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

BY Danjuma Mahmoud, PhD

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 20072009, 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; region of N1billion as at December, 2010 is by far suboptimal; was 72: 28, although there were slight improvements in 2008 and 2009 respectively.

The current reported average monthly IGR is in the

The ratio of Recurrent to Capital Expenditure in 2007

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; inadequate tax collections;

Weaknesses in revenue administration leads to

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 governments 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 Manage ment (PFM)-How


financial resources are managed:

Key Components of Governance Reform-II


Public 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 term

horizon (3 years);
Stating the underlying key assumptions for the 3 year

Forecast;
In-depth analysis and evaluation of the 3 year forecast; A fiscal strategy paper, detailing the governments financial

objectives the governments policy under the medium term expenditure and revenue frameworks; contingent liabilities are involved

Help with close examination of the fiscal risks, especially when

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 spending (Vfm);

quality

of

government

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!!