Federal'Republic' of'Somalia
DRAFT not for circulation
Strategy(for(Financial(Governance Rebuilding'robust'public'finances'in'Somalia Ministry(of(Finance 2015(plus
The'vision
Federal'Republic' of'Somalia
THE NEED As 2016 approaches, it has become urgent for the Federal Government of Somalia to deliver stability and progress for its citizens. Today, the country is faced with major financial and governance challenges, which threaten the Government’s credibility. Among others, Somalia is increasingly in the spotlight on the international financial scene, as it faces a potential financial crisis caused by severance of remittance flows and credibility problems stemming from allegations of corruption. The FGS alone can, and must, provide the critical leadership needed to deliver peace and kickEstart financial stability for its people. The Ministry of Finance, as a service provider of the FGS, plays a critical role in strengthening the credibility of the Government. THE CHALLENGE In the current operating environment, the Ministry is confronted with significant challenges in delivering key services. Adequate revenue are not being collected on behalf of the Government, as the control systems and policies are not in place, and administration capacity is currently insufficient. Furthermore, the Ministry operates a weak, payments process that does not meet international standards and suffers from legacy issues. Inability to process reliable payments is a huge risk that may jeopardize relationships with suppliers of goods and services as well as with international donors, who are currently providing vital financial support to the Government.
At the central level, and within each ministry, budget planning and execution processes are cumbersome and incomplete. Critical control and oversight functions of the Ministry also need to be developed and refined. Such issues are exacerbated by the fact that the functional capabilities of the Ministry itself are too limited. Without the right people in the proper roles, making use of the appropriate tools, change is difficult to realize. Beyond the operationalization of the Treasury, there is little focus on fiscal strategies and numerous obstacles in the implementation of those. Financial policyEmaking is a further challenge. Management of national economic policies is currently very limited and fragmented, including on issues of critical importance for the government such as Debt Relief and Asset Recovery processes. Given such substantial challenges, action by the Ministry of Finance is urgently needed to preserve the Government operations that are currently functional. However, maintaining businessEasEusual is insufficient. Today more than ever, it is critical for the Ministry to take advantage of its role by acting as a positive catalyst for change on behalf of the Government.
2
Federal'Republic' of'Somalia
THE*STRATEGY To fulfill this mission, a holistic and performanceEbased strategy is needed. The following strategy work is designed to enable the Ministry to perform its functions effectively and efficiently. For this, four main objectives and areas have been identified. They are mutually exclusive, thereby avoiding overlaps of mandate and efforts. The four areas, however, do not form a comprehensive list of efforts that the Ministry could undertake, but they reflect a prioritization of efforts. In other areas, the Ministry will tolerate lower performance at first to allow for the fostering of efforts behind priorities in a context of limited resources. The areas below are the priority. 1. 2. 3. 4.
Collect revenue for government Rebuild the treasury Manage national economic policies Build institutional foundations
This is a performanceEfocused strategy and a total of 26 specific initiatives have been defined across the four areas. In addition to identifying initiatives, the strategy addresses implementation management and considers a financing plan, enabling the Ministry to articulate financing needs both internally and to international donors. Financing is key to enable access to necessary technical, strategic, and change management support.
The Minister of Finance is responsible for the strategy implementation and will be supported by the Ministry management team, subject specific Task Teams as well as external technical and change management capacity. Strategy implementation will be undertaken in collaboration with stakeholders, including FGS Ministries, Department and Agencies and the Central Bank of Somalia. Coordination and management of strategy implementation will be top of mind in order to leverage and benefit from ongoing FGS reforms including those supported by international donors. A strategy, such as the one below, is a journey more than a wellEdefined project. As we embark upon this journey, we will have to start working differently, adapting along the way and bringing change home. At the core, this is about working differently, for myself, my management team, and the nearly thousand staff who are involved in financial management across government. This journey has already started. It is not early days anymore and we will need to travel fast. Mr. Mohamed Aden Ibrahim Minister of Finance Federal Government of Somalia April 2015
3
Federal'Republic'of'Somalia
Table*of*contents 1.SReviewSofStheSsituation
5
2.SSettingStheSdirection
35
3.SManagingStheSwaySforward
42
Annexes InitiativesSAEZ
57
PEFASbenchmarks
65
AnalyticalSfoundations
69
FinancialSGovernanceSStrategy
Federal'Republic'of'Somalia
Section
1 FinancialSGovernanceSStrategy
FinancialSGovernanceSStrategy
Review(of(the(situation The objective of this section is to establish a factual basis upon which we can have a reasoned discussion of relevance, effectiveness, strength and weaknesses of the financial governance. Four important issues are covered: I.
Major external issues and developments. This focuses on significant external imperatives. We review the financing systems role in government, achievements over the last years, the revenue issues, the external fiscal policy demands, the credibility, accountability and corruption issues, and finally, the issues of operating without a formalized financial sector.
II.
The Treasury Value Chain. This focuses on the core machinery of financial governance. Each major component in this is analyzed, from budgeting, spending controls, payments, controls and reporting.
III. Institutional foundations. This focuses on the most important institutional foundations supporting financial governance and the treasury value chain. This includes legal and regulatory foundations, process, technology, organization and people. IV. The security sector. Improving the effectiveness of the security sector is by far the most important priority of government. This also includes the financial mechanisms supporting the sector; getting salaries pad, and monies behind the forces in the field for shortE and longer term needs. From the Treasury perspective, nearly half of government funds are being spent on security and there is a less oversight and control than for other expenditure categories.
Federal'Republic'of'Somalia
1.1*Context*and*developments
FinancialSGovernanceSStrategy
Financial(governance(in(support(of(government(objectives Federal'Republic'of'Somalia Having an operationally efficient and effective public financial system is critical for the functioning of government. Without it, government cannot collect resources effectively, cannot deliver services and ultimately, cannot gain the trust and confidence of the population.
The valueEadded provided by the financial system cuts across all the main components of the government value chain. This also involves contributing to government objectives through a number of defined activities that range from development of fiscal policies to the operations of the treasury system.
There is a unique situation in Somalia, whereby Government is reestablishing itself as a a functioning entity after decades of conflict. The rebuilding of the public financial system is a fundamental part of this. It is a substantial undertaking, which, if successful, will contribute meaningfully to delivering services to the citizens.
The illustration below indicates the main areas of contribution and the main activities. The subsequent analysis in this document addresses these issues in more detail.
Better*financial*governance*will*bring*significant*value*to*the*government’s*objectives Exhibit'1.1.1:' Government'value'chain'and'value'added'from'Ministry'of'Finance
Ministry(of(Finance
Intake(and(deployment(of( resources
Deliver(internal(and( external(services
Citizen(service( satisfaction
Trust(&(confidence
Value( Added
Mobilize'revenue;'macro< fiscal'control,'allocative efficiency
Deliver'resources'to'priority' activities;'micro
Effective'and'cost
Integrity'and'credibility' in'financing
Activities
Collect'taxes;'develop' economic'policies,'plans' and'budgets
Operate'treasury'system,' guide'procurement,'deliver' payments''
Continuous' improvement'of' treasury'system;'Improved' policy'making
Reporting'and'fiscal' transparency
Sources:SMoFSdataSandSAbyrintSanalysis.
FinancialSGovernanceSStrategy
7
Gaining(momentum
Federal'Republic'of'Somalia
Throughout the recent political and policy developments in Somalia, there has been a certain degree of continuity in terms of the efforts and progress made to establish and restore a basic public financial management system. Even under early transitional governments, some basic capabilities were rebuilt such as, symbolically, the Central Bank of Somalia in 2006.
Since those early beginnings, further improvements have been made to financial management processes, with notably the interagency efforts to establish a more robust and reliable payroll process for civil servants. As external partners bring support to reforms, public financial structures are increasingly influenced by different models and traditions.
Much of the structure that emerged, or reEemerged, over the following years was influenced by principles designed in the 1960s. Indeed, the last reasonably complete regulatory framework stems from that era. The contributions from many civil servants, with experience and memory from the days of a functioning state system, were instrumental in reEestablishing the basics. Those civil servants remain key actors for daily operations even at present.
Reforms also aim to address increasingly complex problems. In that regards, solutions tend to be more complex too and, importantly, more demanding in terms of successful implementation. With the objective to establish a credible public financial infrastructure, challenges will not decrease in complexity and intensity. This will not only be technically demanding, but it will also test the political resolve of the Federal Government and its capacity to push forward reforms.
Reform*momentum*has*been*building; while*interruptions*abound,*the*track*record*is*improving Exhibit'1.1.2:'Major events'in'the'rebuilding'of'financial'governance 2006
2012
2013
• • • •
Launched basicS operations ReestablishedS legacySsystems ReestablishedS CentralSBank
• •
• •
LaunchedSfirstS federalSbudget EstablishedS HumanSResourceS Registry CentralSBankSAct FinancialS InstitutionsSAct
• • • •
2014
LaunchedSrevisedS payrollSsystemSwithS biometricSidentificationS andSpaymentSdirectlyS toSindividuals AuditS ofS2012Saccounts ReestablishedSIMFS relationship LaunchedSSFMISS implementation SWIFTScapabilitiesS CBS
• •
• •
2015
LaunchedSdigitizationS ofS humanSresourceSregistry CouncilSofSMinistersSpassedS procurementSandSconcessionsS bill EstablishedS FinancialS GovernanceSCommittee EstablishedS CentralSBankS board,SandSfirstSfinancialS statementsSfromSCentralSbank
• • • • •
LaunchedSNationalSFinancialS ProceduresS Manual,SredesigningStreasurySoperations LaunchedSFinancialS GovernanceSStrategy LaunchedSauditS ofSCentralSBankSaccounts SignedSWorldSBankSPFMSprogramSinSsupportS ofSselectedSstrategicSinitiatives SFMISSlive
Source:SFGSSdataSandSAbyrintSanalysis. Sources: Notes:
FinancialSGovernanceSStrategy
8
The(revenue(imperative By all measures, current volumes of collected revenues are insufficient to build a functioning government that is able to deliver expected services to its citizens. Decades ago, Somalia had a domestic revenue income matching that of its neighbors and main trading partners. This has since collapsed, and over the last few years, the Federal government has collected revenue only in the range of 1E2 percent of the most conservative estimates of the country’s GDP. In contrast, revenue collection in other countries in the region is on average about 13 percent of a country’s GDP. However, while, prior to the civil war, the Somali government used to finance its own recurrent costs through domestic revenue collections, capital costs were still supported externally. The share of domestic financing is reaching about 50 percent this year. This leaves implementation of foreseen policies and programs vulnerable to shifts in external financing and in need of direct budget support with different degrees of additional requirements from donors. The tax base is currently narrow with revenues that are mostly generated from customs. In practical terms, about three quarters of total revenues are collected from import duties at Mogadishu Seaport. There is also some collection from other duties, fees, and the airport. Corporate and other forms of income tax have been nonEexistent for all practical purposes. The current legal and regulatory framework mostly stems from the government of the republic in the 1960s. While this provides the basic legal basis, it is in need of a serious overhaul to be effective in today’s economy. The administrative systems, of both customs and other tax collections, are also not geared for effective revenue collection. Efforts are underway to increase and improve revenue collection, and while this is confronted with fundamental challenges, it remains an imperative for government. NotesSandSsources:SS1SandS2SRangeSdueStoSvariationSinSGDPSestimatesSfromStheSIMFSandS WorldSbankSrespectively.SLowSestimateSbasedSuponSIMFS(high)SestimateSofSGDP.SS 3 ReportingScountriesSonly,SlatestSyearSavailable,SsourceSWDI.SS 4 HistoricalS measurementsSfromShistoricalSWBSCEMSdocuments,SmidEdecadeSaverages.SFGSS revenueSdataS2013SandS2014SfromSAppropriationsSActSandStentativeSaccountsS2014.S TaxSdataSfromSCentralSBankSledgerSanalysis.SAbyrintSanalysisS2014SandS2015.
FinancialSGovernanceSStrategy
Federal'Republic'of'Somalia
Too*little* Government*revenue* collection*is* extremely*limited*as* share*of*the*economy.
Exhibit'1.1.3:'Domestic'revenue'by'GDP Somalia4 1960s
11.6%
1970s
10.3%
1980s
6.8%
2013
1.1%1
2014
1.4%2
FGS
13.3%
IGAD3
Too*narrow
Exhibit'1.1.4:'Domestic'revenue'by'collection'mechanism'(2013)
The*tax*base*is*very* narrow,*focused*on* import*taxes.
Seaport(
74%
Other(
12%
Airport(
10%
Corporate(
Better*before
2%
Exhibit'1.1.5:'Domestic'revenue'by'recurrent'budget 50%
Somalia*used*to*be* able*to*finance*its* own*recurrent* expenditures.
SomaliaS1960s
90%
1970s
107%
2013
63%
2014
57%
20154
51%
FGS
100%
9
Weighing(fiscal(policy(demands The scope and scale of the policy challenges ahead is daunting. Few countries have ever been confronted with this range of fundamental economic policy questions, all at once, and with such an urgency to get them resolved. There is also the more recurring demand to manage standard economic and fiscal policies. Many of the most pressing policy problems have a finite nature. We envision that reasonable solutions can be implemented over a practical timeframe. At this stage, even defining the problems and emerging solutions with a degree of precision is challenging enough. These policy problems also need to be managed amidst implementation of other complex operational reforms in the revenue and treasury systems. This places an extraordinary burden on the people and management; however bright and motivated, this is a daunting undertaking.
Federal'Republic'of'Somalia The main policy demands are indicated in the exhibit below. Analyzing them all in depth requires dedicated focus beyond this note. Work is ongoing, and progressing, on several of the areas. While other pressing policy issues may emerge over the next years, at the moment we see the most fundamental challenges as: (i) formalizing the financial sector, (ii) establishing fiscal federalism, (iii) debt relief, (iv) asset recovery, and (v) managing and coordinating aid. An illustration of the challenge of debt is included below. The Federal Government has assumed responsibility for much of the debt accumulated by Somalia throughout history, most of it stemming from before 1991. While the debt is currently not being serviced, it is still accumulating as most of this carries interest. An IMF Staff Monitored Program is planned to start during 2015, which is a first step towards debt relief managed under the HIPC initiative. It is necessary for creditors to see a track record of performance and credibility managed under such a process. This puts the ball in our court.
Critical*fiscal*policy*demands*are*a*heavy*burden*on*overstretched* capabilities
Credible*performance*track*record*required*for*debt*relief
Exhibit'1.1.6:'Illustration'of'imbalance'between'policy'capabilities'and'longL and'short' term'needs
Exhibit'1.1.7:'Known'external'public'debt'(2013)'99'percentile'shown
Capabilities
Demands
E
E E
Ad EhocSs ta L imit ed S ffing inst it ut io n r esour ce alized S s
For maliz eSfinanci alS sect or E FiscalSfed e E Aid Scoor ralism di managem nationSandS e E Debt Sr el nt ief E Asset Sr e co E FiscalSpla ver y n E St r uct ur ning alSf and Sind u inancialS st r ialSSpo licy
Creditor Total& United&States& UAE& Italy& World&Bank& France& Saudi&Arabia& IMF& Arab&Monetary&Fund& Arab&Fund& Kuwait& AfDB&Group& Russia& Japan& United&Kingdom& Iraq& Spain& OPEC&
Share*of*total
Cumulative*total
5,2SbillionSUSD
50%
80%
95%
Source:SMoFSandSCBSSdata;SIMFSAideSmemoires;SAbyrintSanalysis.
FinancialSGovernanceSStrategy
10
Rebuilding(the(credibility
Federal'Republic'of'Somalia
The credibility of government is suffering and much of this stems from financial issues including corruption. There are frequent negative media reports, as well as issues raised by the U.N monitoring Group for Somalia and Eritrea. Whether or not the reports and accusations are correct is not the point; as long as the negative perception exists, the government will have a hard time accomplishing its objectives, investors will shy away from Somalia, and trust and credibility with the population will not be sustained. A fundamental problem today is that the underlying systems of accountability are not transparent or controllable enough, so that even if there is no misappropriation or misbehavior, the current system cannot guarantee or even document it. Perceptions may be correct or misguided, but today’s public financial system is not designed to hold people accountable or to produce robust information suitable for controls and audits.
A key contribution in this regard is to create a basic operating system that is more transparent and accountable. This starts with revenue collection and the core treasury functions. Only when such systems are functioning is it possible to produce financial information and conduct credible audits and reviews. Addressing the problem longer term will also require behavioral changes across other areas, but the main contribution from the public financial system at this stage is to create a robust underlying system and operate it well. Institutions of accountability, especially the Office of the Auditor General, have a critical role in this. While the Auditor General’s office is not under the mandate of the Ministry of Finance, it is our responsibility to ensure there is a functioning financial system that enables the the office to perform their mandated function.
Most*payments*are*made*without*reconciling* supporting*documents
Building*a*functioning*treasury*system*is*a* main*part*of*the*battle*against*corruption
Critically*bad*perceptions*of*corruption
Exhibit'1.1.8:' Performance'of'internal'control'environment
Exhibit'1.1.9:' Illustration'of'enabling'system'and'controls
Exhibit'1.1.10:' Facsimile'of'press
Expenditures( without supporting( documents
Expenditures( with supporting( documents
Enabling(the( treasury(system
External(controls( and(review
Ministry( of(Finance(lead( responsibility
Auditor( General(&( other( external
Treasury Receipt/ invoice$
68%$
32%$
Voucher$ Unable$to$ iden:fy$
79%$
20%$
2%$
Audit( &( Review
Supporting' foundations:' Regulations'&' Guidelines,'process,' technology,' organization,'skills'and' people
Sources:SMoF proprietarySanalyticsSofS700Stransactions.SSampleSisSstratifiedSandSnotSrandomSsoSfindingsSmaySnotSbeSrepresentative.SAbyrint analysis.
FinancialSGovernanceSStrategy
11
The(burdens(of(an(informal(financial(sector In the current context, the primary objective of formalizing the Somali financial sector is to address money laundering and terrorism financing risks in order to allow for Somali financial institutions to participate more broadly in the international payment system. This would help the urgent remittances problem. Formalizing the financial sector will also contribute to ensuring financial stability in the longer term, will help more efficient domestic and international transfers, including those from government. AML/ CFT and financial stability, while interconnected, depend on different sets of laws and regulations, regulatory agencies as well as assessment methods. Those are currently not effective in Somalia due to factors detailed below. The legal framework for financial stability is more advanced than the legal framework for AML/ CFT, but no regulation has been issued yet for financial stability or AML/ CFT. Powers to regulate the financial sector and ensure stability have been given to the Central Bank of Somalia (CBS) through the Central Bank Act. Under that act, certain financial stability regulations have been drafted with support from the World Bank (for remittances) and the IMF (for banks). Legal tools to counter ML/ FT are still in a draft stage, both an AML/ CFT and an antiEcorruption law are in process and there exists at present no regulatory guidance for AML/ CFT. The only exception is the internal AML/ CFT guidelines of the CBS, which were produced in anticipation of the legal framework. Those guidelines have yet to be implemented. There exists no institutional anchor for AML/ CFT, and financial supervision capacity is non\existent. A Task Force on AML/ CFT was created in order to coordinate initiatives for the drafting of the AML law. Recently, a Task Force for remittances was also created, but there exists currently no Financial Intelligence Unit and no other regulatory or government body exercises this function, or even parts of it. The capacity of the CBS to perform its task as a supervisory body is very limited. At present, no examination has been performed on Somali financial institutions. The CBS and private actors have engaged in dialogue and a licensing process has been implemented, but lack of institutional knowledge, coherent procedures, staff continuity and limited regulatory clarity hinder progress.
Federal'Republic'of'Somalia
Availability and reliability of data on private financial actors is limited. While some financial and ownership data has been delivered for licensing or registration purposes, it does not constitute a sufficient base for supervision and examination. The lack of knowledge gathering processes constrains the understanding of the activities of private financial institutions and their market structure. Somalia has yet to ratify a series of international conventions that would support the country in countering ML/ FT and ensuring financial stability. Examples of such conventions are those compulsory under the Financial Action Task Force (FATF). While the lead time for ratification or membership could be long, it is possible for Somalia to start the application and ratification processes at present. This is also likely to generate reputational improvements and foster efforts. At the fundamental level, there is a lack of solid institutional foundations, both private and public. Much of the concern regarding AML/ CFT is focused on the lack of capacity to identify counterparts in a transaction. This is rendered extremely difficult in Somalia due to the fact that no countryEwide, coherent and reliable identification system exists. The institutional capacity to address this issue is weak. Formalizing the private financial sector will inevitably raise the issue of financial exclusion. The need for identification will in the short and mediumE term exclude large population groups that do not have access to the identification system. Alternatives must be found for the shortE and mediumE term while a more robust and accessible system must be developed in the longer term. Addressing private sector formalization, and thereby palliating urgent issues regarding international payments, can and must be done urgently. This requires high levels of coordination within the Somali government and agencies as well as a capacity to understand the current functioning of the private sector in order to apply relevant measures.
FATF=FinancialSActionSTaskSForceS(InternationalSOrganizationStargetingSmoneySlaunderingSandSterrorismSfinancing) Sources:SMoFSandSCBSSdataSandSinterviews;SAbyrintSanalysis.
FinancialSGovernanceSStrategy
12
Federal'Republic'of'Somalia
1.2*Rebuilding*the*treasury*operations
FinancialSGovernanceSStrategy
Taking(stock(of(the(treasury(value(chain
Federal'Republic'of'Somalia
WeSviewStheStreasurySprocessSasSaSvalueSchain,SfromSbudgetingSandSplanningS toSpaymentsSandSreporting.SCurrentSFGSSperformance acrossStheSvariousScomponentsS isSvariable,SwithSsomeSmoreSadvancedSthanSothers.STheSexhibitSbelowSsummarizesStheSmainSissues.SMoreSdetailsSareSfoundSinSthe subsequentSpagesSofSthisSsection.
Exhibit'1.2.1:' Status'of'treasury'system'components'and'supporting'functions
Components Financial( planning
BudgetsSareS preparedSeachSyear;S higherSprojectionsS ofSrevenueSthanS realized.SWeakSlinksS betweenSstrategy,S needsSandS financing.
Budget( releases
BudgetS AppropriationSActS passedSannually,S allocationSprocessesS andSinstructionsS basedSonSAct.S
Purchasing( and( Commitment( control
Cash,( asset(&( debt( management
ProcurementS ThereSisScashS legal/regulatoryS rationing,S frameworkSnotSinS dependingSlargelyS place;SguidelinesSinS onSrevenueSinflows.S infancySstage.S DebtSandSassetS CommitmentS managementS controlSnotS limited;SnoScentralS centralized. assetSregistry.S
Revenue( management
Payment( processing
Financial( reporting
Accounting
RevenueScollectedSisSGovernmentS ManualSrecordingS consolidatedSinS paymentsSareSmadeS processes,SoutdatedS treasurySsingleS inScashSatSCBS.S accountingS accountS(TSA);SS ScalabilityS procedures,SpoorS limitedSCBSS challenges,SlackSofS reconciliation,SpoorS reporting; possibleS nationalSpaymentS supportingS offEbudgetSrevenueS infrastructure,SpoorS documentation.S actsSoutsideSofSTSA.SSreconciliation.
MinimalSreportingS fromSmanualS processes.SEarlyS stageSreportingS fromSSFMIS.S TimelinessSandS completenessS challenges.
Foundations Legal(and(regulatory(frameworks
LegalSframeworkSpartlySprepared,Sincomplete,SandSnotSfullySenacted.SPackageSofSregulationsSandS guidelinesSpartlySdeveloped.
Process
RudimentarySfunctionalitySofScurrentSsystem.SDesignsSofSnewSprocessesSdevelopedSbutSnotS implemented.SCriticalSbottlenecksSremainSunresolved,Sesp.Sinterfaces.
Information(systems
TechnologySsupportSlimitedStoScentralSprocessingSofSfederalSgovernmentSexpenditures.S InvestmentsSmadeSinSgeneralSaccountingSsystemS(SFMIS)SthatSaimsStoSbeSliveSwithinS2015.S
Institutional(frameworks(and(organization
CoreSinstitutionalSframeworksSinSplace.SInterfacesSandSclaritySofSstructuresSandSresponsibilitiesS canSbeSimproved.S
People
SkillsSshortageSacrossSbothScentralSMoFSandSMDAs,SandSatSfurtherSdecentralizedSlevelsSandSlittleS delineationSofSresponsibilitiesScreatingSoperationalSbottlenecks.S
Sources:SMoFSdataSandSAbyrintSanalysis.
FinancialSGovernanceSStrategy
14
Budgeting(improving,(much(remains
Federal'Republic'of'Somalia
There is a consolidated budget process managed by the Ministry of Finance. As a matter of policy, it is prepared as a cash budget, limited to funds under government control and thereby excludes some donor financing. It is prepared on a topEdown basis where revenue mobilization determines expenditure levels.
As a result of the revenue shortfall, the dayEtoEday decisions on what to spend is determined by priorities set by Parliament, and implemented by the Accountant General. This is reflected in the actuals showing a higher utilization ratio in the security sectors.
Some issues have emerged over the last few years, most significant being the budget utilization. There is low budget utilization; averaging 63 percent in 2014, but with much higher levels for security sector. Average for nonEsecurity sectors is 49 percent.
Also of note is that while in principle it is a cash budget, there is arrears accumulation, mostly in the form of late salary payments, but possibly also in the form of late vendor payments although the extent of the latter cannot be quantified.
The low budget utilization is mostly a function of lower than estimated revenue mobilization. This again may be due to several factors: (i) the budget estimate of revenue may have been too optimistic; (ii) there is delivery failure in the revenue collection policies and administration; or (iii) the expenditure budget is influenced by bottomEup pressures and revenue estimates subsequently adjusted. Stakeholders report mainly factors 1 and 2 as important. With revenue levels as low as they are, any estimate of increase is bound to have a large margin of error, but in the last two years, this error has been only to the upside reflecting some optimism.
Another issue of importance is the degree of coherence between policy objectives of ministries, plans and budgets. There is especially limited capacity in the ministries and agencies to formulate credible budgets related to their objectives and strategic plans. There is also limited centralized capability to review such plans, prepare guidance and make decisions on priorities. There is no expenditure framework to guide the entities in mediumEterm planning.
Ambitious*revenue*forecasting*resulting*in*ad\hoc*budget*allotment* and*cash*rationing
Functional*central*budget*preparations,*but*limited*relationship*to* needs,*objectives*and*strategies*of*the*government*entities
Exhibit'1.2.2:'Budget'utilization'rates'(budget'vs.'actuals)'for'FGS'2014''
Exhibit'1.2.3:'Illustrative'target'model'concept'for'planning'and'budgeting
Objectives
Budget
95%$ 76%$ 63%$ 49%$
Total&FGS&
Non,security&Sectors&
Security&Sector&excl.& Military&
Armed&Forces&
Strategy'&' Action'Plans
Source:SMoFSdataSandSAbyrintSanalysis.
FinancialSGovernanceSStrategy
15
Limited(control(over(purchasing(and(commitments
A number of different suppliers are being accessed, but there also seems to be a high degree of concentration among a few. There does not seem to be much joint or shared purchasing for larger quantities across purchasers. There seems to be repeat access to the same suppliers but this is not formalized in a framework or quantity arrangements. The operating budgets have been small over the last few years and the purchasing is mostly for basic goods and services such as electricity, diesel and office supplies. Concessions and more significant deals involving public resources do get more management attention but also operate in a poorly regulated and enforced environment. There has been high level attention to a series of these over the last few years and the practices should change. There is a degree of commitment control, but it is managed locally by the purchasing entities. This creates a local accountability, and must be understood in the context of suppliers being paid directly by the local entities and government itself as an entity having very little credit worthiness with the suppliers. There is no formal and centralized commitment control or consolidated information of outstanding commitments. Also, the new management information system, SFMIS, has plans to introduce a commitment control module during 2015. Commitments for payroll involve a more complicated process including checks against the budget prior to authorization, and central clearance by the National Civil Service Commission and the Accountant General. While the size of the payroll is predictable, there is no formal commitment control in place at the central level for this.
Attempts have been made at understanding the relationships between arrears and commitments. There is a pattern of late payments, and some bills are only partially settled and balances carried forward, especially for utilities. Thus, there mostly seems to be a stock of unpaid commitments rolled over and settled from time to time. While it does not seem significant, the total volume of this has not been possible to ascertain. There*is*purchasing*without*formal*rules,*a*large*number*of*vendors*and* high*concentration*of*awards Exhibit'1.2.4:'Illustration'of'purchasing' distribution Accumulated*value
90 000,00' 80 000,00' 70 000,00' 60 000,00' Expenditure*Amount* (USD)
Purchasing is managed decentralized, typically by the finance officers in the ministries and agencies. There is very limited regulation or guidance provided for these activities. They access the market in different ways, but there is rarely open market transparency. The purchasing process itself is rarely documented while the payment transactions may be documented.
Federal'Republic'of'Somalia
80% 16%SvendorsS provideS80SpercentS ofSvalue
50 000,00' 40 000,00' 30 000,00'
50% 4%SvendorsS provideS50SpercentS ofSvalue
20 000,00' 10 000,00' <
1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 Unique*vendors
Sources:SMoF proprietarySanalytics.SSampleSsizeSabt 700n,Sstratified,SnotSrandomizedSandSfindingsS maySnotSbeSrepresentative.SAbyrintSanalysis.
FinancialSGovernanceSStrategy
16
GovernmentQled( public(investments(have(collapsed
Federal'Republic'of'Somalia
The country’s capital infrastructure has been largely destroyed by 30 years of conflict and neglect. ReEbuilding will require efforts much beyond the ordinary. Currently, the Federal Government initiates and manages an extremely limited amount of public investments, amounting to an exceptionally low 1 percent of the federal budget in 2013/ 2014. This could not be further away from the budget policy target for the medium term, which is to reach 25 percent.
Building an investment portfolio that reflects government priorities, and importantly, is carried out by government, will help rebuild the country and importantly also strengthen credibility of and trust in government.
However, this does not give a fair representation of actual public investments being made in the country. Importantly, there is much public good investment being supported by external donors, but it is outside of government direct control, not using country systems, and therefore not on budget or recorded in the general accounts. Statistical data on the totality of such investments is difficult to ascertain. The values are rather high, e.g. the Turkish investment support in roads and other public infrastructure is possibly in the area of 30 percent of the FGS budget alone. This is not exceptional in Somalia; while the historical public investment levels were significant, these were already mostly financed by external grants and loans.
The principal difficulty is that capability for planning and executing infrastructure projects is limited within the current administration. Deficiencies exist across the range of activities, from concept development, detailed planning, quality reviews, procurements, execution and supervision. The capability of the local private sector is limited for all but small scale infrastructure projects, and international private groups may be reluctant to engage on a larger scale due to security problems and the small size of the market.
Fostering public investments is both about increasing the share of government budget allocated to such investments and about absorbing more of the externally funded investments into governmentEled financial processes.
Reaching this objective represents several challenges that go beyond the financing and allocation questions.
Other issues relate to the reluctance of donors to engage in the use of country systems when implementing infrastructure projects. Most investments are channeled offEbudget for government, and while there is important and direct impact and value from these projects, they contribute little to the building of national systems. This poses serious questions on the sustainability of such projects.
Public*investments*under*government*control*have*collapsed,*while* previous*levels*were*significant
Only*piloting*of*federal*infrastructure*investments*in*the*regions
Exhibit'1.2.5:'Public'investment'budgets'as'share'of'total'budget
Exhibit'1.2.6:'Illustrative'photo'of'Galgadud investment'by'the'federal'government
SomaliaS1960s
11%#
1970s
FGS 2013/14
31%#
1%#
Sources:SMoFSdata,SWorldSBankShistoricalSdocuments,SAbyrintSanalysis.S
FinancialSGovernanceSStrategy
17
Consolidating(revenue(management(and(cash(rationing Domestic revenue collection is consolidated with external grants and credited to the Treasury Single Account held by the Ministry of Finance at the Central Bank. Domestic revenues are collected as cash deposits in joint processes by satellite offices of both the MoF and the Central Bank. External grants and funds are transferred from international correspondent accounts held abroad by the Central Bank and the MoF using money transfer services and deposited in cash at the Central Bank. While the frequency and volume of domestic revenues is fairly predictable, external contributions are more uncertain with regards to both timing and value. Given regular revenue shortfalls, expenditure management has become a cash rationing process. Liquidity is strapped and the execution of major payments is intrinsically dependent on the delivery of large revenue transactions. There is frequent operational dialogue on these matters between CBS and MOF/AG including communications on main account balances. There is little to no application of more complex liquidity management tools and the structured financial or management reporting from CBS is too irregular or lacking altogether.
Federal'Republic'of'Somalia
It is government policy to consolidate all revenue in the Treasury Single Account and have a single view of balances and transactions. In the present environment, this can only be achieved by consolidating the Treasury Single Account system, although more complex solutions can be envisioned once the overall public system grows stronger and the private financial sector is formalized. An increasing share of collected revenues are being deposited on the Treasury Single Account in a systematic way, especially since July 2013. However, exceptions exist. Some external donor organizations require the use of special account arrangements. Other earmarked funds may also be directed to subEaccounts of ministries or projects although this is exceptional. Exceptions cause the consolidated balances to be less representative of the actual financial position of the government. The possibility that various MDA’s hold accounts at private institutions, including abroad, cannot be excluded. While this practice is in theory discouraged by the MoF, it can be close to impossible to enforce, in particular given the current informal nature of private Somali financialinstitutions.
Too*little*and*too*late*revenue*collection,*as*well*as*low*liquidity,*constrains*payments*management Exhibit'1.2.7:'Revenue'collection'and'payment'per'day'from'the'single'treasury'2013L2014
4*mil*USD
Revenue
0,5*mil*USD 0,5*mil*USD
Payments
JanuaryS2013 Sources:SCBSSdata,SMoFSdata,SAbyrintSanalysis.S
FinancialSGovernanceSStrategy
4*mil*USD
JanuaryS2014
DecemberS2014
18
Salary(payments(for(civil(servants(reformed,(others(remain There are several different payroll systems being operated under the Federal Government. Their implementation varies across several parameters; including registry functions, reconciliation and controls, authorization and payment practices. The civil service payroll system was reformed during 2013 and further refined during 2014. That payroll is being based upon entries into the national civil service registry which has been digitized over the period. There is also a civil service ID card and fingerprint measures. The ministries and agencies forward monthly payroll requests to the Accountant General who reconciles these against the civil service registry. The payments are made directly to the individual civil servant at the Central Bank against fingerprint authentication. The civil service payroll system works, but is not without flaws. There is still much manual work involved and mistakes are made every month. A main constraint is the payment point at the Central Bank. This is not scalable and restricts further expansion in numbers and geographically. The civil service payroll has been supported financially by external partners since August 2013.
Federal'Republic'of'Somalia
The military payroll is managed by the Armed Forces directly. There are rudimentary processes in place but a limited view from the perspective of the Ministry of Finance. Payments are made directly to the soldiers through SAF channels. There is geographical reach. External partners have been supporting payroll payments through different mechanisms. Most of these have been offE budget and are not reconciled with the general accounts of government. The police payroll is managed by the police forces and also through involvement from external partners. There is limited insight from the Ministry of Finance. Support is also provided from external partners and this is reconciled against government accounts at an aggregate level. Social sector payroll is limited beyond the core ministries. There are pilots supported by external partners but limited insight from the Ministry of Finance. Parliamentarians are paid their salaries through checking accounts at the Central Bank. These accounts function mostly only for salary purposes and are cleared every month.
Civil*servant*wage*bill*has*grown,*mostly* supported*by*external*financing
Payments*have*been*regular,*albeit*delayed
Tax*is*collected*on*salaries
Exhibit'1.2.8:'Payment'of'civil'servants'August'2013'to' December'2014
Exhibit'1.2.9:'Days'beyond'nominal' payment'date'for'civil' servant'salaries
Exhibit'1.2.10:'Payment'composition' civil'servant'wage'bill
Gross*Pay
Number*of*Civil*Servants DonorSsupported Dec.14$ Oct.14$ Aug.14$ Jun.14$ Apr.14$ Feb.14$ Dec.13$ Oct.13$ Aug.13$
FGS
3621$ 661$ 3605$ 563$ 3517$ 495$ 2898$ 932$ 2579$ 962$ 2562$ 842$ 2563$ 724$ 2563$ 724$ 2467$ 758$ 2004$ 1221$ 1970$ 1255$ 1964$ 1210$ 1972$ 1155$ 1972$ 1106$ 1976$ 984$ 1668$ 1259$ 379$ 2443$
,2.188.755,$ ,2.128.601,$ ,1.995.461,$ ,1.935.404,$ ,1.769.085,$ ,1.693.909,$ ,1.628.286,$ ,1.629.331,$+46% ,1.592.682,$ ,1.603.624,$ ,1.596.737,$ ,1.573.844,$ ,.,,,$ ,1.527.700,$ ,1.433.153,$ ,1.447.930,$ ,1.502.645,$
Days*overdue*payment
Dec/14" Nov/14" Oct/14" Sep/14" Aug/14" Jul/14" Jun/14" May/14" Apr/14" Mar/14" Feb/14" Jan/14" Dec/13" Nov/13" Oct/13" Sep/13" Aug/13"
8" 26" 27" 27" 25" 38" 58" 38" 37" 38" 19" 13" 423" Unpaid 31" 39" 30" 0"
Basic!Pay,!Net!of!Taxes% Dec014% Oct014% Aug014% Jun014% Apr014% Feb014%
Allowance%
Tax!Deduction%
!1!646!% !!139!% !!59!% !1!638!% !!139!% !!59!% !1!555!% !!127!% !!55!% !1!309!% !!94!% !!47!% !1!149!% !!79!% !!40!% !1!136!% !!79!% !!40!% !1!131!% !!80!% !!40!% !1!131!% !!81!% !!40!% !1!085!% !!75!% !!38!% !!874!% !!63!% !!30!% !!854!% !!60!% !!29!% !!856!% !!58!% !!30!%
Dec013% !!861!% !!61!% !!30!% !!858!% !!62!% !!30!% !!737!% !!52!% !!26!% Aug013% !!218!% !!11!% !!8!% Oct013%
Source:SNCSCScivilSserviceSdata,SCBSSpaymentSdata.SAbyrintSanalysis.
FinancialSGovernanceSStrategy
19
Payment(of(other(costs(are(mostly(cash(inQhand( Almost all payments are made in cash at the central bank. A few payments are settled through international banks and almost none through local institutions. There is much variance in the daily payments from the central bank, where the peaks are reflecting mostly large payments for salaries. Variance is not unusual and one will find that in many organizations, the lack of regularity is more unusual but this is related to the erratic revenue inflows of large external contributions as discussed above. The payees come in different groups. Civil servants receive their salaries individually, as well as parliamentarians. Vendors, however, may receive their payments through three different mechanisms: (i)
Check drawn on a ministry subEaccount in the treasury to an individual representing the vendor. Unfortunately there exists no consolidated record linking individuals listed on the checks to the vendor. There are about 1500 unique payees during 2014 (not counting salary recipients).
(ii) Checks written to an organization/entity. There are only a few of these. (iii) Checks written to government officials working in the respective entity owning the treasury subEaccount. These officials are expected to make payments, at local levels, to their respective payees. This includes salary payments for large groups such as security personnel, as well as more or less all other costs. About 50 percent of the government budget is disbursed through the topEten payees over the last few years. 80 percent is disbursed through the top 25 individuals. There is a larger number of unique payees in 2014 than before. Transaction size has also decreased and there is less concentration of vendors in few agencies. This may indicate a trend towards more direct payments of vendors. There is a reconciliation policy with regards to the advances to ministry subE accounts of the treasury, meaning that previous payments are supposed to be documented before new advances are released. This policy has proven difficult to implement in full but is partially applied. One estimate suggests about 1/3 of volume is documented, and about 2/3ds of payments.
Source:SFGSSbankingSdata.SAnalysisSofSfreeStextSentriesSwithSmuchSunderlyingSvariationSinS spellingSpractices,SanalysisSincludesS30.000SeditsStoSoriginalSentries.SAbyrintSanalysis.S
FinancialSGovernanceSStrategy
Federal'Republic'of'Somalia
About*half\a\million*paid*out*per*day*but*highly*erratic*pattern Exhibit'1.2.11'Daily' cash'payments'at'CBS'2013L2014
Millions'(USD)4" 3.5" 3" 2.5" 2" 1.5" 1"
90EdaySmovingSaverage
0.5" 0" JanuaryS2014
JanuaryS2013
Large*payments*made*in*cash*to*a*few*government*officials Exhibit'1.2.12:'Payments'in'cash'at'CBS'by'individual' payee 2013*(millions*USD) 24.3%
Individual31% 8.4%
Individual32% Individual33% Individual34%
4.1% 3%
Individual36%
2.9%
12.7$
Individual33$
8.2$
Individual34$
7.4$
Individual35$
4.4$
49%
Individual36$
4.1$
Individual37$
3.6$
1.3% 2013SdisbursedS throughS
Individual38$ Individual39$
3$ ofSFGSS expendituresSforS
Individual37%
1.7%
Individual38%
1.4%
Individual39% Individual310%
32.2$
Individual31$ Individual32$
5.8%
Individual35%
2014*(millions*USD)
1.3%
ofSFGSS expendituresSforS 10Spayees
Individual310$
54%
2.9$2014SdisbursedS throughS 10Spayees
2$
But*share*of*direct\to\vendor*payments*is*increasing Exhibit'1.2.13:'Number'of'unique'payees'by'MDA 2013*(unique*payees) !1!161!$ Total$ Local!Mogadishu!(x)$ !!550!$ !!246!$ Single!Terasury!(USD)$ !!122!$ Somali!Development! Ministry!of!Foreign! !!80!$ #N/A$ !!49!$ Parliament$ !!30!$ The!Prime!MinisterNs! !!22!$ Ministry!of!Defense$!!16!$ ofSuniqueS SFF$ !!9!$ vendorsSinStopS tenSentities Ministry!of!Finance$ !!9!$
98%S
2014* Total% Ministry!of!Livestock% Local!Mogadishu!(x)% Somali!Development! Ministry!of!Foreign! MoJ!project% SFF% The!Prime!MinisterMs! Presidency!JFKS% Parliament% Ministry!of!Finance%
!1!537!% !!310!% !!269!% !!168!% !!90!% !!72!% !!66!% !!46!% !!42!% ofSuniqueS !!40!% vendorsSinStopS !!38!% tenSentities
74%S 20
Limited(payment(system(capabilities(block(expansion The current payment system architecture is built around an entirely closed loop government managed structure, with CBS as the payment agent (and collection depository). There are no linkages with commercial financial institutions, no linkage to national clearing and settlement arrangements, and all payments are made in cash at the CBS (with a few anecdotal exceptions). This is unsatisfactory from government’s perspective. There are two main problems with this: (i)
The payment system cannot easily support a scaleEup in volume, geographical reach or different payment types; and
(ii) There is a lack of transparency, control and reconciliation.
Federal'Republic'of'Somalia
Eventually, there is the possibility of linking the treasury account system, whether a single treasury account or a system of subEaccounts, at the central bank or in commercial banks, to a banking/payment system, through national switches and with automated information exchanges. Commercial financial institutions in Somalia have advanced payment capabilities. Work has been undertaken to establish mechanisms to link into these systems by government, but this is yet to be implemented. In early days, manual systems can be envisaged, while automated exchanges can be built later. There may also be a need to realign the workflows and technology supporting the treasury system to enable enhanced payment system capabilities.
Cash*to*designated*officials*and*individuals*is*the*main*government* payment*method
Time*to*leapfrog?*Catching*up*with*30*years*of*global*financial* sector*development
Exhibit'1.2.14:'Illustration'of'current'payment'model
Exhibit'1.2.15:'Illustrative'scenario'for'national'financial'infrastructure Central*Bank* System
Treasury*System Government* Treasury* (MoF/AG)
ApprovedS paymentS voucherS(F3)
Central* Bank
Single* Treasury* account TransferSfromS SingleSTreasuryS toSMDASaccounts
Payment*switch* infrastructures
MDA* accounts
WithdrawS paymentScashS withScheck
MDA
Licensed* &* Supervised* Banks
Retail* system IssueScheck
Source:SAbyrintSillustrations
FinancialSGovernanceSStrategy
21
The(worrisome(increasing(load(on(the(treasury(system Very*rapid*growth*in*centralized*transaction*processing*driven*by* change*to*payment*process,*and*by*growth*in*government*budget* Exhibit'1.2.16:'Illustration'of'growth'in'number'of'transactions 22"
Estimated*multiplier*of*transactions* through*central*treasury
22X
19"
Federal'Republic'of'Somalia
ThereSareStwoSmajorSdriversSforSanSincreasingSloadSonStheStreasurySsystem.STogetherS theSimpactsSareSconsiderable,SandSweShaveSmodeledSimpactStoSbeSinStheSareaSofS22S timesStheStransactionSloadSwithinS5Syears.SThisSisSdrivenSbyStwoSsourcesSofSchange: 1. Growth*of*government*budget.SWeShaveSassumedSaSgrowthSrateSofS20SpercentS forStheSnextSfiveSyears.SThisSisSaShighSgrowthSrateSthatScanSonlySbeSjustifiedS basedSuponStheSexceptionallySlowSstartingSpointS(aboutS1E2SpercentSofSGDP).S MaintainingSthisSgrowthSrateSisSonlySpossibleSforSaSshortSperiod,SandSisShighlyS dependentSuponSsuccessfulSrevenueSgrowth.SThatSwouldSbringStheSbudgetSsizeS toSaboutS3E4SpercentSofSGDPSafterSfiveSyears,SwhichSmaySnotSbeSunrealistic. 2. Shift*from*advances*to*invoice*based*payment*transactions.*ShiftingStheS paymentSprocessingStoSbeSbasedSuponSinvoicesSofStheSunderlyingSgoodsSorS servicesSprovided,SinsteadSofSadvancesSpaidSoutStoSministries,SwillShaveSaS significantSimpactSoverStheSshortSrun.SWeShaveSassumedSaStwoEyearStransitionS period.STheSdataSanalysisSofScurrentSpatternsSsuggestSaSfactorSshiftSofS10E15SofS increasedSflowSofStransactionsSthroughStheScentralSentities.STheSmodelSonStheS leftSassumesSaSfactorSofS12.S
15"
ItSisSimportantStoSnoteSthatStheSchangeSinSpaymentSpracticeSdoesSnotSonlyS increaseStheStotalSworkloadSonStheSsystem,SbutSitSshiftsSmoreSofStheSprocessingS toScentralSentitiesSincludingStheSAccountantSGeneralSandStheSCentralSBank.S WhileSthisSwouldSinSitselfSrelieveStheSMinistriesSandSagenciesSofSsomeSofStheirS existingSworkload,SotherStasksSareSincreasingSasStheySwillSneedStoSspendSmoreS resourcesSonScompliance,SespeciallySforSpurchasing,SwhereSprocurementS regulationsSwouldScomeSintoSeffect.SThereSisSnotSreliableSdataSavailableStoSbetterS quantifySandSestimateStheSnetSimpactsSofStheSshiftsSatStheSlocalSlevels.
7"
TheSincreasedSpressuresSatStheScentralSlevelsScanSbeShandledSbySbetterSsupportingS technologySincludingSforStheSinterfacesSbetweenStheSagencies,SandSatStheSbankingS side,StechnologySandSlinkagesSwithSaSnationalSpaymentSsystem. ThereSisSneverthelessSaSriskSofSaSnetSincreaseSinSworkloadSinStheseSagenciesSandSthisS willSneedStoSbeSwatchedScarefullySandSmanagedSduringSimplementationSofStheS reforms.
2" 1"
Base"year"
Year"1"
Year"2"
Year"3"
Year"4"
Year"5"
Sources:SFGSSdataSandSAbyrintSanalysis.
FinancialSGovernanceSStrategy
22
Enabling(the(accounting(capabilities Quality accounting information is critical to the government’s ability to manage public funds as well as to enable transparency in this respect. Legacy accounting processes and controls are in place and are operating. Receipts of funds to the government are being recorded, as are outflows. There are, however, a number of significant deficiencies in the manner in which government accounts for the receipt and use of public funds. Accounting processes are rudimentary. In addition to being decentralized, processes are manual and paper based, which limits transparency. Accounting is cash based with centralized books recording only deposits and withdrawals from the Treasury Single Account (TSA) as well as from a small number of donor ‘Designated Accounts’. The outflow of funds from the FGS Treasury Single Account, other than for civil service payroll, is based on a system where MDAs are provided with advances to MDA specific bank accounts at the CBS based on the annual budget and revenue and expenditure planning / cash availability. The outflows are recorded as expenditures in the FGS centralized accounts kept by the Accountant General with no adjustments or corrections for actual spending. There are similar weaknesses with respect to categorization on the revenue side which impair the reliability of the classification of amounts recorded. The legal and regulatory framework is outdated with the Financial and Accounting Procedures of the State as well as the Regulations for the Accounts of the State stemming from the early 1960s. While adequate for their time, these do not reflect best practices developed over the past five decades including consideration of how technology can enhance information flow, transparency, control and efficiency. Further, while the legacy legal framework is codified and available to relevant civil servants, more detailed directives, including process and internal control descriptions, have only recently become available. The National Financial Procedures Manual exists, while implementation is pending. For now, civil servants are left to develop or follow guidelines that are not formalized. Looking forward, a Public Finance Management Act has been drafted as foreseen per article 124 of the Provisional Constitution. Once passed, supporting regulation and guidance will be needed, in addition to improvements to processes and capacity of personnel, to enable compliance.
FinancialSGovernanceSStrategy
Federal'Republic'of'Somalia
From an organizational perspective the legacy legal framework defines duties of an Accountant General. These include preparing final accounts, exercising supervision of receipts of revenue and other public monies, as well as ensuring that there is an adequate system of account in each Ministry. The Office of the Accountant General currently exists, with its role consistent with the legacy framework. The draft Public Finance Management Act does not recognize the role of Accountant General. Responsibilities as noted above are foreseen as belonging to the Minister of Finance, who has delegation authority. Much has been done to develop the Somali Financial Management Information System (SFMIS), for which a phased rollEout is foreseen. Basic functionality including general ledger, budgeting, expenditure and revenue recording exists, although implementation is not to the point where SFMIS enhances control or information flow. Accounting processes are still characterized by the use of manual ledgers, forms completed in handEwriting, and paper files. Information on expenditures in SFMIS reflects advances made from the TSA to MDAs and is not yet transaction based. Accounting*processes*are*currently*manual*and*paper*based** Exhibit'1.2.17:'Facsimile'of'form' FL16 (Budget'Warrant)' and'form'FL3 (Expenditure'voucher)
23
Establishing(reporting(for(internal(and(external(use
Federal'Republic'of'Somalia
Annual financial statements are an important and highly visible publication of the government. These have been compiled and subject to audit for both 2012 and 2013, with the Auditor General signingEoff in June of each of the following years. This achievement should not be understated.
Internal financial reporting is not formalized and there are many challenges to producing useful reporting, including the dataEpoor environment. Financial information is key to enabling informed decision making with respect to cash management, expenditure prioritization, and more broadly on questions of fiscal policy.
There are, however, significant factors that demand consideration beyond the the existence of such statements and the timeliness of their publication. Quality of the reporting is also relevant. This includes considering the reliability of the information as well as compliance with prescribed reporting frameworks, enabling comparison. Both the 2012 and 2013 financial statements reflect accounting data available to, and recorded by, the Office of the Accountant General. Amounts recorded in the financial statements for expenditures reflect the account coding used to issue advances made to MDAs. No subsequent adjustments are made to the financial coding to reflect the categorization of actual expenditures incurred. This significantly limits reliability.
Under the draft Public Finance Management Act, MDAs are to provide regular reporting on revenues, expenditures, assets, liabilities and cash flows to the Minister of Finance. Further, MDAs would be required to produce consolidated reports comparing budget execution and revenue collections to the estimates contained in the National Budget, to be made available more broadly.
In addition to quality of financial information, another dimension to consider is how to meet the information needs of various user groups. One key distinction is that financial information may be both internal and external. Financial reporting directed to each of these groups is important.
Reporting needs must be well understood and should be used to inform the design of processes and technology support to ensure that information requirements are met. Timeliness*of*highly*visible*annual*financial*statements*receives*much* attention* Exhibit'1.2.18:'2012'and'2013'FGS'financial'statements
FGS produces various financial reports for external users. In addition to annual government financial statements, interim Budget Utilization reports are posted on the FGS website. Donor specific reporting is also prepared. The reliability of data in the Budget Utilization reports has been weak due to the reliability of the underlying data as well as the timeliness of recording amounts in SFMIS, which was significantly delayed in both 2013 and 2014. Donor specific reporting, which can be subject to substantive review as well as third party audit, is in some cases very reliable.
FinancialSGovernanceSStrategy
24
1.3*Building*institutional*foundations
FinancialSGovernanceSStrategy
Federal'Republic'of'Somalia
Finalizing(the(Legislative(&(Regulatory(Framework
Federal'Republic'of'Somalia
Exhibit'1.3.1:'Illustration'of'status'of'legal'and'regulatory'fiscal'package At the core, the Somali legislative framework is still too weak to support an adequate financial management system. Core legal documents are currently in draft forms and of the few laws that have been passed, some require review. There also exists a tension between the legal framework stemming from Italian legacy and new laws drafted mainly in the common law tradition. Currently, one of the only reliable legal tools is the Budget Appropriation Act, passed annually in Parliament. In some cases, as the draft law is widely circulated, accompanying regulations are drafted preEemptively in order to allow for stakeholders to already move forward. Similar phenomenon is observed with guidelines, which are often times developed based on bills instead of acts. Drafting regulations and guidelines based on draft laws or bills allows for financial flows to be administered on a dayEtoEday basis and for reforms to be pushed forward with less delay. However, it also creates a high degree of uncertainty, and at times confusion, regarding the actual legal and regulatory framework. This means that civil servants may also fall back on the legal framework dating from prior to the civil war for more certainty and familiarity. FinancialSGovernanceSStrategy
Laws
Collect*and* manage*revenue* &*other* resources*for* government
• RevenueS&STaxationSLawS✔
Regulations
• RevenueS&STaxationS AdministrationS RegulationsS✔ • SectorSspecificS regulations,Si.e.S ICT✔
Policies* &*Procedures • AidSManagementSPolicySS✔ • UseSofSCountrySSystemsSPoliciesS andS ProceduresS✔ • RevenueS&STaxSadministrationS proceduresS✔ • ExternalSassistanceSproceduresS manualS✔
• AntiEMoneySLaunderingSLawS✔ Manage*national* economic* policies
Deliver*reliable* and*efficient* payments
Strengthen* controls*and* oversight
Develop*and* manage*credible* and*prudent* fiscal*strategies* and*budgets
• AntiEMoneySLaunderingS regulations • AssetSRecoverySManagement
• FiscalS FederalismSPolicyS✔ • DebtSReliefSroadmapS✔
• FinancialS IntelligenceSUnitS regulations • PublicS FinancialS ManagementS LawS✔ • ProcurementSLawS✔ • BudgetSAppropriationSActS✔
• PFMSregulationsSS✔
• FinancialS ProceduresSManualS✔
• BankingSPaymentSSystemS regulationsS✔
• ProcurementSproceduresS✔
• SecuritySSectorSExpenditureS proceduresS✔
• FinancialS AuditS BillS ✔
• GovernmentEtoEbusiness/ScivilS servantsSpaymentSproceduresS✔
• ManagementSReportingS✔
• PFMSLawS✔
• BudgetSAppropriationSActS✔
✔ Not started
• AssetSManagementS✔
✔ In progress ✔ Completed/Passed
26
Establishing(effective(workflows(for(treasury(operations
Federal'Republic'of'Somalia
As the legal and regulatory frameworks are strengthened, manuals and guidelines must be established for everyday use by civil servants. Current processes are largely based on fragmented memories of how such processes used to function prior to the civil war. Replacing procedural habits dating back several decades can only be done if new processes prove to be relevant and more efficient for the civil servants having to perform them. Hence, beyond the design stage, implementation of new processes is key. Implementation must be participatory to ensure staff buyEin at all levels.
A challenge in the design and implementation of new treasury workflows is that good performance in treasury operations is largely dependent on actors other than the Ministry of Finance. Information production and parts of the execution process are left to the various MDAs. The payment infrastructure and other banking operations are left to the Central Bank. Fundamental databases are managed by independent agencies, such as the civil service registry. Finally, federal infrastructure will have to be built to support the evolving political structure of the country.
In addition, new workflows can be made even more relevant if used in a consistent manner for all financial flows managed by government, including funding from external partners.
Such interfaces with other institutions must be carefully managed. The Ministry of Finance must design and implement clear guidelines of information and processes expected for each interface and levels of quality at which those must be delivered.
Legacy*procedures*have*been*modernized,*yet*implementation* remains
Critical*operational*interfaces*are*transaction*intensive*and*need*to*be* well*defined
Exhibit'1.3.2:'Illustration'of'recently'revised'procedural'framework 2015 1963
Exhibit'1.3.3:'Illustration'of'critical'operational'interfaces
MinistrySofSFinance
CentralSBank
Ministries,SDepartmentsSandS Agencies
StatesSandSRegions
CivilSServiceSCommission,S otherSpersonnelSregistries
Sources:SMoFSdata;SAbyrintSanalysis
FinancialSGovernanceSStrategy
27
Building(the(information(infrastructure Information management currently exists mostly based on paper forms and supported by computerized spreadsheets in certain areas. There is a policy in place to guide implementation of further financial related information systems. An information system (SFMIS) is under implementation, and this has general accounting functionalities and other functions. The system will be live during 2015. There is very limited specialized technology support for sectors such as education or health. AdEhoc databases have been built up in some areas using simple spreadsheet technologies.
Federal'Republic'of'Somalia In terms of shared national information infrastructure, with much relevance for finance, much is lacking. There exists a business registry within the Ministry of Commerce with a degree of computerization, and there is a separate business registry maintained by a.o. Banadir region. Otherwise, there is little data on property and there exists no capabilities for national identification or financial clearing and settlement. Investing in such infrastructure early on would create opportunities for the development of services, public and private, that are not possible today. It would also greatly facilitate core functions of finance such as revenue and payments.
Going*digital*with*opportunity*to*leapfrog*30*years;*important*to*build*the*foundations*right*for*the*long*term Exhibit'1.3.4:'Illustration'of'digital'needs'for'treasury,'PFM'institutions'and'national'shared'infrastructures
TreasuryS&SfinanceS institutionalSneeds
NationalSsharedS infrastructureSneeds
GeneralSaccountingSandSresourceS managementS(SFMIS)
BasicSdataSonSbusinessSandSlegalS entities
SpecializedSaccountingSandS resourceSmanagementS(e.g security)
BasicSdataSonScitizensSandSresidents
GeneralSandSspecializedSHumanS ResourceSmanagementSsupport
BasicSdataSonSpropertiesSandS ownership
TaxSandScustomsSadministration
IndividualSidentificationSandS authenticationScapabilities
PublicScommunicationSandS transparencySinterfaces
FinancialSclearingSandSsettlement
InstitutionalSproductionStools,S knowledgeS&SrecordsSmanagement
Time
Time
Sources:SMoFSdataSandSAbyrintSanalysis.
FinancialSGovernanceSStrategy
28
Aligning(the(organization
Federal'Republic'of'Somalia
The current organizational structure of the MoF is derived partly from historical legacy and partly from preferences in subject matters from senior management. Apart from the chart presented in the exhibit below, there exists no comprehensive written definition of the roles and responsibilities of each office. The structure of the Office of the Accountant General is in theory, and to a large extent in practice, similar to what can usually be observed in the organizational structures of government treasuries.
For all parts of the structure, the clear definition of competencies is lacking and critically needed to avoid confusion. Rationalizing certain tasks can also help clarify current functioning, roles and responsibilities. A certain confusion exists regarding the roles of state or deputy ministers, political functions, and director generals who are civil servants. In addition to rationalizing the existing structure, it is also pressing to reEassign administrative tasks to administrators, such as DG’s, and political tasks to politicians such as state and deputy ministers.
Exhibit'1.3.5:'Illustration'of'Ministry'of'Finance'current'organization
Minister
StateSMinister
DeputySMinister
AccountantS General DeputyS Accountant
TechnicalS advisors
Projects
DirectorSGeneral
UnifiedS RevenueS Services
NationalSBudget
HumanS Resource
AdministrationS &SServices
CommunicationsS &Sinformation
Procurement
EconomicSPolicy
OfficeSadminS&S generalSservices
Projects
AidS&SdebtS management
InternalScomsS&S information
Macroeconomic Policy
WebS&S newsletterS content
MonitoringS&S evaluations
DocumentsS &publicationsS
FGSSagencyS accountants
Customs
BudgetS preparationS&S amendments
PersonnelS administration
Regional/DistrictS accountants
InlandS&SIncomeS tax
BudgetS monitoring
StaffScareerS development
SecurityS&Ssafety
Registration,S selectionS&S contracts
JudiciaryS accountants
RegulationsS&S Tarrifs
AnalysisS &S reporting
RecordsS&S recruiting
Archives
ComplianceS&S fraudScontrol
Notes: Sources:SMoFSdataSandSAbyrintSanalysis.
FinancialSGovernanceSStrategy
29
Attracting(talent(and(building(people In a context in which institutions and norms are weak, much is based on personal trust. Hence, financial management processes are highly centralized around those few civil servants that hold positions of authority, usually older civil servants. This complicates the task of expanding operations, as the authority to make decisions rests in the hands of a very few, creating operational bottlenecks. It also makes it difficult for younger civil servants, or recent hires, to take on additional responsibilities as long as trusted employees are still in place. This is exacerbated by the lack of a pension system, which tends to lead government to keep civil servants in office as long as possible, even if the individual is no longer effective in his/her role.
Federal'Republic'of'Somalia Working for the Federal Government can be a security risk, as civil servants are considered legitimate targets. While job security is rather high in government, lower wages in the public than in the private sectors can make it difficult to attract young talent. Also, until recently, salaries were paid unregularly. Identifying and retaining talent is then a daunting task. This is compounded by the fact that the human resource policies and tools are mostly derived from historical legacy and therefore not always adequate. They lack, for example, a performanceE related pay system or even simply a time and attendance system. As the government expands, and with it the value and volume of financial flows to be administered, the number of civil servants will increase and their skillsets must improve. This will also be rendered necessary by the increasing level of complexity of processes and tasks.
Nearly*800*people*involved*in*the*core*PFM*institutions
Challenging*to*attract*the*best*and*be*competitive*for*Government
Exhibit'1.3.6:'Civil'service'employees'in'main'PFM'institutions'per'December'2014
Exhibit'1.3.7:'Salary'levels'in'Somalia'by'segments'and'sectors'2013L2014
Ministry1of1Finance#
Central1Bank#
525#
Higher2education2degree2 with2experience%
2150%
NGO
1700%
FinanceS&STelecom
1100%
PublicS utility
735%
FederalSGovernment
82# 1350%
Accountant1General#
75#
Secondary2school2with2 experience%
650% 350% 415%
Auditor1General#
National1Civil1Service1Commission1#
64#
39#
No2secondary2school2with2 experience%
300% 350% 198%
Sources:SFGSSdataSandSAbyrintSanalysis.
FinancialSGovernanceSStrategy
30
Federal'Republic'of'Somalia
1.4 The*overriding*importance*of*security*
FinancialSGovernanceSStrategy
Security(sector(spending(dominates(public(finances Since 2013, the security sector has formed the most significant budgetary cost component, after the administrative sector. The budget share of the security sector is largely driven by the Armed Forces (61 percent of the security sector budget in 2015), followed by the police.
Federal'Republic'of'Somalia
Security*Sector*dominates*spending*and*is*driven*by*military*expenditures Exhibit'1.4.1.:'Security'sector'expenditures'as'share'of'budget' 2014 (Actuals)
2013 (Actuals)
In addition, the Federal Government has been experiencing significant revenue shortfalls over the last years, and without reserves, cash is rationed and the government must prioritize expenditures. The security sector, and more specifically wages to be paid to the Armed Forces and Police Forces, are first in the order of prioritization that is passed annually in the Budget Appropriation Act. Over the last couple of years, the combination of revenue shortfalls and expenditure prioritization as described above has contributed to higher budget utilization rates in the security sector, particularly the Armed Forces, than in other sectors of government. The overall budget utilization rate for the security sector in 2014 was close to 90 percent, compared to slightly less than 50 percent for the other sectors in the Federal Government’s budget. This exacerbates the fiscal significance of the security sector for the Federal Government, and within the security sector, the importance of the Armed Forces spending. Initial comparisons with other conflictEaffected states, as presented in Exhibit 1.4.2, points to the fact that the FGS is certainly an outlier, with budgeted security sector expenditures more than six times higher than the average for that sample of countries. While such an outlier can be partly explained through the limited engagement of the FGS in other sectors of the economy, it also indicates the vital importance for the government, through the Ministry of Finance, to gain a thorough understanding of the expenditure processes and patterns in the security sector. The current lack of knowledge and homogeneity of budget execution processes within the security sector creates difficulties in planning and budget formation exercises, as well as in implementing controls and reporting. Considering the fiscal weight of security sector spending, 53 percent of all FGS expenditures in 2014, financial management reforms should be prioritized.
Notes:SSomaliaSinSexhibitS1.4.2.SexcludesSSomaliland,SPuntland andSJubbaland administrationStoS onlySincludeSstatisticsSfromStheSFederalSGovernmentSofSSomalia.S Sources:SFGSSBudgetSAppropriationSActsS2013,S2014,S2015.SWorldSBankSPERSreview.SAbyrintSanalysis.SS
FinancialSGovernanceSStrategy
20150 (Budget)
100%$
75%$
53%*of* total OtherSsecurityS sector,Se.g.Spolice
%*Budget
50%$
18%$ 14%$
13%$ 25%$
Military
35%$
27%$
25%$ 0%$
Budget*share*of*security*sector*is*high*in*Somalia*compared*to*other*conflict* affected*states* Exhibit'1.4.2:'Security'sector'as'share'of'budget'in'other'countries'
0"
20"
Mali$
40"
11.3$
Nepal$
9.4$
Madagascar$
9.3$
Congo$Dem.$Rep.$$
7.5$
Afghanistan$ Sierra$Leone$
%*Budget
6.1$ 5.1$
Liberia$
3.6$
Bosnia$&$Herz.$
3.2$
32
Solving(the(financial(issues(is(critical(to(success
Federal'Republic'of'Somalia
In 2014, close to 900 million USD were allocated, by various stakeholders, to stabilization efforts in Somalia. This includes, for example, funding of the African Union mission to Somalia, and related UN support, as well as funding for the European Union Training Mission.
At present, the financing, and budgeting, for the security sector only bears little relationship with the needs as derived from the force structures and missions. The lack of correspondence between mission, force structure and budget has multiple causes, many to be found in the financial management processes currently in place.
It is striking to note that only 5 percent of this aggregate budget was actually directed to and managed by the Somali Armed Forces themselves. In addition, those 5 percent are largely funded by the Federal Government of Somalia, mainly through domestic revenues.
Focusing on the military sector, the Somali Armed Forces, and the Ministry of Defense, a lack a clear definition of their strategy makes it difficult to understand future activities and needs.
While several projects funded by other actors provide help in nature to the Somali Armed Forces, the relatively minuscule budget of the Somali military sector is symptomatic of the current lack of confidence of external funding parties to allocate funds directly to the Somali military sector through, for example, the MoD. It is also indicative of the type of budget growth that will be needed for the Somali Armed Forces to take over full responsibility of the security situation in Somalia. Financial management systems for the security, and especially military, sectors in Somalia must urgently be strengthened. This is crucial to reEestablish credibility and inspire confidence from external funding partners, as well as to enable the military sector to manage and absorb increasingly large financial flows.
Present financing needs are also opaque, as there is no comprehensive understanding of the current force structure and equipment. The broken link between mission and budget makes it then difficult to monitor results and report on impact. Getting financing effectively behind the missions of the various actors of the security sectors is a priority to enable those actors to deliver impact. For the Ministry of Finance, there exists a need to gain a better understanding of the current financial management processes in the sector, strengthen existing processes and build those that are missing and improve the quality and frequency of financial reporting.
The'largest'share'of'military'funding'goes'to'external'actors'supporting' security'efforts'in'Somalia
Getting'the'financing'effectively'behind'the'Somali'Armed'Forces' mission
Exhibit'1.4.3:'Funding'to'the'Military'Security'by'internal'/external'institutions' 2014
Exhibit'1.4.4:'High'level'financial'management'for'delivering'impact
Implementation Somali&Armed& Forces& 5%&
Resources
Activities
Results
Impact
Other&Actors*& 95%&
Sources: Sources:SFGSSdataSandSAbyrintSanalysis.
FinancialSGovernanceSStrategy
33
Opportunities(for(improvement(abound
Federal'Republic'of'Somalia
Beyond the budgeting and planning, budget execution processes also display weaknesses and deficiencies. This negatively impacts the ability of the Ministry of Finance to monitor and report on those shares of the government expenditures.
In addition, payments to both personnel and suppliers are heavily dependent on incoming revenue flows, as liquidity and cash management at the federal level are currently nonexistent for all practical purposes.
As for other ministries, departments and agencies, the budget execution process is managed entirely by the security sector itself. Once one of the actors in the security sectors requests a budget share to which they are entitled by parliament, and once the allocation for that budget share is approved by the designated authorities within the MoF, the amount requested is then transferred to the account of that security sector actor held at the Central Bank. From that point onwards, there is little capacity for the MoF to monitor and report on expenditures.
Overall, payroll processes pose a critical challenge for all actors within the security sector. Homogenized procedures are lacking, but so are some fundamentals such as reliable personnel databases. Building better, more robust payroll processes is a priority to consolidate security forces and create trust not only among security personnel but also with stakeholders in the international community. Credible and transparent payroll processes would help facilitate external funding to the security sector through the use of country systems.
The fragmentation of budget execution processes in the security sector, and the seemingly lack of consistency in performing them, render it difficult to develop an understanding of financial management in the sector.
Budget execution processes in the security sector are ridden with challenges. As this sector’s expenditures constitute one of the largest cost chapters for the Federal Government, financial management reforms would bring more clarity to the overall budget while building credibility and confidence for both the Ministry of Finance and the international community.
While procurement guidelines and regulations are being introduced at a MoF level, they have not been implemented yet in the security sector. At present, there do not seem to be any consolidated guidelines applied in that sector, if any exist. In drafting procurement guidelines, it is to be expected that the security sector will have special needs that must be taken into account in terms of confidentiality, volume and value of purchases. The security sector, and most particularly the Armed Forces, is severely constrained by the current nature of the payment system in Somalia, which is mainly based on cash transactions. This poses both security and geographical constraints, especially when it comes to payments of wages and stipends to security personnel outside of the capital.
Fund'withdrawal'patterns'of'the'Somali'Armed'Forces'are'irregular'and' point'at'the'dependency'on'the'availability'of'cash'funding Exhibit'1.4.5:'Frequency'of'advance'disbursement'cash'withdrawal'from'treasury'by' day'(2013)
USD0Thousands
Overall, there is an apparent lack of commitment controls. In a more complex environment, where budgets are larger and processes more sophisticated, this would cause problems in liquidity and cash management. In the current context, where financial management is highly centralized and personalized and where cash is rationed at the source, it does not seem to pose immediate management issues. From the point of view of the Ministry of Finance however, this means that there is little or no traceability of liabilities and hence little or no comprehensive understanding of arrears, as an example.
2000" 1500" 1000" 500" 0"
01/01/2013"
01/03/2013"
01/05/2013"
01/07/2013"
01/09/2013"
01/11/2013"
Source:SFGSSBankingSdata andSAbyrintSanalysis.
FinancialSGovernanceSStrategy
34
Federal'Republic'of'Somalia
Section
2 FinancialSGovernanceSStrategy
FinancialSGovernanceSStrategy
Setting(the(direction The*objective ofSthisSsectionSisStoSestablish a shared framework for how to approach the issues, define the major priorities and set the overall direction for solving the issues. I. The*strategic*horizon.*ThisSsetsSaSframeworkSforSunderstandingStheSobjectivesSofS theSstrategy,SestablishesSaSpracticalSwaySofSgroupingStheSissuesSandSdefinesSfourS prioritySareas. II. Setting*high\level*objectives.*ThisSoutlinesShighElevelSobjectivesSforSeachSofStheS fourSprioritySareasSandSarticulatesStheSoverallSdirectionSGovernmentSshouldS pursueStoSsolveStheSissues.
Four(priorities(on(the(horizon Four main areas have been identified. These are mutually exclusive areas and there are no overlaps. They all contribute towards the main vision. While there are gaps, in areas which the MoF will tolerate lower performance for the time being, the areas indicated below are the priority. The objectives primarily address the delivery of services from MoF to the Federal Government. Collecting revenue and delivering reliable and efficient payments are the overriding objectives.
Federal'Republic'of'Somalia This is a performance focused strategy. The areas are selected as they all reflect high priorities with respect to which the financial systems of government currently face significant problems and need to improve. Specific initiatives are identified in all areas focusing on subsets of the challenges. Solutions are also described in more detail in this document, and these solutions may cut across offices and governance lines, as the focus is on performance and not on structure.
Exhibit'2.1.1:'Illustration'of'main'areas' of'strategic'focus
Effective*Financial Governance
BuildS institutionalS foundations
CollectSrevenueS forSgovernment
RebuildStheS treasury
FinancialSGovernanceSStrategy
ManageS economicSandS fiscalSpolicies
36
Opportunities(for(directed(efforts(in(all(four(areas(
1. Collect*revenue*for* government
Federal'Republic'of'Somalia
TheSgovernment’sSabilityStoScollectSadequateSrevenueSandSmanageSitsSincomingSresourcesSisSaS topSpriority.SCriticalSrevenueSadministrationScapabilitiesSandSregulatorySpoliciesSmustSbeS developedStoSenableSthis.
2.*Rebuild*the* treasury
GovernmentSmustShaveScapabilitiesStoSeffectivelySplanSandSexecuteSfinancialSstrategies,S particularlySaroundSbudgetingSandSdeliveringSpaymentsSacrossStheScountry,SasSwellSasS managingSliquidity,SdebtSandSarrears.SItSisSaStopSpriorityStoSreformStheseSprocessesSandS increaseStransparencySofSallSexpenditures.STheSMoFSisSresponsibleSforSprovidingSfinancialS oversightSofStheSentireSgovernmentSandSensuringSproperScontrolsSareSdesigned,S implementedSandSmonitored.S
3.*Manage*economic* and*fiscal*policies
TheSMinistrySofSFinanceSisStoSprovideSleadershipSinSmanagingSnationalSeconomicSpolicies,S withSaScriticalSfocusSonSstrengtheningSfiscalSpoliciesSandSdrivingSreformsSsuchSasS formalizationSofStheSfinancialSsectorSandSbuildingStheSfiscalSfederalism.
4.*Build*institutional* foundations
InSorderStoSeffectivelySdeliverSitsSservices,StheSinstitutionalSfoundations,Speople,Stechnology,S andSprocessesSofStheSMoFSmustSbeSdeveloped.SThereSmustSbeSanSeffectiveSorganizationalS structure,SwithStheSadequateSskillsetSandScapabilities,StoSdriveSchange.
FinancialSGovernanceSStrategy
37
Revenue(collection(efforts(with(short(term(emphasis( on(performance(while(building(longer(term(capabilities NearEterm
Federal'Republic'of'Somalia
Further out
Policy*and*performance
Policy*and*performance
• PursueSimplementationSofSaSpresumptiveStaxSforSaS selectedSsetSofScorporationsSatStheSFederalSlevel,SwithS considerationStoSincreaseSnumberSofScorporationsS andS/SorSamountSleviedSinStheSlongerEterm • ImproveScollectionSefficiencySatStheSseaE andSairport • ConsiderSraisingStaxSratesSforScustoms
• FocusSonSimplementingSaSsimple,StraditionalSsetSofS taxes,SnamelySimportSduty,SgeneralSconsumptionS tax,SexciseStaxesSonSfewSproducts,SbusinessSandS personalSincomeStaxes,SpropertyStaxes andSfees,StoS ensureSeasyScomplianceSandSadministration • ConsiderSreformingSdutiesStoScomplySwithStheS modelSusedSbyStheSCommonSMarketSforSEasternSandS SouthernSAfricaS(COMESA),SinSanticipationSofS SomaliaSbecomingSaSmember • EvaluateSvariousSoptionsStoSenhanceScurrentStaxS policies,SsuchSasStheSuseSofSaSvalueEaddedStaxSinS placeSofStheScurrentSsalesStax,SandStheSuseSofSaSexciseS taxSinSplaceSofSaSproductionStaxS • PlanSforStheSadministrationSofSrealSestateStaxesSandS considerSadoptingSanSareaEbasedSvaluationS technique • PlanSforSlicenseSfeesSandSauctionsSrelatedStoSS extractiveSindustriesSandSspectrumSusers
Capabilities • EstablishSandSreformStheSdomesticSrevenueS authorityStoSeffectivelySadministerSandSenforceS domesticStaxScollection • DevelopSstaffScapabilitiesSforStaxSadministrationSandS formSaStaxSpolicySunitStoSreformSandSimplementStheS taxSsystem
FinancialSGovernanceSStrategy
38
Treasury(reforms(to(focus(on(four(main(areas( of(the(valueQchain
Federal'Republic'of'Somalia
Planning*and*budgeting
Purchasing &*incurring expenditures
ObjectivesSinSthisSareaSareSfocusedSonSimprovingStheSqualitySofScentralS budgetSpreparation,SandSstrengtheningSeachSMDA’sScapabilitiesStoS participateSinStheSprocess.SThisSentailsSa.o.: • EnhanceSbudget*preparation*capabilities*atStheScentralSlevel • StrengthenSMDA’sScapabilitiesStoSeffectivelySplanSandSimplementStheirS budget,SstartingSwithSannualSbudgetSpreparationsSandSmovingS towardsSmultiEyearSsectorSplans • StrengthenScapabilitiesSforScapital*investment*planning • DevelopSandSpassSanSannualSbudgetSbasedSonSrealistic*spending* needs*andSplans • PassStheSFinancialSManagementSActSandSassociatedSregulations • IssueStheSNational*Financial*Procedures*Manual
ThisSareaSisSfocusedSonSestablishingSformalSpurchasingSproceduresSandS ensuringScompliance.SThisSinvolvesSsignificantSchangesSofSbothStheShardS regulatorySenvironmentSandSsoftSbehavioralSfactorsSonStheSsupplySandS demandSsides.SSpecifically,SactivitiesSinSthisSareaSareSaround: • RollSoutSsimplified,*realistic*guidelines*for*the*procurement*of* goods*and*services,SandSlaterSpassStheSpublicSprocurementSandS concessionsSactSandSissueSregulations • BuildScapabilitiesStoSimplementSregulatedSpurchasingSprocedures,S startingSinSselectedSMDA’sSandSlaterSrollEoutStoSall • SupportSsupply*side*capabilities*toSadjustStoSaSregulatedSmarketSandS encourageScompetition • BuildStransparencySinitiativesSaroundSpublicSpurchasingSandS contracts
Authorization &*controls,* incl.*arrears management
Payments
• EnhanceSexpenditure controlsSandSdevelopSaSstandardized,SrobustS authorizationSprocessSacrossSallSMDA’s • ImproveScash andSdebt managementScapabilities • DevelopSaSplanStoSreduceStheSstockSofSarrears andSpreventSfutureS accumulation
FinancialSGovernanceSStrategy
• BuildSaSrobust*payments*system*thatSadheresStoSinternationalS standardsSandSisSscalableSasStheSscopeSofSGovernment’sSservicesS increases • ImproveStransparency ofStheSpaymentSofSnonEsalarySrecurrentScosts
39
Federal'Republic'of'Somalia Among(the(many(important(policy(issues,(establishing a(functional(fiscal(federalism(is(paramount(and(has(system(implications
1
BuildingStheSsharedS understanding
2
Help*to*establish:
Help*to*establish:
•
•
•
FinancialSGovernanceSStrategy
1. 2. 3.
Shared*objectives:S ensuringScoherenceSandSunderstanding. Shared*principles:S commonSlanguageSinSplanningSstandards,S budgeting,Saccounting,Sreporting. Shared*structure:S compatible,SbutSnotSnecessarilySidentical,S processes,SandSstandards,SandSsharedSinterfaceSprotocols.
PlatformSforSdiscussionSandS decisionEmakingSprocesses
BOTTOMSUP
•
Platform* for*discussion:S whatSentitiesS willSbeScounterpartsSandShowSwillStheyS interact.SCreatingSaSspaceSforSdiscussionS ofSinstitutionalSarchitecture. Process*for*decision:S structuringS decisionEmakingSandSnegotiationS processes,SestablishingSrulesSofStheS gameSforSassignmentSofSfunctions. Information* gathering:SassessSrevenueS andSexpenditureSpotentialSofSfederalS entityStoSinformSdecisionsSonS assignmentSofSrevenuesSandS expenditures.S Knowledge*building:SsharingS understandingSofSexpenditureS responsibility,SrevenueScollectionSandS transfer.S Guidance:SdirectionsSfromStheS provisionalSconstitutionSandStakingSintoS accountStheSexistingS‘deSfacto’S arrangements,S includingStheirS asymmetricSstructure.S
TOPSDOWN
•
BuildingScapabilitiesSandSaligningSsystems
Encourage*and*support*sub\federal*levels* to: 1. 2. 3. 4.
Build*operational* capacity,SintegrateSexistingSstructuresSandS avoidSdisruptionSofSexistingSprocesses. Refine*understanding*ofSfederalSentitiesSthroughSreporting.S Improve*capabilities* inSlineSwithSinstitutionalSstructures,S linkingSupSwithSotherSentities. Take*over*responsibilities* asSdefinedSbySfederalizationSprocess.S
40
Need'for'holistic'view'of'both'hard and'soft organizational' Federal'Republic'of'Somalia levers'to'bring'about'increased'capability Focus Strategy:SObjectivesSandSresources
Hard OrganizationalS levers
Soft OrganizationalS levers
Delivery ofS change
Structures:SOrganizationalSfunctions,S rolesSandSresponsibilities Systems:SWorkflows,StechnologySandS infrastructure
Situation MuchSdoneSoverSlastS12SmonthsStoS increaseSalignmentSofSstrategySandS structure,SbutSimplementationS remains.SWorkflowsSandStechnologyS notSfullySaligned,SstructuresSandS strategySalsoSneedSrealignment.
BehaviorsSandSpracticesSinSorderSto: Align:*leadership,ScultureSandS climate,Saccountability,ScoordinationS andScontrol Evolve: direction,Smotivation,S innovation,SexternalSorientation Execute:Scapability,Slearning
BroadSempiricalSunderstandingSofS situationSinSMoF isSlacking,SbutS evidenceSsuggestsSrenewedS attentionStoSbehaviorsSandSpracticesS isSmostSimportantStoSperformanceS andSwillSneedStoSbeSaddressed.
TheSdedicatedScapacityStoSdriveS change: What*are*we*trying*to*do? How*are*we*trying*to*do*it? How*do*we*track*progress?
LittleSdedicatedSdeliveryS capacity.SPIU’sSforSprojectsS predominantlySfocusedSonS donorSprojectSadministrationS tasks,SMinister’sSOfficeSmuchS focusedSonSpolicySmanagement.S
Sources:SAbyrintSconceptS©SS
FinancialSGovernanceSStrategy
41
Federal'Republic'of'Somalia
Section
3 FinancialSGovernanceSStrategy
FinancialSGovernanceSStrategy
Managing(the(way(forward The*objective ofSthisSsectionSisStoSestablish a shared approach for how to manage the issues and solve the problems. It introduces a portfolio of identified initiatives and details the arrangements for executing such a strategy. TwoSimportantSissuesSareS covered: I.
The*portfolio*approach.*ThisSdiscussesStheSimportanceSofSflexibilitySandShandsE onSsupportSinSmanagingS aSportfolioSofSinitiatives,SdeterminesSinitialSpriorities,S andSoutlinesSkeySperformanceSmeasures.
III. Working*to*realize*the*strategy.*RealizingStheSstrategicSobjectivesSwillSrequireS muchS management,SofStheSprocessSasSaSwhole,SofSconstantlySreviewing,SaffirmingS andSadjustingSifSnecessary.SThisSsectionSdetailsStheSmainSgovernanceS arrangements,SimportantSinterfaces,SandStheSfinancingSavailableSforStheS initiatives.
Federal'Republic'of'Somalia
3.1
FinancialSGovernanceSStrategy
The*portfolio*approach
TwentyQsix(initiatives(across(the(four(areas These initiatives will collectively contribute to the objectives over the next three years. It is a comprehensive list and it is not prioritized. The initiatives are found to provide high rewards for the risks taken and cost incurred. They are selected to address the critical issues across the four main areas. As on a journey, these are the roads and places to visit along the way. They are mutually reinforcing, but also have their distinct separate implementation logic. They can be managed separately. The portfolio will be monitored rigorously, we will reinvest in successes and terminate failures.
a. b.
FormulateStaxSandScustomsSpolicies,S legalSandSregulatorySframeworks StrengthenSadministrationScapabilitiesS of:S(i)StaxSandSotherSrevenue;SandS(ii)S customs
2.SRebuildStheStreasury c.
e. f. g. h. i. j. k.
FinancialSGovernanceSStrategy
3.SManageSeconomicSandSfiscalS policies
1.SCollectSrevenue
d.
Exhibit'3.1.1:'List'of'26'strategic'initiatives
Federal'Republic'of'Somalia
l.
StrengthenStheSbudgetSpreparationS capabilities:S(i)SatStheScentralSlevel;SandS (ii)SofSMDAsStoSdevelopStheirSownS plansSandSbudgets BuildSprocurementSandSconcessionsS system BuildSscalabilitySandSreachSofSsalaryS payments BuildSrobustSsystemSforSpaymentSofS expenditures BuildScapabilitiesStoSplanSandSexecuteS capitalSexpenditures BuildSgovernmentEtoEbusinessSpaymentS capabilities EstablishSassetSmanagementS capabilities EnsureSaffordabilitySofSspendingS decisions,SSmanageSliquidity,SarrearsS andSdebt DeliverSpackageSofSfiscalSlegislative,S regulatorySandSguidelines DevelopSfiscalSandSmanagementS reportingScapabilities
m. n. o. p. q. r. s.
EstablishStheSfiscalSfederalism ManageSaidSandStheSuseSofScountryS systems ManageStheSdebtSreliefSprocess ManageStheSassetSrecoverySprocess EstablishStheStransparencySinitiative FormalizeStheSfinancialSsector StrengthenScapabilitiesSforSfiscalS policymaking
4.SBuildSinstitutionalSfoundations t. u. v. w. x.
y. z.
StrengthenSfinancialSoversightS capabilitiesSofSSecuritySSector StrengthenSfinancialSmanagementS capabilitiesSwithinSotherSMinistries,S DepartmentSandSAgencies ImproveShumanSresourceSbaseSandSstaffS capacities EnhanceSandSimplementSSFMISSandS otherScriticalSfinancialSsystems RebuildSorganizationalSstructure,S includingSjobSdescriptions,SrolesSandS responsibilities,S strengthenShumanS resourceSmanagementSpractices BuildSproductionStools,SinformationSandS knowledgeSmanagement RebuildStheSoldSMoF buildingS
44
Managing(a(strategy(of(initiatives(gives(flexibility There are several reasons why a portfolio approach to the strategy is chosen. In particular, it is useful when there is much uncertainty in the environment, and this may critically impact our ability to accomplish success. We will not fully separate between the design and the execution of the strategy. The issues we are faced with are technically and politically complex, viable options and solutions are not static and we donlt know everything today. Decisions will need to be made along the way, when designing each initiative in detail, when implementing them, and also when reassessing the portfolio performance and composition. This is about changing the way we work. It will be management intensive, but there is no other way to accomplish such an ambitious agenda. Management will need to be iterative and constant. The leadership will need to review the work, address the issues and make decisions regularly, as part of the leadership meetings. We also aim for a formal review of the strategy, perhaps annually, but management of this will need to be dynamic.
Federal'Republic'of'Somalia
In this document, we primarily seek to accomplish the following: 1. We have established the main framework for understanding the issues, for identifying the main problems and framing them in the appropriate context. Much is devoted to the baseline diagnosis, with a system perspective, so that there is more shared understanding when moving forward. 2. We have determined a process for how to evolve and manage the change. There will be new information as we move along. The understanding will change and circumstances may change. This will be managed. Each initiative will need to be further defined along the basic steps illustrated below. It is important that each is prepared with proper diagnosis, with a search for alternatives, and with management decisions on choices. Some initiatives are already far along, while others will need to be developed.
Managing*intention*and*ability*=*flexibility*
5Ds*of*implementing*change*
Exhibit'3.1.2:'Illustration'of'flexibility'amidst'changing'circumstances
Exhibit'3.1.3:'5Ds'of'implementing'change
1
Direction
Determine*what*future*to*plan* for.
2
Diagnose
Identify*the*potential*paths,*the* concepts*and*the*solutions.
3
Design
Decide*upon*pathway*and* determine*the*change*strategy.
4
Deliver
Manage*the*change.*Success,* adapt*and*learn.
5
Do
Run*and*review,*adjust*and* revise.
Sources:S*5DS©SframeworkScourtesySofSAbyrint
FinancialSGovernanceSStrategy
45
Maturity(of(delivery(by(phase
Federal'Republic'of'Somalia
Time*to maturity YearS1 b. StrengthenS administrationScapabilitiesS of:S(i)StaxSandSotherSrevenue andS(ii)S customs f. BuildSrobustSsystemSforSpaymentSofS nonEsalarySrecurrentS expenditures h. BuildSgovernmentEtoEbusiness/S individualsSpaymentScapabilities j. EnsureSaffordabilitySofSspendingS decisions,SSmanageSliquidity,SarrearsS andSdebt k. DeliverSpackageSofSfiscalSlegislative,S regulatorySandSguidelines l. DevelopSfiscalSandSmanagementS reportingScapabilities p. ManageSAidSandStheSUseSofSCountryS Systems r. ManageStheSAssetSRecoverySprocess t. StrengthenS financialScapabilitiesSofS SecuritySSector w. EnhanceSandSimplementSSFMISSandS otherScriticalStreasurySinformationS systems
FinancialSGovernanceSStrategy
YearS2 a. FormulateStaxSandScustomsSpolicies,S legalSandSregulatorySframeworks c. StrengthenS theSbudgetSpreparationS capabilities:S(i)SatStheScentralSlevelS andS(ii)SofSMDAsStoSdevelopStheirS ownSplansSandSbudgets,SandStoS manageStheSexpenditureSprocess
YearS3 g. BuildScapabilitiesStoSplanSandSexecuteS capitalSexpenditures q. ManageStheSDebtSReliefSprocess s. StrengthenS capabilitiesSforSSfiscalS policymaking
d. ImplementSprocurementSsystem e. BuildSscalabilitySandSreachSofSsalaryS payments i. EstablishSassetSmanagementS capabilities o. EstablishStheSfiscalSfederalism n. EstablishStheSFiscalSTransparencyS initiative m.FormalizeStheSFinancialSSector z. RebuildStheSoldSMoFSbuildingS
u. StrengthenS financialSmanagementS capabilitiesSwithinSotherSMinistries,S DepartmentSandSAgencies v. ImproveShumanSresourceSbaseSandSstaffS capacities x. RebuildSorganizationalSstructure,S includingSjobSdescriptions,SrolesSandS responsibilities,SstrengthenShumanS resourceSmanagementSpractices y. BuildSproductionStools,SinformationS andSknowledgeSmanagement
46
First(year(targets(for(revenue(and(treasury Initiatives
1. Collect* revenue*for* government
2.*Rebuild* the*treasury* system
Federal'Republic'of'Somalia
First*year*performance*indicators
a.
FormulateStaxSandScustomsSpolicies,SlegalSandS regulatorySframeworks
• IncreaseSdomesticSrevenueSbyS40%SfromS2014StoS2015
b.
StrengthenSadministrationScapabilitiesSof:S(i)StaxSandS otherSrevenue;SandS(ii)Scustoms
• CoverS51% ofSrecurrentScostsSbySdomesticSrevenueSsources
c.
StrengthenStheSbudgetSpreparationScapabilities:S(i)SatS theScentralSlevel;SandS(ii)SofSMDAsStoSdevelopStheirSownS plansSandSbudgets
• BudgetSutilizationSaboveS90%
d.
BuildSprocurementSandSconcessionsSsystem
e.
BuildSscalabilitySandSreachSofSsalarySpayments
f.
BuildSrobustSsystemSforSpaymentSofSoperatingS expenditures
g.
BuildScapabilitiesStoSplanSandSexecuteScapitalS expenditures
• 20SpercentSofSallSpurchasesSfollowedSprocurementS procedures • HRSdatabaseSdigitized; payrollSmoduleSinSSFMISSfullyS functional • ShareSofSbudgetSdisbursedSthroughStopEtenSindividualsS reducedStoS25Spercent;S; decreaseSinSaverageSvalueSofS transactionSbyS30Spercent • RecruitSandSdevelopSrelevantSstaffScapacities
h.
BuildSgovernmentEtoEbusinessSpaymentScapabilities
i.
EstablishSassetSmanagementScapabilities
j.
EnsureSaffordabilitySofSspendingSdecisions,SSmanageS liquidity,SarrearsSandSdebt
• NoSarrearsSaccumulatedSfromS2015
k.
DeliverSfiscalSlegislative,SregulatorySandSguidelinesS package
l.
DevelopSfiscalSandSmanagementSreportingScapabilities
• PassedSPublicSFinancialSmanagementSAct; passedS ProcurementSandSConcessionsSAct; deliveredSPFMS regulations; issuedSNationalSFinancialSProceduresSManual • ProduceSmonthlySmanagementSreporting; quarterlyS financialSreporting
FinancialSGovernanceSStrategy
• 25SpercentSofSexpendituresSpaidStoScommercialSbankS accounts; increaseSnumberSofSvendorsSregisteredSinSSFMISS byS100Spercent • DevelopSassetSmanagementSstaffScapacities
47
First(year(targets(for(policy(and(institution Initiatives
3.*Manage* economic*and* fiscal*policies
4.*Build* institutional* foundations
Federal'Republic'of'Somalia
First*year*performance*indicators
m.
EstablishStheSfiscalSfederalism
n.
ManageSaidSandStheSuseSofScountrySsystems
• OptionsSevaluatedSandSFORStheSfiscalSfederalismS discussed • 15SpercentSofSaidSusingSonEcountry systems
o.
ManageStheSdebtSreliefSprocess
• IMFSSMPScommenced
p.
ManageStheSassetSrecoverySprocess
• MappingSofSforeignSassetsScompleted
q.
EstablishStheStransparencySinitiative
• PublishedSallSfiscalSreportsSonline
r.
FormalizeStheSfinancialSsector
• ExternalSbankSexaminationsSofSthreeSbanksSinitiated
s.
StrengthenScapabilitiesSforSfiscalSpolicymaking
• PassedSAMLSlaw
t.
StrengthenSfinancialSoversightScapabilitiesSofSSecurityS Sector
• 50SpercentSofSsecuritySsectorSspendingSpaidSdirectlyStoS payees
u.
StrengthenSfinancialSmanagementScapabilitiesSwithinS otherSMinistries,SDepartmentSandSAgencies
• EvaluateSfinancialSmanagementSstaffScapacitiesSatSeachS Ministry
v.
ImproveShumanSresourceSbaseSandSstaffScapacities
w.
EnhanceSandSimplementSSFMISSandSotherScriticalS financialSsystems
• AsEisSandSgapSanalysisScompletedSofShumanSresourceSbaseS andSstaffScapacities • FMISSwithSfullSgeneralSaccountingSfunctionalitySforSallS MDAs
x.
RebuildSorganizationalSstructure,SincludingSjobS descriptions,SrolesSandSresponsibilities,S strengthenS humanSresourceSmanagementSpractices
• DevelopStimeEandEattendance policy;SreEdesignS organizationalSstructure
y.
BuildSproductionStools,SinformationSandSknowledgeS management
• All currentSMoF toolsSandSinformationScompiledSinS centralSlocation
z.
RebuildStheSoldSMoFSbuildingS
• FinancingSplanSinSplaceSforSMoFSbuilding
FinancialSGovernanceSStrategy
48
Federal'Republic'of'Somalia
3.2*Working*together*to*realize*the*strategy
FinancialSGovernanceSStrategy
Led(by(Ministry(of(Finance(and(embedded(in(management Federal'Republic'of'Somalia Overall responsibility for this strategy lies with the Minister of Finance. The strategy is to be implemented by Ministry of Finance Leadership and will rely on incumbent management structures to mobilize Task Teams. Together, the MoF leadership and the Minister are accountable to deliver results, with ultimate decision power to shift priorities and make hard choices lying with the Minister. MoF leadership should closely manage each initiative and is responsible for ensuring handsEon support to manage results and flag issues early on.
Task Teams will be formed, charged with developing detailed plans for their relevant initiatives and executing on these plans. Detailed performance measures will be developed for each initiative, managed by each Task Team. The teams will report to MoF Leadership who will guide and facilitate their work. Additional task team capacities will be needed from time to time, depending upon the initiative.
Exhibit'3.2.1:'Core' governance' structure
TheSMinisterSwillSprovideSoverallSguidanceSandSdirectionSforS theSwork,SasSwellSasSactSasSfinalSdecisionEmakerSonSprioritiesS basedSonSinputSfromStheSMoFSleadershipSteam.STheSMinisterS willSbeStheSkeySownerSofStheSstrategySasSaSwhole,SandS communicateSprogressStoStheSCabinetSasSwellSasSotherSkeyS GovernmentSleadership.
Minister
TheSMoF leadershipSteamSwillSconsistSofSkeySseniorSleadershipS withinStheSMinistry.STheySwillSguideSeachStaskSteamSandSfacilitateS implementationSofStheSwork.STheySwillStrackSperformanceSonS eachSofStheSfourSareasSofSinitiatives,SrespondSquicklyStoSeventsS thatSmaySrequireSaSshiftSinSpriority,SandSprovideSdecisionS leadershipSandSsupportStoStheSMinisterStoSensureSsuccess.
MoF Leadership
Revenue*Initiative* Task*Team
Payments* Initiative*Task* Team
FinancialSGovernanceSStrategy
Financial*Sector* Task*Team
As*initiatives*are* launched…
TaskSteamsSwillSbeSformedSasSinitiativesSareSsetStoSlaunchSinS accordanceSwithStheSpriorities.SEachStaskSteamSwillSbeS responsibleSforSdevelopingStheSdetailedSplanSforStheirS respectiveSinitiative(s),SexecutingSonSit,SandSreportingStoSMoFS leadershipSregularlySonSprogress. 50
Improvement(programs(typically(consist(of(a(portfolio(of Federal'Republic'of'Somalia initiatives,(which(in(turn(can(consist(of(several(detailed(action(plans
ProgramS delivery
InitiativeS1
InitiativeS2
ActionS1 ActionS2 ActionS3…
FinancialSGovernanceSStrategy
InitiativeS3
Program'delivery'should'provide'for: E Defining*portfolio*ofSinitiativesS andSactions E Tracking*progress*ofSeachS initiativeSandSoverallSprogram E Monitoring*achievement* ofS targets E Facilitating* collaboration,S communication E Enabling*flexible*response*andS adjustments EachSactionSplanSmustSalsoSmanagedSonSitsSownS w.r.t.SresourceSmanagement,StrackingSofS progressSandSachievementSandSdependencySandS criticalSpathSmanagement.
51
Resources(&(implementation(for(revenue(and(treasury
Federal'Republic'of'Somalia
Initiatives*A*to*Z a.
FormulateStaxSandScustomsSpolicies,SlegalSandSregulatorySframeworks.
b. StrengthenSadministrationScapabilitiesSof:S(i)StaxSandSotherSrevenue;SandS(ii)Scustoms c.
StrengthenStheSbudgetSpreparationScapabilities:S(i)SatStheScentralSlevel;SandS(ii)SofSMDAsStoSdevelopS theirSownSplansSandSbudgets
d. BuildSprocurementSandSconcessionsSsystem e.
BuildSscalabilitySandSreachSofSsalarySpayments
f.
BuildSrobustSsystemSforSpaymentSofSoperatingSexpenditures
g.
BuildScapabilitiesStoSplanSandSexecuteScapitalSexpenditures
h. BuildSgovernmentEtoEbusinessSpaymentScapabilities i.
EstablishSassetSmanagementScapabilities
j.
EnsureSaffordabilitySofSspendingSdecisions,SSmanageSliquidity,SarrearsSandSdebt
k.
DeliverSfiscalSlegislative,SregulatorySandSguidelinesSpackage
l.
DevelopSfiscalSandSmanagementSreportingScapabilities InitiativeSFundingSAligned
InitiativeSStage
FullySFunded
FundingSInSPipeline
Complete/OngoingSEvaluation
ProjectSDesign/Development
PartiallySFunded
NotSFunded
Implementation
EarlySConcept
FinancialSGovernanceSStrategy
52
Resources(&(implementation(for(policy(and(institutions
Federal'Republic'of'Somalia
Initiative*A*to*Z m. EstablishStheSfiscalSfederalism n. ManageSaidSandStheSuseSofScountrySsystems o.
ManageStheSdebtSreliefSprocess
p. ManageStheSassetSrecoverySprocess q.
EstablishStheStransparencySinitiative
r.
FormalizeStheSfinancialSsector
s.
StrengthenScapabilitiesSforSfiscalSpolicymaking
t.
StrengthenSfinancialSoversightScapabilitiesSofSSecuritySSector
u. StrengthenSfinancialSmanagementScapabilitiesSwithinSotherSMinistries,SDepartmentSandSAgencies v.
ImproveShumanSresourceSbaseSandSstaffScapacities
w. EnhanceSandSimplementSSFMISSandSotherScriticalSfinancialSsystems x.
RebuildSorganizationalSstructure,SincludingSjobSdescriptions,SrolesSandSresponsibilities,SstrengthenS humanSresourceSmanagementSpractices
y.
BuildSproductionStools,SinformationSandSknowledgeSmanagement
z.
RebuildStheSoldSMoF buildingS
FinancialSGovernanceSStrategy
53
Managing(the(interfaces
Federal'Republic'of'Somalia
To drive change, it is critical to consider the rules of engagement. Proper coordination is needed to bring structure to engaging on and managing issues. Developing a structured engagement strategy will ensure the right internal and external actors are involved and promote trust building and mutual accountability.
External*Committee* Structure
Although the MoF is responsible for overall finance and economic issues for the government, it has critical dependencies. Successful delivery of these 26 strategic initiatives is dependent on deliverables that are housed across different government entities.
Internal*Committee* Structure
Engagement*with* Government*Entities
Financial* Governance* Committee
SDRF
Budget*Committee
Fiscal*Policy* Committee
Central*Bank*of* Somalia
Parliament*Finance* Committee
Macro\Economic* Forum
PSG*4*&*5
Remittances*Task* Force
Procurement* Committee
Auditor*General
Ministry*of* Planning
AML*Task*Force
Revenue* Committee
Joint\Fund* Administrators* Meeting
FinancialSGovernanceSStrategy
ToSbeSestablished
Line*Ministries,* Departments,* Agencies
54
Managing(the(interfaces:(External(Committee(Structure
Federal'Republic'of'Somalia
Mandate/Objective*****************************************************Membership**&*Frequency Financial* Governance* Committee
Joint FGS and IFIs representatives committee to provide advise and some oversight of key financial governance issues – Asset Recovery, Concession Contracts, Fiscal Federalism and Use of Country Systems. Progress and issues on these policy fronts are raised in this forum and addressed by FGS.
Chaired by Minister of Finance, FGS members include Governor of CBS, representatives from Offices of the President and Prime Minister, member of the Parliament Finance Committee and Solicitor General. IFI nominated representatives include those put forward by the World Bank, AfDB and IMF. Meetings are held monthly.
Macro*Economic* Forum
Joint forum between Ministry of Finance and International Community to discuss Macro Economic and Fiscal issues. Objective is to promote dialogue and information sharing on these issues on a regular basis and strengthen confidence in country PFM systems
Chaired by Minister of Finance, members include representatives from CBS, MOPIC and Auditor General as required and representatives from the international community – Donors, UN and IFIs. Meetings are to be held on a quarterly basis.
Joint\Fund* Administrators* Meeting
Joint MOF and Fund Administrators quarterly meeting to review project pipelines and funding windows’ activities. Objective of the meeting is to manage overall envelop and ensure timely execution of funds as well as management of risks . MOF focal points to be appointed for each of the World Bank and AfDB projects as well as UN projects administered through National Window
Chaired by Minister of Finance, members include representatives from ACU and MOPIC and representatives from the Funding Windows – World Bank, AfDB and UN. Meetings are to be held on a quarterly basis.
SDRF
SDRF is the centerpiece of the New Deal partnership and provides strategic oversight and guidance for Compact implementation. SDRF brings together multiE partner trust funds under common governance arrangements. Decisions on priorities, alignment and project funding is made at the SDRF.
Chaired by Prime Minister and coEchaired by rotating lead donor. Members include both key line ministers and representatives from the international community. Plenary SDRF steering committee meets quarterly, while the executive, chaired by the Deputy Prime Minister, meetings monthly
PSG*4*&*5
The PSGs are responsible for communication and programmatic coordination of priority areas. PSG 4 is lead by the MOF, and PSG 5 PFM subcomponent is headed by MOF. As PSG lead, MOF is responsible for coordinating and reviewing all projects.
PSG 4 is lead by MOF and coElead from international community. PSG 5 PFM subE working group is lead by MOF and coElead with DfID. PSG working groups meet on a regular basis as agreed to by the PSG members
FinancialSGovernanceSStrategy
55
Managing(the(interfaces:(Internal(Committee(Structure
Federal'Republic'of'Somalia
Mandate/Objective*****************************************************Membership**&*Frequency
Budget*Committee
SubEcabinet committee at the ministerial level with secretariat support from the budget director and director general of MOF. The objective of this committee is to coordinate and oversee the top down budget process.
Chaired by Minister of Finance, members include key line ministers – i.e. MOPIC, Auditor General and support from the Budget Director of the MOF. Budget Committee should meet biEmonthly and more frequently during the budget development period.
Remittances*Task* Force
Multiagency Task Force will guide the formalization of the financial sector in Somalia. The objective is to facilitate the building of a formal, effective, and transparent system that is efficient and reliable and thus able to compete with informal channels.
Members include representatives from the Office of the President, Prime Minister, Minister of Finance, CBS, and representatives from commercial banks, donors and IFIs. Meetings are to be held on a quarterly basis.
AML*Task*Force
Multiagency Task Force will guide the formalization of the financial sector from a policy and legal perspective. The objective of the TF is to develop, pass, and implement appropriate AML/CFT and other banking regulations to contribute to a transparent, reliable financial system.
Chaired by Minister of Finance, members include representatives from CBS, MOPIC and Auditor General as required and representatives from international community – Donors, UN and IFIs. Meetings are to be held on a quarterly basis.
Fiscal*Policy* Committee
Joint Committee between MOF and Central Bank to coordinate and discuss key fiscal policy issues. The objective is to maintain dialogue and track the progress of activities listed in the MOU between CBS and MOF, i.e. budget, payment, debt relief, etc.
CoEChaired by Director General and Deputy Governor of CBS and supported by MOF and CBS staff in budget department, Accountant General Office, Banking Operations and Accounting Office of CBS. Meetings are to be held on a monthly basis.
SubEcabinet committee at the ministerial level to review contracts, including concession contracts, above a specific threshold E $5 million. The objective of the committee is to ensure transparency and integrity of the contracts, working closely with the FGC.
Chaired by the Minister of Finance, members include key line ministers, as well as representatives from Offices of the Prime Minister and President. Once the Procurement Law is passed, this committee will be superseded by the committee outlined in the law. Meetings are to be held quarterly or as required.
Committee within MOF to oversee and drive the reform agenda of revenue and tax reforms. The objective of this committee is to define reform activities and ensure continuous and timely progress of revenue collection, as well as addressing issues.
Chaired by the State Minister of Finance and includes MOF staff – Director General, Budget Director, Customs Director, InELand Revenue Director, Revenue specialist advisor. This committee meets on a weekly basis.
Procurement* Committee
Revenue* Committee
FinancialSGovernanceSStrategy
56
Managing(Communication(Strategy The Ministry of Finance implements critical fiscal policies which have a direct impact on the public. To date, the public has little understanding of how the country’s finances are spent, how decisions for project funding are arrived at, and critical bilateral and multilateral agreements with donors among others. Equally, the MoF has the significant task of educating the public on the need and importance to pay taxes and needs to increase public awareness and understanding. A comprehensive media strategy within the broader picture of the Ministry of Finance’s goals and objectives is essential. The Media Strategy will: a) Ensure the Ministry’s operations, priorities, core objectives, values, ambitions and challenges are better understood, both externally and internally b) Encourage and facilitate feedback from key target audiences in order to help shape service delivery and ensure continuous improvement c) Enhance the Ministry of Finance reputation and public image as an efficient, effective, ethical, reputable, sustainable and innovative government arm. Gaining political, public and civil society support will also be essential if the MoF is to succeed, and its media strategy will be vital to achieving this. The outcomes of this strategy will be looked at from both the short term and medium term perspective.
Short'to'mid>term'Deliverables . • Staff training on the broader and specific aspects of the media strategy
•
Long>term'Deliverables •
Educate and create awareness among members of the public on the importance and need to pay taxes. A comprehensive media campaign will be critical to achieve this
•
Sensitize the public on the role of the Ministry of Finance, its functions. Public trust and confidence in the MoF is critical for its proper functioning.
•
Educate the public on new fiscal policies, budgetary allocations to various sectors of the economy.
•
Develop and execute a brand image campaign aimed at promoting Somalia as an investment destination.
FinancialSGovernanceSStrategy
•
Align all the functions of the ministry within the framework of a professional and wholistic media strategy. Media relations is strategic and central to the functioning of the ministry. Develop a robust proactive media relations strategy to avoid misinformation and misrepresentation while promoting a transparent and effective two way communication.
Federal'Republic'of'Somalia Successful execution of the media strategy will result in the following outcomes: a) Improved perception of transparency and accountability in the functioning of the ministry, including fighting corruption and promoting best and prudent practices in fiscal management. b) An informed public on the need and importance of paying taxes. Business community, employees and employers are able to embrace the concept of taxation and can submit to paying taxes through established structures c) Public participation in fiscal policy development, project identification and resource allocation, monitoring and evaluation d) Public information central system to enable the public and the media access to necessary information. This will be tied to the ministry’s concept of full digitization of data and online operation of the ministry. In the implementation of the media strategy, online and social media tools will be utilized, including development of Ministry Website, a fully functional and user friendly website with accurate and verifiable information about the Ministry’s roles, functions, activities and any other relevant data. Social media sites will be used alongside other media tools to contribute to the overall objectives of the media strategy. The Ministry can effectively leverage this platform to interact with the public and other key stakeholders on a regular basis. Traditional/Conventional Media outlets will continue to be utilized, and will require the development of effective media relations plan and increase in the use of TV/Radio programs and media press release. The performance of the media strategy will be gauged on a set of indicators including, but not limited to:
• Public knowledge and response on the functions and roles of the ministry • Ability of the public to embrace the concept of taxation and positively participate in tax payment
• Level of media coverage of MoF activities; volume, impact and frequency • Public and investor confidence as a result of media campaigns • Social media interactions; followers, participation, likes, feedback 57
Federal'Republic'of'Somalia
annex
x FinancialSGovernanceSStrategy
FinancialSGovernanceSStrategy
Initiatives(AQZ( The*objective ofSthisSsectionSisStoSintroduceStheSstrategicSinitiatives.SInSthatSregard,S theSmainSpointsSare: E TheySareSintroducedSbriefly,SfocusingSonStheSmainSissuesSandSobjectivesSforSeach.S E TheSinitiativesSareSseparatedSbyStheirScontributionSlogicStoStheSstrategicSobjectives,S andSbyStheirSdifferentSimplementationSlogic.S E FurtherSelaborationSofStheSstrategySmaySaffirm,SadjustSorSchangeStheseSinitiatives. E ThisSportfolioSofSinitiativesSwillSalsoSbeSusedStoSdiscussSpartnershipsSwithSexternalS financiersSofStheSreforms.S E TheSinitiativesSareSnotSpresentedSinSorderSofSpriority.
Federal'Republic'of'Somalia Initiative* a.
Formulate*tax*and*customs*policies,*legal* and*regulatory*frameworks
Initiative* b.
Strengthen*administration*capabilities*of:* (i)*tax*and*other*revenue;*and*(ii)*customs
Revenue generated through taxation and customs must be done in a manner that builds trust among Somali citizens and the business community. To do so, comprehensive tax and customs policies must exist to support the fair and transparent collection of tax revenue.
Revenue administration capabilities must be developed in order to encourage compliance of citizens and businesses. The objective is thus to build the capacity of the Federal Government to collect adequate revenue and properly manage these capabilities.
The objective of this initiative is to develop and implement clear, contextEappropriate tax and customs policies and regulations. By first assessing asEis legal and regulatory frameworks to define the gaps, existing policies should be enhanced and new ones developed, based on the need. In the immediateEterm, it is crucial to draft these new/modified policies and frameworks to be presented to Parliament for approval. The longerEterm objective is to implement these enhanced policies across the FGS and support their adoption by all citizens.
There should be a focus on identifying and filling the critical gaps in personnel, processes, and technology. New administrative procedures should be developed and implemented, with careful consideration of the critical path needed to make reforms happen. Additional improvements, e.g. in technology, to increase the sustainability and scalability of these processes should be considered as a longerEterm objective. Accompanying these process reforms must be a sharp focus on attracting, training, and retaining the right personnel to drive these changes.
Initiative* c.
Strengthen*the*budget*preparation*capabilities:* (i)*at*the*central*level;*and*(ii)*of*MDAs*to* develop*their*own*plans*and*budgets
There is a need for robust budgeting capabilities at the FGS at the central and MDA levels, particularly given the challenges in expenditure planning due to revenue shortfalls. Thus, the objective is to develop robust costing, budgeting and planning tools at the central level, which can be leveraged and implemented at each MDA as well. In addition to developing the proper tools, it is critical to build the capacity of key staff to properly support the budget preparation process. Capacity building at the central level is a key starting point to enable the FGS budget department to properly prepare and implement the government’s budget and to engage with each MDA to enforce the use of standardized processes and tools.
FinancialSGovernanceSStrategy
Initiative* d.
Build*procurement*and*concessions*system
An effective public procurement system for the FGS will offer a high level of transparency, accountability, and value for money, and is critical to providing government services. The objective is to develop and implement such a robust procurement system governmentEwide. In the immediateEterm, the focus should be on finalizing, passing and implementing the current draft of the Public Procurement and Concessions Act, as well as other regulations needed. Following the regulatory and policy framework, robust procurement processes need to be implemented, and capabilities strengthened to support these processes.
59
Federal'Republic'of'Somalia Initiative* e.
Build*scalability*and*reach*of*salary* payments
The FGS payroll system is functional, but it is based on manual processes, not scalable, and errorEprone. The objective of this initiative is to develop a salary payment system that is efficient, scalable, and has broad reach across all regions of Somalia, as needed. First, it is critical that technological reforms be prioritized and developed to ensure the integrity of the payroll system as the Government continues to employ more individuals and broaden the services it provides. Second, these technology reforms must be coupled with process improvements to ensure a unified, robust system across regions.
Initiative* g.
Build*capabilities*to*plan*and*execute*capital* expenditures
Initiative* f.
Build*robust*system*for*payment*of*non\ salary*recurrent*expenditures
Today, a reformed payment system for nonEsalary recurrent expenditures is nonEexistent. It has been designed by the FGS, but has yet to be implemented. Implementation of this reformed system is critical for increasing the integrity of the Government and facilitating the flow of funds needed to continue Government operations, internally and externally with the international community. Thus, the objective of this initiative is to build and implement a robust system for payment of nonEsalary recurrent expenditures in order to strengthen the Government’s capacity to effectively administer the budget and process payments. In the immediateEterm, rolling out this new system for a few selected pilot MDA’s is critical. This will allow for incremental changes before the reformed system is rolled out to all MDAs.
Initiative* h.
Build*government\to\business*payment* capabilities
In addition to enabling provision of public services though government infrastructure, public capital spending indirectly enhances economic growth by encouraging private sector investments. The FGS has very limited capacity to implement capital spending with fragmented capacity limited to donorEfunded programmes.
A critical weakness of the Government payment system is that it relies solely on the CBS for the disbursement of funds, which is done at the bank entirely by check or cash. As existing initiatives progress to formalize the financial sector in Somalia, the FGS must be prepared to enable payments via commercial banks.
The objective is to build the Government’s capabilities to plan and execute capital expenditures in order to facilitate the provision of public goods. There should be an equal focus on building staff capacity, developing robust processes and procedures, and implementing new technology, as needed to support this initiative.
Thus, the objective of this initiative is to further develop the Government’s capabilities in delivering a payments system that meets international standards. Enabling governmentEtoEbusiness / people payment capabilities through commercial banks is critical, starting with the development and implementation of new procedures and processes between the FGS and the CBS. It is also critical to determine the appropriate technology improvements to support these new processes.
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Federal'Republic'of'Somalia Initiative* i.
Establish*asset*management*capabilities
It is critical to ensure that Government assets, whether financial, capital, or expendable, are effectively managed and safeguarded. The objective of this initiative is thus to build effective capabilities to manage FGS assets. This includes developing staff capacity in asset management, and building the appropriate processes and tools to support the staff. It is crucial that the FGS maintain accurate and timely asset information for decisionEmaking and reporting purposes, as well as promote the efficient use of assets.
Initiative* k.
Deliver*fiscal*legislative,*regulatory*and* guidelines*package
While the FGS has prioritized financial governance on the legislative agenda, much of the framework is currently in development or requires attention. Thus, the objective is to deliver a comprehensive and harmonized fiscal legislative and regulatory package. While current drafts exist of key legislation, namely the Public Financial Management and Procurement Laws, it is critical to finalize and pass these, and implement regulations and procedures to support them. Others need to be first drafted and finalized before appropriate procedures can be implemented, such as the Revenue and Tax Law.
FinancialSGovernanceSStrategy
Initiative* j.
Ensure*affordability*of*spending*decisions,** manage*liquidity,*arrears*and*debt
The FGS faces frequent liquidity constraints due to limited resources, and there is limited planning regarding the management of liquidity, arrears and debt. Thus, the objective of this initiative is to strengthen the Government’s cash management capabilities in order to reduce operational and credit risk, better manage its liquidity position, limit unnecessary borrowing, and reduce arrears. There is a critical need to develop the right processes and tools to enhance cash management planning at the central level, as well as a need to recruit and train the right people to develop and own these capabilities.
Initiative* l.
Develop*fiscal*and*management*reporting* capabilities
Currently, the right information at the right time is not available. Financial and nonEfinancial performance measures are not well defined, not comprehensive and not transparent. Thus, it is critical that the FGS develop robust fiscal and management reporting capabilities in order to support decisionEmaking and to report results internally and externally. First, the objective should be to identify specific and critical needs for financial and other management reports that are in line with the Government’s strategy and goals. Processes and staff capabilities also need to be built to support critical reporting needs, and technology support implemented to ensure the efficiency and scalability of reporting over time. 61
Federal'Republic'of'Somalia Initiative* m.
Establish*the*fiscal*federalism
The success of fiscal federalism is key to a peaceful and secure future for Somalia. The role, scope, and function of the various regional administrations must be determined and agreed upon. The main objective is to establish the most efficient, effective, and economically viable division of functions and financial relations among levels of government. The Ministry of Finance should provide leadership in policy formulation, dialogue, and implementation.
Initiative* n.
Manage*Aid*and*the*Use*of*Country* Systems
Internationally, there is commitment to channel aid through recipient country systems, as defined in the Paris Declaration, principles of engagement with fragile states, and the New Deal. Use of country systems enables more comprehensive public budgets, stronger recipient country ownership, greater transparency, and greater accountability. As part of the Somali Compact, The FGS and development partners committed to partnership principles, including the Use of Country Systems. The objective of this initiative is to set the policy and roadmap to increase the channeling of aid funds through the full use of country PFM systems. This will be achieved by defining a series of agreedEupon benchmarks for both Government and donors and ensuring the appropriate mechanisms are in place to manage the funds.
Initiative* o.
Manage*the*Debt*Relief*process
Unsustainable debt contributes to poverty, while lack of access to borrowing inhibits government investments, slowing growth of social infrastructure and economic development. Thus, comprehensive debt relief is a prerequisite to predictable fiscal and economic planning. The objective of this initiative is to develop a robust, proactive approach to managing debt relief in order to reduce the Government’s debt burdens. Active management of the debt relief process is required, which includes development of the right processes and training of key staff. A comprehensive strategy is needed to in order to tackle debt relief headEon, which may include interaction with external institutions in order to qualify for debt relief programmes.
FinancialSGovernanceSStrategy
Initiative* p.
Manage*the*Asset*Recovery*process
The asset recovery process has become a high profile issue with FGS officials, development partners, and in the media. The objective of this initiative is to successfully manage the asset recovery process in order to build and maintain the Government’s credibility and respond to international concerns of corruption. It is critical for the FGS to review their approach to asset recovery, including external support such as through the STAR initiative, and define the way forward. Key asset recovery activities should be operationalized in core MoF functions.
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Federal'Republic'of'Somalia Initiative* q.
Establish*the*Fiscal*Transparency*initiative
The FGS suffers from a lack of transparency and corruption, which damages its relationships with the international community, but perhaps even more importantly, with its own people. Thus, it is critical for the FGS to commit to making the Government more open, more accountable, and to engage its people. The objective of this initiative is to create an unprecedented level of openness in Government, using Google as the Technology Platform. There are three pillars: (i) making Government information available and transparent to all; (ii) developing rules and regulations to ensure the Government is accountable and called on to justify their actions; and (iii) mobilizing citizens to participate and contribute to Government’s policies and actions.
Initiative* s.
Strengthen*capabilities*for*structural* financial,*industrial*and*fiscal*policymaking
Policy sets direction and equips government to provide the necessary leadership and capacity to fulfill its mandate. Current MoF ability for policymaking is limited and the disparate interventions of various FGS and external actors present significant coordination and alignment challenges. Thus, the objective of this initiative is to strengthen the Government’s overall policymaking capabilities. Beginning with an asEis assessment of capacity needs, a strategy to fill the current gaps should be developed and implemented. Staff with the right expertise and skill sets need to be hired across all major policy areas and equipped with the proper tools.
FinancialSGovernanceSStrategy
Initiative* r.
Formalize*the*financial*sector
The primary objective of formalizing the Somali financial sector is to address money laundering and terrorism financing risks in order to allow for Somali financial institutions to participate more broadly in the international payment system. Formalizing the financial sector will also contribute to ensuring longEterm financial stability. With the recent shutting down of remittances, this initiative is critical for Somalia and it will require significant Government leadership in order to succeed. To support this objective, the MoF leadership should play a crucial role in developing the necessary legal and regulatory frameworks and building institutional capacity to support these reforms. This includes collaboration with the international community to finalize necessary policies, and supporting process reforms between the FGS and CBS that create an enabling environment for change.
Initiative* t.
Strengthen*financial*capabilities*of*Security* Sector
Security sector spending accounts for over 50% of FGS expenditures, as this is the first spending priority for the Government. However, there is a disconnect between budgets and financing needs from force requirements, expenditure control is limited, and there is no traceability of outstanding liabilities. Critical support is needed within the MoD to enable it to provide financial management oversight to the SAF. Thus, the objective of this initiative is to strengthen the oversight and transparency of security sector expenditures by developing financial capabilities at the MoD and eventually centralizing the payment process through the MoF. Efforts should be coordinated with existing and planned security reform through the MoD/SAF, including key parties such as the SNA, Police, NISA, and Custodial Corp. 63
Federal'Republic'of'Somalia Initiative* u.
Strengthen*financial* management*capabilities* within* other*Ministries,* Departments* and*Agencies
Initiative* v.
Improve*human*resource*base*and*staff* capacities
While leadership and centralized services are provided by the MoF, FGS Ministries, Departments and Agencies play a key role in administering finances, with ministers or heads of departments and agencies holding spending authority, as delegated by Parliament.
The MoF cannot deliver without a strong organization supporting it. Currently, there are many staff in legacy roles or in roles for which they are not well suited or qualified. There are also skill sets missing that need to be filled.
The objective of this initiative is to strengthen financial management capabilities across all MDA’s of the FGS. It is critical to develop formal financial management processes and develop consistent and clear requirements, particularly around spending authority. The MoF should take the lead in providing standardized tools and procedures for rollE out at the MDA level, while equipping staff with the capabilities to nuance their approach based on the needs of their departments.
By improving the human resource base and staff capacities of the MoF, the objective is to align its human resources with its current strategy in order to achieve its goals. It is critical to hire new employees to fill key gaps as well as improve current staff capacities through training or a role reEalignment. By placing the right people in the right roles and bringing in new hires who possess the skills most needed, staff will be better equipped to help fulfill the mission of the MoF.
Initiative* w.
Enhance*and*implement*SFMIS*and*other* critical*financial*information*systems
EffectiveScoreSaccountingStechnologySsupportSisScriticalStoStheSMoF’s abilityStoSdeliverSonSitsSmandate.SDesign,Simplementation,SandSvalueSofS suchStechnologySsupportSisSaSmajorSfocusSforSallSgovernments. Thus,StheSobjectiveSofSthisSinitiativeSisStoSimplementSeffectiveSandS criticalStreasuryErelatedSinformationSmanagementSsystems.SThisS includesSenhancingSandSensuringSsuccessfulSimplementationSofSSFMIS,S theScurrentSfinancialSmanagementSinformationSsystemStoolSthatSisSinS place,SyetSnotScurrentlySused.SItSisScriticalStoSmanageStheS implementationSofSSFMISStoSensureSitSadheresStoSreformedSfinancialS proceduresSandStoSsupportSitsSsuccessfulSlaunchSacrossSallSMDA’s.
FinancialSGovernanceSStrategy
Initiative* x.
Rebuild*organizational* structure,* including*job* descriptions,* roles*and*responsibilities,* strengthen* human*resource*management*practices
Currently, there are weak HR policies and civil servants operate in a legacy structure. By restructuring the MoF, the objective is to align the organizational structure to the current strategy in order to enable and empower staff. In addition to reEbuilding the organizational structure, HR practices need to be reEvamped, and roles and responsibilities reEdefined. Many individuals may be placed in the wrong roles, or may not understand the job requirements due to the legacy hiring practices. Thus, it is critical to evaluate the entire organizational structure and reEbuild it to reflect the current strategy and needs.
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Federal'Republic'of'Somalia Initiative* y.
Build*production*tools,*information*and* knowledge*management
Initiative* z.
Rebuild*the*old*MoF*building
As the MoF builds its organizational capabilities, it will require tools to manage its knowledge base and information. The objective of this initiative is thus to develop an integrated approach to identifying, capturing, evaluating, retrieving, and sharing knowledge and information.
The current physical work environment at the MoF does not provide a sustainable workplace, nor is it one conducive to enabling the department to deliver results. The objective of this initiative is to rebuild the old MoF building to equip the Ministry with a safe, productive work environment with the necessary infrastructure.
This approach requires the hiring and/or training of dedicated staff to own the knowledge management process, as well as the building of technologyEappropriate tools to enable it. These tools need to be built with the current capacity of the MoF in mind, and based on critical need, but should also have the ability to increase in scale and sophistication over time.
The MoF building should be able to effectively support all of its staff and should consider any growth needs before rebuilding to ensure the building’s future relevance and sustainability. Over time, the current workplace will become more obsolete and obstructive to the efforts of the Ministry.
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Federal'Republic'of'Somalia
annex
y FinancialSGovernanceSStrategy
FinancialSGovernanceSStrategy
PEFA(Assessment(to( benchmark(against(other( countries
Federal'Republic'of'Somalia
398*assessments 149*countries 76*parameters*
TheSPFMSsystemSinSSomaliaShasSbeenSassessedSaccordingStoSaS setSofSglobalSbenchmarkScriteriaS(PEFA)SforSpurposesSofS diagnosisSofSPFMSsystemsSinSdevelopingScountriesSandS supportedSbyStheSDfID,SEUSandSWorldSBank.S TheSframeworkSconsistsSofS28SmainSindicatorsSthatSareSgroupedS inSsixSareas.SEachSofStheS28SindicatorsSconsistsSofS1E4SindividualS questions,SwhichSareSaggregatedStoSaSsingleSscoreSperSindicatorS basedSonSpreEdefinedSmethodologies.SAdditionally,SthereSareS threeSindicatorsSrelatingStoSdonorSpractices.SThereSareSaStotalSofS 76SquestionsS/parameters. FinancialSGovernanceSStrategy
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The(high(level(review(of(the(scorecard( reveals(consistently(lower(performance
Federal'Republic'of'Somalia ExhibitSY.1.0:SAverageSofSallSindicatorsSperSdimension.S SomaliaSvs.SmajorSbenchmarks PEFASScoreS(4EpointSscaleSAStoSD) B C A D
1.*Credibility*of*the* budget
ActualSexpendituresSandSrevenuesSvaryS significantlySfromSplan.SArrearsSexist.
2.*Comprehensiveness* and*transparency
LackSofSbudgetStransparencySincludingS interEgovernmentalSfiscalSrelations.
3.*Policy\based* budgeting
LackSofStransparencySandSapprovalS delays.
4.*Predictability*and*control* in*budget*execution
LegalSframeworkSincomplete.SLimitedScashS forecasting.SBudgetSexecutionSunpredictable.
5.*Accounting,*recording* and*reporting
ReconciliationSinfrequent.SDataScollectionS limited.SReportingSofSlimitedSvalue.
6.*External*scrutiny* and*audit
RelevantSprocessesSexist.SScrutinySisS notSstrongSorSnotSwellSevidenced.S
Donor*practices
FinancialSGovernanceSStrategy
Fragile'States Eastern'Africa Somalia
InformationSonSdonorSpracticesS limited.SSupportShasSbeenS unpredictable.
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The(granular(review(of(the(scorecard(reveals( some(areas(of(relative(strength 1.*Credibility*of*the* budget
ActualSexpendituresSandSrevenuesSvaryS significantlySfromSplan.SArrearsSexist.
2.*Comprehensiveness* and*transparency
ExtraSbudgetarySexpenditures,SdonorS fundedSexpendituresSandSrevenues,SandS interEgovernmentalSfiscalSrelationsSnotS reportedSinSaStransparentSmanner.
3.*Policy\based*budget
LackSofStransparencySandSapprovalSdelays.
LegalSandSregulatorySframeworkSincomplete.S LimitedScashSflowSforecasting. TaxSpaymentS 4.*Predictability*and*control* collectionShighSreflectsSnarrowStaxSbase.S in*budget*execution ProcurementSnotSformalizedSorStransparent.S CommitmentScontrolSsystemsSareSlacking.S 5.*Accounting,*recording* and*reporting
BankSreconciliationSinfrequent.SNoSdataS collectionSofSserviceSdeliverySresources.S AnnualSreportingStimely,SbutSnotSreliable.
6.*External*scrutiny* and*audit
ScrutinySisSnotSstrongSorSnotSwellSevidenced.S RelevantSprocessesSexist.
Donor*practices
InformationSonSdonorSpracticesSlimited.S SupportShasSbeenSunpredictable.
Federal'Republic'of'Somalia ExhibitSY.1.1:SScoreSforSeachSofStheS31Sindicators.S SomaliaSvs.SmajorSbenchmarks PEFASScoreS(4EpointSscaleSAStoSD) B C A D
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
Fragile'states Eastern'Africa Somalia
Source:SPEFASManual;SMoF data;SAbyrintSanalysis.SFragileSstatesSidentifiedSbasedSonS2014SfragileSstateSindex,SandSincludeSAfghanistan,SCentralSAfrican Republic,SDRS Congo,SHaiti,SPakistan,SSouthSSudanSandSSudan.SEasternSAfricaSincludesSBurundi,SEthiopia,SKenya,SRwanda,SSeychelles,SSudan,STanzania andSUganda.
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Federal'Republic'of'Somalia
annex
z FinancialSGovernanceSStrategy
FinancialSGovernanceSStrategy
Analytical(foundations
Analytical(foundations The strategy is supported by much analytical work. Significant dataE driven analyses and onEtheEground assessments have been conducted in partnership with Government staff, from civil servants to top Ministry leadership.
• • • • • • • • • • • • • •
RevenueSmanagementSanalysis,SFGSS(Abyrint,S JuneS2014) ManagingSsanctionsScontrolsSforSFGSS expenditureS(Abyrint,SJuneS2014) ArrearsSmanagementSanalysis,SFGSS(Abyrint,S JuneS2014) CashSmanagementSatSFGSS(Abyrint,SJuneS2014) FactSpackSandSanalyticsSonSCentralSBankS transactionSflowsS(Abyrint,SMayS2014) StrategySconceptSforSmilitarySsectorSfinancialS strengtheningS(Aby 2015) FormalizingSfinancialSsectorSconceptS(FGSS/SAby 2015) PayrollSsystemSofSFGSS(CharlieSGoldsmithS&S AssociatesSAprilS2014) FiscalSfederalismSpresentationS“AssigningS ExpendituresSandSRevenuesSinSaSFederalSSystem”S (ChristineSWallich,SOctoberS2014) TaxSPolicySScopingSPaperS(IMF,SMarchS2015) IMFSaideSmemoireSCBSSmissionSSeptemberS2014 IMFSAideSmemoireSCBSSmissionSJanuaryS2015 ArrearsSmanagementSplanSforSFGSS(PeterSMuir,S DecemberS2014) AdvisorySreportsSandSanalyticsSonSpayrollSandS bankingSS(PwC/Aby 2013E2015)
FinancialSGovernanceSStrategy
Federal'Republic'of'Somalia These analyses have been leveraged to develop a strategy that is rooted in the realities and potential of the government. This approach ensures a holistic strategy with realistic objectives and performance measures, ensuring the greatest chances of success in implementation.
• • • • • • • • • • • • • •
MoF organizationalSrestructuringSreportS(StephenS Leeds,SMarchS2015) InstitutionalSanalysisSFGSS(UNDP,S2012) Factpack onSFGSStransactionsSandSreconciliationS (MoF/Aby JanuaryS2015) RevenueSreportsSandSbudgetSdataS2013SandS2014S (MoF) ProjectSanalysisSforSpresumptiveStax,SMoF (MoF 2015) AuditorSgeneralS2012Sbudget FMISSandSCBSSledgerSdata PayrollSdata 2013SPFMSselfSassessmentSandSstrategy DraftSlicensingSregs.SBanksSandSMVTSs DraftSoperatingSproceduresSgovernmentSbusinessS paymentSsystem DraftSNationalSfinancialSproceduresSmanual BudgetSdataS2013E14 MoF organizationalSmappingS(2014)
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Federal'Republic'of'Somalia
END
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