Looming Crisis Facing Somaliland Economic And Finance Institutions – PART III

PART THREE

In part one and two,we looked at the initiatives taken by the Minister in order to increase the revenue base,in this part we will look at the fiscal policy and how it is important to the nation’s economic management.

Fiscal Policy

When of the core responsibilities of the Ministry of finance is to set and implement the national fiscal policy of the nation. Let alone setting and implementing the required fiscal policy of the nation he closed the fiscal policy unit funded and established by UNDP.

“According to Wikipedia,Ineconomics andpolitical science, fiscal policy is the use of government expenditure and revenue collection (taxation) to influence the economy

Fiscal policy can be contrasted with the other main type ofmacroeconomic policy,monetary policy, which attempts to stabilize the economy by controlling interest rates and spending. The two main instruments of fiscal policy are government expenditure and taxation. Changes in the level and composition of taxation and government spending can impact the following variables in the economy:

• Aggregate demand and the level of economic activity;
• The pattern of resource allocation;
• The distribution of income.

Fiscal policy refers to the use of the government budget to influence the first of these: economic activity.

The three possible stances of fiscal policy are neutral, expansionary and contractionary. The simplest definitions of these stances are as follows:

• A neutral stance of fiscal policy implies a balanced economy.Government spending is fully funded bytax revenue and overall the budget outcome has a neutral effect on the level ofeconomic activity.

• An expansionary stance of fiscal policy involves government spending exceeding tax revenue.

• A contractionary fiscal policy occurs when government spending is lower than tax revenue.

However, these definitions can be misleading because, even with no changes in spending or tax laws at all, cyclical fluctuations of the economy cause cyclical fluctuations of tax revenues and of some types of government spending, altering the deficit situation; these are not considered to be policy changes. Therefore, for purposes of the above definitions, “government spending” and “tax revenue” are normally replaced by “cyclically adjusted government spending” and “cyclically adjusted tax revenue”. Thus, for example, a government budget that is balanced over the course of the business cycle is considered to represent a neutral fiscal policy stance.

Methods of funding

Governmentsspend money on a wide variety of things, from the military and police to services like education and healthcare, as well astransfer payments such as welfare benefits. This expenditure can befunded in a number of different ways:

• Taxation
• Seigniorage, the benefit from printingmoney
• Borrowing money from the population or from abroad
• Consumption of fiscal reserves.
• Sale of fixed assets (e.g.,land).

Borrowing

A fiscal deficit is often funded by issuingbonds, liketreasury bills orconsols andgilt-edged securities. These pay interest, either for a fixed period or indefinitely. If the interest and capital requirements are too large, a nation maydefault on its debts, usually to foreign creditors. Public debt or borrowing : it refers to the government borrowing from the public.”

The Minister had a disagreement with the team leader of this office. It is normal to have a disagreement and different points of view while working together. However,the Minister dismissed the team leader,closed the office, transferred  the staff working in the unit and the office equipment to the inland revenue department. The Minister’s argument for doing this is as follows:

“I do not understand what this office does and is not inline with my revenue maximization priority. I do not understand these big documents they produce which are not inline with our local systems and which my staff are not conversant with”

Then the question is what this office has produced and annoyed the minister. The office has produced the following public finance laws as part of the public finance reform (PFM)  program funded by the World bank. Those laws were prepared by world class finance professionals who are fellows of the Association of Chartered Certified Accountants (ACCA)  with over 15 years public finance experience and worked on various African countries’s PFM programs such as Seirolone,Liberia,Kenya,Uganda,Rwanda etc.

The public finance laws prepared by the above team includes amonge others:

1. Audit act                                                                :For the office of the auditor general.
2. Budget act                                                             :For the Ministry of finance.
3. Procurement act                                  :For the National tender board.
4. Revenue act                                                         :For the Ministery of finance.
5. Public finance and accountability act              : For the office of the accountant general.
6. Custom’s act                                                         : For the Ministry of finance custom’

The way the Minister received the delegation from the World bank led by the East African Public Financial Management Cluster team leader was a shame on the Somaliland government. That morning in his office,as soon as  the team sat on the chairs,he shouted to the delegation leave my office and  I do not want this reform program. Imagine the damaging effect and reputation risk this would have on Somaliland as far as Somaliland’s standing at international institutions is concerned.

It is worth mentioning that the World bank has shifted part of the program initially intended for Somaliland to the Republic of South Suden costing millions of dollars as a result of the Ministry’s lack of cooperation and diplomatic courtesy.

Further, the fiscal policy unit was supporting the Ministry in economic statics such as the collection of data regarding government revenue,expenditure and debt .

Instead of appreciating and welcoming UNDP’s institutional building program which used to fund the fiscal policy unit,he overtook the unit’s office and it’s staff and used for a purpose  different for the one UNDP established for this office. As a result of this UNDP has suspended the salary for upto 20 staff members who are  finance graduates and received extra public finance training provided by UNDP.

By: Mohammed Dahir Ahmed (Hiilliye)

        Certified Chartered Accountant (ACCA

                E.mail: M_ddahir@yahoo.co.uk