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Analysis of Liberia's 2010/11 Budget

By Nyankor Matthew

     The proposed budget for 2010/11 fiscal year is quite voluminous when compared to budgets from prior fiscal years, and contains detailed information than previous budjgets.

     The theme for the 2010/11 budget is the “Lift Liberia Development Strategy” budget, which according to government financial managers is focused on the Poverty Reduction Strategy priorities, and job creation.

     The PRS is structured in a four-pillar framework. The pillars are: Peace and Security, Economic Revitalization, Governance and Rule of Law, and Infrastructure and Basic Services. According to budget documents, the 2010/11 fiscal year is the final year for the PRS implementation.

     For the 2010/11 fiscal year, the government’s work force is projected to increase from 54,603 employees in 2009/10, to a proposed 56,722 employees for the 2010/11 fiscal year; an increase of 2,119 employees. The proposed revenue for fiscal year 2010/11 is $369.4 million, a 0.68% or $2.5 million decrease from fiscal 2009/10. The President’s Budget Message indicated that the slight decline in revenue when compared to the last fiscal year is due to the initial impact of the tax reduction.            

    For the fiscal year under review, an initial base budget of US$347.1 million was adjusted by US$16.8 million of additional revenue validated by the Ministry of Finance and the General Auditing Commission; $2.5 million from BHP Billiton second installment signature bonus; and $3.0 million of additional revenue due to LRC. According to the Budget Act, the Liberian government expects additional revenue during the course of the fiscal year of not less than US$25.0 million from the Western Cluster MDA, V/BSGR MDA, and Chevron withholding.

Revenue Composition

     For the 2010/11 fiscal year, total revenue including grants is projected at US$369.4 million. The proposed revenue is funded by anticipated tax revenue of $231.4 million, which makes up 62.6% of total revenue; other revenue of $67.1 million or 18.2% of total revenue, and grants of $63.4 million or 17% of total revenue.

     Taxes on International Trade remain the largest component of tax revenue accounting for 26.7% or $95.6 million of the total projected revenue, and have declined by 6.6% or $6.3 million when compared to fiscal 2009/10.  The second major contributor to tax revenue is taxes and duties on imports, which accounts for 25.5% or $91.4 million, a decrease of 4.51% or $4.30 million when compared to fiscal 2009/10. The third largest contributor to tax revenue is taxes on income and profits, which accounts for 16.9% or $60.6 million, and has increased by 11.75% or $6.4 million when compared to last fiscal year. In the “other revenue” category, the government is anticipating rental income of $59.6 million, an increase of 184.8% or $38.7 million when compared to last year.

     The fourth major contributor to revenue is taxes on goods and services, which accounts for 16% or $57.5 million of total tax revenue, and has declined by 2.06% or $1.2 million, when compared to last fiscal year.  Direct Budget support Grants account for 17% or $63.4 million.   The growth in taxes on incomes and profit is an encouraging indication that economic activities in the formal sector have rebounded from last fiscal year, and that the gov ernment’s continued tax administration and tax awareness activities may have gained some traction.

     The Ministries receiving the largest budget allocations are: Ministry of Finance, $38.1 million; Public Works, $33.3 million; Ministry of Education, $30.1 million; Ministry of Internal Affairs, $26.4 million; Ministry of Health,  $24.9 million, and Ministry of Justice with $21.1 million.

     Total domestic debt reported as of June 30, 2010, is $284.94, and projected domestic debt service payment for the year is reported at $18.08 million. Total external debt reported as of June 30, 2010 is $281.13 million, external debt service payment for the fiscal year is projected at $7.97 million for a combined projected debt service payment of $26.04 million for the fiscal year under review.  As of June 30, 2010, total public debt stands at US$566.07 million.

Expenditure Composition

     The proposed 2010/11 budget is comprised of four functional sectors or expenditure categories: Public and Administrative Services Sector (PASS), Rule of Law and Public Safety Sector (RLPS), Social and Community Services Sector (SCSS), and Economic Services Sector (ESS).

     In terms of expenditure composition, the public and administrative Service Sector is projected to receive the largest share of the budget at $156.1 million, and makes up 42.3% of total proposed spending.  Spending in this sector has increased by 67.96% or $63.2 million when compared to last fiscal year.  The second largest expenditure sector is the social and community Services sector, which is projected to receive $91.1 million, and accounts for 22.9% of total spending.  Spending in this sector is projected to increase by 13.53%. The third largest spending category is the Economic Services Sector, which is projected to receive $70.2 million, and makes up 18.9% of proposed spending. Spending in this sector is projected to decrease by $2.3 million or 3.23% when compared to last year’s Budget.  Projected spending for the Rule of Law and Public Safety sector is $51.9 million, and accounts for 17.5% of total spending. Spending in this sector is projected to grow 8.04% when compared with last y ear’s approved budget.

Budget Summary by major budget objects

     Wages/personnel costs make up 38% or $139.0 million of the total proposed budget, an increase of 7% when compared to the last fiscal year. The category of “goods and services”, which consist of line items such as: Fuel and lubricants for vehicles, vehicle servicing, maintenance and repairs, residential property rental and lease, domestic daily subsistence allowance, office materials and services, etc., accounts for  $80.2 million or 22% of total budget, a decrease of 2%. Grants account for 17% or $63.4 million of the total budget, followed by consumption of capital at $60.8 million or 16% of total proposed budget.

Core Budget and Project Budget

     Government financial managers must be applauded for structuring the budget into two parts; a Core Budget, which reflects those revenues government expects to materialize – that will be used to pay for spending on core government priorities and recurrent activities or operations; and a Project Budget funded by uncertain revenues such as expected payments from donors, and concession payments that will be used to finance projects if and when such revenues materialize. It is anticipated that the Project Budget will help target and focus government’s spending on key, specific Poverty Reduction undertakings. The end goal for the project budget is to avoid making ongoing spending commitments that government may not be able to fund.

     For the 2010/11 budget year, the Government budgeted $332.1 million to the Core Budget, and US$37.3 million, (which includes contingent revenue and concessional borrowing) to the Project Budget. Core revenues will finance the Core Government Budget, and contingent revenues will finance the Project Budget; where the start date of projects will be determined by the receipt of funds.  Of the $37.3 appropriated for the Project Budget, $17.7 million is projected to be used for construction in various sectors.

     While government financial managers should be applauded for a more focused budget, law makers should ensure that monies allocated for specific projects are actually spent on those projects in a transparent and prudent manner. Our legislators must increase their oversight of the capital budget by ensuring that projects included in the budget are properly approved, and that feasibility studies are conducted on all projects before they are undertaken or funded.

Projected Aid Flow to Liberia for FY2010/2011

     Projected Aid disbursement for FY 2010/2011 is US$464.2 million. Of this amount, $268.7 million (57.9%) is projected to be disbursed for non-GOL executed projects, and $23.7 million (5.1%) for GOL executed projects. $58.5 million is projected for direct budget support to the government, which is captured in the budget, $103.6 million is projected to be disbursed to the Trust Fund, and $9.7 to the Pooled Fund.

     The three pooled funds in health, education, and infrastructure are co-managed by the Government and development partners.  The health sector pooled fund supports implementation of the National Health & Social Welfare Plan, while the education sector pooled fund supports the Liberia Primary Education Recovery Program. The Liberia Reconstruction Trust Fund (LRTF) provides support for meeting national infrastructure priorities as defined in the Poverty Reduction Strategy (PRS).  According to budget documents, the $464.2 aid does not include UNMIL funding and other sources of Aid from private NGOs and some bilateral partners.

     Direct donors’ budget support to the government has increased from $2.7 million in fiscal 2006/7 to $58.5 million, an increase of 2,037%.  Direct Aid support now makes up 17% of the National Budget.  Total estimated aid flow to Liberia has also grown by 3% when compared to the last fiscal year. It is significant to note that projected Aid flow of $464.2 exceeds the current budget by $98.8 million.  Due to the unavailability of data, I am unable to report the total amount of aid received from fiscal 2006/7 to the current fiscal year.  My analysis of IMF, World Bank, and African Development Bank documents indicate that aid flow to Liberia for the five fiscal years have exceeded $1.5 billion dollars.

     I am aware that Liberia is a post- conflict country that needs donor assistance to rebuild infrastructure and resuscitate the Liberian economy. However, I fear that the continued growth in foreign aid could lead to dependency, which may lead to compliancy on the part of policy makers and financial managers in finding innovative means to generate domestic revenues to finance the budget and maintain infrastructure and other long term programs currently being created and funded by foreign aid. Policy makers should also be cognizant of the massive short term aid being used to build infrastructure and create long term programs. It is no secret that aid revenue is not permanent; as su ch government financial managers as well as policy makers should at least start thinking on how to maintain the long term programs being created by aid money, as well as the infrastructure being built from these short term funding.

Budget to Actual Revenue Performance

     When budget to actual revenue is compared for the past four fiscal years, Liberia’s budget has yet to reach the three million dollar mark, despite the rosy GDP statistics and the billions of aid money.  In 2006/7, projected revenue was $134.9 million and actual revenue came in at $148.3, including grants of $2.7 million.  For FY07/08, a draft national budget in the amount $182.5 was submitted to the National legislature for approval in May of 2008.  However, the legislature approved the revised projection to $199.4 million; actual revenue for that year was $206.9 million, including grants of $5.69 million.

     The draft budget for fiscal year 2008/09 was approved in the amount of $276.8, however an adjusted amount of $298.1 million was approved, and actual revenue came in at $234.9.  In fiscal 08/09, actual revenue was 21 percent below the approved adjusted projection of US$298.1. When grants of $23.5 million are excluded, actual revenue was 274.6.  For fiscal 2009/10, a total of $371.9 was projected in revenue, and actual revenue ca me in at $287.7 million including grants of $25.5 million. Actual revenue was 84.2 million less than the projected amount.  When the $25.5 million direct budget support (grants) is excluded, actual revenue was $262.2 million.

     While it is true that revenue has shown a consistent upward trend considering the amount of aid money pouring into Liberia; and the rosy commentaries on the economy by the administration, actual revenue performance has been dismal, and does not reflect the GDP statistics that are often quoted.

Some of the important Highlight of the 2010/11 Budget

     General allowance continues to increase and has increased from $26.8 million from last fiscal year, to $33.2 million for this fiscal year. Special allowance has also increased from $13.9 million from last fiscal year to $14.9 million for this fiscal year.

     I don’t understand why our government has refused to get rid of the general and special allowance scheme, which not only provides an opportunity for corruption, but breeds corruption.  Special allowance is a US dollar salary scheme that is reserved for ministers and agency heads, and general allowance is a second US dollar payment scheme that is used at the discretion of ministers and agency heads.  Why is the government so afraid to pay government officials and political appointees a fixed salary, regardless of the currency?  Ministers and agency heads should not be giving the opportunity to manipu late salaries.  The government needs to get rid of the special and general allowance payment scheme, and pay civil servants and political appointees a fixed salary.

     Office building rental and lease has increased from $1.9 million from last fiscal year to $2.0 million this fiscal year. Take a walk around central Monrovia, and you will see a city littered with abandoned and unfinished government buildings, yet the government seems to have adopted an unspoken policy of renting over renovating existing buildings.

     Fuel and lubricants for vehicles has increased from $9.9 million from last fiscal year to $12.3 million for this fiscal year.  It should also be noted that transport equipment/vehicle purchase has declined from $12.9 million from fiscal 2009/10 to $8.4 million for this fiscal year. Again, I encourage my fellow Liberians to take a walk around a few government Ministries, and you’ll see fancy and expensive cars parked at those ministries.  As I stated in last year’s analysis, the government should not be in the business of subsidizing ministers, deputy ministers, directors, etc.  Too much is being sp ent on cars, and car- related expenditures such as gas, lubricants, maintenance, etc.  We can’t build a nation when thirty plus percent of our budget goes to non- productive expenditures.

     Police materials and supplies received a budget of $100,000, while $1.7 million is budgeted for catering services.  The condition of police stations in this country are deplorable!  Many of the police stations lack basic supplies and equipment, yet the government has told the Liberian people through the budget that catering services in government is more important than police materials and supplies.

     Educational materials and supplies received a budget of $207,189, while Honorarium gets a budget of $3.5 million.  What is honorarium you may ask? It is nothing more than a fee for service provided by those working either in government or outside of government. I should note that under the expenditure category for the compensation of employees, the government has a line item called “professionals”, which has a budget of $5.1 million for this fiscal year.  This set up seems to be nothing more than a scheme for government officials to line their pockets.  Money that should be spent on social services are being spent on vague professional services.

The budget for textbooks for the entire Ministry of Education is $20,000, while government employees’ ID cards received a budget of $120,402, and employee awards has a budget of $126,418.  Based on the above numbers, one can conclude that if foreigners don’t donate books to our school system, the government would be unable to do so due to the lack of priority placed on the purchase of textbooks.  It should also be noted that free and compulsory education received a budget of $116,967, while food stuffs gets a budget of $901,004.

     The government claims that this budget is a ” job creation budget,” yet the amount budgeted for job training programs don’t reflect that. The Liberian population is young and unskilled, so instead of the government spending millions on vague professional services and expensive cars some of that money should be directed to job training programs to prepare the young people of this nation to answer the call of nation building. Be that as it may, vocational training programs got a budget of $82,162, while residential property rental and Lease got a budget of $3.1 million. Vocational job programs got a budget of $96,400, while transport reimbursem ent allowance got a budget of $2.7 million.

Overly Optimistic Gross Domestic Product (GDP)

     It is common for any administration to present financial and macro-economic information in a positive light and hope for the best. While GDP growth is optimistic, I remain professionally skeptical of the optimistic projections.  It would be disingenuous and unprofessional of me to continue to propagate the oft- quoted 85% unemployment rate in Liberia. While I do not believe the nation’s unemployment rate is still 85%, I think it is in the upper seventy percent range, which is not much better, and has yet to be disclosed to the Liberian public the drivers of GDP growth. Because GDP measures activities in the formal sector, activities in the informal sector are not captured. As such, GDP is not a reliable measure of economic well-being of the Liberian society, especially in a society where over seventy percent of economic activities takes place in the informal sector.  GDP growth does not necessarily translate into poverty reduction, because growth in GDP can occur with little to no job creation.  Economists refer to such a growth as a “jobless” growth, which is where Liberia currently finds itself.

     If according to the president’s budget message “Liberia’s GDP growth has averaged 7.2 percent over the last four years (2005 to 2009), remaining well above the global average of 3.4 percent, and the Sub-Saharan Africa regional average of 5.5 percent over the same period”, the proposed budget certainly does not reflect the growth discussed in the president’s budget message, nor does revenue performance, or the CBL’s statistics on the consumer price index (CPI).  The purchasing power of the national currency is weak and few Liberians have access to the U.S currency, which currently makes up about 85% of the broad money supply. 

     My analysis of the CBL’s statistics on the consumer price index (CPI), from January 2008 to April 2010, indicates that the average Liberian is paying more for food, gas, clothing, health, transport, etc.  The only two categories where Liberians are paying either the same or less are education and communication, respectively. While it is true that the Liberian economy as well as its budgets have improved steadily over the last five years, the current proposed budget does not reflect the overly optimistic growth discussed in the Budget Message. Either, government financial managers are being overly conservative by understating the budget and the economic growths discussed in the president’s budget message.

     How is it that the budget for the current fiscal year is smaller than then last year’s budget, considering that the fiscal 2009 budget was put together in the midst of the global economic slowdown, which adversely impacted Liberia’s growth and fiscal performance? Government officials cannot speak of growth when the unemployment rate is still very high, and average income for the average Liberian is still less than $3 U.S. dollars a day.  While is true that the current administration should be commended for the physical facelift, it must be translated into economic growth and sustainable employment opportunities that would increase the purchasing power of the Liberian people.

     I am of the opinion that the 2010/11 “job creation” budget lacks clear indicators on how many jobs will be created, and  how such jobs will be created.  The administration presented no proposal supported with any framework for job creation success. On job creation, the government does not have a focus, as there are no indicators in the president’s budget message or the budget framework paper as to how many jobs the government anticipates will be created from this “job creation” budget.

     As I stated in last year’s analysis, the government needs to curb spending on unproductive expenditures.  A budget that claims to be a job creation budget allocated $96,400.00 for vocational training, while at the same time allocating $2.7 million for transport reimbursement. A job creation budget that allocates $82,162  to Vocational training programs, yet allocates $3.5 million for Honorarium is not much of a job creation budget, because clearly, some of the most critical priority areas relating to job creation have been under funded. 

     One can only hop e that next year’s budget (2011/12), will lift the average Liberian a step above where they currently find themselves.

Ms. Nyankor Matthew holds Bachelor’s degree in Political Science with a specialization in Public Administration, and a Master’s degree in Public and Environmental Affairs (MPA), with a specialization in Public/Government Finance.  She can be reached at nmatthew03@yahoo.com

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