FISCAL SQUEEZE SPARKS CALLS FOR BUDGET TRANSPARENCY

UNCLAS SECTION 01 OF 02 MONROVIA 000838 SENSITIVE SIPDIS E.O.12958: N/A TAGS: ECON EFIN LI SUBJECT: FISCAL SQUEEZE SPARKS CALLS FOR BUDGET TRANSPARENCY REF: MONROVIA 524 ¶1. (SBU) SUMMARY: While the global downturn could be expected to impose some constraints on Liberia's 2009-2010 budget, the Ministry of Finance's admission that revenue collection fell a full 25 percent short of planned expenditures in the first quarter alone has raised questions about the efficacy of the budget process. The GOL vowed to preserve education and health spending, while trimming non-essential operational and administrative expenses. However, Liberia's fiscal watchdogs warn that as long as budget execution remains opaque and politicized, the public cannot evaluate the veracity of these government promises. An unexpected, albeit welcome, consequence of the dramatic budget shortfall may be the emergence of an unlikely alliance among civil society, the General Auditing Commission and Liberia's budget director himself, all of whom have begun outlining plans for budget transparency and civil engagement in fiscal decision-making. This transparency will be essential in the next budget, likely to be the first following HIPC Completion Point. END SUMMARY. ¶2. (SBU) The Ministry of Finance (MOF) announced October 18 that delayed payments from concessionaires, declining customs revenues and lackluster income tax receipts conspired to constrict revenue collection in the first quarter ending September 30. The MOF collected only $70 million, against $93 million in anticipated expenditures. On November 13, deputy minister of revenue Elfreida Tamba told Econoff that fresh projections indicate the MOF can expect to raise $302 million this fiscal year, against a $372 million budget ratified by the National Legislature. Given that Liberia continues to operate a cash-based budget per HIPC requirements, every dollar in lost revenue compels the GOL to pare an already-modest resource envelope and devise a contingent budget. ¶3. (SBU) President Sirleaf and Finance Minister Ngafuan have pledged to defend spending on education, health care and road construction, while cutting unpopular overhead expenses, including fuel, vehicles, allowances and foreign travel. George Gonpu, deputy minister for budget, told Econoff he worked closely with the House and Senate Ways and Means Committees and line ministries throughout October to identify $35.9 million worth of economies that would not debilitate essential government functions. However, to balance the budget, the GOL must impose an additional $34 million in painful cuts to substantive social programs. ¶4. (SBU) Samim Cilem, GEMAP advisor in the Bureau of Budget, downplayed the GOL's commitment to its public rhetoric, suggesting that as line ministries face budget cuts, those ministries at the center of the fiscal process - notably the Ministry of State for Presidential Affairs and the Ministry of Finance - have managed to preserve their original allocations. He lamented that political clout and access to information may trump widespread social benefit as ministers jockey for increasingly scarce resources. ¶5. (SBU) While the Ministry of Education and the Ministry of Health and Social Welfare (MOHSW) each bear a relatively small share of total budget cuts (seven percent versus up to 15 percent at other ministries),their resources remain too limited to fulfill Poverty Reduction Strategy objectives. USAID notes that the MOHSW cannot independently finance its payroll and faces a salary shortfall for 2,000 workers. Donors and NGOs pay salaries for some workers, while others may abandon their posts because MOHSW salaries remain too meager. Police Director Marc Amblard confided to Ambassador that without a rational budget process he cannot plan even a few months ahead, let alone set forth a multi-year strategy. To combat corruption, he estimated he would need to triple the salaries of officers, which he cannot do in this fiscal climate. The Budget as a Portrait of Social Priorities -------------- - ¶6. (SBU) If budget execution remains hostage to politics, Auditor General John Morlu believes fault lies with a "scanty" Public Financial Management Act that fails to codify how budget cuts should be prioritized and permits MOF and a National Budget Committee chaired by the Finance Minister too much control over what should be a technical process. "The Minister of Finance is Liberia's chief economist, not its chief accountant. Once the budget is passed, he should remove himself," and permit the Cash Management Committee to forecast cash flow and disburse funds accordingly. If revenue falls short, technocrats should impose surgical budget cuts that preserve the social priorities enshrined in the Poverty Reduction Strategy (PRS),Morlu proposed. ¶7. (SBU) A consortium of civil society organizations known as AGENDA (Actions for Genuine Democratic Alternatives) contends that the legislative shortcomings Morlu describes only amplify the distortions that occur when citizens exercise no role in fiscal decision-making. Jasper Cummeh, chairman of AGENDA, asserts that a MONROVIA 00000838 002 OF 002 decoupling of actual spending and PRS priorities occurs because the GOL is insufficiently accountable to the public at several critical junctures in the budget cycle. The GOL does not release the macro-fiscal assumptions that support revenue projections, nor the mid-year review that evaluates budget implementation and details spending at the line ministries. The legislature does not hold pre-budget hearings where citizens can voice their spending priorities or question government fiscal policy. Finally, the absence of a Freedom of Information Act limits citizens' ability to independently appraise the GOL's fiscal performance. ¶8. (SBU) Unless Liberians come to see the budget as a living document and the benchmark against which government promises should be measured, AGENDA believes these institutional deficiencies will give rise once again to veiled self-dealing, fiscal profligacy, and a failed HIPC process. To engender widespread public interest in an otherwise arcane process, AGENDA is organizing "budget clubs" at universities throughout Liberia and plans to lobby the MOF to hold pre-budget workshops and consultations in each county next year. Further, AGENDA is creating a public expenditure tracking system that follows funds from appropriation to expenditure. The organization will measure tangible outputs, evaluate their link to the PRS, and post scorecards on its Web site. The Budget as a Weapon against Corruption -------------- ¶9. (SBU) While Budget Director Gonpu has had no contact with this civil society movement, he shares their conviction that a transparent and participatory budget process ensures equal distribution of resources and safeguards essential social safety nets. Elevated to budget director in June, after the draft budget went before the legislature, Gonpu privately regards the original $372 million budget as bloated and founded on questionable revenue projections (reftel). Yet, in a break with precedent, he took to the airwaves in October, braving dozens of radio call-in shows in order to explain how MOF would address the budget shortfall while preserving essential social services. He also has begun publishing a monthly budget circular, which explains how changing revenue projections will affect line ministries' allocations, and he has requested permission to distribute the document outside the GOL. In early 2010, as next year's budget process begins, Gonpu hopes to convene a civil society advisory group and hold decentralized budget hearings in several counties. ¶10. (SBU) Gonpu acknowledged that some MOF colleagues and legislators disparage his approach, claiming his media blitz and zeal for government accountability exposes the GOL to charges of incompetence whenever unforeseen circumstances constrain government spending. However, he has found an ally in Auditor General Morlu. Gonpu pictures the budget as a real-time barometer of fraud, waste and mismanagement. If Gonpu obtains the funds to establish an independent economic forecasting unit, as he has long desired, he believes he can address leakages from one quarter to the next, and help the GAC target ministries and agencies that warrant a careful mid-year audit. ¶11. (SBU) COMMENT: The nearly two years that will pass between HIPC Decision Point and Completion Point may be seen to impose limitations and delays on Liberia's rightful economic sovereignty. However, to enshrine the spirit of HIPC trigger points in laws, institutions and individual reformers takes time. We welcome these promising, albeit nascent, movements to engender widespread engagement in public financial management as a more authentic and enduring "completion point." ¶12. (SBU) COMMENT CONTINUED: However, would-be reformers will require careful nurturing and guidance if they are to be effective. Gonpu is energetic and well-intentioned, but after five months as budget director, he is struggling to implement his vision, and has yet to reach out to civil society organizations. We will continue to offer moral support and ensure like-minded reformers become acquainted. Liberia will likely achieve HIPC Completion Point in May or June 2010, meaning that the 2010-2011 budget will be the first in which the GOL can borrow to anticipate revenues to cover costs. This will provide a more rational approach for operations, but will be a temptation for more profligate spending, and any measure of transparency will be helpful. THOMAS-GREENFIELD