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Oil Revenue Management Workshop
Quasi-Fiscal Expenditures and Compensation Mechanisms
By Francisco Carneiro, The World Bank
Luanda, 16-19 de Maio de 2006
Objectives of the Presentation
Brief description of the public finance
management system in Angola.
Highlight what has been done and what
remains to be done to strengthen it.
Methodology
Based on the PEMFAR of 2004-05
1. Assessment of the legal, institutional,
and regulatory frameworks and
comparison with actual practices.
2. Diagnosis and possible solutions based
on existing discrepancies in the legalinstitutional frameworks and in the
practical implementation of the
legislation, rules and procedures.
3. Prioritization of the role of the
Government in the reforms already
adopted (e.g., PMFP, EMTA).
Main Topics Covered in the
PEMFAR
Main Themes:
1. Fiscal Performance
2. Public Expenditure
Management
3. Financial Accountability
4. Relation between Planning,
Policies, and Budget
5. Credibility and Transparency
in the Management of Public
Funds
Fiduciary Aspects:
1. Legal and institutional
frameworks
2. Budget preparation
3. Budget execution and
monitoring
4. Public Accounting
5. Internal control
6. External fiscal control
7. Legislative monitoring
Institutional Weaknesses and
Fiscal Position
INSUFFICENT
BUDGETARY
FUNDING
FISCAL
INDISCIPLINE
EXTRA-BUDGETARY EXPENDITURES; QUASIFISCAL DEFICITS; DISCREPANCIES
In 2002, quasi-fiscal deficit of 6% of GDP and extrabudgetary expenditures of 14,7% of GDP.
Two Systems of Public
Dois Sistemas
de Gastos Públicos
Spending
Conventional System
Led by DNT.
Transactions
registered in the
SIGFE.
Non-Conventional System
Compensation
Mechanisms
Tax Retentions,
Profit Oil
Treasury
Operations
Led by Sonangol.
Transactions outside of
SIGFE
Oil-backed debts
Other quasi-fiscal
expenditures
Responsible for some 11%
of total expenditures in
2002.
Negative Implications
Informal mechanisms of compensation
(MINFIN e Sonangol)
Blurs transparency and accountability
channels
Weakens the budgetary process
Creates uncertainty about the actual
fiscal stance
Impairs planning
A Transitional Strategy
Situation in 2004
·
Co-existence
of
conventional and
unconventional public
spending system.
·  Compensation
mechanism between
Sonangol and MINFIN.
·  Growing fiduciary risk
and weak supervision.
·  BNA not acting as
monetary authority in control
of foreign exchange
·  Ongoing reforms in
Sonangol, MINFIN, and
BNA.
Transition Period
·
 Identify
expedient
mechanisms.
·  Eliminate fuel price
subsidies.
·  Identify Sonangol’s
quasi-fiscal activities and
transfer them to appropriate
institutions.
·  Implement a debt
management strategy, reduce
the need for oil-backed loans.
·  Capacity building in
MINFIN, MINPET, BNA.
Arrival Point
·
 Respect
fully the
Lei Quadro do
Orçamento.
·
 Respect fully the
Lei Quadro do Banco
Central.
·
 Transfer
Sonangol’s
concessionaire functions
to MINPET.
The PEMFAR Recommendations to
Restore “Normality”
Pilar I
• Strengthen the
conventional system
• Expand and strengthen
the credibility and the
effectiveness of the
budget
• Respect the Lei Quadro
do Orçamento
Pilar II
• Gradual elimination of
the non-conventional
system
• Reduce Sonangol’s
treasury-like operations
• Transfer these activities
to MINFIN
• Strengthen the
monitoring role of the
Tribunal of Accounts
A Gradual Strategy Towards
Normality
Establish clear reporting mechanisms among
Sonangol, MINFIN and BNA
Strengthen
internal
control
mechanisms
(MINFIN e Sonangol) to ensure that treasury-like
operations respect fiscal policy objectives and
acceptal public finance practices
Improve accounting procedures to allow DNC to
receive the necessary information to prepare
quarterly budget execution reports
Government Actions in the
Domain of:
•Budget Preparation
•Budget Execution
•Public Accounting and Monitoring
Government Actions to Strengthen
the Budget Process
Budget Preparation
 Improve capacity to make projections
 Adoption of AUPEC’s financial model
 Increased coordination between MINFINMAPESS to improve the capacity to estimate
with more precision the government’s wage bill
Government Actions to Strengthen
the Budget Process
Budget Execution
 Guarantee the consolidation of the CUT
(Treasury’s Single Account)
 Follow the correct procedures to execute public
expenditures (cabimentação, liquidação,
pagamento)
 Train staff to operate SIGFE
Government Actions to Strengthen
the Budget Process
Public Accounting and Monitoring
 Adoption of a double entries system (SIGFE)
 Training staff of the budgetary units
 Establish appropriate accounting mechanisms
to administer the government’s non-financial
assets
 Adoption of an accounting manual and a new
Plan of Accounts
There Are Still Important Steps To
Be Taken
Elimination of Quasi-Fiscal
Expenditures
Careful assessment of the racionality for
the different categories of such expenditures.
Eliminate those with weak justification.
Elaborate an action plan to transfer those
which are justifiable to the appropriate
organizations in the Government.
An Appropriate Fiscal Strategy
Fiscal Policy and Debt Strategy:
Adopt a sustainable and forward-looking
fiscal policy (MTEF).
Design a clear debt management strategy
in which the need for oil-backed loans should
be gradually reduced in a realistic timeframe.
Improve Governance and
Transparency
Deal with Conflicts of Interest
• The effectivness of Sonangol could be
strengthened if there was a clear separation of its
roles as (a) regulator; (b) commercial enterprise;
and (c) social contributor.
• Define a clear strategy to ring-fence and separate
these functions and transfer them to the
appropriate
agencies/ministries
within
a
reasonable timeframe.
Phase Out Subsidies
(World Bank – UK Study)
Gradual, through periodic price adjustments.
Generate substantial fiscal savings.
Plan and implement parallel social safety net
programs.
Complicating Factors
Sonangol Commercial
Sonangol Concessionaire
•
•
•
•
Regulatory functions
Conflicts of interest
Decisions about
acquisitions (“Local
Content”)
Ring-fencing? Transfer to
Ministry of Petroleum?
•
•
•
•
•
Commercial orientation
Clarify functions as a
state enterprise
Focus on core activities
Internal control and
financial accountability
External audits
Issues to Address
•
•
•
Significant flows of public
funds
It is essential that these be
integrated in the formal
expenditure and revenue
circuits of the Government
Activities performed by
Sonangol are clearly
important, but it is necessary
to increase the degree of
oversight and control of the
Government…
A Reform Agenda
A Scorecard to Assess Governance and Transparency in the Oil Sector
Criteria
What Has Been Done
Required
So Far
Further Action
Resolve conflict of interest potential
(Sonangol as concessionaire)
Sonangol is ring-fencing
concessionaire activities
Reconcile/include Sonangol financial
flows with budget
Sonangol ring-fencing and auditing
quasi-fiscal activities. Own
expenditures are still outside budget.
Quasi-fiscal expenditures comply
with budget procedures with a 90-day
lag/
Annual industry cost and fiscal audits
by experienced international auditors.
Auditor reconciles tax filings with
revised tax assessments and with
payments made, and identifies
discrepancies.
Perform qualified, independent audit
of payments made and revenues
received
Publication of audit results in
accessible form
Engage civil society in revenue
management and transparency
process
Introduce clarity on legal, contractual
and fiscal framework/procedures
Develop time-bound, funded, action
plan for implementation of
transparency agenda
Current detailed publication of
company payments on MOF website.
Audit results not yet published.
No current engagement
Legal drafts and texts difficult to
access. DNI preparing tax manual
No current plan, although individual
components have been scheduled
Subject to credible institutional
capacity, transfer concessionaire role
to Ministry of Petroleum
Bring Sonangol quasi-fiscal and own
expenditures into budget and comply
with budget procedures without
delays.
Take notice and act according with
the auditors’ recommendations. This
will allow a comparison of payments
made by industry and revenues
received by the federal and provincial
governments. Audit revenues
received by MOF, Cabinda and Zaire;
include Sonangol, and clear arrears.
Add audit results. Improve
accessibility of website. Consider
broader media publication.
Topical workshops to include civil
society. Establish independent public
information center
Compile and publish legal texts,
procedures. tax manual.
Prepare and publish explicit plan