Revenue management will be essential to harnessing oil benefits – IMF cautions

Jan 22, 2018 News

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While Guyana is expected to rake in billions from the oil and gas sector, the International Monetary Fund (IMF) is cautioning that prudent management skills would be needed by local authorities if the country is to truly benefit from this new and exciting venture.

The Fund said that there are inherent features of the extractive industries revenues that raise specific management challenges. It said that these include the fact that revenue flow is potentially large but temporary, given the exhaustibility of the natural resources. There is often pressure to increase government spending upfront, sometimes by borrowing against future expected extractive industry revenue. These spending pressures often arise from elevated expectations in the population as to the expected benefits from projects in the industry.
The IMF said that the revenue management challenges can be addressed by designing a fiscal policy framework that incorporates revenues from extractive industries. It said that this needs to strike the right balance between investing to meet development needs by scaling up public investment or other priority programmes while increasing financial savings for stabilization and future generations.
Additionally, the Fund noted that Guyana has achieved good progress in implementing public financial management reforms yielding improvements in the management of public finances. It said that the major milestones include: approval of the 2017 budget before the start of the fiscal year; gradual implementation of programme and results based budgeting; development of a medium term perspective in the budget; publication of a comprehensive midyear budget review and; timely completion and publishing of audited annual financial statements.
The Fund noted however, that sustaining the reform agenda has proved increasingly challenging with the limited capacity in the Ministry of Finance and line agencies. With the recent discovery of petroleum, the body said that there is even more pressure to have strong public financial management systems to effectively manage the volatile and temporary petroleum revenues. It expects therefore, that public financial management reforms will further intensify.
MEASURES
During 2018, work is expected to continue to improve the efficiency and quality of the public sector investment programme (PSIP), management of oil and gas resources, tax administration, public expenditure reviews and the strengthening of monitoring and evaluation systems.
According to Finance Minister, Winston Jordan, the aforementioned are crucial given their collective contribution to the goal of realizing effective results based management.
Jordan noted that the Government has continued to implement a Public Expenditure and Financial Accountability (PEFA) Action Plan and the Budget Transparency Action Plan, in addition to improving capacity improvements in these areas.
The Finance Minister also stated that in addition to efforts on the procurement side of public financial management, his Ministry has piloted a Budgeting for Results (B4R) system with the Ministry of Public Health.
Jordan explained that the B4R platform is data driven; it forces the user to adapt a programmatic, results-focused approach to budgeting and planning. He said that the pilot will continue during 2018, when it is anticipated to utilize the platform to assess performance of public health, and to assist in the preparation and delivery of the Ministries’ Budget 2019 proposal.
Once the platform proves successful, Jordan said that the Government anticipates a roll out to other key ministries.
Another platform that the Government has rolled out this year is the upgraded version of the Government accounting software. Going forward, Jordan said that his Ministry will be examining the effectiveness and user-friendliness of the existing and alternative platforms. In his 2018 budget speech, the economist said that this will be in an effort to improve on processing times within the Integrated Financial Management and Accounting Systems (IFMAS) across Government. He said, too, that the Government will be moving to design the Integrated Financial Management and Information Systems (IFMIS) to replace the IFMAS.
TREASURY MANAGEMENT
In the area of treasury management, Jordan said that the Government has decided to transition to a Treasury Single Account (TSA). Based on international experience, the Finance Minister said that best practices and expertise, structural changes to the Accountant General‘s Department (AGD) were recommended.
He said that these would best facilitate the move towards the TSA and enable smoother implementation of reforms in the future. Jordan said that these changes to the AGD are being considered by Government for implementation in 2018. He said that support will be provided to plan for the implementation of the TSA, as well as the adoption of the International Public Sector Accounting Standards (IPSAS) and the re-conceptualization of government’s chart of accounts.
In addition to this, the Finance Minister said that the upgrading of the National Payment System (NPS) to a digital one will facilitate more effective monitoring of Budget Agencies and public funds flows, cash management, and financial reporting.
Jordan said that all of this is designed to protect the integrity of the treasury and improve accountability and transparency.
Jordan said, “All of the aforementioned have largely focused on improving our planning, budgeting, and financial processes. However, we must also improve the capacity of our human resources to ensure that there is sufficient analytical rigour to drive these processes. The draft report assessing child-focused public expenditure was completed and preliminary findings show that Government, between 2015 and 2017, has placed significant emphasis on interventions that benefit children, with child-focused expenditure rising from $35.5 billion to $50.8 billion.”
The Finance Minister in his 2018 budget revealed that the final report will also include analyses of the effectiveness and efficiency of select government programmes for children, and, when completed in early 2018, will serve to guide interventions and policies, going forward.
“We will be undertaking further public expenditure reviews, in different sectors, commencing in 2018, and will continue capacity building in this area, along with economic forecasting and modeling. The child-focused public expenditure assessment also incorporated a capacity building exercise which sought to train officials of several key ministries, such as the Ministries of Public Health and Education, in the methodologies behind the exercise.”
Jordan said that approximately 30 public servants were sensitized on measures of efficiency and effectiveness when assessing public programmes. The economist said that the intention is to develop the analytic capacity to undertake such assessments, in-house, so as to programme development and evaluation
DATA FOR DECISION MAKING
The Finance Minister had told the House last year that the experiences of 2017 make it plainly evident that Guyana still has a long way to go in strengthening its data systems.
“To be able to have effective monitoring and evaluation systems, make the most of planning and budgeting platforms, such as B4R; and produce quality analytic reports, as we are doing for the child-focused public expenditure assessment; we must do more to improve data collection, management, quality and analyses. “
“As such, capacity building, under the umbrella of our National Monitoring and Evaluation (M&E) Strategy, will continue in 2018, with at least five sessions of training planned in key concepts of M&E and indicator building. As we continue to implement performance budgeting and results based management, the need for effective M &E systems, underpinned by strong data development, remains critical.”
With regards to national statistics, the Finance Minister said that the Labour Force Survey (LFS) took the field in the third quarter of 2017 and will continue into 2018.
The LFS – the first for Guyana – is now in its second round and the first profiles of analysis are expected to be delivered in the first quarter of 2018. In addition, the all-Urban Consumer Price Index is expected to be implemented in the first quarter of 2018.
Further, Jordan revealed that the Government will be launching the Household Budget Survey and the Living Conditions Survey in the last quarter of 2018. The latter survey is the first major output of the newly established Poverty Measurement and Analysis Unit.

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