Public Finance Reform
Executive Summary of Strategy, status and next steps
1st Meeting of the Joint Steering Committee
October 25, 2016
Ministry of Finance
Federal Government of Somalia"
Content 1. 2. 3. 4.
Key objectives Program Strategy Program Implementation Status and next steps
Federal Government of Somalia, PFM Reform Action Plan
2
Key objectives
The key objectives for building robust financial management in Somalia by 2020
Revenue
Raise sufficient revenue to sustain its policies for achieving security and growth
Budget execution
Effectively manage its expenditures, assets and liabilities
Federal Fiscal Framework
Having a shared vision across regions on common principles for revenue and expenditure management
External Financing
Achieve debt relief and further strengthen relationships with external partners
Federal Government of Somalia, PFM Reform Action Plan
Key objectives
The need to rebuild the revenue base in order to sustain government Too liAle. Government revenue collection is extremely limited as share of the economy. Exhibit. Domestic revenue by GDP
Too narrow. The tax base is very narrow, focused on import taxes. Exhibit: Domestic revenue by collection mechanism (2013)
BeAer before. Somalia used to be able to finance its own recurrent expenditures. Exhibit:Domestic revenue by recurrent budget
50% Somalia4 1960s
FGS
IGAD3
11.6%
1970s
10.3%
1980s
6.8%
2013
1.1%1
2014
1.4%2
Seaport(
74%
Other(
12%
Airport(
10%
Corporate(
2%
100%
Somalia 1960s 90% 1970s 107% FGS 2013 63% 2014 57% 20154 51%
13.3%
Notes and sources: 1 and 2 Range due to variation in GDP estimates from the IMF and World bank respectively. Low estimate based upon IMF (high) estimate of GDP. 3Reporting countries only, latest year available, source WDI. 4Historical measurements from historical WB CEM documents, mid-‐‑decade averages. FGS revenue data 2013 and 2014 from Appropriations Act and tentative accounts 2014. Tax data from Central Bank ledger analysis. Abyrint analysis 2014 and 2015.
Federal Government of Somalia, PFM Reform Action Plan
Key objectives
The need to rebuild the public finance machinery Exhibit: Key issues in the budget execution
Macro fiscal planning and budgeting Budgets are prepared each year; higher projections of revenue than realized. Weak links between strategy, needs and financing. Budget Appropriation Act passed annually, allocation processes and instructions based on Act.
Asset and debt management Debt management limited; Stock of arrears has been increasing. Asset management very limited.
Procurement and Concessions Procurement law passed, but practices and institutions not in place. Centralized commitment control capability established in SFMIS, but not implemented across. Concessions management embryonic.
Federal Government of Somalia, PFM Reform Action Plan
Cash management There is cash rationing, depending largely on available liquidity and revenue inflows. Cash prioritization practices largely ad-‐‑hoc and not formalized. TSA management remains under consolidation.
Payment processing and execution Government payments are made in cash at CBS. Bank transfer payments just begun. Scalability and effectiveness challenges. Technical interface between MoF and CBs remains challenging. Lack of national payment infrastructure.
Accounting and financial reporting Manual recording processes. Accounting procedures, reconciliation, supporting documentation need to be improved Regular financial reporting not institutionalized. SFMIS deployed and capable of supporting accounting and reporting.
Key objectives
The intergovernmental commieee is working to develop shared principles towards a national fiscal framework Exhibit: Illustration of fiscal federalism dialogue
Joint Communique from intergovernmental commiAee 1. The Federal Ministry of Finance is to support the Finance Ministries at the regional level in the area of staff capacity building; 2. The Federal Ministry of Finance must immediately initiate a process of knowledge transfer to the Member State Finance Ministries; 3. Formation of national commission to harmonize tariffs and taxation in the country; 4. Promoting good governance across the country and ensuring that benchmarks of financial management reforms are materialized; 5. Adopting a unified, interface and modern Financial Management System; 6. Ensuring equal and justice distribution of donor funds amongst regional entities; 7. Harmonizing Federal and State Audit institutions; 8. Implementing and adopting a single monitory policy and one uniform currency note.
Federal Government of Somalia, PFM Reform Action Plan
Key objectives
Strengthened international support Building increasingly strong ties and sustainable support
Reengage with International Financial Institutions and achieve debt relief -‐‑ Somalia will struggle to meet its development goals without access to financing from International Financial Institutions -‐‑ Somalia has much debt that will need to be cleared -‐‑ The debt relief will require structural reform beginning with an IMF Staff Monitored Program that started in May 2016
Federal Government of Somalia, PFM Reform Action Plan
Content 1. 2. 3. 4.
Key objectives Program Strategy Program Implementation Status and next steps
Federal Government of Somalia, PFM Reform Action Plan
8
Program strategy
Two staged program with growing level of ambition
1. Geeing the basics right
2. Scale and effectiveness
First stage focusing on establishing basic operations in core areas, and to prepare for the next level
18-‐‑24 months Focus of detailed work breakdown Federal Government of Somalia, PFM Reform Action Plan
Second stage focuses on building scale and improved effectiveness
24-‐‑72 months
Program strategy
Geeing the basics right is possible through focus and prioritization Geeing the basics right Priority Expenditure management and reporting
a
Revenue Oversight by Auditor General Macro Fiscal Policy and Planning
b
Improved integration and strengthened integrity of expenditure management
c
Broaden oversight capabilities
Access to external finance and support
Staff training and development
18-‐‑24 months
Federal Government of Somalia, PFM Reform Action Plan
Program strategy
The PFM Reform Action Plan’s A level priority activities 1 Expenditure management and reporting 1.1 Issue PFM legislation and financial procedures 1.2 Strengthen cash management 1.3 Consolidate Treasury Single Account and MDA accounts 1.4 Strengthen accounting data and reporting 1.5 Establish non-‐‑salary payment capability for all vendors through bank transfers 1.6 Payroll for security-‐‑ and social sector to be established 1.7 Establish commitment control 1.8 Strengthen public procurement and concessions 1.9 Build operational capabilities for intragovernmental fiscal arrangement 2 Revenue 2.1 Tax and customs policy 2.2 Modernize tax and non-‐‑tax administration 2.3 Modernize customs administration 2.4 Harmonization of regional and federal revenue policies and principles 2.5 Facilitate a discussion on revenue sharing and natural resources management 3 External financial audit by Auditor General 3.1 Strengthen regularity and financial audit capability
All activities are detailed, sequenced and costed in a separate work breakdown schedule Federal Government of Somalia, PFM Reform Action Plan
Program strategy
The PFM Reform Action Plan’s B and C level priorities activities 4 Macro Fiscal Policy and Planning 4.1 Establish macro fiscal forecasting; policy analysis; and planning 4.2 Strengthen budget preparation 4.3 Strengthen arrears management 4.4 Establish debt management capabilities 5 Improved integration and strengthened integrity of expenditure management 5.1 Expand SFMIS development and deployment 5.2 Strengthen bank transfer payment capabilities 5.3 Strengthen the fiscal integrity and effectiveness of the civil service payroll 6 Access to external finance and support 6.1 Establish a performance track record and achieve debt relief 6.2 Broaden relationships with international and regional organizations 6.3 Increase use of country systems for external financing support 6.4 Strengthen aid management 7 Broaden oversight capabilities 7.1 Develop performance audit capabilities at the Auditor General 7.2 Establish effective internal audit function 7.3 Support enhancing oversight of the Parliament Budget and Finance Commieee 7.4 Develop an anti-‐‑corruption strategy considering policy, organization and controls 8 Staff training and development 8.1 Improve recruitment practices for PFM staff 8.2 Design professional programs for personal development of PFM staff All activities are detailed, sequenced and costed in a separate work breakdown schedule
Federal Government of Somalia, PFM Reform Action Plan
Program strategy
In stage 2 the program will focus on achieving scale and effectiveness
Revenue
Budget execution
Federal Fiscal Framework
External Financing
Federal Government of Somalia, PFM Reform Action Plan
-‐‑
Expand revenue base
-‐‑
Invest in large scale tax and non-‐‑tax management technology
-‐‑
Invest in customs management technology
-‐‑
Strengthen links between objectives, plans and budget
-‐‑
Embedding proper procurement practices across government
-‐‑
More effective integration of PFM architecture
-‐‑
Establish arrangements to share resources
-‐‑
Assignment of functions and expenditure responsibilities
-‐‑
Fiscal policy for natural resource management
-‐‑
Reengage with IDA and other sources of concessional finance
-‐‑
More predictable financing through use of country systems
Program strategy
Establish pooled funding for the second stage of the program for beeer coordination, agility and lower transaction cost Current
Federal Government of Somalia, PFM Reform Action Plan
2018+
Key objectives
Current support fragmented with limited amounts of funding spread across several activities Exhibit: Facsimile of current support database
Unit
AfDB Economic Financial Governance Programme Unit Component 1: Enhancing macrofiscal management and policy planning for TA strategic level management to the function of CBS Macroeconomic and monetary expert (18 months) Macroeconomic and fiscal expert (24 months) Short term specialist consultancies (25 days) & Short term consultancy on costing policy measures, sector strategies, reviewing bids (135 Technical assistance to develop debt strategy and support debt reconciliation as well as DMU in MoF Long term budget expert (12 months) Component 2: Strengthening effectiveness and inclusivity of the budget Workshops for budget department, Parliament and civil soeciety, radio campaign and printing of budget Component 3: PFM capacity building and project management C3.1.2.1;Training on macroeconomic planning/macro frameworks, monetary policy, principles of budgeting, sector budgeting, macro-fiscal and budget framework, (budget teams, parliament, MOPIC C3.2.1.1;Computer laptops and software, Printers, furniture, C3.3.2.2;Procurement months)
TA
(21
Total
Remarks
########
####### 2 person month 1 person month I person month Contract
500,000
In Place
240,000
In Place
285,000
In Place
240,000
2 person month
750,000
1 person month
225,000
In place
935,000 Package Worksho p
Component 1: FGC
682,900
FGC representative
457,900
FGC Secertariat Component mobilization services Advisor for
2: and
240,000
Revenue Advisory
#######
the Ministry of Finance (Salary ) Travel Regional for the Experts and Advisor (3) Furniture, computers, Facilities/equipment TA for revenueetc. management (training) and taxation (International) TA for revenue management (training) and taxation (2 Locals) Capacity Building/Training of Staff Study tours Consultancy/advisory services for preparatory work on developing revenue mobilisation strategy 3:
270,000 50,000 100,000 144,000 108,000 150,000 50,000 100,000
Project
Unit Customs Administration Processes, Public Awareness, WCO, etc. Security Sector Payroll
440,600
Package 540,000 1 person - month 405,000
In Place
Remarks
banking
SFMIS & CBS systems centre, DRC, connectivity, etc.
data
260,000 ####### ####### 500,000 3
765,000 ####### 750,000 80,000 775,000
240,000
Firm for SAI
500,000
Total
Total #######
PFM
675,000
Tax Policy
360,000
Norway
Federal Government of Somalia, PFM Reform Action Plan
core
Total 100,000
Training & workshops Office furniture equipment Component
and
4: Professionalization Component 5: PFM Coordination
vehicle, PFM
Bid is at 3 million
130,000
Component 3: Integrity Pillars
#######
Unit
CBS
#######
180,000
IMF
External Audit
manager) Firm for system
####### 315,000
Office furniture and vehicle
#######
Unit
########
Component 1: Revenue Mobalization Individual consultant on planning and budget process Firm for revenue mobilization & tax administrations (IT component ??) Training & workshops IT equipment, furniture, vehicle etc. Component 2: Treasury Management, Budget execution, procurement, etc. Firm for Treasury management and budget execution Firm for procurement and concessions FMIS (developer, IT specialist,
Total
50,000 240,000
#######
-
In Place In Place
Unit
Training & workshops, seminars
DFID
#######
Package
Total ########
Contingency Component Management Project Management
935,000
World Bank PFM
AfDB Financial Governance
100,000 175,000 500,000 995,000
Bid is at 5 million
Content 1. 2. 3. 4.
Current situation and key issues Program Strategy Program Implementation Status and next steps
Federal Government of Somalia, PFM Reform Action Plan
16
Program implementation
Key lessons from implementation in recent years informs the planning Risk management
Need for effective principles t o m a n a g e n e c e s s a r y adaption of quality, cost and time as program evolves
Cost Impact on program Quality
Time
Governance Financial Governance Commieee (FGC)
Reform Oversight Commieee (ROC)
N e e d f o r c o n s o l i d a t e d Unified governance g o v e r n a n c e t o e n s u r e consistency Delivery management
Need for dedicated capacity to ensure delivery across m u l t i p l e i n t e g r a t e d components
Joint Technical Steering Commieee Minister of Finance PFM Coordination & Delivery
Cost uncertainty
EAFS, Procurement team
Manager
Change leader
Delivery Unit
Change
Accounta bility
Audit
Policy Adviser
Facilitato r
30
Need for beeer management of cost estimation and risk allocations
MoF Service Units
Line Units
20 10
USD 27.5 Million Allocation for Expected Risk
Base calculation
0
Federal Government of Somalia, PFM Reform Action Plan
17
Program implementation
Key issues in managing uncertainty impact on the program Impact
Objective
Issue
Cost
Ensuring priority elements are funded
How will allocation of additional funds be authorized?
Quality
Ensuring deliverables are relevant and valid
Time
Ensuring objectives are delivered on time
Federal Government of Somalia, PFM Reform Action Plan
How will change and adjustment of deliverables be authorized?
How will changes in sequencing and critical path be authorized?
18
Program implementation
An effective management structure is critical to delivery Governance Reform Oversight Commieee (ROC)
Financial Governance Commieee (FGC)
Roles and reporting The ROC will provide oversight to the program. Key strategic issues will be reviewed here. There will be reporting to the ROC, supplemented by semi annual FGC review.
Joint Steering Commieee
The JSC will review direction of PFM reform as well as progress and emerging issues. The Commieee will meet quarterly and provide advice on strategic issues. Emerging new projects and new funding will also be discussed.
Minister of Finance
The Minister will lead the program and ensure its implementation. The Minister chairs the Joint Steering Commieee and can authorize adjustments of content and scope, and timing of deliverables for the program.
Technical commieee
PFM Coordination
Line Units
Federal Government of Somalia, PFM Reform Action Plan
PFM coordination office will support the Minister in coordinating and steering the reform, and will assist in the reporting to the Technical Commieee. This capacity will actively support the line units in design, implementation and in managing program risks. The line units are accountable for delivery of the projects in their respective areas at agreed cost, quality and time.
AG and procurement teams are accountable for delivering procurements and financial management in accordance with agreed upon procedures.
Program implementation
Total cost are nearly covered by financial commitments but some adjustments to programs are needed to ensure priorities are covered Estimated cost
Current Commitments
USD 72 Million 70
60
50
Phase 2 31.3 mill
F
40
USD 23.6 Million/33% 30
20
Phase 1 30.7 mill
10
AfDB WB DfID
0 Federal Government of Somalia, PFM Reform Action Plan
There are existing financial commitments preceding the action plan. The total contributions are almost sufficient to cover the base cost of the first phase. The specific activities funded are closely related to the action plan although some adjustment will be needed to ensure alignment. The financing mobilized to date is insufficient considering the expected risk.
Program implementation
Most costs are allocated towards priority components Base cost not including risk contingency Total
Priority A
1 Expenditure management and reporting
6.5
2 Revenue
32.3
3 Financial audit by Auditor General
Priority B
0.8
4 Macro Fiscal Policy and Planning
3.1
5 Improved integration and strengthened integrity of expenditure management 6 Access to external finance and support
Priority C
(USD million)
60.5
7 Broaden oversight capabilities 8 Staff training and development
9.3 1.9 0.8 0.7
9 Program management 5.1
Federal Government of Somalia, PFM Reform Action Plan
Content 1. 2. 3. 4.
Current situation and key issues Program Strategy Program Implementation Status and next steps
Federal Government of Somalia, PFM Reform Action Plan
22
Status and next steps
Status of major firmed up activities of Phase 1 Activity:
Sponsor:
Agent:
Time:
Status:
1. Treasury Management implementation support
WB PFMII
Crown
24 months
Contracting
2. Revenue Implementation support
WB PFMII
E&Y
24 months
Contracting
3. Customs implementation support
Dfid
ASI
36 months
Contracting
4. Regional PFM
Dfid
ASI
36 months
Contracting
5. Financial Governance & Revenue support
AfDB
TBD
24 months
Contracting
6. Procurement implementation support
WB PFMII
E&Y
24 months
Delivery
7. SFMIS
WB PFMII
Proprietary
48 months
Delivery
8. Core Banking
WB PFMII
T24/Sofgen
24 months
Delivery
9. Economic & Governance
AfDB
Individual TA 24 months
Delivery
10. Build National Army Payroll
Dfid
Abyrint
11. Transparency Initiative
Dfid
Data Sciences 12 months
Delivery
12. PFMII Education and Training
WB PFM II
WYG ITC ILO Universities
Delivery
Federal Government of Somalia, PFM Reform Action Plan
2 months
24 months
Delivery
10
Status and next steps
Important preparation activities and timeframe Milestone
Issue
1. Consultations with technical and financing partners
Key question is long term financing mechasnims
2. Strengthen FGS management MoF capacity to be built, strategic arrangements and management support needed. 3. Review gaps/adjustment of existing works/agreements
Necesarry in order to optimize phase 1, and to refine planning for phase 2
4. Prepare implementation plans
5. Solidify Stage 2+
Necesarry to get head start on phase 2
Long lead time, must start early to not lose momentum
Federal Government of Somalia, PFM Reform Action Plan
M7-‐‑8 2016
M9-‐‑10 M11-‐‑12 2016 2016
H1 2017
H2 2017
Status and next steps
What financing instrument for the program shall be established? Government requirements:
• Less fragmentation, support arrangement as consolidated as possible • Receive and administer funds on behalf of other international partners, and manage all aspects of accounting, fiduciary requirements and reporting to other donors. • Flexible and adaptable to address emerging issues and changing priorities within a fragile environment • Enable FGS stewardship in directing the substantive efforts of the TA; including changes in scope, time or quality, in accordance with the principles indicated in the PFM Plan of June 2016.
Options:
World Bank MPF
Other Agency
• Establish such instrument within 3-‐‑6 months • Handle management of the fund arrangement in full, with management element to dialogue with MoF on a regular basis
Distributed
• Enable close operational collaboration with the management team of FGS to ensure stewardship of the program. • Establish accelerated/drawdown mechanisms for select priority areas that can quickly mobilize high value add support.
Federal Government of Somalia, PFM Reform Action Plan
Federal Government of Somalia
10
