Liberia’s outrageous recurrent expenditure

Karweaye maintains in this piece that the Liberian government misuses public money

Karweaye maintains in this piece that the Liberian government misuses public money

The 2nd quarter of the fiscal year has practically ended, the beginning of the 3rd quarter has started, yet Liberia  and Liberians  are yet to know how a portion of the  projected US$582 Million budget are being spent and how much more is going to be borrowed in our name to provide for services that we can neither see nor feel. 

Appearing before the National Legislature, the Minister of Finance predicted a budgetary shortfall of around US$74. 5 million at the beginning of quarter three of the Fiscal Year (FY) 2013/2014. With series of budget shortfalls, the United States of America (USA), through its ambassador accredited near Monrovia, Debora Malac, urging the Government of Liberia to discontinue the spending of money it does not have.

Ambassador Malac said the Liberian Government is facing a serious budget shortfall, which has impacted its ability to execute “ambitious activities” it has planned to benefit the country and its people.  The US Ambassador noted that “It is hard, when you are impatient to make things happen when the money is not there. Sometimes it is good to take a step back to figure out what is possible with the funding that is available, and then look and hope for other ways to look for funding.”  The International Monetary Fund (IMF) asserted that “Addressing significant shortcomings that have emerged in the budget process and expenditure controls will be critical in the coming months.” 

Liberians, no doubts, are no longer strangers to the news of poor budget implementation, though it still remains a thorn in the flesh. The citizens are also no longer surprised that there are duplications and assessed fictitious items that facilitate easy access to public funds. Even the issue of late submission of  the budget proposal, possible wrangling, claims and counter claims over votes for various sectors, ministries, departments and agencies (MDAs) are the business as usual. 

Minister Amara Konneh and his team raised the hope of the Liberian people by adopting the Medium Term Expenditure Framework (MTEF) after MTEF the legislative approval as required by the Public Finance Management Act of 2009. The reasons  most African countries are participating in the MTEF are that it provides the basis for annual budget planning and consist of a macroeconomic framework that indicates fiscal targets, estimates, revenues and expenditure, including government financial obligations in the medium term. The documents also set out the underlying assumptions for these projections, provide an evaluation and analysis of the previous budget and present an overview of consolidated debt and potential fiscal risks. MTEF also produce a number of important outcomes, including the macroeconomic outlook, fiscal balance, and other key indicators.

The importance of sensible and prudent budgetary allocations cannot be overemphasized because the budget itself is an expression of public policy. It is the vehicle through which the various programs and agendas of a government come to life. It is the major economic policy instrument which indicates a government’s priority and is also a tool to correct anomalies and inequities within the society.

An efficient budgetary system is critical to economic growth and developing sustainable fiscal policies. On the flip side, a poorly designed budget where attention to details are neglected and figures just altered from existing templates can only exacerbate social and economic problems within the country. The effect of faulty budget choices will inevitably be felt mostly by the ordinary citizens who are at the mercy of dysfunctional government policies and facilities. Sadly, in the Liberia context, budgeting is still based on guess work as evidenced in series of budgetary shortfalls. 

In a nutshell, Minister Konneh’s explanation to the legislature for the numerous budget shortfalls were poor revenue collections. I tend to partially agree with Minister Konneh.

Revenue generation is the nucleus and the path of modern development, but what Minister Amara failed to educate or inform  the legislature and the Liberian people are the country’s outrageous spending spree in running the government and the urgency needed in curtailing such wasteful spending. 

The volume of public expenditure has been on a rise in Liberia if not almost all countries of the world, because of the continuous expansion in the activities of the state and other public bodies on several fronts. Public expenditures are the expenses which government incurs for the maintenance of the government and the society in general.

Generally, public expenditure in Liberia can be categorized into two component parts, namely capital expenditure and recurrent expenditure. Recurrent expenditure is the spending by the ministries, departments and agencies (MDAs) of government on salaries, pensions & overheads salaries. Capital expenditure is used to provide infrastructure such as roads, water and power; fund educational services such as schools, colleges and universities; and provide healthcare facilities and services among others. 

During FY( fiscal year) 2005/06 – FY2012/13, public spending increased by nearly three times supported by a steady increase in revenue. Spending rose from 9 percent of GDP in FY2005/06 to 33 percent of GDP in 2012/13. This was driven by rising personnel costs, goods and services, and transfers. Capital expenditure has risen from a very low level of 0.5 percent to reach 7.8 percent of GDP in FY2012/13.  In the 2013/14 budget, 83.2% of the nation’s budget was allocated for recurrent expenditure while capital expenditure stands at meager 16.7%.  We are very worried that over 83.2% of the budget is actually going for recurrent expenditure and less than 16.7% on capital expenditure. No country develops under such provisions because what grows a country or builds the economy is the amount of investments you are making on infrastructure and other structural issues that you required to strengthen your economy. It is a shame within the 8 years since Madam Sirleaf came to the presidency and with over $2.716 billion collected in total revenue collected  in revenue, the ordinary people haven’t felt the impact economically. 

So how did we get to such a high cost of running the government?  It was the two sets of increases that were done on the public sector salaries that actually catapulted recurrent expenditure to where it is today. It is not sustainable! You cannot give what you do not have  as Ambassador Malac said. We must re-examine public sector salaries, including that of political office holders across all levels of government. We must stop the stealing going on in government, plug the leakages and hold our so called civil servants accountable.

There are people who say civil servants are underpaid but if you look at it, it is in terms of giving what you really do not have. At the onset of the global recession, there were countries that actually reduced wages of their civil servants because they could see that their revenue profile could no longer support the continued payment of these wages. But what did Liberia do? Not only did we literally double the minimum wage, we actually established all sorts of new institutions and escalated our expenditures through the roof. There is nothing that the Minister of Finance or the government can do to reduce recurrent expenditure and avoid shortfalls without really facing the real issues, without engaging the people. We must face the issues! Liberia must face the issues! We cannot run away from it forever. 

Our recurrent expenditure is outrageous! It might seem convenient now because the government doesn’t want to incur the wrath of the civil service but in the long run, the country will suffer for it. A budget document that provides only 16.7% for capital expenditure is a trip in self delusion and the propagation of falsehood. The weight of recurrent expenditure cannot be supported by the capital budget. This is symptomatic of a rent economy whose long term growth is not sustainable. The ratio of recurrent to capital expenditure does show that  our present leadership has the will to change the status quo. There must be the political will to restructure this equation if, as a nation, we are mindful of the need to ensure a bright and prosperous future for our citizens, particularly our teeming youths, the majority of whom are presently in the labor market.

Although the Minister of Finance stated that the budget is for job creation, the amount available to pursue such an objective seems rather lean and laughable; that is why I am not surprised of the numerous shortfalls. 

The major trouble with the Liberian budget is the overbearing interest of those charged with the responsibility of preparing the document and appropriating its contents for the benefit of the Liberian people. Rather than see themselves as stewards, they now believe they are the primary and ultimate beneficiaries of the budgeting process. Thus, the fight between the Executive and the Legislature has been at the expense of the common man whose interest the budget has failed to truly cater for, as it should.

At the presentation of the appropriation bill,  Minister Konneh and his team said that it was scripted to create employment and was development oriented, however, the  discordant tones in the policy documents pointed to the lack of synchronization of recurrent and capital expenditures in fiscal plans to tackle development. 

Still, there have been rising concerns over what makes up the nation’s recurrent expenditure, how real and necessary they are in the economic management of the country. For instance, the rationale for the yearly budget of the National Assembly, which had been pegged at US$189 million over the years, with no upward nor downward. Yet the legislators are requesting US$73 million for so called “direct district development.”

Corruption is also a factor in this equation. The figures in the recent years have become mind-boggling, leading to serious distortions in our national priorities. In a country where there is a huge infrastructure deficit, spending huge sums on recurrent items is detrimental to economic progress. The biggest constraint to productivity in the economy today is the quality of infrastructure. Improvements in this area can only be achieved if there is a significant investment. The situation is even of greater concern because the full implementation of even the meager allocation is often not guaranteed (Shortfalls).

For the ordinary Liberian, the budget is gradually losing its relevance.  Most of the time, there has been a great variance between what is budgeted and what is actually implemented or spent, thus rendering the entire process a mere formality designed to just make the people feel good that something is being done about their affairs.  In the 2012/13 budget, for instance, the level of implementation was less than projected. Granted, Liberia’s economy has been growing, but there is a greater argument that it is in figures. That is typical of the government spending. The real effect of such a growth in government spending has not been proportionately felt by the populace, resulting to the paradox of “growth without development.”  So, despite the burgeoning increase in expenditure, unemployment has remained high as the development indices have remained poor. 

But is capital expenditure really implemented?. Obviously, much of the spending through the country’s budgets go to service the establishment — MDAs, and at the end, very little is actually spent in a way that benefits the ordinary man. An assessment of the performance of the 2013/24 budget so far showed various reasons for the failure of the budget implementation, while its impact has remained unimpressive.

The MTEF  projections and policy objectives over the years  had shown that the nation has not moved from the old practice of heavy recurrent and light capital projection and subsequent poor implementation of the budget in the years past. The pattern is that recurrent expenditure is fully drawn down while the capital expenditure bears the brunt of all kinds of delays, bottlenecks, inefficiencies and outright economic sabotage. The figures speak for themselves. US $485.7 million was released for capital expenditure in the 2012/2013 while only US$68 million for capital expenditure. The implication from the trend in 2012/2013 is that capital budget implementation continues to be relegated as in previous years. The 2013/14  implementations may end up being as usual. https://docs.google.com/a/mopea.gov.lr/viewer?a=v&pid=sites&srcid=bW9wZWEuZ292LmxyfG10ZWYtYnVkZ2V0fGd4OjRhMjRkNjRkOWVmM2VmNmY 

Assessing MTEF, on which the 2012/2013 and 2013/14 budget bill were based, listed fundamental gaps in the document, which could raise excuse for failure in the future. They further queried the absence of indicators of the growth drivers in the document. To them, it was not all about recurrent expenditure, but the entire system on which those assumptions were made and possibility of getting positive results from faulty background.  The framework fell short of the requirements expected of it on the projections and forecasts of economic growth, inflation rate, interest rate and credit policy, which should galvanize the private sector to create wealth and jobs to improve the economy. The monetary component wasn’t considered in the MTEF and must be considered to support growth and employment generation. Where is the projected sectoral contribution to the Liberia, economic growth in 2013/14? Does it mean we have no sectoral targets? This current MTEF has no foundation per se and is therefore inclined to serve the interest of some few, the creditors and the business as usual community and not the social welfare of a wider society.

There have been various figures bandied around on the GOL budget implementation performance. The figures from the MDAs are at variance with what is coming from the Finance Ministry. But what is clear in all of these is that capital budget implementation has not been satisfactory. This has been a recurring trend in budget performance over the years. Whereas recurrent spending often achieve close to 100 per cent, the story for capital expenditure is quite different. Yet the critical problem of infrastructure deficit can only be addressed by scaling up capital budget performance. Recurrent spending is estimated at 83 percent. By the time allowance is made for debt servicing, total recurrent spending will be getting close to 90 per cent. However, bureaucratic bottlenecks; capacity issues in the MDAs; weak institutional capacity to capture all revenue due to  the GOL Account; corruption and wrong expenditure priorities, as factors aiding poor budget performance in the country. 

Economic growth and development is mainly enhanced by the expansion of infrastructural facilities, the improvement of education and health service, the encouragement of foreign local investments, low cost housing, environmental restoration, and the strengthening of the agricultural sector. The approach consists of stimulating the economy by addressing the nations forecast needs. Dealing with these issues will result in a great amount of money spent by the government and certainly lead to increased public expenditure. The size and structure of public expenditure will determine the pattern and form. If government spending is used to finance investment in roads, education, health, agriculture and other areas (Capital Expenditure), these investments will have direct social and beneficial economic effects on the country. Furthermore, by providing new opportunities and expanding the capabilities of the masses, government capital spending plays an important role in ensuring sustainable economic growth. 

The writer, Seltue Karweaye, holds an MS in Development Studies & MS in Politics and International studies with specialization in Peace and Conflict Studies from Uppsala University in Uppsala, Sweden and can be reached at Seltue.Karweaye.4687@student.uu.se or karweayee@gmail.com 

 

 

 

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