The monkey on the back of govt's "best laid' fiscal plans

Mbongeni Mguni | Monday February 21, 2022 06:00

In his response to the 2022 Budget Speech this week, former Finance Minister, Thapelo Matsheka, took legislators down memory lane, recalling how the Budget Speech of 1997 spoke to the themes of tighter public finance management as a tool for more efficient development funding.

Copies of that particular budget speech do not readily appear online but a copy at the Parliamentary Library indicates that then Finance Minister, Festus Mogae, was more emphatic about the need for transformation than the sentence paraphrased by Matsheka.

“There has to be commitment to fiscal discipline,” Mogae said.

“Government ministries, local authorities and public enterprises have to live within their means.

“It is not enough to say that costs have gone up and therefore supplementaries are necessary.

“We all know that with our personal budgets, we each try and cut our coat according to our cloth.

“If costs increase substantially, a re-consideration of what we set out to do should be undertaken and the highest value realised with the resources at our disposal.”

At the time, Mogae projected a P763 million surplus for the 1997/98 budget and the economy expanded by 8.3 percent in that year.

By comparison, the 2021/22 financial year ending on March 31 is expected to suffer a P10.2 billion deficit, down from a P16.4 billion shortfall the previous year. Net growth over the two years has been zero and while COVID-19 is largely to blame for the rock bottom performance, analysts are agreed that the general economic performance has been below par for some years.

Government has carefully developed and detailed strategies and plans to lift the economy out of the fiscal slump and restructure it towards the high-income status hoped for under Vision 2036. An array of policies are targetted at greater industrialisation, more export-led growth, empowerment of citizen enterprises and SMEs, the growth of the middle class, improved outcomes from agriculture and the resultant food security as well as import substitution.

Digitisation of the economy and sustainable growth anchor these plans as can be seen in the budget for the rollout of ICT and the funds allocated towards the green energy transition.

The monkey on the back of these plans remains inefficient public expenditure, which at its essence means government and the taxpayers who support it are not receiving the best value they can for each thebe committed.

By the Finance Ministry’s own estimates as shared in the recent budget speech, poor development spending resulted in the country losing out on 37% more infrastructure than could have been achieved in 2017, had efficiencies been in line with the average across the world.

“There are many reasons for this efficiency gap, including poor project appraisal and selection, spending money on projects that generate low returns and not prioritising high return projects, as well as poor project management and implementation,” Finance Minister, Peggy Serame said.

While inefficient spending is most glaring in the development budget, the Auditor General’s reports each year have pointed out increasingly outrageous examples of wastage, abuse and corruption in the management of public finances.

In one example, between 2010 and 2019, a technical officer at Central District Council earned a salary overpayment of P643,000, thanks to double payments from his former department and his current one. By 2020 only P94,960 has been recovered.

In the same report, the Auditor General found that in Brussels, an employee recruited by the Embassy of Botswana was paid P171,463 in terminal benefits in July 2016 instead of P13,213. The employee stood her ground when the overpayment was demanded.

In each Auditor General report, hundreds of millions of Pula in arrears are written off by different government departments and ministries, while other funds meant for items such as food baskets go to waste as the supplies are left to rot in depots.

Another trigger of poor public finance spending manifests itself in the loopholes available for overpricing and illicit conduct in procurement. Associated with this is the trend of low quality supplies being delivered to government whether for consumables or capital projects, which often leads to prolonged contract disputes that add costs onto the original budget.

“We have seen business capacity constraints, unreliable supply, uncompetitive pricing, limited range of products and imports of similar goods to complement a running tender,” Ellen Galetshetse, principal commercial officer at the Economic Diversification Unit said previously.

“With imports of similar goods, you find someone with a tender to produce 1,000 tables only producing 200 then importing 800 similar ones and supplying them as if they produced them.

“This practice is widespread on the ground and we see it. We order from a manufacturer and they go around the corner and import.

“This will not grow your business or the industry.”

She added: “We have seen that even a bottle of water that costs P5, when it comes to government, it becomes higher,” she said.

“Why are you changing the price?

“Your goods should be competitively priced.”

However, it is in the major capital projects where the most immediate impact of spending inefficiencies is felt the most. While the fiscal years during Mogae’s tenure at the Finance Ministry could “afford” budget overruns and misspending, the string of deficits run under National Development Plan 11 and the erosion of the national savings due to COVID-19, have eliminated that room.

The budget deficits since the start of the 2021-2022 financial year have been financed by domestic and external borrowings, meaning each thebe poorly spent has an additional interest cost, over and above the opportunity cost caused by the blunder.

Serame has said measures are being taken to tighten spending both in the recurrent and the development budget. In terms of the development budget, a process is underway to strengthen project preparation, prioritisation, and value for money assessments. The new process entails implementation of a three-phase appraisal process which includes confirmation of concept, pre-feasibility study and full feasibility study.

“At each stage, only projects that meet the required selection criteria will proceed to the next stage, and hence weaker projects and those that are not ready for implementation will be weeded out.

“In addition, there will be more rigorous and detailed audits of development projects, to address waste and corruption,” she said.

The plans for the recurrent budget are not as clear cut. Rather, government intends to reduce the overall recurrent budget by rationalising the civil service, cutting back on certain allowances, streamlining parastatals and reducing the subventions granted to them. The revenue support grants for local authorities will also be reduced.

“Waste must be reduced, much more attention paid to achieving value for money, and accountability strengthened,” she said.

Analysts however believe that even with reduced overall spending on the civil service, greater accountability for each thebe spent and more adherence to service standards must be put into effect. The Public Finance Management Act provides for the surcharge of public officers who cause or permit misuse or loss of public funds, but thus far, government has appeared reluctant to take such measures.

“It is a question of enforcing the law,” Serame told Mmegi previously.

“The challenge is usually establishing evidence against individual officers to be surcharged, given the nature of the public service.”

The Public Accounts Committee, which sits annually to interrogate spending by the various public entities, has previously touched on the issue of stricter monitoring of those in charge of public monies. Nehemiah Modubule, the PAC chair between 2012 and 2015, told Mmegi previously that the committee at one point suggested that punitive measures be taken against accounting officers for the leakages in public revenues.

“These are government monies and developments are not taking place, while these monies are lying elsewhere,” he said.

“People are not being penalised, but if they were and made to account for those lapses, you would see effective management.

“The most severe punishment at the moment is that someone resigns. They lose their job, but we have lost our money.

“Without punishment, a culture develops and it becomes entrenched, making it difficult to get rid of.”

Such a move would be strenuously resisted by the public sector unions, who have previously accused politicians of being to blame for much of the misspending that takes place in public finances, particularly in the area of procurement.

Even the decisions to rationalise the public service are certain to meet with pushback from unions, particularly in a year when swords have already been drawn over wage negotiations.

Comments made by Mogae in his final State of the Nation Address in 1997 could be of assistance to his successors.

“I have not allowed political expediency and the pursuit of populism to cloud my judgment and service to the nation.

“For the road to political expediency and populism may be lined with cheering crowds; but in the end, we cannot escape the cold hard facts of our limitations as a developing country.

“As sure as the merry–maker must account for his excesses with a splitting hangover the morning after, an even harsher punishment awaits a nation that spends unwisely in pursuit of immediate gratification rather than sustainable development.”