Last week, we began a discussion of the 2017 Auditor General’s report. So far, we examined the overall opinion given on the country’s accounts and felt that greater care needs to be exercised to ensure that such opinion is supported by adequate audit evidence. We also summarised the key findings as reflected in the executive summary of the report.
Judging from the almost daily media coverage of the report since it was made public, the Executive Summary did not appear to provide a complete representation of the key findings contained in the report. An executive summary should be concise and written for the benefit of officials and other stakeholders who may not initially have the time to go through an entire report, or who may have an interest in only certain aspects of the report. Having identified their areas of interest, these persons may at a later stage go through the detailed aspects of the report covering the areas of interest.
Today, we continue an examination of the 2017 Auditor General report by focusing on the twelve consolidated financial statements of the Government.
End of Year Budget Outcome and Reconciliation Report (Revenue)
Total current revenue collections amounted to $195.060 billion, exceeding projections by 4.86 percent. However, there was a shortfall in value added tax collections by $2.757 billion or 6.1 percent. Shown below are the revenue collections in the last three years:
Description 2017 2016 2015
$M $M $M
Customs & trade taxes 18,890 16,382 13,156
Internal revenue 76,514 68,111 61,044
Value added tax 42,423 36,268 35,374
Excise taxes 33,459 31,083 33,330
Dividends & transfers 14,251 14,276 12,392
Others 9,523 11,411 7,736
TOTAL 195,060 177,531 163,032
In terms of capital revenue, estimated collections amounted to $31.408 billion while the actual amount collected was $28.412 billion. This was due mainly to shortfalls in the anticipated disbursements of loans and grants, mainly from the European Union and the Caribbean Development Bank.
End of Year Budget Outcome and Reconciliation Report (Expenditure)
Current expenditure by Ministries/Departments/Regions amounted to $188.202 billion, compared with the revised budgetary allocations of $193.365 billion. Therefore, there was a budget utilization of 97.3 percent.
In relation to capital expenditure, the amount budgeted was $67.820 billion, inclusive of supplementary estimates totalling $11.062 billion. Actual expenditure was $58.618 billion, giving a shortfall of $9.203 billion or 13.57 percent. The Ministries of Public Infrastructure and the Ministry of Education recorded shortfalls of $5.665 billion (16 percent) and $1.429 billion (35 per cent) respectively. This performance nevertheless represented an improvement over 2016 where the shortfall was $13.691 billion or 22.70 percent.
Taking into account current revenue collections of $195.060 billion and current expenditure of $188.202 billion, the Government has recorded a surplus on operations of $6.858 billion, compared with a surplus of $2.574 billion in 2016. The Auditor General’s report, however, indicated a net deficit of $24.268 billion, due to the inclusion of capital revenue and capital expenditure. Under normal accounting rules, these do not feature in the computation of the results of operations.
Receipts and Payments of the Consolidated Fund
The Consolidated Fund was overdrawn by $132.877 billion at the beginning of the year. Total receipts for 2017 amounted to $223.472 billion while payments totalled $246.819 billion. This has resulted in an increase in overdraft on the Consolidated Fund to $156.225 billion as at end of 2017, as summarized below: $M
Opening balance on the Consolidated Fund – Old Consolidated Fund (46,776)
– New Consolidated Fund (86,101)
Add: current receipts 195,060
capital receipts 28,412
Less: payments for current expenditure (188,202)
Payments for capital expenditure (58,618)
Closing balance on the Consolidated Fund (156,225)
[Note: The Statement of Current Assets and Liabilities showed a closing overdraft of $155.796 billion, a difference of $429 million.]
The old Consolidated Fund was closed on 31 December 2003 because it was heavily overdrawn and had not been reconciled for years. Based on a recommendation that I had made during my tenure as Auditor General, a new account was opened as of January 2004 to start from a clean position and to avoid contamination with the old account. However, no attempt was made over the years to liquidate the overdraft.
The accumulated overdraft on both accounts was due mainly to expenditure exceeding revenue over the years, as can be noted from the results for the last five years:
2017 2016 2015 2014 2013
$M $M $M $M $M
Total expenditure 246,820 221,604 186,910 188,266 175,845
Total revenue 223,472 197,209 178,908 163,313 166,711
Deficiency 23,347 24,395 8,002 24,953 9,134
This pattern of deficit budgeting and expenditure incurrence is a distressing one, and it is long overdue that we move towards a system of balanced budgeting. Imagine what would have happened over the years had there not been debt scheduling and write-offs, and other forms of financial assistance from donor agencies. In short, we have been living beyond our means by consistently incurring expenditure beyond our earning capacity.
Expenditure from the Consolidated Fund as compared with the Estimates of
There is considerable overlap between this statement and End of Year Budget Outcome and Reconciliation Report which has been dealt with already.
Expenditure in respect of those services which by law are directly charged upon the
Also described as Statutory Expenditure, this represents expenditures that are not voted for by the National Assembly since by constitution they are a direct charge on the Consolidated Fund. These include emoluments of holders of constitutional offices, the servicing of the public debt, and the payment of State pensions. The following is a breakdown of the expenditure of $19.199 billion in 2017, compared with $16.161 billion incurred in 2016:
Particulars 2017 2016
Emoluments of holders of constitutional offices 40,169 49,915
Pensions & gratuities 4,330,677 3,900,072
Servicing of the Public Debt – Principal 8,656,835 6,745,719
Servicing of the Public Debt – Interest 6,171,489 5,465,696
TOTAL 19,199,170 16,161,402
Receipts and Payments of the Contingencies Fund
The Contingencies Fund is used to make payments to meet expenditure that is unforeseen and urgent expenditure not previously budgeted for and which cannot be postponed without jeopardizing the public interest. When this happens, a Supplementary Estimate is tabled in the Assembly to authorize the expenditure and to replenish the Fund.
According to the financial statements, there were no transactions for the period under review.
Schedule of Issuance and Extinguishment of All loans
By Section 64(1) of the Fiscal Management and Accountability (FMA) Act, the Government may lend public moneys to any public entity or to any individual who is a citizen of Guyana. As at 31 December 2017, two entities were shown as being indebted to the Government in the amount of $466.308 million. These are Guyana National Printers – $100 million; and Ogle Airport Inc. – $366.308 million.
The schedule, however, appears incomplete. For example, the construction of the Skeldon Estate Factory was financed by loans to the Government of Guyana from the Exim Bank of China and the Caribbean Development Bank (CDB). These loans were transferred to the Guyana Sugar Corporation (GUYSUCO) based on on-lending agreements. The Government also provided a direct loan to GUYSUCO for the construction of the Factory. In addition, the CDB financed some of the corporation’s drainage and irrigation works under the same on-lending arrangements. GUYSUCO’s total indebtedness to the Government as at the end of 2016 was $19.930 billion.
Similarly, as of end of 2012, the Guyana Power and Light was indebted to the Government in the amount of $20.831 billion in respect of loans for infrastructure development – $5.940 billion; PetroCaribe loan – $13.899 billion; and on-lending agreements based on loans from the Inter-American Development Bank. There may be other entities that are also indebted to the Government.
Financial Report of the Deposits Fund
By Section 42 of the FMA Act the Minister may establish one or more Deposit Funds into which public moneys are paid pending repayment or payment for the purpose for which the moneys were deposited. The following is a summary of the report presented for audit:
Dependents’ Pension Fund 1,230,560
Sugar Industry Welfare Funds 1,107,840
Guyana Gold Board 8,650,148
Statutory bodies and other entities 1,554,456
Several of these balances remained static and have been coming forward for years. Because of a lack of documentation in support of the above amounts, the Auditor General was unable to express an opinion on the above report.
Statement of Assets and Liabilities of the Government
The assets and liabilities of the Government comprised mainly cash and bank balances and cash equivalents, as well as short-term liabilities usually in the form of advances from the bank by way of overdrafts, as well as the issue of Treasury Bills. Article 216 of the Constitution establishes the Consolidated Fund, whilst Section 41 of the FMA Act, pursuant to Article 220 of the Constitution, establishes the Contingencies Fund as a sub-fund of the Consolidated Fund. In addition, the Deposit Fund was established by Section 42 of the FMA Act. The balance sheets of these funds at the end of the year would normally comprise the assets and liabilities of the Government.
The Statement of Assets and Liabilities as at the end of 2017 shows a net liability of $124.220 billion. It comprises mainly the balances on the Consolidated Fund, other bank accounts and the Monetary Sterilisation Account which was set up to capture the proceeds of the issue of medium-term Treasury Bills.
Because of the use of the cash basis of accounting, other assets such as fixed assets and inventories were not reflected in the statement. The Government had agreed to implement accrual accounting in the form of the International Public Sector Accounting Standards. However, progress has been slow and at the time of reporting training was being undertaken.
Statement of Public Debt
In accordance with Article 221 of the Constitution, the Public Debt of Guyana and the servicing of that Debt are a direct charge on the Consolidated Fund. In addition, Section 3(1) of the External Loans Act authorises the Government to raise loans outside of Guyana not exceeding $400 billion. Section 3(6) of the said Act also requires all agreements relating to such loans to be laid before the National Assembly as soon as practicable after the execution of such agreements.
The public debt as at the end of 2017 stood at $381.696 billion. The external portion amounted to $254.405 billion, equivalent to US$1.232 billion, an increase of US$91 million compared with the balance at the end of 2016.
The following gives a summary of the public debt at the end of the last three years:
2017 2016 2015
$M $M $M
External debt 254,405 235,711 232,097
Internal debt 127,291 128,876 119,976
TOTAL 381,696 364,587 352,073
Schedule of Government Guarantees
The FMA Act defines a Government guarantee as “a contingent liability that is an obligation undertaken by the Government to pay the debt of a third party in event the third party defaults on its debt obligation”.
By Section 3(1) of the Guarantee of Loans (Public Corporations and Companies) Act, the Government is authorized to guarantee the discharge by a corporation or a company of its obligations under any agreement with a lending agency. The aggregate amount of the liability of the Government in respect of such guarantees is not to exceed $1 billion. This limit has been lifted in 2013 by $50 billion to accommodate the Power Purchase Agreement between Guyana Power and Light and the Amaila Falls Hydro Inc. for the supply of electricity. In addition, earlier this year, the Government guaranteed a loan of $30 billion by the Special Purpose Unit of NICIL to provide for the restructuring of GUYSUCO.
Section 71 of the FMA Act requires the Minister, as part of the annual consolidated financial statements, to certify and issue an official schedule of Government guarantees, identifying, among others, the public entity whose borrowing has been guaranteed, the identity of the creditor, and the amount of the Government’s potential obligation in respect of the guarantee.
The Auditor General reported that no schedule of Government guarantees was submitted.
Schedule of Contingent Liabilities
The FMA Act defines a contingent liability as “a future commitment, usually to spend public moneys, which is dependent upon the happening of a specific event or the materialization of a specific circumstance”. The general principle for the recording of a contingent liability is the probability of occurrence of an event. If such probability is remote, then the transaction is a contingent liability. If there is a possibility that the event will crystallise out, then financial prudence will dictate that the transaction be recorded as an actual liability.
The Auditor General has reported that no schedule of contingent liabilities was submitted to him.