BY Danjuma Mahmoud, PhD

PUBLIC EXPENDITURE MANAGEMENT REFORMS: AN AGENDA FOR THE NEW ADMINISTRATION IN KANO

STATE

KEY ISSUES FOR CONSIDERATION

Key PEM performance indicators not encouraging for the State

IGR accounted for less than 13 percent of actual revenues in 2009 fiscal year ;

The domestic debt service to-internally Generated revenue ratio for the period of 2007-2009, although below but was close to the 28%-63% Debt Relief International(DRI) threshold for Domestic Debt Sustainability;

Total internal revenue generated in 2008 was N11billion with a slight increase to N13billion in 2009.

Key PEM performance indicators not encouraging for the State-II

IGR-to-Total Revenue ratio was 14.04% in 2007 and slightly increased to 14.78% in 2009, but projected to have declined in 2010. Comfortable IGR-to-Total revenue for Kano State is estimated at 40% of total revenue;

The current reported average monthly IGR is in the region of N1billion as at December, 2010 is by far sub-optimal;

The ratio of Recurrent to Capital Expenditure in 2007 was 72: 28, although there were slight improvements in 2008 and 2009 respectively.

No serious attempt was ever made to tap the opportunities offered by the capital market;

Why looking inward to complement expected inflows?

Tax policy and tax laws create the potentials for raising tax revenues, the actual amount of taxes flowing into the government Treasury, to a large extent, depends on the efficiency and effectiveness of the revenue collector;

Weaknesses in revenue administration leads to inadequate tax collections;

Consequently, financing of the resulting budget

deficit through borrowing can cause unsustainable increases in the State public debt;

Why looking inward to complement expected inflows?-II In the alternative, revenue shortfalls shrink the

budgetary resource envelope, thus, affecting the government’s ability to implement its policies and programmes and provide public services;

Unexpected dips in revenue collections also cause budget cuts that result in major inefficiencies in the public expenditure management.

Key Components of Governance Reform

Public Financial Management (PFM)-How financial resources are managed:

Key Components of Governance Reform-IIPublic Service Reform (PSR)- How services are

delivered ;

Policy and Strategy (P&S)-How policies and strategies for development are prepared and monitored.

Monitoring and Evaluation (M&E)-Performance Assessment linking output to outcomes

The role of Medium-Term Expenditure Framework at Sub-National Level

Setting out macroeconomic outlook for a medium termhorizon (3 years);

Stating the underlying key assumptions for the 3 yearForecast;

In-depth analysis and evaluation of the 3 year forecast;

A fiscal strategy paper, detailing the government’s financial objectives the government’s policy under the medium term expenditure and revenue frameworks;

Help with close examination of the fiscal risks, especially when contingent liabilities are involved

Legislations Required to Strengthen Public Expenditure Management

Fiscal Responsibility Legislation to: Strengthen fiscal policy design and

implementation;

Change from the tradition of short term fiscal perspective to, minimally, a medium term fiscal sustainability; and,

Improve budgetary process

Legislations Required to Strengthen Public Expenditure Management-II

Public Procurement Legislation

Improve public sector spending behaviour;

Improve the quality of government spending (Vfm);

Reduce corrupt practices and inefficiency; and,

Track down public sector investment spending

Legislations Required to Strengthen Public Expenditure Management-III

Install due process in public spending;

Monitor and track down investment in public goods;

Maintain strict adherence to budget provisions by Ministries, Departments and Agencies

Linking Pro-Poor Interventions to Sound Public Expenditure Management

Sector-wide intervention is prioritized and costs attached to it. This helps to ensure;

o an appropriate mix of service delivery activities within and between sectors according to available resources;

o sustainability in service delivery over time;

o current and future expenditure commitments are consistent with a projected fiscal position of the State.

Linking Pro-Poor Interventions to Sound Public Expenditure Management-II

A policy-based budgeting process enables the government to plan the use of resources in line with its financial policy and sub-national strategy;

Predictable and controlled budget execution is necessary to enable effective management of policy and program implementation ;

Timely, relevant and reliable financial information is required to support all fiscal and budget management and decision-making processes

Current Practice and Areas that need urgent attention in PEM in Kano State

Extent of unreported government operations

These are government monies spent through off-budgets and there are currently no reports on these activities. This distorts PEMS and does not allow for comprehensive financial planning

Loans to parastatals Loans from KSG to parastatals are not

budgeted but large changes in these loans occur during the financial year, adding to the uncertainty of cash flow movements.

Current Practice and Areas that need urgent attention in PEM in Kano State-II

Donor financed projects Projects which are financed by donor grants

are mainly off-budget, and though some are included in the budget book as income under capital receipts, they are executed through separate bank accounts and there is no evidence that the expenditure is included in the public accounts

State Peculiar Issues necessary to Strengthen PEM

Oversight of aggregate fiscal risks from other public sector entities

KSG should monitor fiscal risks arising from independent bodies for which it may have to underwrite liabilities.

Parastatals Some autonomous government agencies and public

enterprises have large capital budgets and are able to borrow, for which a guarantee is usually given by KSG. Hardly any of these entities make profits to fund their operations.

State Peculiar Issues necessary to Strengthen PEM-II

At present no analysis of financial risks has been carried out, it should therefore be a target for future work for the incoming Ministries of Finance/Budget and Planning.

Fiscal forecasts Three-year forecasts of fiscal aggregates

should be instituted by the MPB and should be classified by sectors. This greatly help public financial management and planning.

State Peculiar Issues necessary to Strengthen PEM-III

Recording and management of cash balances, debt and guarantees .

Debt sustainability analysis Following the formation of the Debt

Management Unit (DMU) a debt sustainability analysis has been undertaken in 2006 for external debt only

Thank you!!