Institutional Capacity Saves Billions, Makes Gov’t Productive

The effectiveness of a system of checks and balances put in place to ensure against any one branch of the government getting too powerful has been debated. Naysayers rarely go deep enough into the intricacies of governance to point out that checks and balances are there for show. They merely stress that the legislative, executive and judicial branches are monopolised by a single party which often finds it difficult to hold its members accountable.

The EPRDFites stipulate this is not the case. One amongst them is Muferiat Kamil, the recently appointed speaker of Parliament, who told Addis Zemen, the Amharic state daily newspaper, that discourse does take place even if no single political rival party has a seat in the House. She also added Parliament does not take lightly to executive agencies that fail to perform as expected.

In the same interview, Muferiat admits that non-attendance by government agency heads during performance reports to parliament, sometimes even without giving notices, has become a problem.

For the last three years, the Office of the Federal Auditor General, tasked with inspecting the state of the financial conditions of public institutions, has been presenting reports that further contradict the claim made by the Speaker. This chief government organ has been pointing out with details that the system of checks and balances, or the accountability measures that have been evident with the corruption probes of last year, are not effective.

Most worryingly, the Auditor General’s report shows that there are deficiencies in institutional capabilities that need addressing.

Financial irregularities by Ethiopia’s federal institutions have been on the rise for the past two years. This has been taking place as the nation was losing out on the external sector, with trade deficits ballooning, tax revenues stagnant and as the national debt was piling up.

Two years back, the long-serving Auditor General of Ethiopia, Gemechu Dubiso, reported that there was a total of 6.3 billion Br of financial irregularities within government agencies for the 2014/15 financial year. In contrast to today, that period was a simpler time. The El-Nino-induced drought had not occurred, gross domestic product (GDP) was well in the double-digits, export earnings stood at over three billion dollars, and inflation was under 10pc. There was also relative political stability.

Last year’s report was far gloomier. The Auditor General shocked MPs when he announced that an aggregate of almost 20 billion Br of audit gap existed on the books of federal institutions for the 2015/16 fiscal year. By that time, Ethiopia has been hit by drought, inflation has spiked, and export revenues had dipped. If there were any checks and balances, considering the economic situation, it was then that the gears should have started moving.

Adding to the headaches was the Ministry of Finance & Economic Cooperation (MoFEC) that kept swelling up the federal budget, by 16.9pc last year and 23pc the year before.

This year’s report is no less shocking and ought to serve as a fundamental input on the Ministry’s budget allocations once this fiscal year ends in a couple of months.

The Auditor General presented to parliament a 59-page report on 173 federal institutions’ financial conditions late last month. The federal agencies were found to have overspent, made procurements without the proper procedures, left funds uncollected and failed to make use of reporting mechanisms.

In aggregate, the audit gaps exceeded 20 billion Br. The Auditor General attributes this mainly to the lack of effort to reduce the financial irregularities that have been snowballing over the years.

Mismanagement of such amounts of public funds comes at a time when the nation is in one of its worst economic predicaments. Public debt sits at over half of annual GDP, and national incomes continue to disappoint. Average yearly inflation will likely be in the double-digits, and there is a dilapidating forex crunch.

The nation is too poor to afford mismanagement of its funds at this crossroad.

But accountability of public institutions has been sheared with decades of single-party dominance at all levels of the federal government. Last year’s corruption probe has seen the arrest of hundreds of high-level officials who allegedly embezzled public funds, and that was a good start. But it would take years to root out all the bad apples in the federal bureaucracy.

There is a need for infusing such efforts with the necessary checks and balances for parliament to be more active in dealing with mismanagement. Apart from the political ills that the monopoly of the EPRDF in government has created, parliament’s resignation to the plunder of public funds has an economic cost that is persisting. Assuring that government agencies are able to spend responsibly is one of the positive effects of political competitiveness.

These, however, will not be able to close the book on the lack of institutional capacity, which needs to be addressed if the government is to be made accountable in its use of public resources.

The main argument that the management of Meqelle University posed to the Auditor General, after being rebuked for financial irregularities worth 64 million Br, was budget execution is inflexible. This is a sentiment shared by officials in leadership positions of the public institutions.

There is merit to the argument. In the ensuing period between annual budget allocations by MoFEC, and the usual supplementary budget period in the middle of the year, institutions can be faced with unexpected expenses.

Public universities, which have been facing the brunt of the criticism when it comes to spending, with about 3.7 billion Br of audit gaps having been uncovered in 10 universities last year, incur recurrent expenses. The same is true of government agencies that are expected to make do with the budgets they have been allocated with, despite macroeconomic instabilities such as high inflation and foreign currency shortage.

While it is crucial to make checks and balances more effective and the executive branch of government more accountable, there is a greater need to build up institutional capacities. More than reporting correctly and abiding by the spending cap, the agencies need to be able to use funds effectively.

They must be able to take initiatives and invest in areas most constructive to their respective sectors, and they ought to be enabled to fend against unexpected rises in expenditures. A one-size fits all cap on how budgets are utilised does not allow for optimal productivity. The system must be made flexible depending on the nature of the agencies’ expenses and their susceptibility to economic necessities.

But before reaching a point where executive agencies could be trusted with more autonomy on spending, institutional capacities need to be built up. Human capital to improve professionalism could receive more investments. The financial departments of these agencies ought to be made robust and be given due attention for the internal audit processes to be effective.

Both checks and balances and accountability in government would go a long way to reducing the audit gap. Infused with smart spending patterns that could only come through institutional capacity building, the government can be made proactive and productive.

Published on Jun 02,2018 [ Vol 19 ,No 944]



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