Federal Institutions’ Disquiet Over Bleak Budget Cuts

5 Sep

Posted by The Ethiopia Observatory (TEO)
Addis Fortune
 

It was still not clear to the director, who has been working at Addis Abeba University (AAU) for two years, whether the introduction of a new directive by the Ministry of Finance & Economic Cooperation (MoFEC) would actually stave off flagrant public spending.

Closely working with the finance and procurement department of the University, the director was hoping he would at least get an explanation from the Ministry on how the directive will be implemented. The directive has baffled many civil servants like him.

“I wonder why the government suddenly drafted the directive without even consulting all the institutions,” the director questioned. “To surprise citizens with laws and regulations drafted over night such as this is an awkward move by the government.”

The University is one of the 163 federal institutions feeling the effects of tightening state finances during the recently started financial year. The intention of the directive is reducing expenditures, both recurrent and capital, to bring efficiency in resource utilization in various government organs.

“Our target is reducing unnecessary cost without compromising the quality and quantity of results,” said Negeri Lencho (PhD), minister of Federal Government Communications Affairs Office.
 
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The directive was introduced as the country is struggling to find finances to cover the budget deficit accompanied by a slow down in foreign exchange earnings, a surge in debts and modest growth in government revenue.

There has been a significant rise in public expenditure in Ethiopia when the government embarked on huge capital demanding projects, reaching 114 billion Br in the current fiscal year from 64.3 billion Br five years ago.

The surge in public expenditure has led to a soar in the budget deficit, which has doubled to 53.8 billion Br over the past five years, putting pressure on finances and leaving the state with limited room to manoeuvre in an attempt to survive the tough times in the local economy.

The new directive entails suggestions and guidances of reducing expenditures. It also stipulates prohibitions including expense items that should be reduced.

Among the listed bans and prohibitions in the directives, the law about overtime payment is one of the major points that grabbed the attention of the director. It forbids overtime payments for the civil servants working in various federal institutions without the approval of the Ministry of Public Services & Human Resources.

“Over time jobs are usually unexpected and cannot be planned,” the director noted. “Even assuming it is easy to plan, the new arrangement only takes into consideration the explicit cost, neglecting the implicit value.”

For the director, the reason for the directive from MoFEC, to narrow the trade deficit, contradicts the reality on the ground.
 
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“The Ministry used one size fits all approach,“ said the director, explaining the general nature of the directive. “The law was supposed to devise based on the mandate of the institution.”

Another director who works in Addis Abeba Cultural & Tourism Bureau agrees.

“The directive should have been drafted in line with the task of the institutions,” commented the director, who is unsatisfied with the impediment put on spending for promotion and printing books and calendar. “Promotion is one of our jobs. We cannot exist without promotion.”

In the past, as today, various deficit financing budget policy are used by various governments including Ethiopia to achieve the planned projects and is used to increase the rate of economic growth of the country.

A recurrent dose of financial discipline targeted at reducing the country’s budget deficit and reducing growth in government debt is the remedy Minister of Finance & Economic Cooperation, Abraham Tekeste (PhD), has in mind for the country’s ailing finances and to reduce the effects of the budget deficit.

“Achieving targets will be hard without a better understanding of how to properly allocate budget,” he said while addressing parliament two months ago.

Abraham, who has been serving as a minister for almost a year, singled out the deficit and rising debt as primary issues to be solved through government spending plans in this fiscal year when he tabled the national budget. The country’s budget has been growing by 19.8pc over the past five years to reach 321 billion Br in this fiscal year.

He presented the new directive to the Council of Ministers (CoM) in a time when the country’s external debt distress risk has shown a growth from “low” to “moderate”, which is alarming for the least developed country.

“Temporarily refraining from commercial loans and focusing on a concessional loan will be our priority for the coming year,” he said.

This alone does not seem satisfying for Abraham, who came up with the directive to cut public spending to bring the deficit down from where it currently stands at 2.5pc of the GDP. The directive identified 19 budget consuming recurrent expenditures which need to be reconsidered by the federal budgetary institutions.

The stated points in the directive, however, had brought anxiety and disappointment for some officials working in government offices.
 
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“In the first place, the law lacks essential elements of the directive,” said an official who works in a ministry involved with infrastructural developments. “Even though I agree with some of the points stated in the directive, it should have been open for public discussion before being approved.”

His institutions are among many federal budgetary bodies banned from making the decision to fly abroad. The fact that the Prime Minister’s office must approve every travel appears to be discouraging for him.

“This will create inconvenience and slow down the working process,” the official said.

The director of AAU agrees with the outlook of the official.

“I do not know what the top management does if it cannot be trusted to handle such small issues,” said the director.

Despite the doubts, the government has a plan to set a committee to oversee travel requests of offices, ministries and agencies, according to Negeri, the communication minister.

On the other hand, Abdulmenan Mohammed, an audit and a financial expert with 15 years of experience, wants to remain an optimist about the directive with some reservation on its applicability.

“Certain spending, which has been a waste of money, is explicitly prohibited in the directive. This is a good step,” he said. “However, some of the measures to reduce expenditures might compromise the quality of output.”
 
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Yet, the fact that the directive indicated a reduction in only a limited number of expenditures has created a fuzzy picture for many including Abdulmenan.

“In the absence of clear procedural steps to be followed, the directive may not bring the desired result in some areas,” he said.

Negeri disagrees.

“We will save hundreds of millions of Birr from being squandered,” he said.

Furthermore, the directive points out that projects prepared based on poor preparation and inadequate studies, acquisition of expensive construction services and poor contract administration is costing the government a lot, resulting in project delays and sub-standard works.

Although the directive suggested the need for strengthening project management system, for Abdulmenan, without indicating how the current system is revamped in detail, the result will be dubious.

“What is more important is to have a system to evaluate the results that will be brought by the directive,” he said. “Acknowledging those government organs that bring result by implementing the directive and warning those that fail to do so will help the culture of using public resources efficiently flourish.”

Besides millions of Birr expected to be saved by the budget cut, the government has also drafted another directive in a bid to reduce public expenditure.

Last week, following a direction of the Prime Minister, all of the government officials banned from using high powered vehicles such as Nissan, Land Cruisers and Prados in the capital.

This comes in the midst of controversies over the new procedure that ban government offices to hire vehicle maintenance companies without passing a tender process.
/*Updated.
 

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