Will Parliament lose influence to the Executive in the budgeting process under the new Public Finance Bill?[footnoteRef:1] [1: Not for quotation or distribution without prior permission]

Prof. Ezra SurumaDRAFTINTRODUCTION OF THE BILL

It is interesting that in the opening statement of the Bill which states the objects of the Bill there is no mention of Parliament (see Appendix 1). Instead the following institutions are specifically to be provided with powers:a. The minister and the secretary to the Treasury in the budgeting process.b. Raising of loans by the ministerc. To provide for the roles of accounting officersd. To provide for the role of the Bank of Uganda in the management of petroleum revenuee. To provide for the establishment of the petroleum Investment Advisory Boardf. To provide for the role of Accounting Officers

PART IIMACROECONOMIC AND FISCAL POLICIES1. CHARTER OF FISCAL RESPONSIBILITY

The development of fiscal policy and the charter of fiscal responsibility lie solely with the minister. However, in the first session of Parliament, the minister is required to prepare and submit to Parliament the Charter of Fiscal responsibility for approval. We can say therefore that Parliament will have the opportunity to debate the macroeconomic policies of the country.Moreover, deviations from the charter of fiscal responsibility must be reported to Parliament within 30 days (clause 7 (3)).(5) The Minister shall within one month of the commencementof the first session of Parliament, submit to Parliament the Charter ofFiscal Responsibility for approval.

2. THE BUDGET FRAMEWORK PAPERThis is the paper which outlines specific policies and the macroeconomic framework for the coming year. It must be consistent with the National Development Plan and the Charter of Fiscal Responsibility. This is to be prepared by the minister annually and submitted to Parliament by the 31st December. Parliament is to debate and approve it by 1st February prior to the reading of the Budget.3. THE FUNCTIONS OF THE SECRETARY TO THE TREASURYClause 9 lists 18 specific powers and responsibilities of the Secretary to the Treasury. Alongside the Accountant General, he has one of the largest numbers of specific powers in the Bill. 5. PARLIAMENT TO ANALYSE POLICY ISSUES. (Clause 10)The following are the specific powers of Parliament on policy matters:

(1) The Parliament shall analyze the policies and programsthat affect the economy and the annual budget and where necessary,make recommendations to the Ministry on alternative approaches toa policy or program.

(2) The Parliament shall ensure that public resources are heldand utilized in a transparent, accountable, efficient, effective andsustainable manner and in accordance with the Charter of FiscalResponsibility and the Budget Framework Paper.

While the powers of both the minister and especially the Secretary to the Treasury were spelled out in great detail and with high specificity, those of Parliament were relatively more broad and general.PART IIIBUDGET PREPARATION, APPROVAL AND MANAGEMENTBudget preparation is the responsibility of the executive. The approval of the budget lies with Parliament. This part of the bill appears balanced with regard to the responsibilities and powers of each branch of government.However, there appears a diminution of the powers of Parliament and a corresponding increase in the powers of the minister in regard to the following:a. Vote on accountb. Supplementary expendituresIs Vote on account abolished?The role of Parliament in approving the vote on account ie the funds needed to keep government functioning while Parliament is in the process of approval of the budget seems to be proposed to be taken over by the President:(see 12(2) below). This in effect means that one third of the budget would be approved by the executive without the approval of Parliament. This if approved will significantly curtail the power of Parliament.12. Approval of annual budget by Parliament.

(1) The Parliament shall, by the 31st of May of each year,consider and approve the annual budget and work plan ofGovernment of the next financial year and the Appropriation Bill andany other Bills that may be necessary to implement the annual budget.

(2) Where the President is satisfied that the Appropriation Act inrespect of any financial year, will not or has not come into operationby the beginning of any financial year, the President may, inaccordance with Article 154 Constitution, by warrant under his or herhand, addressed to the Minister, authorise the issue of monies fromthe Consolidated Fund for purposes of meeting the expenditurenecessary to carry on the services of the Government, until theexpiration of four months from the beginning of that financial year, orfrom the coming into operation of the Appropriation Act, whicheveris the earlier.

If this is approved it will reduce the power of Parliament from 100% power over appropriation to 67%. The appropriations for 33% or the first 4 months of the year will now shift to the President.

Is the ministers Supplementary Expenditure Powers Increased?

Although the minister may increase the appropriation of a vote by 10%, the amount so increased must come from the Contingency Fund. The Contingency fund has been raised slightly to 3.5% of the budget. That is the amount the minister can use as supplementary for expenditures considered unabsorbable, unavoidable and unforeseeable and for disasters etc. In this sense the ministers power does not seem to have increased significantly. The supplementary expenditure must still be tabled before Parliament for approval.

PART VCASH, ASSET AND LIABILITY MANAGEMENTRevenue collections must be authorized by Parliament. This seems clear and unequivocal.However, there may be loophole in the management of balances on the Consolidated Fund: 28. Investment of balances on the Consolidated Fund.

Any sums standing to the credit of the Consolidated Fund may beinvested(a) with an approved financial institution at call;(b) subject to notice not exceeding twelve months; or(c) in an investment authorized by the law for the investmentof trustee funds and approved by the Minister.Questions:1. Who approves the financial institution to be invested in? There is room for considerable corruption here. 2. What is meant by an investment authorized by the law? Which law? 3. The trustee funds are not defined in this laws definitions (interpretations).4. Does authorization by the minister place her at risk?

PART VIACCOUNTING AND AUDIT1. As with the Secretary to the Treasury, Accounting Officers have detailed specific powers under this section. Out of ten specific powers specified, one is given to Parliament as follows:(5) An Accounting Officer shall be responsible and personallyaccountable to Parliament for the activities of a vote. (clause 43 (5)

2. The Accountant General has 17 specific powers and nowhere is he answerable to Parliament. It is rather strange that the accounting officers are directly answerable to Parliament but the accountant general to whom the accounting officers are answerable is only answerable or reports to the Secretary to the Treasury but not to Parliament.3. The remaining functions (sections 43,44,45,46,47,48,49,50) under accounting and audit refer to the functions of auditors, audit committee, reporting etc all of which are functions of technocrats. The only mention of Parliament is with regard to accounting officers taking into account the issues raised by Parliament in previous audits. So the issues of accounting, accountability, auditing etc are largely, if not entirely, technocratic issues.

AMENDMENTS

Under the proposed Amendments, the Committee on National Economy is now proposed to have specific and detailed powers as follows: "The Committee on National EconomyThe Committee on National Economy has responsibility for the following matters, in addition to the responsibilities in the Rules of Procedure of Parliament-(a) scrutinize the Charter of Fiscal Responsibility and the Budget Framework Paper and approve fiscal objectives in the Budget Framework Paper as specified in this Act;(b) assess consistency between national development plans and the charter of fiscal responsibility(c) provide general oversight on budgetary matters;(d) examine and monitor the state of the national economy(e) examine and make recommendations to the House on all grant agreements and on all loan agreements required to be authorized or approved by the House under Article 159 of the Constitution;(f) monitor adherence by Parliament, the Judiciary and the national government and its entities to the principles of public finance and others set out in the Constitution, and to the fiscal responsibility principles of this Act;(g) review the Tax and other revenue Bills presented to Parliament and ensure that theyreflect the principles under the Charter of Fiscal Responsibility; and(h) examine financial and fiscal statements and other documents submitted to Parliament under Part III of this Act and make recommendations to Parliament for improving the management of public finances." This is surely a sea change compared to the oreiginal draft.Similarly specific responsibilities have been introduced not only for the Committee on National Economy, but also for the Committee on Budget in Public Finance Matters, Sectoral Committees and the Parliamentary Budget Office. This is a significant remedy for a bill that was otherwise one sided in favor of the Executive Branch of government. Committee on Budget in Public Finance Matters

(1) The Committee on the Budget established to deal with budgetary and financial matters has responsibilities for the following matters, in addition to the functions set out in the Rules of Procedure of Parliament- .'.

(a) present to the Parliament, subject to the exceptions in the Constitution, the proposal for the basis of allocating revenue among the Votes and consider any bill dealing with Vote financial matters;(b) review the Budget Framework Paper;(c) review the allocation of the Appropriation Bill at least two months before the end of the financial year;(d) examine financial statements and other documents submitted to Parliament under Part IV of this Act, and make recommendations to Parliament for improving the management of government's public finances;(e) satisfy itself that the Budget Estimates and Appropriation Bill are consistent with the Charter of Fiscal Responsibility and the Budget Framework Paper;(f) review the recommendations of the Sectoral Committees and other budget documents required by law or provided by the Minister(g) monitor all budgetary matters falling within the competence of Parliament under this Act and report on those matters to Parliament; and(h) monitor adherence by Parliament to the principles of public finance and the fiscal responsibility principles set out in this Act.(2) In carrying out its functions under subsection (1) (a) and (b), the Committee shall consider recommendations from the public and any other interested persons or groups."

Parliamentary Budget Office

This is a major gap that has been filled. The Parliamentary Budget Office has extensive powers and responsibilities as follows:(1) There shall be a Parliamentary Budget Office within the Parliamentary Services with the Clerk of the Parliament being the Accounting Officer, consisting of fu11time and part time budget and economic experts as may be required from time to time.

(2) The function of the Parliamentary Budget Office shall be to provide Parliament and its committees with objective and timely analysis to assess economic and budget proposals including analysis of the economic and fiscal planning and reporting documents and annual budget documents, and without prejudice to the generality of the foregoing shall-

(a) provide budget related information to all committees in relation to their jurisdiction;

(b) prepare reports on budgetary projections and economic forecasts and make proposals to Committees of Parliament responsible for budgetary matters;

(c) prepare analyses of specific issues, including financial risks posed by Government policies and activities to guide Parliament;(d) consider budget proposals and economic trends and make recommendations to the relevant committee of Parliament with respect to those proposals and trends;

(e) prepare analytical studies of specific subjects such as fiscal risks posed by government owned or partially owned enterprises and other sources of risk;

(f) evaluate the government's explanations of deviations from the fiscal responsibility principles or fiscal objectives and the plans to address such deviations;

(g) report to the relevant committees of Parliament on any Bill that is submitted to Parliament that has an economic and financial impact, making reference to the Charter of Fiscal Responsibility and its principles and to the financial objectives set out in the relevant Budget Framework Paper;(h) generally give advice to Parliament and its committees on the Budget and economy;(i) report on any other subjects relating to fiscal policy and performance requested by a committee or initiated by the Parliamentary Budget Office in the interests of assisting Parliament.(3) The Parliamentary Budget Office shal1 ensure that all reports, studies, evaluations, findings, recommendations and other outputs are presented in a user-friendly form and that all outputs are published in a timely manner unless publication is not in the public interest.

Ministers Report on Performance

(1) The Minister shall report at least twice per financial year on Government'sperformance against the fiscal objectives in the Charter for Fiscal Responsibility and Annual Budget.

(2) In reporting performance against its fiscal performance, the government shall provide-

(a) updated macroeconomic and fiscal forecasts with sufficient information to show changes from the forecasts in the last Budget Framework Paper or Annual Budget;

(b) budget execution compared to the appropriations and other lawful spending authorities;..

CONCLUSION ON THE ROLE OF PARLIAMENT IN MACROECONOMIC MANAGEMENTIt is in my view that an attempt has been made to address the extreme gap in the original bill with respect to the management and reporting on fiscal policy and macroeconomic management. Nevertheless, the power of the technocrats is real and decisive even though the Parliament has an opportunity to question it from time to time.However the picture is different when it comes to the amendments and distribution of powers over oil revenue management. There appears to be only cosmetic changes there.

PART VII: PETROLEUM REVENUE MANAGEMENTThe major players in petroleum revenue management are the following:1. The Bank of Uganda plays a leading role as the account holder of the Petroleum Fund and the operational manager of oil revenue investments.

2. The Uganda Revenue Authority is the institution empowered to collect and receive the oil revenues and then pass them on to the Bank of Uganda.

3. The Minister, the Secretary to the Treasury, the Accountant General and the Auditor General are all central figures with numerous powers in the management of oil revenues.

4. Parliament is also a key player in so far as it has the ultimate power to decide how much should be taken from the Petroleum Fund and placed on the Consolidated Fund and how it should be spent (appropriation).

5. The Investment Advisory Committee is appointed by the minister of finance and is supposed to advise her (him) on the policies to follow in investing the oil revenues.

6. External Investment Managers are the investment banks, brokers, financial advisers etc who will be selected to manage the petroleum investments overseas.ISSUES IN OIL REVENUE MANAGEMENT

There ia an old saying that too many cooks spoil the broth. There are so many power centres that it is difficult to know how they will interact and not conflict and cause paralysis. Specifically, I wish to make the following observations:1. The powers of the Advisory Investment Committee appear to conflict with those of the Bank of Uganda in deciding what to invest in and with whom. It is difficult to see how the minister will negotiate between these two policy advisory bodies.2. The minister has potentially damaging powers of determining other qualifying instruments in which the funds can be invested. This power will make her the subject of vultures seeking to woo her to invest with them. The phrase should be removed.

3. The Bill allows investment in derivitives which I consider unduly risky. I do not think it should be a qualifying instrument. The idea that anyone can determine the relative risk of the underlying instrument vis a vis the derivitive and then determine that they have equal risk is inmmy opinion not realistic.

4. Although the amendments purport to create only one Petroleum Fund and to abolish the Investment Reserves Account yet the Bill reverts to the term Funds in place of reserves and sometimes speaks of investments. At the end of the day it seems certain that there is more than one Fund.There may be one mother fund but the context of the law suggests that there will be many funds and investments. So the amendment creates more confusion than clarity.5. The idea of an agreement between the Minister and the Governor to manage the investments properly seems to add to the confusion. On top of that the minister is to give directions to the Bank of Uganda on how to invest. Do not forget that there is also an investment policy arising from the Investment Advisory Committee.

6. The number of reports which Bank of Uganda has to give and the frequency, while reassuring, is mind boggling. There are requirements for monthly reports, forecasts, semi-annual reports, annual reports, annual plans, audits, 10 year plans, schedule of investment managers, risk assessment reports, compliance reports etc. Similarly, the minister has to make corresponding reports to Parliament. I have two concerns:

(a) Can bank of Uganda do all these reports and continue to its other responsibilities such as banks supervision and monetary policy?

(b) Can the Minister or the Parliament possibly absorb all these documents?

7. There is confusion in the utilization of oil revenues. On the one hand Parliament is to decide how much to appropriate from the Fund to the Consolidated Account. It is also to decide the appropriations to different votes. Yet the Bill purports to legislate, before hand that the oil money can only go to infrastructure and development projects.So when it comes to access to the government oil funds the direct beneficiaries will be the external investment managers, the external owners of infrastructure companies (the road and power constractors) and the districts of the oil producing areas who will get 7% of the royalties. The rest of us will be indirect beneficiaries those who drive and those who have access to electricity. The rural populations will wait for a long time.

8. Employment is mentioned once in Schedule 2. Pension for the aged or disabled is not mentioned. Health insurance is not mentioned. Credit for businesses and for agriculture is not mentioned. No new banks, no new directions to increase access to more and cheaper credit. Even education does not seem to feature anywhere. Only hardware and external beneficiaries are clearly demarcated.

CONCLUSIONS1. Although the original bill was biased in favor of the executive relative to Parliament, the proposed amendments have gone a long way to increase the powers of Parliamentary committees and to increase the reporting requirements of the minister of finance to Parliament.2. However, the preponderant powers both with regard to the budget and the management of the oil revenues appear to be in the hands of technocrats in the ministry of finance, the Bank of Uganda and the accounting officers in the sector ministries. The ability of Parliament to check that preponderance of technocratic hegemony may not lie in this bill.3. There appears to be a need for a clearer demarcation of powers, duties and responsibilities in the management of oil revenues. The risk here is that when mistakes are made it may be very difficult to determine the source of the problem and how to correct it. The powers of the minister, the bank of Uganda, the Investments Advisory Committee and the external managers appear to overlap significantly. There are also a few areas of risky instruments and powers that should be removed from the bill.4. Finally, there is a fundamental gap in policy with regard to the deliberate use of oil revenues to create employment income, increase the supply of domestic credit, lower the cost of credit and meet the basic needs of the Ugandan people such as health, disability and education. The proposed use of oil revenues is unwittingly biased in favor of external providers of services as opposed to local populations who live beyond the oil producing districts.THANK YOU.

APPENDIX 1OBJECTS OF THE BILLThere is no mention of Parliament in the entire introductory statement viz:

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An Act to provide for fiscal and macroeconomic management; toprovide for the Charter of Fiscal Responsibility; to provide forthe Budget Framework Paper; to provide for the roles of theMinister and the Secretary to the Treasury in the budgetingprocess; to provide for virements, multiyear expenditures,supplementary budgets and excess expenditure; to provide forthe Contingencies Fund; to provide for the Consolidated Fundand for the investment of balances, grants of credit on andcommitments against the Consolidated Fund; to provide for bankaccount management, management of expenditure commitments,raising of loans by the Minister, management of the Governmentdebt, authority to receive monetary grants and assetsmanagement; to provide for the roles of Accounting Officers; toestablish accounting standards and audit committees; to providefor in-year reporting; to provide for the preparation of annualaccounts and for the accounting for classified expenditure; toestablish the Petroleum Fund and the collection and deposit ofrevenues into and the withdrawal of revenue from the PetroleumRevenue Holding Account and for the management of thePetroleum Revenue Investment Reserve; to provide for the role ofthe Bank of Uganda in the operational management of thePetroleum Revenue Investment Reserve; to provide for theestablishment of the Investment Advisory Committee; to providefor the financial reports, annual reports and annual plans of thePetroleum Revenue Holding Account and the Petroleum RevenueInvestment Reserve; to provide for the sharing of royalties; toprovide for offences; to repeal the Public Finance andAccountability Act, 2003 and the Budget Act 2001; and to providefor connected matters.

I do not know if it is perhaps forbidden to mention Parliament in the introductory objects of the Bill.

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