Identifier
Created
Classification
Origin
07MONROVIA620
2007-05-24 15:58:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Monrovia
Cable title:  

GOL PRESENTS DRAFT BUDGET TO THE LEGISLATURE

Tags:  PGOV ECON EFIN ETRD EINV LI 
pdf how-to read a cable
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TAGS: PGOV ECON EFIN ETRD EINV LI
SUBJECT: GOL PRESENTS DRAFT BUDGET TO THE LEGISLATURE

REF: MONROVIA 599

UNCLAS SECTION 01 OF 02 MONROVIA 000620

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TAGS: PGOV ECON EFIN ETRD EINV LI
SUBJECT: GOL PRESENTS DRAFT BUDGET TO THE LEGISLATURE

REF: MONROVIA 599


1. (U) SUMMARY: On May 16, 2007, President Johnson Sirleaf presented
the draft Fiscal Year 2007/08 National Budget to the National
Legislature. The draft budget amounts to US$183 million and reflects
a 40 percent increase in revenues compared to the 2006/07 budget.
The increase in the budget reflects an annualized growth rate of 7.8
percent compared to 5.7 percent during the same period in 2005/06.
Expenditures are aligned with the ongoing implementation of the
policies and programs set forth in the Interim Poverty Reduction
Strategy Paper (IPRSP). The transparent, timely, and professional
elaboration of the budget represents a revolution in budgeting for
Liberia. It is unclear whether the request for financial autonomy
(reftel) may have an impact on budget deliberations. END SUMMARY.

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REVENUE PROJECTIONS
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2. (U) Revenue projection of US$183 million is derived from five
categories: Tax Revenue, Non-tax revenue, Maritime, Extra-ordinary
and other Non-tax Revenues. Tax Revenue accounts for 75 percent,
which indicates a growth of 15 percent over the annualized
collection of US$119.2 million for 2006/07 fiscal year up to March
2007 and US$98 million projected at the start of that period. The
main sources of tax revenue are international trade and transactions
(28 percent); taxes on income and profits (27 percent),and Domestic
Taxes on Goods and Services (10 percent). Other taxes, including
property, non-tax and maritime constitute 26 percent. The projected
increase in tax revenue is driven by expected growth in the forest
and mining sectors where sanctions have been lifted (though activity
remains stalled). Non-tax revenue is 16 percent of total projections
or US$29.3 and includes government income derived from property,
fees, charges and extraordinary revenue. Maritime revenue is 9.5
percent or US$13.0 million. Dividends from state-owned enterprises -
Liberia Petroleum Refining Company, Forestry Development Authority
and Liberia Bank for Development and Investment - are reflected in

this year's revenue projections. Arcelor Mittal's commitment of US$3
million to three counties: Nimba, Bong and Grand Bassa represent the
only other Non-tax Revenue, which is 2 percent of the budget. The
GOL credits robust revenue generation mechanisms that have stifled
tax evasion and minimized bureaucratic red tape for the bulk of the
increase in forecast revenues.

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EXPENDITURE MANAGEMENT
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3. (U) The draft budget amounts to US$183 million with a base
revenue of US$180 million and a dedicated sum of US$3 million from
Arcelor Mittal for three counties: Bong, Grand Bassa and Nimba. The
largest allocation in the budget is for personnel which accounts for
34.8 percent. Civil servants receive a boost in the budget with a 67
percent jump in their minimum salary from US$30 to US$50; an overall
increase ranging from US$20 to US$60 per month is applied to other
civil servants based on their service classification. Goods and
services are the second largest allocation at 29.3 percent. The
continuing resolution of domestic debt arrears accounts for 7
percent of the budget. Education tops the sector allocation with
8.31 percent; health 7.7 percent; other entities 6.25 percent;
justice 5 percent and public works 4.85 percent.


4. (U) The new budget remains cash-based: the existing policy that
authorizes expenditure only on the availability of cash will be
maintained. However, ministries and agencies are experiencing
difficulty ensuring that expenditures keep pace with revenues. Out
of a total budget of US$129.9M for 2006/07, about US$75M had been
spent as at the end of the third quarter of the budget period. The
lack of capacity to prepare vouchers, procurement requests and other
documents needed to justify expenditures has led to late submission
of expenditure requests and late approvals of appropriations.
Compliance with the Procurement Act remains a challenge and it has
been cited as the principal source of the gap between revenue
collection and expenditure. The Bureau of the Budget, Ministry of
Finance and the Public Procurement and Concession Commission (PPCC)
have all signaled commitments to improve systems.

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IPRS RELATED EXPENDITURES
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5. (U) The budget places clear priority to the government's
commitment to poverty reduction under the Interim Poverty Reduction
Strategy (iPRS). Appropriations to certain ministries and agencies
that are expected to deliver social services such as education,
health, agriculture, public works, and water and sanitation amount
to US$42.5 million, which represents a 39 percent increase over

MONROVIA 00000620 002 OF 002


spending on the same programs in 2006/07.


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BUDGET FORMULATION AND IMPLEMENTATION
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6. (U) The new budget represents a revolution in transparency and
accountability. The Bureau of the Budget (BOB) managed the budget
formulation process in collaboration with ministries and agencies.
The lack of capacity in ministries and agencies has undermined the
budget process in the past, but last year the Bureau of the Budget
held over 50 workshops with ministries and agencies in order to
increase transparency and capacity. According to the Budget
Director, Agustine Ngafuan, the level of professionalism in budget
contribution has increased significantly. Budget projections were
presented on time, and decentralization of the budget preparation to
accommodate inputs from county officers was achieved. Timely
preparation of the 2007/08 budget suggests a marked improvement in
effective leadership and expert guidance during various stages of
the budget. For the first time, the budget is published online and
open to public scrutiny.


7. (U) Director Ngafuan acknowledged that the budget formulation
process requires additional improvements and the BOB is already
setting a workplan for improved revenue reporting; effective budget
implementation; capacity improvement of the Bureau of the Budget and
line ministries; developing spending plans; a better budget
classification system; a budget monitoring policy; a comprehensive
budget manual; improved budget analysis; and a legislative guide to
the budget.

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FINANCIAL AUTONOMY ACT
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8. (U) The National Legislature has passed an Act to amend certain
provisions of the legislative law to provide the Legislature
financial autonomy (reftel). The Act potentially undermines agreed
systems and controls necessary for fiscal governance. At present,
members of the legislature are negotiating with the President's
Office to possibly produce a watered-down version of the Act, and it
is possible the legislature could wield its power over budget
approval to strengthen its negotiating position on the Act, thereby
delaying what has thus far been a timely budget formulation process.



9. (SBU) Comment: The timely presentation of the budget to the
Legislature is laudable, but the capacity of the Legislature to
analyze the document and ask pertinent questions remains
questionable. Assistance to the Bureau of the Budget is a shining
success story, but there is dire need for assistance to build the
technical capacity of the Legislature to handle financial matters as
well. The lapses in the passage of the Financial Autonomy Act
illustrate the need for technical assistance and possibly the
creation of a Legislative Budget Office. End Comment.

MAZEL