Somaliland launches public financial management reforms

                                

Somaliland’s Ministry of Finance and vice-president Abdulrahman Abdullahi Ismail jointly launched a public financial management (PFM) reform programme in the capital on Wednesday.

The colorful function was participated by delegates from the World Bank, the African Development Bank, UK Department for International Development (DFID), UN-Habitat, EU, UN-JPLG, donors, various government departments, civil servants and media.

In recent months, the international community has decided to double its aid for Somaliland and as a result are demanding more accountabilities in place and transparency.

 The government of Somaliland welcomed the new international initiatives and said it was “critical” for the international community to assist Somaliland in development and poverty reduction objectives.

Speaking on the occasion, the vice-president urged the public to pay their taxes saying it was essential in contributing to developing a stronger social fiscal contract and development.

The Government development strategy includes maintaining economic and fiscal sustainability, capacity development, and strengthening the PFM agenda to achieve more mutual accountability.

Eng. Mohamed Hashi Elmi, Minister of Finance said domestic revenue mobilization lies at the heart of economic development and growth as a critical means of raising revenues for achieving national development, poverty reduction objectives and sustainability.

Also at present were Minister of Planning and Development, Minister of Information, Asset Management body chairman, Anti-Corruption body President, Mayor of Hargeisa, MPs and NGOs.

On related development, Somaliland lawmakers approved a 2011 budget framework, sticking to a plan that relies on higher tax collection measures while keeping the rates at a flat five per cent. Their project this year will see the annual budget almost double from $50 million to $90 million.

The government says it will not increase taxes but instead will be more productive in collecting, at the moment there are too many holes in the current system.

The law equally calls for more pro-growth campaigns and aggressive foreign investment.

Here is the full statement by the Minister of Finance, eng. Mohamed Hashi Elmi on the occasion.

H.E. The President

Hon. Cabinet Ministers

Hon. Members of Parliament

Hon. Delegates from the World Bank

The African Development Bank, DFID, EU, UN Habitat & UN JPLG, Distinguished guests, Ladies and Gentlemen,

In this important and high profile event, I would like to express my sincere thanks and deep gratitude to all the Honourable Delegates, and distinguished guests and to those who had planned holding this function regarding the Public Finance Management and made the necessary arrangements for making this crucial meeting a success.

Public finance has played and will continue to play a critical role contributing to economic stability, nation-building, growth, and poverty reduction. It alsoenables Governments to perform effectively and deliver public goods and services to its citizens.

Fiscal sustainability and Mobilization of Domestic Revenues

From a macroeconomic and growth perspective, there is thecritical challenge of fiscal sustainability. Somaliland needs to make continuous and sustained progress toward a fiscal position where domestic revenues are large enough to cover total recurrent expenditures, including those resulting from capital investments financed by external aid channelled through the international agencies.

Sustained rapid growth of domestic revenues will be the most important progress toward fiscal sustainability. In order for revenues to catch up with recurrent expenditures over the medium term and in line with the Government’s objectives, revenues will have to grow much more rapidly than expenditures on a sustained basis. At the same time, a sound revenue system should be conducive to development of the private sector. Key challenges in raising revenues include:

(i) lack of capacity in the tax administration system as well as among taxpayers lack of compliance;

(ii) the need for a tax law and tax administration reform and development oriented system of taxation;

(iii) the dominance of pastoral and the informal sector in the economy, which are difficult to tax; and

(iv) Widely perceived corruption in the tax administration.

To increase revenue from tax, Somaliland needs to ensure that the rate structure is as simple as visible and the tax base as broad as possible. We have, therefore, introduced with the national budget approved yesterday by the Parliament the lowest tax rates in the region: 10% profit income tax, 5% payroll tax, and 5% sales tax, with the intention to increase compliance, by at the same time encouraging investment and economic growth.

Moreover, the proposed Revenue Act and tax administration reforms with the assistance of the World Bank will be instrumental to achieving these ambitious revenue mobilization targets.

Increasing domestic revenue mobilization needs to be given very high priority it will reduce aid dependence over time, create fiscal space for development, and send a very strong signal of the Government’s commitment to progressing towards fiscal sustainability. Full implementation of the necessary policy and administrative reforms would raise Government revenue many times.

Improving the effectiveness of budget execution

In spite of the fact that some progress has been made, compared to the original point of departure, in some areas of control in budget execution; accounting, recording, and reporting; a great deal remains to be done in four respects which would improve the quality of spending and the trust that the citizens, the private sector, and the donors place in the Government systems:

Firstly, financial management processes need to ensure that funds reach service delivery units; this is a serious weakness in, almost, all sectors;

Secondly, further strengthening of the control framework for public spending in particular requires new legislation and implementing a new and IT based Public Expenditure and Financial Management Systems and establishing a strong internal and external audit functions;

Thirdly, while the existing procurement framework includes basic financial controls and stresses competitive bidding, it places an excessive emphasis on prices (at the expense of quality of goods and services), and there is too limited participation from the private sector. Progressive implementation of a new Procurement Law, decentralizing the procurement systems to enhance operational efficiency, combined with substantial training of civil servants as well as private firms, will create the foundations for a fair, transparent, and effective procurement system; and

Fourthly, external scrutiny and audit are necessary to hold Government accountable for the use of public funds. Much remains to be done to build the external auditor’s capacity. The active participation of the House of Representatives will, also, create an opportunity to further strengthen transparency, accountability and participation. Oversight institutions must fully and independently exercise their mandated powers within the framework of the existing financial laws so as to ensure proper Public Finance Management in place.

Progress in those four areas will help greatly the fight against corruption and should be a key part of a holistic anti-corruption strategy. Within this context, the purpose and spirit of the Public Finance Management and Accountability Bill, the Procurement Bill, and Internal and External Audit Bill is precisely to tackle the issue of mismanagement of public funds.

Political Commitment to Reform

The Government of Somaliland re-assures the international community of donors, its serious commitment to the planned Public Finance Management Reforms. Continuing and further deepening the collaboration between the Government of Somaliland and the international community will be critical for the success of the reform agenda. The Government’s development strategy – which includes plans towards fiscal sustainability, more effective service delivery, capacity development, and strengthened PFM performance – should serve as the basis for a framework of mutual accountability.

Lastly but not the least, reforming the PMF and making it more accountable and transparent for the public and development partners will require sustained efforts over a considerable period of time based on meaningful consecutive steps forward each year. However, as was the case earlier, the challenges in building an effective, accountable, financially self-sufficient state that facilitates sustained economic growth, ensures adequate delivery of services to the people and reduces poverty are enormous and pressing too. These issues apparently require committed leadership for which the Somaliland government is ready to fulfil. The President of the Republic of Somaliland H.E. Mr. Ahmed Mohamed Mohamoud and his entire administration are fully committed to make this change happen.

Likewise the International Community is expected to be on the same track and should in practical terms demonstrate its commitment to assist us in achieving those goals. Somaliland, as a matter of fact looks forward to see your assistance and support in all dimensions of the required economic recovery and poverty reduction.

Now that I have come to the conclusion of my statement, I must once again express my thanks to:

1. The World Bank Country Director,

2. The UNDP Country Director,

3. The EU, the African Development Bank, the UN Habitat, as well as all present donors and representatives of other international organization.

Thank you all.

Source: Somalilandpress