In last week’s article, we sought to explain the Government’s budgetary process for the benefit of those who are not familiar with it. We were, however, unable to complete the exercise because of space constraints. Today’s article concludes the discussion on the subject.
The concept of excess expenditure
By Article 220(3) of the Constitution, where Parliament is dissolved before any provision or insufficient provision is made, the Minister can authorize withdrawals from the Consolidated Fund to meet expenditure on essential services of the Government for up to three months commencing on the date the National Assembly first meets after the dissolution. A statement detailing such expenditure has to be laid in the Assembly as soon as possible for its ex post facto approval. Once approved, the expenditure is included in the next Appropriation Bill under the appropriate heads.
During last week’s Committee of Supply’s consideration of the 2020 Estimates, disagreement arose on the timing of the presentation of a statement of expenditure incurred for the period 1 January to 31 August 2020. The Opposition contended that a statement of excess expenditure had to be tabled first before its inclusion in the Estimates. On the other hand, the Attorney General argued that this was not necessary and that the excess expenditure would be presented at the time the 2020 Appropriation Bill is tabled in the Assembly. That Bill was presented last Friday and was approved unopposed. When assented to by the President, it becomes the Appropriation Act 2020.
From an accounting standpoint, the concept of excess expenditure is not applicable if there is no budget since there is no basis for comparison to arrive at excess expenditure. On the other hand, it can be argued that any expenditure incurred without a budget in place can be regarded as excess expenditure. Article 220(3) refers to a ‘statement detailing such expenditure’ and not a statement of excess expenditure. That apart, the key words are ‘commencing on the date the National Assembly first meets after the dissolution’. Since the Assembly first met on 1 September 2020 after the dissolution of Parliament, any expenditure incurred after this date until the date of approval of the Estimates would be the expenditure in question. Therefore, the expenditure incurred during the period 1 September to 25 September is the relevant expenditure.
The above arguments raise the important questions as to what happens to the expenditure incurred during the eight-month period from 1 January to 31 August 2020. By Article 220, if an Appropriation Act has not come into effect at the beginning of the fiscal year, the Minister responsible for Finance is authorized to make withdrawals from the Consolidated Fund to meet the cost of essential services of the Government up to four months or until the coming into effect of the Appropriation Act, whichever is earlier. Since the Appropriation Act 2020 is likely to come into effect sometime this week, the Minister’s authorization covers the period January to April 2020 only. As stated in previous articles, there is no provision for accessing the Consolidated Fund to meet expenditure beyond this period. Therefore, withdrawals for the period 1 May to 31 August 2020 would lack constitutional and legislative authority.
The above requirements should have been carefully considered prior to the dissolution of Parliament. Indeed, it would have been more appropriate for the Assembly to approve of the 2020 budget before the dissolution of Parliament. Additionally, those responsible for the five months’ delay in declaring the results of the 2 March elections should have first reflected on the implications of their actions from a budgetary standpoint.
The 2020 Estimates of Revenue and Expenditure
For the fiscal years 2017, 2018 and 2019, the Estimates of Revenue and Expenditure were presented to and approved by the Assembly before the commencement of the fiscal year. It was a progressive move in that budget agencies had the full 12 months within which to plan and execute their programmes and activities. This is unlike previous years when the Estimates were presented close to the constitutional deadline of 31 March into the fiscal year. With the approval of the Estimates taking place one month later following the general budget debate, detailed scrutiny by the Committee of Supply and voting on a programme basis, budget agencies had eight months within which to execute a 12-month budget. It was therefore not surprising that in the last quarter of the fiscal year, there was an acceleration of expenditure in order to exhaust their budgetary allocations as well as instances where funds were rolled over to the following year instead of surrendering the unspent balances to the Consolidated Fund. In such a situation, significant breaches would occur, especially as regards the procurement of goods and services and the execution of infrastructure works.
On this score, the Authorities need to be reminded that the tenure of office of three of the five members of the Public Procurement Commission came to an end a year ago. Since then, there have been no replacement. The other two members will demit office next month. In the circumstances, one of the priorities of the yet-to-be appointed Public Accounts Committee (PAC) is to begin the process of selecting new members of the Commission to ensure that its work is not adversely affected.
Because of the unfortunate political situation with which the country was faced since the 21 December 2018 vote of no confidence in the Government, the constitutional deadline for presenting the Estimates to the Assembly could not have been met. Following the swearing in of the new Government on 2 August 2020, the 2020 Estimates were presented on 9 September. Last Friday, the Assembly approved of the Estimates in the sum of $329.5 billion. Of this amount, sums totalling $183.2 billion percent have already been expended during the eight-month period from January to August 2020. The remaining $146.3 billion is budgeted to be expended in the remaining four-months. This is a tall order for the Government, given that the capital expenditure budget is $72.070 billion or 22 percent of the total budget.
While it is not clear how much of the capital expenditure budget has already been expended, given the restrictions on expenditure during the first eight months of the year, most of the related works will have to be undertaken in the last quarter of the year. In view of the lengthy procurement lead time for the acquisition of goods, services and infrastructure works, the task is an extremely challenging one for budget agencies. As regards subvention agencies such as the Guyana Sugar Corporation, Guyana Power and Light and Guyana Water Inc, we need to remind ourselves that all unexpended balances of funds transferred to undertake capital expenditure works will have to be returned to the Consolidated Fund at the end of the year. The same applies to Central Government entities.
Mid-year report on budget outcome
In the private sector, the board of directors approves the annual budget of a company. During the course of the year, management would periodically apprise the board on how well the company is performing as well as the status of its approved budgetary allocation, among others. The latter is presented in the form of variance analysis where actual expenditure is compared with budgetary allocations. Management will explain the possible causes and make proposals on how to mitigate any adverse variances and to leverage on any favourable variances. This may require an amendment to the original budget.
The same principles apply to government budgeting. By Section 67 of the FMA Act, the Minister of Finance is required to present to the Assembly within sixty days after the end of the first half-year of each fiscal year (i.e. by 30 August), a report on execution of the annual budget for the first half of the year and the prospects for the remainder of the year. The report is to include:
(a) An update on the current macroeconomic and fiscal situation, a revised economic outlook for the remainder of the fiscal year, and a statement of the projected impact that these trends are likely to have on the annual budget;
(b) A comparison of actual revenues and expenditure (both capital and current) with the estimates originally approved by the Assembly along with explanations of any significant variances; and
(c) A list of major fiscal risks for the remainder of the fiscal year, together with likely policy responses that the Government proposes to take to meet the expected circumstances.
In the past, not much attention was paid to the Mid-Year Report. The Report was not as comprehensive as envisaged by the Act and was not presented in a timely manner to the Assembly. To compound matters, there has never been a discussion and/or debate of this important report in the Assembly. The Ministry of Finance and other government departments and agencies would have spent several months to prepare and craft the National Budget. The Assembly would spend considerable time in debating the Budget and examining in detail the allocations on a departmental and agency basis before approving it. Yet, when the half-yearly results are presented, there is no discussion or debate at the level of the Assembly. This is rather disappointing.
With effect from 2016, the presentation of the Mid-Year Report has improved but the discussion or debate on it, is yet to materialize. Additionally, because the Assembly did not sit after 23 May 2019, the Mid-Year Report for 2019 could not have been presented to the Legislature. Similarly, for 2020, no Mid-Year report was presented, presumably because there was no budget in place, prior to last Friday. One hopes that this report will now be prepared and presented to the Legislature to not only comply with the law but to inform legislators and the public at large how the economy performed in the first half-year.
End-of-Year Budget Outcome and Reconciliation Report
At the end of the fiscal year, the Ministry of Finance is required to prepare an End-of-Year Budget Outcome and Reconciliation Report to include the following:
(a) A comparison of the Estimates of Revenue and Expenditure (both capital and current) against actual out-turn; and
(b) A detailed explanation of any significant variances, including the impact of (i) movements in the underlying economic assumptions and parameters used in the preparation of the Estimates; (ii) changes to revenue and expenditure policies during the fiscal year; and (iii) slippages, if any, in the delivery of the budget measures.
The level of statistical detail contained in the End-of-Year Report must be consistent with that of the Appropriation Act. When it is completed, the report is forwarded to the Auditor General for audit and to be included as part of the audited public accounts to be presented to the Speaker of Assembly within nine months of the close of the fiscal year.
Parliamentary scrutiny of the audited public accounts
Upon receipt of the audited public accounts, the Assembly refers them to the Public Accounts Committee (PAC) for detailed examination. This essentially entails holding hearings at which heads of budget agencies are required to respond to enquiries from the PAC as regards the observations, findings and recommendations of the Auditor General. At the end of its hearings, the PAC presents to the Assembly a report of its findings and recommendations, after which the report is referred to the Government for appropriate action to be taken. The Government then responds to the PAC report in the form of a Treasury Memorandum setting out what actions have been taken or proposed to be taken in relation to the findings and recommendations of the PAC.
When the Treasury Memorandum is presented to the Assembly, the accountability cycle comes to an end. It is to be noted, however, that with the presentation of the 2019 Auditor General’s report to the Speaker, the new PAC will have the herculean task of dealing with five years of backlogged examination of the Public Accounts. The last PAC report to be issued was in respect of 2014. It will be interesting to learn what strategies the PAC will adopt to bring its examination up-to-date.
