The conduct of fiscal policy, as outlined in the national budget, is guided by the Fiscal Responsibility Act No. 29 of 2015 and its subsequent amendments. The purpose of the FRA is to ensure that the fiscal and financial affairs of the Government are conducted in a transparent manner; there is full and timely disclosure, and wide publication of all transactions and decisions involving public revenues and expenditures and their implications; that public sector debt is reduced to, and then maintained at, a prudent and sustainable level; and there is prudent management of fiscal risks. To facilitate this, the Fiscal Responsibility Act establishes a rules- based framework to guide the operations of the Central Government and the operations of selected statutory bodies and state-owned enterprises.

As part of its monitoring function, the Fiscal Responsibility Oversight Committee (FROC) monitored the Government operations and examined the fiscal and debt reports of the Central Government for the first half of 2023. Information is not published on the finances of the statutory bodies and state-owned enterprises and hence the limited coverage of the compliance statement.

Based on the published fiscal reports as at the end of June 2023, the Central Government accounts were assessed to be in line with the fiscal targets for 2023 that were presented to Parliament on 5th December 2022. In the 2023 national budget, Central Government operations were estimated to result in the growth in real primary expenditure of -9.1 percent, a wage bill of 8.9 percent of GDP, a primary surplus of 3.6 percent of GDP, and a debt to GDP ratio of 64 percent. Except for the stock of public debt, the fiscal outturn, as of 30th June 2023, was estimated to be in accordance with the targets set out in the Fiscal Responsibility Act.

At the end of June, the growth in real primary expenditure and the wage bill were less than targeted for the first six months of 2023. The primary surplus of $205.9M was higher than the $61.8M that the Government targeted to achieve at the end of June, due primarily to the higher tax and non-tax revenue. This was combined with lower than targeted current and capital expenditure. The fiscal outturn for 2023 will be influenced by developments during the second half of the year.

The Government presented a Mid-year Review Report and a Supplementary Appropriation Bill to Parliament on 25th August, 2023. The Mid-year Review Report provided data which showed improved economic performance for 2022 and 2023, compared to the previous estimates. Specifically, the economic performance is more optimistic than that which was presented to Parliament on 5th December 2022 and the information shared with the public during the IMF Article IV press conference on its report of 26th May 2023. Further, the IMF Article IV Report of 2nd July 2023, indicated that the growth rates were 6.4 percent for 2022 and 3.9 percent for 2023. The upgraded growth rates in the Mid-year Review Report, which was submitted to Parliament on 25th August 2023, placed the estimated growth rate at 6.5 percent in 2023 and 4.5 percent in 2024. There is a significant divergence in the estimated 2023 growth rate within a short period of economic assessment. The GDP is the core to assessing the performance of the other sectors in the economy and the fiscal rules and targets. It is therefore important to support the estimates of GDP, particularly when there are significant revisions to the GDP, by publishing updated and comprehensive information. There is significant scope for improving the timeliness and comprehensiveness of the information.

The Government also presented a Supplementary Appropriation Bill to Parliament on 25th August 2023. This was the first Supplementary Appropriation Bill for the fiscal year 2023 and was therefore consistent with the Public Finance Management Act which stipulates in Section 23. 2 (a) “no more than two (2) Supplementary Appropriation Bills may be submitted to the House of Representatives within a fiscal year”.

However, the Mid-year Review Report, which included the projected outturn for the 2023 fiscal year did not reference the Supplementary Estimates in accordance with the Public Finance Management Act which states: 25.—(1) The Minister shall, no later than two months after the end of the first six months of the fiscal year, prepare and submit to Cabinet a mid-year fiscal policy review which shall contain–

(a) an overview of recent macroeconomic developments and updated macroeconomic forecasts.

(b) an analysis of the total revenue collections and expenditure performances in the first six months of the fiscal year, and presentation of a revised budget outlook for the rest of the current fiscal year, and its implications for the medium-term fiscal and budget framework if necessary, and if necessary, plans for submitting a proposed supplementary budget for approval by the House of Representatives.

The revised estimated fiscal outturn for 2023, would need to be examined to report on the fiscal performance relative to the fiscal rules and targets. As such, any evident impact of the Supplementary Budget on compliance with the fiscal rules and targets will be incorporated in the FROC 2023 Annual Report. The Fiscal Responsibility Act makes provisions for the submission of the Annual Report to the Speaker of the House of Representative by 31st March.

In relation to fiscal transparency, the Government disseminated information impacting on Government finances to the public through ’town hall’ meetings, press briefings, radio programmes and other social platforms. Information with implications for government finances that were disseminated to the public included: i. The financial state of the Marketing and National Importing Board; ii. The removal of the cap on freight; iii. The by-monthly payment of salaries to public officers; iv. Reform of the Social Security System.

Improvements were observed in the published fiscal and debt reports. There is scope for improvements in the certainty of the time of the release of the reports, and in some cases, the comprehensiveness of the reports. Specifically, the financing component should be included in the fiscal reports; and the consolidated public sector accounts should be published at least annually. The FROC urges the Government to continue improving fiscal transparency in accordance with the provisions of the Public Finance Management Act and the Debt Management Act. The Government is also urged to examine all the financial management legislation for synchronization and to eliminate the administrative burden.

As the Government reforms the Fiscal Responsibility Act, the FROC recommends that the reformed Act be simple, consistent, and easy to implement and monitor. Additionally, the Act should provide for fiscal and debt sustainability, but with adequate flexibility for the Government to manage and transform the economy.

Laurel Bain
Chairwoman of the Fiscal Responsibility Oversight Committee.