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Supplementary or contingency: same abuse – Part 3

Introduction
To begin today’s column I conclude with two of the provisions relating to supplementary appropriations in the Fiscal Management and Accountability Act 2003 (FMAA). The first is that except in circumstances of grave national emergency, there can be no more than five supplementary appropriation bills in any one year. Second, every appropriation of public moneys authorised by Parliament for a fiscal year lapses and ceases to have effect as at the end of that fiscal year. And just in case any official, minister, or the Audit Office needs reminding, section 38 of the FMAA repeats what is stated in section 21, ie, that all public moneys raised or received by the government must be credited fully and promptly to the Consolidated Fund. “Public moneys” is defined to mean all moneys belonging to the state, including tax and non-tax revenue collections authorised by law; grants to the government; budget agency receipts; moneys borrowed by the state or received through the issuance and sale of securities; and moneys received or collected for and on behalf of the state.

The Contingencies Fund
I now turn to the constitutional provision governing the Contingencies Fund. The position is that if Parliament decides to establish a Contingencies Fund, Article 220 permits it to do so by paying into it a specific amount, the quantum of which is determined and, therefore, limited by law in respect of any year. The article goes on to authorise the minister responsible for finance to make advances from that fund, if he is satisfied that there is an urgent need for expenditure for which no other provision exists.

Advances from the Contingencies Fund must be cleared by a supplementary estimate laid before the National Assembly as soon as practicable (see 4) below), thus replacing the amount so advanced. Section 41 of the FMAA gives effect to Article 220 by providing that:

1) The Contingencies Fund is limited to two per cent of the estimated annual expenditure of the previous financial year or such greater sum as the National Assembly may approve. It is fixed for each year, either by way of the formula or an act and the minister cannot increase it without parliamentary authority.

2) Only the Minister of Finance can authorise the release of moneys from the Contingencies Fund and must do so personally. Legally, not even the President can instruct the Minister of Finance when it comes to this fund.

3) By way of a drawing right, the minister may make an advance from the Contingencies Fund. The circumstances under which he can do so are severely limited – the overriding test is threefold: urgent, unavoidable and unforeseen. Further, he can use this fund only where no or inadequate sums had previously been appropriated, or where reallocation under the FMAA is not possible, or finally, where delay would cause injury to the public interest. He cannot use the fund to meet a promise by the President to do something or the other, or because he failed to budget properly, or because some budget agency was careless.

4) The Minister must report at the next sitting of the National Assembly all advances made out of the Contingencies Fund, specifying (a) the amounts advanced; (b) to whom the amounts were paid; and (c) the purpose of the advances.

5) On approving such advance, the National Assembly must pass a supplementary appropriation act covering the advance.

I reject what appears to be the government’s implicit assumption that Article 220 establishing the Contingency Fund somehow overrides the provisions of Articles 216-219 establishing the sanctity and unity of the Consolidated Fund, and providing an elaborate regime for expenditure of public funds. All that Article 220 does is to authorise Parliament to establish, if it wishes, a Contingencies Fund. The FMAA sets the limit on the sum of money to be paid into this fund and sets out the procedures governing the use and operation of the fund. The purpose of Article 220 is to convert the demand for money to be available for unforeseeable expenditure, which could be treated as a demand for loose or floating money, into a demand for a determinable amount of money for a specific purpose approved by law made by Parliament and by the constitution.

The purpose and combined effect of the constitutional provisions and the FMAA is that all expenditure, whether from the Consolidated Fund or its sub-fund the Contingencies Fund, must be by way of an appropriation act. This allows the National Assembly to retain control of public moneys while allowing the executive branch sufficient latitude to conduct governmental business. The limitation on the number of supplementary appropriation bills would seem designed to impose a form of financial discipline and order on the Ministry of Finance and budget agencies, in contrast to haphazard, guesswork financial management.

Against this constitutional and statutory background we can now consider the six Financial Papers presented to the National Assembly for 2009 for a total sum of $15,703 million. As we see from the table below, the amounts provided to clear advances from the Contingency Fund were $3,936 million while supplementary provisions amounted to $11,767 million. These were approved by way of Supplementary Appropriations Acts passed on August 25 and December 14, 2009 and January 14, 2010.

Table of Supplementary Appropriations in respect of 2009

Source: Acts and Financial Papers

1. While nothing new can be said about the failure to deposit the lotto funds into the Consolidated Fund, equally dangerously and unconstitutionally, the lotto funds are being used by the President to make payments. I have tried to ascertain the identity of the officials complicit in this illegality by trying several sources to ascertain the signatories to “account 3119.” Everyone is afraid to speak. It is no wonder that the government would not bring Freedom of Information legislation, despite the President’s commitment announced to the international press.

2. In financial paper No. 6, $1.6 billion is included as additional inflows for the Low Income Housing Programme Revolving Fund. A revolving fund can only be established under an appropriation act which specifies the purposes and draw-down limit. There is no indication when such a fund was created or its limits. No such fund appears to have existed at the beginning of 2009 and there is some mystery about its origin and operations.

3. There is some apparent misunderstanding between inflows which should be paid into the Consolidated Fund and the related expenditure which should be the subject of the appropriation act. Any money received has first to go into the Consolidated Fund. Its expenditure is an entirely different matter.

4. The Finance Minister fails consistently to bring to the next sitting of the National Assembly advances out of the Contingency Fund. As a result we have in Financial Paper #1, Contingency Fund payments for a period of six months. During that period, the National Assembly had met on more than two dozen occasions. But this is the Minister’s artful but deceptive way to circumvent the limit on the number of supplementary appropriation bills he can introduce.

5. The annual Budget never states the amount in the Contingencies Fund. While the Audit Office annually refers to the abuse of this fund, that office seems not to understand what is meant by “advances” in the context of the fund. It is meant to be an amount paid in advance of appropriation at the next sitting, not some prepayment for future expenditure.

6. Arguably most of the Contingency Fund expenditure does not meet the strict test of “urgent, unavoidable and unforeseen” set out in section 41 of the FMAA. The case of the $400 million to the GRDB as Subsidies and Contributions to Local Organisations is instructive.

7. The Contingency Fund seems routinely used to make expenditure for subsequent financial years. The Minister of Health admitted as much in the case of purchases of drugs from the New GPC.

8. Act 3 of 2010 is interesting. It indicates that the government spends moneys contrary to law, not only in respect of the Contingencies Fund but for non-urgent expenditure. And just reflect on the first paragraph of this column: that every appropriation of public moneys authorised by Parliament for a fiscal year lapses and ceases to have effect as at the end of that fiscal year. Seems to suggest that the appropriation lapsed even before the National Assembly approved it.

9. In Financial Paper 5 there is, under the Office of the President, an amount of $353 million for the installation of fibre optic cables and termination, as a Contingency Fund provision. The explanation, or justification, by no less than the President, that this is to introduce “e-government,” ie, electronic government, is as absurd and misinformed as it is wasteful.

A criticism of this less than half-baked and non-technical description needs a separate column, but consider that the same week the announcement was made, the President was unveiling an advanced, multi-billion dollar, technically tested scheme by GT&T! Nor does the payment meet the test of “urgent, unavoidable and unforeseen,” and the Minister should be held accountable for this illegality since the law imposes on him exclusive responsibility over the Consolidated Fund.

Leading on from the issue of responsibility, next week’s concluding part will look at who is responsible and who can be penalised, and offer some of the recommendations to improve the financial management of the public finances of the country.

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Supplementary or contingency: same abuse – Part 2

Setting up of two funds
Occasioned by the walkout of the opposition from the National Assembly as it considered Supplementary Appropriation (No.3 of 2009) Bill 2010, for $8,245,758,278, some of which had already been spent (Contingencies) and to be spent (Supplementary Appropriations), I began an examination of the whole business of the constitution and the Fiscal Management and Accountability Act 2003 (FMAA). Together these provide the legal framework for the receipts and payments of public expenditure, and today I propose to examine the various provisions as a basis for consideration in the next part as to whether there is compliance with the constitution and the law in how the Minister of Finance treats with the Consolidated Fund and the Contingency Fund.

The constitution
The Consolidated Fund and the Contingency Fund are dealt with under Articles 216-219 and 220 respectively.

These five articles occur in Title 8 which is intituled simply ‘Finance.’ Together they deal with the establishment, funding and withdrawal of money from the Consolidated Fund or other public funds. For reminders, the Contingency Fund is not a separate fund but only a sub-fund of the Consolidated Fund.

The title of Article 220 is ‘Contingency Fund.’ It corresponds with the four articles on the Consolidated Fund and deals with the establishment of the Contingency Fund and its funding, which may be considered as one part, and withdrawing money out of it, which may be considered as the second and separate part of its provisions. One of the differences between the Consolidated Fund and the Contingency Fund is that while the constitution establishes the Consolidated Fund, Article 220 does not establish the Contingency Fund by its own provision, but leaves it to Parliament to decide whether or not it will establish the fund. “Parliament may by law establish” says the text of the article.

Because the Consolidated Fund is the repository of revenues or other moneys raised or received by Guyana and the source from which expenditure is made, the amount in this fund changes constantly. This is not the case with the Contingency Fund which has to be a specific amount, the quantum of which is determined, and therefore, limited by Parliament by law. We now look at those provisions in some detail.

Article 216 provides that “all revenues or other moneys raised or received by Guyana (not being revenues or other moneys that are payable, by or under an Act of Parliament, into some other fund established for any specific purpose or that may, by or under such an Act, be retained by the authority that received them for the purpose of defraying the expenses of that authority) shall be paid into and form one Consolidated Fund.”

This constitutional provision is systematically abused. It is now more than a decade since Auditor General Anand Goolsarran had cited the failure by the government to pay the government’s share of 24% of the proceeds of Guyana Lotteries to the Consolidated Fund, an assertion that has been repeated in every single annual report of the Audit Office. The 2007 report simply reminds Guyanese that no action was taken to pay over the amounts due to the Consolidated Fund but that such proceeds were paid into a special bank account No. 3119 and were used to meet public expenditure without parliamentary approval.

Watchdogs?
But instead of acting decisively on this matter the Audit Office accepts the inane response from the Ministry of Finance “that a policy decision is required on this matter, ” suggesting that the government or cabinet has some discretion on whether or not to comply with the constitution. Unfortunately, it is not only the Audit Office that bears responsibility for this sad state of affairs but so do the Public Accounts Committee and the National Assembly which are supposed to be our financial watchdogs. But so too does civil society, including those religious organisations which have accepted lotto funds for the construction of religious buildings.

While the lotto funds may be the most obvious and egregious case of violation when it comes to putting government revenues and receipts into the Consolidated Fund, it is not the only or obvious one. For example, the government with the cooperation of NICIL and the Privatisation Unit have been holding and spending public monies without the approval of the parliament and with no public oversight. That too runs into hundreds if not more than a billion dollars.

The Fiscal Management and Accountability Act 2003 which gives effect to the provisions of the constitution, provides that all budget agency receipts shall be credited to the Consolidated Fund. The agencies include the ministries, commissions, regions, the Guyana Defence Force and the Georgetown Public Hospital Corporation (GHPC). My understanding is that the money from the lottery company is paid to the Ministry of Finance making the decision not to place the lotto money into the Consolidated Fund both unconstitutional and unlawful. I particularly identify the GHPC because it too is guilty of such a breach which is done with the full knowledge of both the Ministers of Finance and Health. In an environment in which the rule of law prevailed, both these Ministers would be guilty of an indictable offence and liable on conviction to a fine of two million dollars and to imprisonment for three years. But Guyana has no such environment.

Now for expenditure
Article 217 restricts the withdrawal of moneys from the Consolidated Fund to one of three cases:

(a) to meet expenditure that is charged upon the fund by this constitution or by any Act of Parliament;
(b) where the issue of those moneys has been authorised by an Appropriation Act;
(c) where the issue of those moneys has been authorised under article 219.

Paragraph (3) of this article requires an Act of Parliament before any money can be withdrawn from any public fund other than the Consolidated Fund while paragraph (4) empowers Parliament to prescribe the manner in which withdrawals may be made from the Consolidated Fund or any other public fund.

Article 218 deals with the Appropriation Act to give effect to the National Budget as well as any supplementary estimates.

Article 219 which deals with the authorisation of expenditure before the annual Appropriation Act is passed, empowers parliament to make provision for the Finance Minister to authorise withdrawal from the Consolidated Fund of moneys to meet expenditure necessary to carry on the services of the Government of Guyana up to April 30 of the year, or until the Appropriation Act for that year.

The provisions governing such expenditure are contained in the Fiscal Management and Accountability Act 2003 to which for the moment I now turn.

Fiscal Management and Accountability Act 2003
If anyone has any problems with interpreting the relevant constitutional provisions, section 16 of the FMAA should remove any doubts. It provides very simply that there shall be no expenditure of public moneys except in accordance with Article 217 of the constitution. It does not stop there but goes on to set out detailed provisions in sections 17 (the statutory framework for the annual appropriation to authorise the expenditure set out in the budget); 18 (proscribing any expenditure of any budget agency receipt except by way of an appropriation); 22 (authority to vary annual appropriations); 23 (Appropriation Amendment Acts) and 24 (Supplementary Appropriation Acts).

We the ordinary citizens need not feel badly if this sounds a tad too complicated. Not only do we not bear the statutory responsibility for ensuring the act is complied with, but from all the evidence it seems that all the persons with responsibility for doing so are equally confused or simply do not care.

The Appropriation Bill presented under section 17 is required to conform to international standards, but what these are and whether they are applied in Guyana has never been addressed in any published document of which I am aware. With great respect to our ministers, accounting officers, staff of the National Audit Office and members of the Public Accounts Committee, I am not sure that they too are aware of what such standards are, let alone best practice.

Varying expenditure
Subject to laid down conditions, section 22 gives the minister the power to reallocate authorised spending among annual appropriations. The main conditions are that these be within the same budget agencies, that no capital allocation can be used for recurrent expenditure, a ten per cent limit and that no new appropriations can be created. Such changes are themselves subject to what is called an Appropriation Amendment Bill to be presented to the National Assembly no later than the end of the eleventh month of the current fiscal year.

Any variation other than the reallocation referred to in section 22 must be authorised by a Supplementary Appropriation Act prior to the incurring of any expenditure thereunder. As we noted last week, on the introduction of a Supplementary Appropriation Bill, the minister must present to the National Assembly the reasons for the proposed variations and provide a supplementary document describing the impact that the variations, if approved, will have on the financial plan outlined in the annual budget.

Neither the current Minister of Finance nor his predecessor has ever complied with the requirement to publish such a document. Again, one has to ask where is the National Assembly in all of this and whether the clerk and/or the speaker, the parliamentary opposition and the Public Accounts Committee ought not to do something about this persistent abuse. Dr. Ashni Singh gives the appearance of not being influenced by any law, professional or public opinion in terms of how, what and when he does anything. It is one of the failings of these types of legislation that they provide no automatic sanction for patent and systematic breaches. Nor do they lend themselves, without the availability of substantial private resources, to being responsive to legal sanctions.

Next week we will look at the Contingency Fund and close by examining the extent to which the cause of the walkout that sparked this series has any merit.

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Supplementary or contingency: Same abuse

Introduction
So often we hear time-worn sayings like ‘Chickens coming home to roost,’ ‘History repeating itself’ and ‘Forgetting the lessons of history,’ and we think they are just platitudes of no consequence. Yet the brouhaha in the National Assembly last Monday showed how some such things are not only more than idle talk, but rather powerful enough to have an after life.

The occasion for the war of words in the National Assembly was consideration of Supplementary Appropriation (No.3 of 2009) Bill 2010, for $8,245,758,278 as further and additional funding for various purposes, some of which had already been spent (Contingencies) and to be spent (Supplementary Appropriations).

On one side there were Prime Minister Sam Hinds, Housing Minister Irfan Ali and Health Minister Dr Leslie Ramsammy, three persons whose ministerial portfolios were significant would-be beneficiaries of the bulk of the supplementary funds. Over the other side were two attorneys-at-law, Opposition Members of Parliament Winston Murray (PNCR) and Khemraj Ramjattan (AFC), both of whom eventually left the arena in anger and frustration, threatening to take the fight elsewhere.

Déjà vu
To understand the exchanges one needs to delve a little bit into history, going back to the National Development Strategy which was adopted by the National Assembly a couple of years ago. Chapter 13 of that strategy dealing with Fiscal Policy and The Public Sector had this to say about the Contingency Fund which is so often confused – either by design or otherwise – with Supplementary Appropriations.

“Deficiencies in the Budget Process: Largely due to deficiencies in the budgetary process, the Contingencies Fund has been used to meet all kinds of expenditures, such as shortfalls in ministries’ provisions arising from basic miscalculations in estimates and unrealistic budget assumptions about exchange rate changes, inflation and spending patterns, and the introduction during the course of the year of new projects or programmes deemed ‘necessary’ or ‘relevant’ by a political or high-ranking technical functionary. Instead of being used for emergencies, such as a major breach in the sea defence system – the use intended by the National Assembly – the Contingency Fund now serves as a source of financing for unauthorised (by Parliament) and additional expenditures.”

More and more we have to admire, and owe a debt of gratitude to, the scores of persons who contributed to that document. Had we taken the NDS seriously we would long have been on an environmentally-conscious development trajectory rather than travelling to dictatorships like Iran to beg for money to sustain our economy.

The first walkout
The French have a wonderful way of expressing the English equivalent of “the more things change the more they remain the same.” And that introduces the second bit of history, this time in December 2003 when the Fiscal Management and Accountability Act 2003 came up for consideration in the National Assembly. The Stabroek News of December 16 of that year reported the PPP/C refusing a request from the Opposition PNCR to send the 87-clause bill to a select committee for detailed consideration. The Minister of Finance then was Mr Saisnarine Kowlessar and the reason he advanced for the government’s refusal of the request was that urgent passage was necessary to pave the way for debt relief of US$30 million from the World Bank and the IMF for the next twenty years. That explanation appears as strange as the request was sensible but then the National Assembly has never been the forum for the most sensible decisions or debate in Guyana.

Given no more than forty-eight hours to study and debate the bill, Mr Winston Murray, the PNC Shadow Finance Minister walked out in protest, allowing the overwhelming passage of the bill that may soon be at the centre of a legal action by the Alliance For Change. Ironically, the PPP/C may itself be a loser for not having read and understood what is clearly a complex and possibly badly worded piece of legislation. Indeed a statement given by Mr Robert Corbin, the PNCR leader on the recent exchange suggests that, at the very least, the act lends itself to continued misunderstanding in how billions of taxpayers’ funds are spent and accounted for. Over the next couple of weeks Business Page will examine some of the main provisions of the act, the principal objective of which is better transparency and accountability for the receipts and payments of the state in the Consolidated Fund which has as a sub-fund a Contingency Fund.

The Supplementary Appropriation
Section 24 of the FMAA requires that the variation of an appropriation other than reallocation of approved appropriations must be authorised by a supplementary appropriation act prior to the incurring of any expenditure. And that is where the experienced Prime Minister, the adventurous Health Minister and the green Housing Minister appear to have run into problems, confusing the supplementary funding with the kind of expenditure for which the Contingency Fund was specifically set up.

It seems too that the Finance Minister Dr Ashni Singh is also not sufficiently familiar with the act’s provisions on supplementary appropriations since he consistently fails to comply with the requirement that on the introduction of a supplementary appropriation bill, he is required to present to the National Assembly the reasons for the proposed variations and “a supplementary document describing the impact that the variations, if approved, will have on the financial plan outlined in the national budget.”

And before we go on perhaps it would be useful to note that Ram & McRae in Budget Focus 2008 had identified the absence of meaningful debate and real accounting for such additional funds.

Did it not strike our parliamentarians as odd that they should pass legislation that requires a request for $100 million in the budget to be subject to extensive scrutiny and debate but for an $8 billion supplementary request to be supported by only very limited information and subject only to questions and not a debate?

Cocking a snook at Parliament
Because of the supremacy of the constitution which empowers and regulates the raising of revenues and the incurring of expenditure by the government, we will also be looking at how the FMAA gives effect to and is circumscribed by the constitution. In researching for this column I found an interesting article by Indian Professor P.K. Tripathi and titled Lawless withdrawals from public funds: Cocking a snook at Parliament. It is apparent from that article that the application of responsible public accounting begins with the appreciation of a fundamental point about democracy and the rule of law.

As Tripathi points out, in a democracy the government must function both in respect of determination of its policies and the administration of those policies strictly under the control of the representatives of the people. The democratic process requires that no public monies can be spent without a grant made by the Parliament following a request by the government in the form of an Appropriation Bill or a Supplementary Appropriation Bill presented to the National Assembly specifying the purposes for which it plans to spend and the amounts of money it plans to spend on each of those purposes.

One exception for the prior approval of the National Assembly is in respect of monies out of the Contingencies Fund. I will look at the governing constitutional and statutory procedures next week, but for now it is not at all clear that those on the government side of the House, including the Prime Minister and Leader of the House Samuel Hinds and the Finance Minister Dr Ashni Singh, Dr Leslie Ramsammy and Mr Irfan Ali are familiar with those provisions. The two financial papers which were embodied in Supplementary Appropriation Bill #3 were in respect of both advances from the Contingency Fund and Supplementary Provisions for the year 2009. If we accept the position in the law that supplementary provision must be approved prior to expenditure it would seem beyond logic that one can be asking for supplementary provision for 2009 in 2010!

The New GPC again
Included in Financial Paper No. 5/2009 for $1.449 billion were amounts totalling $473 million for purchases of drugs mainly from the New Guyana Pharmaceutical Corporation towards which this government had earlier found itself acting illegally. Is history now repeating itself with breaches of the Contingency Fund being involved in payments made to the company between December 28 and 31 to procure drugs to last up to April 2010? What neither Dr Ramsammy nor Dr Ashni Singh told the National Assembly is when the drawing rights for these were requested, and issued in accordance with section 41 of the FMAA.

It may well turn out to be entirely ironic that one of the few amendments proposed by Mr Winston Murray and accepted by the government when the FMAA Bill was debated in 2003 may come back to haunt the government. And that is in relation to penalties for breaches.

The act makes it an indictable offence punishable on conviction to a fine of two million dollars and to imprisonment for three years for any official to knowingly permit any other person to contravene any provision of the act.

Maybe the Prime Minister sensed the rising temperature and not so implicit threats during the exchange in the National Assembly, taking refuge in the need to consult legally.

Those who have honed their political skills and owe their allegiance to the architects of the more permissive recent financial arrangements do not appear so compelled.

To be continued

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Economy firewall malfunctions – Conclusion

Conclusion
This is the fourth and final part of a review of the Mid-year Report 2009 presented by the Minister of Finance to the National Assembly under the Fiscal Management and Accountability Act, 2003. As I promised last week, the purpose of this closing part is to pull the strands of the three preceding segments together and to look for any causes of optimism in the economy and its management.

Despite its title, the Act requires of the mid-year report more than the year-to-date execution of the annual budget. It requires the report to set out the prospects for the remainder of the year. It also mandates the inclusion of a revised economic outlook for the rest of the year, a statement of the projected impact of the trends on the remainder of the year, and very importantly, a list of major fiscal risks for the second half of the year with likely policy responses that the government proposes to take to meet the expected circumstances. In my view the report presented by the Minister falls very short of the requirements of the Act, and he spent no more than a few sentences on the revised economic outlook, fiscal risks and proposed government responses for the rest of the year. If proof be needed, then the Minister himself provided it this past week when he brought before the National Assembly requests for $5 billion, mainly for spending in the second half of the year, which must have qualified for – but did not receive – inclusion under projected trends and major fiscal risks. It is also a case of how bad and weak the Ministry of Finance is when it comes to budgeting and planning.

Before proceeding, I digress to repeat what I consider a major concern about the report, and that is its lack of timeliness and therefore its limited practical value. The report is by law due no later that August 30 of the year. It is now normal not only for the report to be issued months later, but also for it to bear a date that is very misleading, sending a signal to others that it is okay to do so. For 2009 it was presented on November 12, but bearing the date September 25. The Minister must be aware not only that the National Assembly has a registry to receive reports when it is in recess, but that it is wrong to send signals to subordinates that such conduct is acceptable.

Disdain
In part 2 of this short series I drew attention to an item in the Bank of Guyana Half-year Report submitted to the Minister of Finance, in which the performance of the economy in the first half of the year was addressed in considerable detail. I noted an obvious conflict between the numbers presented by the Minister and those presented by the Bank of Guyana; while one was reporting growth, the other was reporting a decline. Clearly they both could not be right, and the public would have expected, both out of duty and professional self-respect, either or both of these entities to have addressed the issue. Neither has done so, further evidence of the Minister’s disdain for the public, recalling his response to a Kaieteur News article on grossly excessive payment by the government for the purchase and supply of equipment, when he suggested that the newspaper should start bidding for contracts!

LCDS and accountability
The Minister must be aware that the President’s attempt to raise money internationally for Guyana’s proposed low carbon development strategy is also drawing attention to the country and its management. Everyone, including the General Secretary of the ruling party, now admits that corruption is taking place in the country – any difference being only the matter of degree, with most independent opinions leaning towards corruption on a massive scale. That view is reflected in Guyana’s ranking in the Corruption Perception Index by the internationally respected, German-based Transparency International, where Guyana is rated at 126 of 183 countries, the worst in the region.

This series on the mid-year report pointed to one of the most celebrated cases of flagrant breaches of financial procedures – that involving the purchase of drugs by the government, largely from an entity with which the President admitted to having close ties, and which had earlier been singled out for unlawful tax concessions. But that is only one case among many that are surfacing daily with contractors, whose low expertise in construction is only matched by high level connections, and who receive multi-million dollar contracts that cost as much in rework in some cases, almost as soon as the work is signed off and payment made. Corruption is one C-word that is alien to any half-year or full-year review done by the Minister.

Unlike the Minister of Finance and the President, Norway, the government’s LCDS benefactor, is not oblivious to or unaware of the endemic problems of corruption in Guyana, neither does it seem willing to sweep them under the carpet. That country’s Environment and International Development Minister Erik Solheim has made its position on corruption clear by prescribing robust anti-corruption measures before Guyana can draw down on the six-year US$250 million promise made by Norway. That understanding is still only at the MOU stage and may therefore be subject to further refinements and a formal and binding agreement.

Transparency
It is almost a joke to speak of a transparent financial mechanism while simultaneously and strongly refusing to put into effect constitutional provisions regarding the procurement of goods and services or an Audit Office headed and staffed by persons with appropriate qualifications. That the current head of the Audit Office is merely acting has as much to do with the fact that he has no professional accounting or audit qualification as that it serves the government well to have someone hold a key constitutional, accountability position purely at its whim and for its convenience. Those in acting positions know that if they rock the boat they risk sinking with it, a chance that out of self-interest, they will not take.

If the Norwegians are any more careful with their taxpayers’ funds than say the multilateral IDB or the World Bank, the chances of Guyana drawing down the entire sum must be low. If US$250M buys the Norwegians sufficient carbon credits to embellish their questionable record as an environment polluter, they may feel they have obtained a basement bargain. On the other hand, Guyana gives up major rights and opportunities, raising the question whether the country should not have had an indigenous low carbon development strategy rather than one dictated by the Norwegians, acting in their interest.

Contract employees
Another issue highlighted by this series was the increasing prevalence of the use of contract employees to get around the rules of employment in the public service. I had drawn attention to the more than $3 billion paid in salaries to this group of hand-picked persons, with another huge amount paid in benefits to them, including a 22% gratuity every six months. The really lucky ones get cars, drivers and duty concessions on top. This means that even the non-contract employees are really a benefit to the contract employees. Who these lucky ones are is intended to be a secret, but the Office of the President is a wonderful case of abuse. Of 201 employees in the Office of the President, ninety-five are contract employees and fifty-four are temporary. Among the contract employees are former ministers, all of whom are reported to be employed at the pleasure of the President on the same salaries and with the same benefits that they received as ministers. The Ministry of Local Government has two former ministers who must still be financed by the taxpayers.

Ironically, both the Public Service Commission and the Public Service Ministry which are expected to protect the integrity of the public service are themselves serial cases of the contract employee syndrome, while the culture also seems embedded in the Ministry of Culture, Youth and Sport.

Implications
The implications of this are huge and costly. It gets around the constitutional provisions for employment in the public service, creating a huge army of often highly paid loyalists but more importantly, it destroys the public service and its structures. What institutional memory will remain if on a change of government, the holders of all major key positions are not retained? Are we again going to turn to the British government which in the late eighties paid huge sums on financing a study that led to sweeping changes in the public sector and a dramatic reduction in the number of ministries? But that was before we had VAT that provides an annual windfall in revenues for the government to (mis)spend as it pleases, even as the half-year report discloses increasing borrowings without any indication of the actual amount of funds in the Treasury. That simply cannot be responsible financial management.

We noted in paragraph one that the Minister had approached the National Assembly for close to $5B to pay for unbudgeted expenditure on the army, Office of the President, LCDS, GuySuCo and other agencies and ministries. But we had also noted from the first-half report the low level of spending in that half year. The country’s financial rules provide for the reallocation of funds from one budget area to another. There is no indication that this sensible practice is ever employed instead of the simplistic approach for the National Assembly to rubber stamp excess and excessive spending. Simplistic too is its approach to sugar into which it continues to pump billions while its relationship with its major stakeholder – the workers – deteriorates rapidly. It is easy to forget that the government defied the World Bank and informed the public concerned about the Skeldon Project, the largest single public investment ever undertaken in this country. The results so far have been more than merely disappointing.

Where next?
Ram & McRae will this Thursday publish its report on its annual Business Outlook Survey which would give a good indication of the private sector’s take on the economy. From the empirical evidence only a few sectors are doing well but none of these is in manufacturing or production. Our financial sector continues to do well, as does distribution, but important as these are, they provide an intermediary function. The state-owned power company, whose costs feed into the rest of the economy, continues to struggle to reduce inefficiencies and costs. The public sector wage bill keeps mounting while services remain stagnant. The bureaucracy and its sibling, corruption, impose a huge cost on the highly-taxed economy, in which equity and fairness hardly exist.

It would not be right to argue that there have not been improvements in infrastructure, health and education, which were tied to the huge debt reliefs enjoyed over the past two decades. We have, however, failed in diversifying and strengthening our productive capabilities. Until we do that we cannot declare that we have accomplished the mission set by the PPP/C when it assumed control of this country, including making the country a place where rights, responsibilities and rewards were borne and shared equitably.

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Economy firewall malfunctions – part 3

Introduction
This is the third and penultimate instalment of a short series reviewing the mid-year financial and economic report presented last month by the Minister of Finance. This review has benefited and drawn from the half-year report presented to the Minister of Finance by the country’s central bank, the Bank of Guyana. We will also look at two developments this week – the two supplementary papers presented on Thursday to the National Assembly by the Finance Minister Dr Ashni Singh seeking another $4,677,208,405, roughly the equivalent of US$25M, some of which has already been spent. The other is the news that the state-owned sugar company is experiencing cash flow difficulties in meeting its payroll obligation, while also being the beneficiary of another $1.4B for its capital expenditure programme. The inability to meet one’s payroll obligation is one of the worst signs of serious financial difficulties a business can encounter, and one wonders how the corporation which is top heavy with accounting expertise did not foresee this and take preventive action.

This request for additional funding of roughly 5% of the 2009 budget is itself troubling since the Minister’s mid-year report had shown key ministries being unable to absorb and spend the money authorised by the National Assembly in the 2009 Budget. Readers will recall from last week that the key sectors identified by the Minister had only been able to spend 34.6% of the 2009 full-year budget allocation, compared with 38% in 2008. By way of an explanation for the capital expenditure in half-year 2009 falling behind schedule, the mid-year report identified “some delays as a result of logistical and other issues.”

A large proportion of the money is for areas controlled by President Jagdeo – the army and the burgeoning Office of the President. The current request brings to more than half a billion dollars the additional sums given to the GDF, an entity that is regularly reported as failing to meet proper standards of accountability. The Office of the President – Presidential Advisory will receive an additional $50M to meet expenditure in relation to the Office of Climate Change and the Low Carbon Development Strategy. It is uncertain whether this money will be reimbursed by our Norwegian benefactors under the Guyana-Norway LCDS MOU which provides for a possible grant to us in 2010 of US$30 billion Guyana dollars.

The Public Works Ministry which is one of the sectors whose expenditure is not on target is yet being given additional sums, while the $400M promised by the President to the rice sector is now part of those supplementary funds. Sugar, rice and electricity, three sectors with an all-pervasive government involvement are proving a heavy burden on the national coffers, raising serious doubts about the capacity of those sectors to deal with their apparent incessant problems, some of which may be weather related.

Let us return to the mid/half-year reports which include the following table of the country’s principal export commodities. While rice export is showing a substantial increase, half-year output in 2009 was 7% lower than in 2008, suggesting a substantially lower level of domestic consumption or lower stock levels at June 2009.

Exports of Major Commodities
2009.12.06_Table1

Source: Bank of Guyana Mid-Year Report

The country’s import of merchandise also declined – by 16.2 per cent or US$104.3 million to US$538.5 million. This is partly attributed to a decline in import prices, mainly of fuel and food. While the decreases in other intermediate goods may not warrant major concern, that cannot be said for capital goods; the import of all categories of machinery declined by 16.1 per cent or US$21 million. What must be of concern, however, is the import of consumption goods which expanded by 7.6 per cent or $11.6 million primarily due to increases in other non-durables and motor car subcategories. We seem to have a mindless non-policy on vehicle imports, a significant proportion of which are for the growing band of contract employees and others in receipt of duty-free concessions, while the statistics highlight the increasingly visible extravagant lifestyles and conspicuous consumption of a fortunate few.

The Bank of Guyana report shows the extent to which Clico – the country’s largest insurance company has impacted on the economy. As a consequence of that failure, the total resources of the domestic insurance companies (life and non-life segments) declined by 34.7 per cent to G$25,640 million. The life component, which amounted to 64 per cent of the industry’s resources, fell by 46.8 per cent to G$16,321 million, whilst the non-life component rose by 8.8 per cent to G$9,319 million. The resources of the insurance companies are available for investment in other sectors of the economy but because of the surplus liquidity in the banking sector the impact has not been as strong on the rest of the economy. In respect of the savings and pensions of thousands of individuals – either held directly with Clico or indirectly through pension schemes – the impact has been dramatic if not visible.

This column has been strongly critical of the poor management and governance of Clico and the equally inadequate regulatory oversight that allowed the company to break all the rules. It also believes that more thought should have been given to saving the salvageable segments of the company. If the die has been cast and extreme unction has been administered, then there are compelling reasons for the payment of a first dividend to those with savings and pensions in Clico. What a good Christmas gift that would be.

In foreign exchange, net current transfers declined by 17.2 per cent to US$120.5 million as a result of lower inflows to the private sector in the form of worker remittances. The main sources of outflow were workers’ remittances and remittances to bank accounts, which amounted to US$54.4 million and US$29.7 million respectively. The issue of outward worker remittances highlighted in the Bank of Guyana report, amounting in the half-year to more than ten billion dollars is a serious development in the economy, but instead of addressing it, the Minister misrepresents the data in his own report.

2009.12.06_Table2

Sources: Mid-Year Report 2009 and Bank of Guyana Half Year report

Once again the country is burdened with additional external and domestic debt. The total external public debt rose by US$27.2 million from December 2008 to US$861.5 million at end-June 2009 but it is the composition of the debt that must cause some concern. Over the past twelve months, the stock of outstanding public and publicly guaranteed debt rose by 11.3% to US$862 million with the IDB and the Venezuelans contributing equally to a $100 million in disbursements in the case of the IDB and trade credit by Venezuela under the Petrocaribe agreement. It must be a matter of speculation whether there is any co-ordination between those who manage our external affairs and those responsible for borrowing and spending.

Domestic debt continues its mountainous climb reaching $84 billion dollars in June 2009, an increase of 15% over the 12-month period and 11% during the first half of 2009. Ten years ago the total public bonded debt was $41.6 billion, meaning that over less than ten years the domestic debt has doubled, a situation that would have been replicated in the country’s external debt had it not been for debt-write off.

The reason for this is that what we cannot do by taxing, we do by borrowing – for anything and everything. To bring the New Building Society under the Financial Institutions Act requires the addition of just five words to the definition of a company subject to the licensing requirement of the FIA and the regulatory supervision of the Bank of Guyana. But in public finance and indeed in public management in Guyana, nothing is straightforward. We must have the obligatory consultant to come and tell us for tens of thousands of United States dollars how to do it. What a waste.

Next week we close this series by pulling the various strands together and looking for any cause for optimism in the economy and its management.