Weak management systems can affect transparency for spending of oil money – NRGI cautions

Jul 30, 2018 ExxonMobil, News

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By Kiana Wilburg

Without active management, the inflow of oil revenues can harm rather than help a country. As such, the Natural Resource Governance Institute (NRGI) is urging emerging oil producers like Guyana to improve its Public Financial Management System.
NRGI notes that strong public financial management (PFM) systems are essential for effective and sustainable economic management and public service delivery. To cement the importance of strong PFMs, NRGI noted the case of Chad and Nigeria.
The Institute said, “Much cash has flowed into Chad’s government treasury from resource extraction. In fact, 70 percent of government revenues come from oil. However, rather than translating this into human development, money has instead been spent on security services totaling 18 percent of the budget. The result is a growing stock of debt and 184th in the ranking of countries in the Human Development Index.”
With regard to Nigeria, NRGI said that this African state reformed its public procurement process in 1999. Previously, on average, US$300 million was lost each year in corrupt practices. Since reform and strengthening of its PFM, the Nigerian government has saved an estimated US$1.5 billion between 2001 and 2007.
With the foregoing in mind, NRGI said that improvement in public spending management is necessary and can take the form of both an increase in the capacity to choose appropriate spending plans, and incentives for institutions to make decisions without political interference.
In countries with low institutional capacity, the Institute said that it may be politically easier to introduce improved, stricter management rules for new spending projects than to reform existing spending. It said that Governments should aim for several things such as their public financial management systems.
It said that this would involve public, multi-year plans that allow coordination of spending projects, and greater certainty for the private sector; competitive, public and transparent procurement; oversight and internal controls; pre-approval measurement of the costs of major expenditures against their likely social and economic benefits; and public, independent audits of spending projects, for both oversight and to help government improve its spending processes
NRGI said that it would be in the interest of countries for the authorities to invest in public investment processes and in eliminating supply bottlenecks in the economy to reduce the cost of investment projects.
IMF RECOMMENDS
Guyana has been carrying out several assessments in an effort to achieve a strong PFM. While there were some improvements over the years, the International Monetary Fund (IMF) recently noted that there is still more, which needs to be done especially since the nation is preparing to be an oil producer by March 2020.
During one of its recent assessments, the Fund noted that the limited capacity at all levels of the Ministry of Finance and even in various line agencies will pose significant constraints when the time comes for the implementation of needed reforms for Public Financial Management.
To ensure success going forward, the IMF said that reform measures will need to be carefully prioritized and sequenced so as not to overload the limited capacity.
The Fund said that the extent and wide-ranging nature of future PFM reforms perhaps requires a more coordinated approach to reform implementation. It said that many countries faced with an extensive body of work have formed a dedicated reform team to organize, coordinate, and facilitate the required reforms in many PFM areas.
It said that the reform unit/team will provide oversight, guidance and monitoring to the PFM reform plan and act as a coordinator of the overall PFM reform program. The Fund said that a substantial part of their work should be directed to up grading the skills of staff in the Ministry of Finance and line agencies by developing a core PFM training programme.
The Fund also stressed that capacity building in the Ministry of Finance and in line agencies is an important prerequisite for sustainable PFM reform.
It said, “A comprehensive assessment of required skills is essential for successful implementation. It could be considered to appoint a small group to analyze the long-term capacity building needs, and to develop an overall plan for PFM capacity development, to be managed and coordinated within the reform unit in the Ministry of Finance.”
The Fund added, “The results of the assessment could summarize the skills required in every function. For example, for budget office skills in preparing baseline expenditure are crucial or for macro-fiscal division the analysis of fiscal risks.”
The Fund further stated that capacity-building efforts could be coordinated with local training institutions. In this regard, the Fund said that the Ministry should explore further, the options to cooperate with local training institutions (e.g. recently opened Bertram Collins College of the Public Service; University of Guyana) and other partners to deliver necessary training programmes on a continuous basis.
It noted that other cost-effective and efficient solutions, such as developing a partnership arrangement with other countries in the region could be a viable option as well.
The IMF also stated that new capacity building actions should be designed to channel appropriate training programs through these institutions, and to use staff to perform training. In this way, the Fund said that training skills could be further built up in those institutions to provide sustainable ongoing training in years to come.
ONGOING ASSESSMENTS
As of now, the Fund said that authorities here, in cooperation with the European Commission, are carrying out an assessment of PFM systems. The last integrated fiduciary assessment of PFM and procurement systems was carried out by a team of staff from the Ministry and three external consultants in 2012.
According to the Fund, the team used the Public Expenditure and Financial Accountability (PEFA) assessment methodology and the Methodology for Assessing Procurement Systems (MAPS).
The Fund said that the findings of the ongoing assessment of PFM systems will be used to update a PFM reform programme. In addition, several developments partners like the Inter-American Development Bank (IDB), World Bank, and the Commonwealth Secretariat have recently conducted assessments of PFM reform needs, which will provide inputs to the PFM reform program.
The Fund noted that the Office of Budget in the Ministry of Finance has been a focal point for the PFM reforms. At present, the IMF said that the planning and coordination of the PFM reform process seems to depend heavily on Director of the Office of Budget and one or two heads of key departments.
It stressed that there is no dedicated reform unit or team in the Office of Budget or the Ministry to coordinate and guide the PFM reform efforts. At the same time, given current levels of staffing, the Fund observed that most of the staff is fully engaged in day-to-day operations. It said that many of them are learning how to perform operations on the job as the staff turnover tends to be high.

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