LET’S LECTURE: The National Budget

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This is the first of a series of articles on the national budget that was passed last Thursday by our national Legislature. The FY 2016 budget runs from July 1, 2015 to June 30, 2016. It incorporates all the money the Legislature and our fiscal managers (Ministry of Finance and Liberia Revenue Authority) believe will be collected in taxes, monies that will be received from non-tax sources, and loans that will be received from domestic lenders, international financial institutions such as the IMF and World Bank, and budget support from donors in the form of grants (free money). That is the revenue side of the equation. The government expects to collect US$604 million in revenue in FY 2016.

The budget also lays out how the government will spend the money it receives. That is the expenditure side of the equation. The government expects to spend US$604 million in FY 2016. A balanced budget, you may think. Not quite. Because, the government expects to get and spend an additional US$630 million in the form of loans and grants from our development partners. This spending will be “off budget”. Off-budget doesn’t mean it’s money that doesn’t have to be accounted for, i.e. “chopping”. It’s just that it’s not part of the regular budget.

The first thing that needs to be pointed out is that a budget is not money in the bank. Sometimes I hear people say, “Why is (Finance Minister) Amara Konneh saying he doesn’t have the money to buy that piece of equipment? After all, the money is in the budget.” A budget, simply stated, is just an estimate, a guess of what will happen in the future. The estimate or guess may or may not actually happen in reality.

In the business world where I come from, we reinforce the notion that a budget is simply an estimate by producing reports (called financial statements) that compare figures in the budget with figures representing what actually happened (“actuals”), and even comparing current period actuals with what actually happened in the same period of the previous year. This is called variance analysis.

When I was managing director of LPRC I used to prepare such reports on a monthly basis for my board of directors and a quarterly version for publication in local newspapers (with an abbreviated version for my employees meeting “under the tree”).

My first recommendation to the Ministry of Finance is that, in order to promote greater fiscal transparency and to promote more public trust by the people in their government, the ministry should publish, on a quarterly basis on their website (with perhaps an abbreviated version in local newspapers), a report that shows actual results for the quarter, with the deviation (plus or minus) from budget, as well as the deviation from the results of the same period of the previous year. In other words, they should publish reports that include variance analysis.

So, for example, the report for the 2nd Quarter FY 2016 would show the actuals for the period October 1, 2015 to December 31, 2015, with a comparison with the budget for the same period and a comparison with the actuals for the period October 1, 2014 to December 31, 2014.

We could go one step further and show the results for the period-to-date. Thus, the results for the 2nd Quarter Year-to-Date would include results for the 1st and 2nd Quarters combined, with the same comparisons with budget and the previous year. The results for the 3rd Quarter Year-to-Date would include results for the 1st, 2nd and 3rd Quarters combined, and so on and so forth.

What I have just described above are the so-called “performance reports” that the Legislature is always demanding and that is sometimes not forthcoming from the Ministry of Finance. Or, if it is submitted at all, it is often too late or does not contain sufficient detailed information to be of useful decision-making value.

Next week we will get into the nitty-gritty of the FY 2016 budget.

The writer is a certified public accountant and a businessman. He can be reached at .

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