President Ellen Johnson Sirleaf has on Wednesday, May 21, 2014, submitted the draft national budget of US$557m to the 53rd national legislature. The new austerity budget cuts wastes in government and channels more funds to infrastructure development as set out in the Agenda for Transformation.
Consistent with the Section 11.1 of the Public Financial Management Act of 2009, President Sirleaf, through the Ministry of Finance submitted the draft FY14/15 budget which is the last cycle of spending under austere conditions in the three year Medium Term Expenditure Framework (MTEF) introduced in 2012. The budget focuses on investing in key areas including energy, roads, ports, security, technology, health, education, etc. that have the potential for massive social and economic returns to transform the Liberian economy.
“This draft Budget calls for a period of national sacrifice – a sacrifice that calls for better efficiency in the allocation of available resources – as government combines aggressive revenue generation with careful debt management and scaled up spending in security, energy and the road network,” said President Ellen Johnson in her budget statement issued Wednesday.
The President says the new draft budget also focuses on programs and projects as the regular costs of running ministries and agencies have been cut drastically and savings moved into key public investment programs that will benefit the Liberian people. The draft budget was developed after several months of consultations and hearings with all spending entities.
The first two years of implementing the MTEF budgets have seen some notable successes including the acceleration of public investment spending, paving the way for the start of works on the Mount Coffee hydroelectric dam, the construction of an 18 megawatts Heavy Fuel Oil Plant,the settlement of government contribution to the West Africa Power Pool arrangement that will bring electricity through Liberia from neighboring Cote d’Ivoire, the expansion of rural electricity to eastern Liberia as evidence by electricity in the city of Gantaand the commencement of the Monrovia-Ganta-Guinea border road works across the main economic corridor in the country among others.
The Government has also been able to reduce fraud and waste totaling approximately US$4 million through the clean-up of the payroll by the Civil Service Agency; and has also improved service delivery by increased resource allocation to health, education and security.
Finance Minister Amara Konneh says the austere measures in the budget show the Executive Branch’sstrict determination to allocate money to more pressing areas. Saying that economic growth and development begins with fiscal discipline, Minister Konneh maintains that the draft budget will invest in areas that hold the greatest potential for inclusive economic growth, expansion and development in Liberia. He also assured that government will track public expenditure aggressively.
The Ministry of Finance worked closely with the Liberia Revenue Authority, revenue generating sector
Ministries, private sector actors and other relevant stakeholders to derive a more realistic revenue envelop for the Fiscal Year 2014/15 draft budget of US$557million considering the level of projected economic activities in the economy. The revenue numbers reported in draft budget are the best estimates to which planned expenditures have been aligned to mitigate the risk of budgetary shortfalls during execution.
In order to realize the projected revenue, Government will broaden the tax base, strengthen enforcement and eliminate fraud. This is expected to intensify further as the Liberian Revenue Authority comes on-line on July
Total revenue, including tax, non-tax and budget support grants, amounts to US$529 million. This is four percent higher than the updated projection of US$486 million for total revenues for this fiscal year, but 12 percent below the 2013/14 budget.
The 2014/15 projection has been made as realistic as possible, to reduce the likelihood of having to repeat disruptive mid-year expenditure cuts. The Government of Liberia has reintroduced contingent revenue lines in order to help manage revenue that is considered uncertain. For example, US$24 million has been classified in dividends from State-Owned Enterprises (SOEs) and US$28 million in borrowing as contingent revenue.
Core tax revenue is expected to grow steadily compared to this fiscal year, by nearly 11 percent, driven by expansion in taxes on income and profits and on international trade. Royalties and rents from concessions, particularly iron ore, are expected to rise, despite there being no one-off payments projected for this year. However, core non-tax revenue is falling overall, due to the reclassification of a portion of the dividends from SOEs as contingent.
Minister Konneh said Liberia needs a tight budget in order to tackle lot of post-war challenges including a continuous increase in government payroll and other operational expenses. The new draft budget cut millions for official travel expenses such as cars, fuel and lodging. It also limits official travels as government officials will now be required to fly economy class. The number of foreign trips will also be limited to three per year, with the exception of the President, Vice President, the Minister of Foreign Affairs and the Minister of Finance due to the many statutory meetings they are required to attend that bring dividends to the country; and there will be a limit of no more than five members on any travel party.
Because of these policies, goods and services have reduced from about US$175million in FY13/14 to US$108million in this draft Budget. These recurrent savings have provided fiscal space for the Government to tackle Liberia’s biggest infrastructure and security challenges.
The Government has also prioritized critical investments in energy, ongoing road works, road maintenance, security, education and health in the allocation of budget expenditures. The Draft Budget is broadly divided into categories: recurrent and investment spending. US$431million has been allocated for Recurrent spending while US$116million has been allocated for public investment projects.
Under recurrent spending, US$199million has been allocated for personnel compensation, US$69million for goods and services, US$13milion for social development funds, US$34 million for debt repayment (both domestic and external) among others.
The Ministry of Finance reports that the Liberia’s economy grew at 8.7% in 2013, led by increasing iron ore exports, construction and a robust services sector. Real GDP is projected to expand by 6.8% in 2014 and 8.2% in 2015. Increasing iron ore production and concession-related foreign direct investment (FDI) will continue to support Liberia’s growth. However, growth in concession sectors, particularly forestry and palm oil, continues to face governance challenges that are slowing expansion and employment. Progress with public investment in energy and transportation infrastructure will be necessary to enable growth outside of the extractive sectors. The Mount Coffee Hydropower Plant and other major energy and road rehabilitation projects under preparation will significantly reduce the cost of doing business when they are completed in 2015 and 2016.
The recently released economic outlook for Liberia by the African Development Bank reports that government continues to make progress in public sector reform and improving institutions, but this is slowed by capacity constraints. Improving budget execution and public investment will rely on containing current expenditure, largely the wage bill, while also improving cash management and preparing realistic revenue forecasts.
Timely approval of the budget by the legislature as well as improved inter-agency co-ordination will also be necessary. The phased draw down of UN forces also calls for increased spending in the security sector. "We need to transform and move the country forward," Minister Konneh maintained and urged everyone to embrace the budget.