculture concessions and road contractors also contributed to the decline.

"By March 14th, 2014 we had projected a collection of US$115.6m, but we actually collected $105.2m, a shortfall of $10.4m. A re-forecast of our Customs revenue has also reduced the budget by US$4m of export revenue on round logs from the forestry sector," says Minister Konneh.

Continued Konneh: "Non-tax revenue fell short by US$2m, due to lower than expected realization of property income tax, especially rents from the forestry sector, which were hindered by infrastructure challenges such as bad roads and equipment challenges in the ports, and administrative bottlenecks, which we are working hard with our colleagues to address. Lastly, to date, we have only met half (or US$10.6M) of our US$21.5M target in administrative fees from Ministries and Agencies."

Stringent measures taken

Minister Konneh says in the face of these revenue shortfalls, the ministry of finance introduced some stringent technical, administrative and legal measures to recover tax revenues for the remainder of the fiscal year.

He says the ministry has set up a revenue mobilization task force, increased tax awareness and reorganized its tax administration personnel to ensure the most effective distribution of talent and responsibility in order to meet the government's revenue targets going forward.

"We have identified and met with delinquent taxpayers to give them time to settle their tax obligations to the GoL and we are working with the Ministry of Justice and the Board of Tax Appeals to prepare litigation against those who fail to pay their taxes."

The finance Minister outlined what he calls short-term measures intended to improve revenue collection, with specific emphasis on Spot verification of taxpayers to validate their payments adding that with this action, the ministry expects improvement in collection of taxes on income, goods and services.

Minister Konneh says the ministry has also embarked on a major crackdown on delinquent taxpayers, including publishing the list of persons, businesses and public institutions with outstanding tax obligations also initiating legal proceedings against them to recover taxes owed the government.

Minister Konneh says the ministry under his leadership has also introduced an enforcement of internal controls at the systems level and stronger coordination within the team to mitigate risks, thereby undertaking an anti-smuggling operation, on the customs side, by monitoring of transshipment through the border. He says the ministry is also conducting rigorous post clearance audits to close revenue leakages resulting from dishonesty among some taxpayers.

The finance Minister says the ministry will need the help of colleagues in government to see the plan work and is therefore working with other officials in the Inter-Ministerial Concessions Commission to remove the infrastructure and bureaucratic bottlenecks in the forestry sector, adding that it is already yielding results.

"We are also working with our colleagues in the public sector by providing support to enable them perform," says Konneh. "So far, this intervention has reversed the declining trend in motor vehicle revenue since August 2013, resulting in improved performance in quarter three. We have also seen improvement in the forestry sector where, for the first time, we have doubled forestry revenue from US$700,000 - US$1.4m between February and March 2014."

Minister Konneh assured that due to these measures, the government's revenue generation seems promising for the remainder of fiscal year 2013/2014.

"Moreover, despite the challenges with the execution of our budget given the pressure of competing investment priorities and recurrent demand, we have seen an improvement in our budget performance comparing allotment and disbursement records for the twelve month period ending February 2013 to the same period ending February 2014," say Minister Konneh.

"This analysis is relevant because it tells the rate at which allotted funds are being disbursed to spending entities. The difference between allotment and disbursement was much higher in FY 2012/13.

Conversely, we have seen this gap significantly narrowed in FY 2013/2014. This is a significant progress and demonstrates that spending entities are now given allotments for which they have absorptive capacity and which are in line with the trend in revenue generation and cash forecasting."

Minister Konneh maintains that generally, the government has been able to stabilize expenditure on employee compensation, with slight reductions in both allotment and disbursement over the last two fiscal cycles. "Consumption of fixed capital has significantly reduced in allotment but has seen substantially high disbursement in FY 2013/2014," he says.

Continued Konneh: "By February 2013, we had allotted US$394 million and disbursed US$308 million during the same period. This fiscal year as at February 2014, we had allotted less than US $371 million, but had disbursed more US$322 million, pointing to a contraction in the gap between allotment and disbursement. So, what we have accomplished over this period, as demonstrated by the budget performance analysis, is to ensure some level of stability within our fiscal space by tightening the procedures and rules around our budget and expenditure processes."

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