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SCEK’S CONSULTING
The Formal and Informal Institutional Makings of the Political Economy of the Budget Process in Somaliland
The Political Economy of the Budget in Somaliland
Nairobi 2010
Dr. Scek
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Contents
Executive summary ........................................................................................................ 4
Background ......................................................................................................................... 8
Methodology ........................................................................................................................ 9
Objectives of the Exercise .............................................................................................. 10
Linkages PEFA and CA .................................................................................................. 10
Framework for the Interaction of Budget Stakeholders .................................................... 11
Key Steps in the Budget Process ....................................................................................... 14
Key Findings from the Analysis of the Budget Process .................................................... 16
Political Factors Affecting Budget Process ........................................................................ 17
Economic Vulnerability ................................................................................................. 18
Power Relation among the Various Actors ................................................................... 19
Budget Analysis: Formulation, Approval, Implementation and Oversight ..................... 21
Stage 1: Budget Formulation Process ............................................................................ 21
How does budget planning and formulation operate in practice ............................................................ 22
Stage II: Budget Approval ............................................................................................. 22
Stage III: Budget Execution .......................................................................................... 23
Stage IV: Budget Monitoring and Control .................................................................... 25
Executive Controls ..................................................................................................................................... 26
House of Representatives Oversight/Control .......................................................................................... 26
Civil Society and Citizen in Budget Oversight/Control ............................................................................ 27
Performance Measurement Framework - PEFA Indicators ............................................. 28
Challenges Facing Somaliland .......................................................................................... 31
Conclusions ....................................................................................................................... 33
Executive Undermining Formal Process ....................................................................... 34
Weak Accountability Institutions .................................................................................. 34
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Weak Demand for Accountability ................................................................................. 34
Development Partners Conflicting Interests ................................................................ 35
Policy Recommendations .................................................................................................. 36
Annexes: Results of the Analysis ...................................................................................... 38
Annex I: Practices on how the Budget Process is being operated using Consultative
Analysis .............................................................................................................................. 39
Annex II: Analysis of the Status of Budget Process in Somaliland Applying PEFA ........ 43
Annex III: Statistical Data ................................................................................................. 47
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The Formal and Informal Institutional Makings of
the Political Economy of the Budget Process in
Somaliland
The Political Economy of the Budget in Somaliland
Executive summary
In this exercise, we have been duelling to explain why the apparent weak lack of political will to
formulate, implement and monitor the budget process and in that matter the Public Financial
Management system in accordance with the overall Somaliland strategy since its establishment
in the early 1990s. The study attempts to unpack the concept of political will through an analysis
of the formal and informal institutions and enforcement mechanisms determining how
government, other stakeholders, such as think tanks, the private sector, non-state actors and
development partners in Somaliland may inter-act in the budget process.
Budget process involves several stages including long-term planning, medium term or Rolling
Plan, Annual Budget preparation by the Ministries of Finance and Planning, submission to the
House of Representatives, approval of the Budget (appropriation bill), implementation, and
oversight. In this study it is implied that the budget, public financial management and
accountability as interlinked processes that manifest in the budget cycle or better said the process
is applied into three main stages, namely:
i) The preparation/formulation of the budget,
ii) Budget Execution, and
iii) Evaluation/budget oversight.
Given the fact of limited availability of quantitative data, the focus will be on the qualitative
aspects of the budget process, by examining what are actually the formal and informal
institutions that affect the budget process in Somaliland.
A qualitative combined with a quantitative approach has been applied to the study and the
findings are drawn from the content of documents, interviews and to some extent, direct
observations of research and of knowledgeable individuals (experts), as well as PEFA indicators
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where data were on hand. A number of key budget stakeholders were interviewed in the budget
process from government (executive), House of Representatives committee members on the
economy, finance and trade, private sector, think tanks and the development partners.
The results suggest that from the process of planning and formulation of the budget, through
approval, to its implementation and oversight, the budget process in Somaliland did not provide
any relativistic or accurate estimates of revenue and expenditure. The budget process has been
more or less a drama that masked the real allocation of resources and spending plans. All the
involved stakeholders, the executive, legislative, think tanks and development partners were
aware that many of their statements and actions have had little bearing on actual distribution of
resources. Yet, all stakeholders „staged‟ as if the budget preparation and formulation would
actually have a bearing on the actual implementation and distribution of resources.
As it was usual at each stage in the budget process, both formal and informal institutions
interacted formally and informally. Though some legislations were introduced to improve the
process and development partners support on capacity-building have partially strengthened some
formal institutions, however decisions continued to be influenced by informal practices rather
than formally established process. Their continued prevalence undermined the formal institutions
of the budget process in Somaliland. Behind the scenes, the stakeholders manoeuvred
strategically to ensure that their interests were protected. As a result, despite good stated
intentions expressed in the government strategies, the observed outcomes of the budget process
in Somaliland is a budget that has secured the interests of the politically connected powerful
actors in the public sector, this included Office of the President, security sector and alike at the
cost of productive and social sectors.
The study suggested that the Government of Somaliland did not comply during the considered
period (1990 to 2010) of study with its contract to its citizens by adhering to a budget process
consistent with the stated objectives. The formulation process resulted in budgets that were
unrealistic, overambitious and did not reflect priorities as identified in the government policies
and strategies. The Government faced incentives allowing the budget formation to reflect
unrealistic fiscal forecasts and ambitions targets. These allowed the Government at the stage of
implementation to undermine the existing rules and regulations by allowing powerful players to
utilize budget resources at their own discretion to serve their own institutional and individual
interests. Again, powerful interests and informal incentives allowed the oversight and integrity
institutions, such as the auditor general and the various parliamentary committees, media and
civil society not to develop their capacity and became unable to fulfill their constitutional
mandates. Examining each stage of the budget process the following issues are identified:
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Budget Formulation At this stage it has been observed that the issues of capacity, commitments and interests played
out very clearly at the budget formulation stage to produce a budget that neither reflected the
country‟s strategy no set priorities if any. Even before the budget formulation was put in motion,
most of the resources expected to be available are committed, allocated or earmarked to specific
institutions and in some cases to domestic debt payment. This led to the fact that funds
earmarked to social sector or pro-poor programs are switched to expenditures that further
political and specific groups‟ interests.
Approval Process At the stage of budget approval, this consists of passing of the vote on account; “debates” and
approval of the Appropriations Bill. Immediately following the approval of the annual estimates
the Appropriation Bill is passed giving statutory sanction for the issue by the Treasury out of
consolidated fund, and the application towards the supply granted for the services for that year of
the total net sum of and its appropriation to the various net recurrent expenditure and
development expenditure votes, including moneys previously authorized by vote on account
procedure. The Bill also statutorily sanctions the application of the various sums contained in the
estimates as Appropriation in Aid of the grants for the services and purposes specified. It has
been observed that due to the weak parliamentary capacity the approval process is mere robber
stamping of the executive proposal without critical review or substantial inputs. Even though the
House in the second half of 2000s has attempted its determination to ensure that all government
finances are allocated according to the rules and as such the House has a say on how the funds
are allocated.
Implementation of the Budget The implementation stage of the budget is most subject to informal influences and interests as
funds are limited. It has been observed at this stage massive budget indiscipline, slippages and
expenditure that bears little resemblance to the priorities set in the budget as it was approved by
the House of Representatives. Furthermore, the cash budget system allows a great deal of
discretion in the allocation of resources to line ministries and public agencies. Powerful
ministries or well connected institutions are the one to receive funds before any others.
Budget oversight
Most Governments tend to operate in secrecy. They share little information concerning their
financial operations and Somaliland has been an exception. Since, it establishment Somaliland in
the early 1990s little is known about the mobilized resources and how these resources are
utilized. Therefore, it is imperative for the organized stakeholders whether they are within the
Government or outside demand not only that their concerns are taken into accounts in the budget
but also the actual performance of the stated commitments in the budget.
In this context it is crucial to examine how the Government managed to implement what it
planned to do so during the considered period. Budget controls ensure that planned and approved
expenditures eventually materialize and that those responsible for budget implementation do not
use resources for unintended purposes.
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The key to exercising the oversight function over the budget process is capacity and commitment
among the main actors. The legal framework as well as the formal rules and regulations in
Somaliland are poorly designed to create sufficient capacity in the budget oversight actors.
However, the Government has not moved much to translate the commitment indicated by
passing new legislation into action.
It has been observed in this study that there were four main reasons for the poor budgeting
process, these included:
a. formal budget processes were undermined at each stage by the executive;
b. Accountability institutions have not been effective, as they were practically
undermined through subversion, under funding and political patronage;
c. Weak or non existence of domestic “demand function” outside government for
improvements of budget which has been a manifestation of deep-rooted. There is at
present insufficient demand for economic accountability from other stakeholders, such
as civil society, think tanks, etc. given the fact of their weaknesses and sometime
credibility, and
d. Weak participation of the development partners in the budget process given the fact
that all donor support goes through off budget.
As entry points for a better budget process it would be worthwhile for the World Bank, in
cooperation with other development partners to undertake a program on economic accountability
which emphasising:
a. Defining clearly the roles and responsibilities of the various budget actors
b. Strengthening of auditor general and other integrity institutions
c. Sstrengthening of the House of Representatives, particularly, the Committees
on the Economy, Finance and Trade and Public Accounts; and
d. Strengthen demand for accountability from all the budget stakeholders
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Background
Since its establishment in the early 1990s the State of Somaliland has placed at the top of its
agenda peace building, security, reconstruction and development with equitable distributions.
Virtually development partners in principle sanctioned to these policies, which culminated in the
development of a joint Government and development partners document “The Reconstruction
Development Program for Somaliland” in 2007. Nevertheless, throughout the considered period
the government has failed to demonstrate its ability to implement the set strategies (except that of
security) as well as to raise, allocate and account properly for public resources. Persistent budget
instability due to lack of development partners support and unpredictable domestic revenue
mobilization combined with domestic borrowing contributed to poor budget performance.
Measures to strengthen Public Financial Management system by the government made little
progress.
Of the few studies undertaken by some donors and the government on Public Financial
Management, it was observed that the government showed little commitment to political will to
implement policies in accordance with the set objectives of proposed policies and strategies. In
this study attempts are made to understand why there has been lack of willingness to formulate,
execute and evaluate a comprehensive budget process that is consistent with the stated objectives
of the government strategies. Identify who are the unwilling stakeholders and why? Attempt will
also be made to unpack how the various institutions interrelate to each other in budget process.
The budget is the most important government tool that has greater impact on the day-to-day life
of every citizen. The impact of the budget on all aspects of the welfare of citizens is felt once the
budget has been approved by the House of Representatives and the measure defined in it starts
being implemented. In fact, taxation measures proposed in the budget might determine the
direction of investment and consumption depending on whether there is a proposed increase or
decrease in taxes. Since this affect the price of commodities and services. This is to say that the
prices of goods and services may rise or decline depending on whether the budget introduced
new taxes or scrapped old ones.
The importance of each sector, program or project is determined by the amount of resources
allocated in the budget. In fact the amount of money allocated to each reflect the order of
government‟s policy commitments and priorities. For instance, a Government policy to improve
security and build peace is best exemplified by the amounts allocated to security forces, to the
reconciliation and related sectors, such as job creation for the youths and unemployed that
contribute towards the improvement of security situation in the country. Similarly failure to
allocate funds for such identified projects may then reflect the gap between Government rhetoric
and its real policy commitment.
Budget process involves several stages among them the most important are: (i) budget
formulation by the executive; (ii) approval by the House of Representatives; (iii) Execution by
line ministries and public agencies; and (iv) Oversight, supervision and control by the legislative
and integrity institutions as well the civil society and the public at large. The focus in this study
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will be both on qualitative and quantitative aspects of the budget process and the involvement of
both formal and informal institutions and how they affect the budget process.
The interactions of the various stakeholders involved in the budget process and how they adhere
to the formal institutional procedures could be explained by the constraints and opportunities
facing each of the stakeholders.
Key stakeholders in the budget process involved in Somaliland include at various stages were:
The Government as public actors;
The private sector, individual business people who had leverage to government by having
provided loans or contribution directly or indirectly to the budget, and
Development partners, even though all donor support was provided either in the form of
projects or through the NGOs and the UN system – off budget.
The interests of each of the group did vary overtime and relation to other actors.
Methodology
Participation and Consultation are two of the key elements for a successful budget process. In
this regard, Somaliland has been evolving slowly in moving from secrecy in budget process
toward an open and consultative process with the attempts of involving key stakeholders and
ordinary people. As a follow-up on this, there is an identified need to involve citizens in the
monitoring of the strategy – one mean of doing this is through a participatory monitoring
exercise.
The study on the Political Economy of the Budget in Somaliland uses a combined consultative
(qualitative analysis) and quantitative approaches that is designed to assess the effectiveness of
budgeting process involving both formal and informal institutions. The Study can best be described
as utilizing a consultative methodology – a complex blend of principles and techniques from various
sources, which combine with quantitative approach used in the PEFA and qualitative or consultative
process. In general, the exercise uses non-standard participatory methods of data collection to elicit
the knowledge, views and opinions of the budget stakeholders. Among the tools used include direct
interviews, discussions, and reviewing existing documents and information available.
As such, the consultative approach (CA) collects qualitative data, which has the benefit of offering
stakeholder‟s perceptions on the budgeting processes, as well as their priorities, constraints and
opportunities for improving the situations. The data is collected by a multi-disciplinary team who,
for the most part, work closely with all budget stakeholders to allow them triangulate and
crosscheck information outside the formal and informal institutions involved in the budgeting
decision-making process.
The type of data generated by CA deepens the understanding of the interaction between the formal
and informal actors, particularly the causality, the multi-dimensionality and the inter-linkages of
influencing factors, as well as defining the priorities of the budget interventions whether linked to
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political patronage or national interests. In general terms, CA is not dissimilar to the other
Consultative/Participatory Assessments, particularly with its move away from trying to solely
provide new insights on the nature of the thinking of key stakeholders, its greater focus on the
impact of policies, and the emphasis on institutional arrangements in its establishment.
Objectives of the Exercise
The objectives of the exercise is the integration of a “quantitative” approach, known as PEFA
initiative – this exercise examines issues raised in connection the budget processes from the formal
institutional point of view or better said “quantitative” perspective. To this end, the CA or
consultative approach, which deliberately tries to focus its work on qualitative measures to ensure
complementarities are developed with the PEFA initiative by using qualitative approach. Table 1
highlights the objectives.
Table 1: The Objectives and Results of the Exercise
Objective: Consult with the budget stakeholders in the formal and informal institutions to assess the effectiveness of budget, and to make policy recommendations to improve the budget process.
Study Purpose: To test and develop a monitoring tool that clearly establishes the linkages between PEBS (qualitative) and PEFA (quantitative) exercise to provide policy makers with the most comprehensive information possible on the impact and effectiveness of the budget process.
Result 1 Policy initiatives are examined to assess how they operate with resource allocation, based on identified priorities strategy in the budget
Result 2 The information generated is fed back into the policy process in the form of recommendations on improving the decision-making process.
Result 3 Capacity to carry out the exercise is generated amongst government institutions.
Linkages PEFA and CA
The two exercises, the more quantitative PEFA and the qualitative CA offer the potential for
combining “Quantitative” and “Qualitative” approaches to data collection, collation and analysis in
examining the budget process in Somaliland.
CA is foremost about power and interests. It focuses on analyzing social and political processes as
the outcome of the strategy to control over resources and positions. The CA specifically analyzes:
The interests, incentives and power of different groups in the society (political and economic
elites, social classes, ethnic, tribal and religious groups) and how these generate particular policy
outcomes that may encourage or hinder development;
Decision-making and influence on development decision of formal institutions (executive,
legislative and alike) and informal institutions (traditional leaders, interest groups and others)
The influence of social, political and cultural norms, values and ideas and cultural beliefs on
shaping human relations and interactions, political and economic competing claims and
consequent influence on development
This approach suggests that the focus should be to consider not only formal, written rules and
political rhetoric but also informal, unwritten rules, customs and traditional social practices that
determine the rules of the game. In fact, to political and economic resources depends on personal
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ties and the distinction between public and private is mostly observed to be blurred. Therefore, it is
necessary to include informal and less visible arenas as that are where political, economic and social
influence and power is play out.
It became clear that using one approach will be insufficient to gather accurate information on the
interaction between the formal and informal institutions. That‟s the point of bringing qualitative and
quantitative approaches give two different perspectives, each with its own appropriate time and
place and neither with supremacy over the other; however what is really needed is for the two
approaches to be used in such a way that they complement each other and to address different
aspects of the raised issues. In this regard, a combination of the two will yield greater insight than
one on its own, and adds a greater robustness to the findings.
This study make an attempt to a systematic approach at combining the CA and PEFA to analyze the
Somaliland budget processes taking into account both formal and informal institutions. The
approach of combining the two “Qualitative” and “Quantitative” work is suggested to be as follow:
Establishing a Linkage between the quantitative (PEFA) and qualitative methodologies
(CA)
Examining, explaining, confirming, refuting, and/or enriching information from one
approach with that from the other; and
Consolidating the results of the two approaches into one set of policy recommendations
As a means of facilitating this combination, the two exercises
Investigate the same policy areas, which have been selected based on issues raised on
the budget processes.
Utilise the resources of the same institutions, thereby improving the potential for
feedback into the policy system, and creating economies of scale.
It is hoped that the major advantages proposed by this merger between PEFA and CA are that the
results can be used to enriching and explaining the different results, while providing evidence on
different aspects of the same thing.
Framework for the Interaction of Budget Stakeholders
It is well known fact that formal state institutions are weak and sometime believed or deemed to
be less legitimate in fragile and conflict-affected contexts; there are often informal institutions
that persist and retain legitimacy. These institutions are diverse and may include community
mechanisms or customary local governance institutions. Often, they fulfil some of the key
functions expected to be implemented by the state and this is also a case in the budgeting process
in Somaliland.
Since its establishment Somaliland focused primarily on rebuilding formal institutions and their
capacities at the central level, sidelining sub-state and informal institutions. This has prevented
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the evolution of an organic process of reform driven by local actors that could allow for greater
resonance and legitimacy with citizens.
There is a growing awareness of a need to pay attention to existing informal institutions. This
may stem from pragmatic acceptance of their existence; a recognition that they represent local
culture and practice; and/or the view that they can provide a bridge between state and society.
Informal institutions may improve public service delivery; help stimulate investment; facilitate
the transition to more inclusive, rules-based governance; and promote social reconciliation in
situations of conflict.
In some cases, informal institutions can work synergistically with formal institutions. In other
cases, however, they may compete with formal institutions in negative ways and undermine
them, particularly in the case of patronage networks. Critics view such informal institutions as
undermining norms of governance and citizenship. Further, local and informal institutions may
not necessarily function better than the state and can in some cases be discriminatory,
particularly towards women and youth and minorities. Working with informal actors does not
necessarily mean endorsement of all their principles and working mechanisms though if one can
engage in dialogue with them with a view to securing inclusive rights could be considered to be
the best approach.
The key to adopting an institutionally diverse approach in budgeting processes is to avoid
competition between informal and formal institutions. It is important to understand the
conditions in which they can be beneficially linked. Figure 1 below propose a framework on the
how to understand and explain the role of the formal and informal institutions in the budget
process and how they interact and influence each other.
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Figure 1: Framework for the Interaction of Budget Stakeholders
Budget Process:
Budget
Planning &
Preparation
Budget
Proposal
Debate and
Approval
Budget
Execution
Oversight,
control,
supervision &
audit
Type of the
Budget
Outcome:
Consistent
with the
country
Strategy/Pol
icy
Inconsistent
with the
country
strategy/poli
cy
Budget
reflecting
groups
interests
Capacity
Commitment
Interests
Informal Institutions:
Political Patronage
Constituency/ethnic
Powerful Political
interest groups
Formal
Institutions:
Constitution
Acts
Regulations
Key
Stakeholders:
Government
Private sector
Non-state
Actors
Donors
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Key Steps in the Budget Process
Somaliland has been preparing its annual budgets since the mid-1990s. The process followed for
budget preparation is not officially documented but it has been largely modeled around processes
that existed before the civil war in the Somali Republic. The process is outlined below and
partially defined in the Financial Accounting Procedures of the State of 1996:
In theory the executive organ of the Somaliland authorities (Council of Ministers) within the
formal institutions discusses issues of the budget and submits recommendations to the
Ministry of Finance. In parallel discussions taking place between the powerful politicians,
political patronage and interest group on how budget resources could allocate/distribute.
Most of the time the initiative is from the Minister of Finance in consultation with some key
allies with the Council of Ministers and the Presidency decide on the budget priorities and
strategies. The Ministry of Finance then issues a Budget Circular to the line ministries and
public agencies to prepare and submit their budget proposals to the Ministry of Finance by a
specified dateline.
Line ministries prepare budget proposals according to their needs and challenges according
to the guidelines specified in the Budget Circular and submit them to MoF. However,
powerful ministers and their ministries already know with some certainty what to expect in
the budget allocation through their patronage or interest groups. The MoF (budget
department) reviews all the proposed proposals from line ministries and consolidates them to
a proposed draft Government budget.
The proposed draft is submitted to the Council of Ministers for review, discussions and
endorsement. After the Cabinet endorsement, the Minister for Finance submits the draft
budget to the House of Representatives through the Speaker‟s Office. The Speaker then
forwards the budget to the Standing Committee for Economic, Finance and Trade issues;
The Economic, Finance and Trade Committee reviews and discusses the proposed draft
budget. The committee can propose rejection of the draft budget, recommend further
amendments to be adjusted by the line ministries or approve the draft budget. The Economic
Finance and Trade Committee, then presents their recommendations to the plenary session of
the House of Representatives for discussion of both the proposed Government budget and
any recommendations made by the committee; and
The plenary session may either reject or approve the draft budget. Once the House of
Representatives approve the budget and the appropriation bill is signed by the President then
budget implementation enters into motion.
Box 1, billow describes the budget cycle and how the interactions among the various key
stakeholders are operated.
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Box 1: Budget Cycle
The budget cycle consists of three broad Stages: (i) Budget formulation and approval
(appropriation); (ii) Budget execution, including budget revisions that might take place during the
execution; and (iii) budget reporting, auditing and evaluation. The budget year in Somaliland
correspond to the calendar year. So in any one calendar year (current year) three overlapping sets of
activities take place. These are the budget for the following year is being prepared and approved; the
budget for the current year is being implemented; and various reporting and auditing activities are
taking place for the current year and the year earlier.
Stage I Budget Formulation and Approval: The formulation and approval of the budget has the
following steps, most of which are set by the Financial and Accounting Procedures of the State of
1996:
30 June – July: Plan Preparation or Macroeconomic Policy Framework to determine guiding
policies and strategies for the budget; determine the overall envelope and set
initial ceilings for budgeting (not specified as yet in any law);
August – September: Issuing of a “Budget Circular” by the Ministry of Finance, this provides
guidelines for the preparation of the budget proposals with budget initial
ceilings (not fully practiced);
30 September Ministry of Finance submits the proposed budget to the Council of Ministers;
31 October Ministry of Finance submits the Draft Budget to the House of Representatives
once the Council of Ministers endorsed;
31 December Deadline for the approval of the Budget and issuing of the Appropriation Act
by the House of Representatives.
Stage II Execution and Revisions: budget execution take place through a quarterly warrant system,
in which funds are released to budget institutions (monthly, quarterly basis depending on cash
availability) and then reported and replenished. In practice, there are delays in releasing of funds,
due to cash constraints and delays in the submission and processing of accounts.
During this stage numerous adjustments are made to the original (approved) budget either through
small adjustment approved by the minister of Finance or large scale that requires approval of the
House of Representatives but in most case done with legislative approval.
Stage III Budget Reporting, Auditing and Evaluation: Budget institutions report on their budget
execution during the course of the year, which they have to do in order to replenish their accounts
under the warrant system. The Financial and Accounting Procedures of the State requires the budget
institutions to report on a quarterly basis to House of Representatives.
Evaluation of the Budget Performance is a not a routine but rather ad hoc and sporadic issue.
Attempt to regularize and institutionalize these processes are being thought and legal framework for
that purpose being developed.
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Key Findings from the Analysis of the Budget Process
From the description above of the budget process and the interactions among and within the key
budget stakeholders, it can be inferred that the budget process has been a purely political process
that engaged on one side a group of stakeholders within the formal institutions (ministries) and
the informal institutions (powerful political interest groups, political patronage) on the others and
as such the various actors responded to incentives in the formal and informal institutions.
However, considering from the perspective of the process of planning and formulating the
budget through implementation and oversight, it can be concluded that the budget process in
Somaliland mostly provided unrealistic estimates of both revenue and expenditure throughout
the considered period. These meant that the budget process has been like a drama that masked
the real allocation (distribution) and spending of resources. To no one surprise of the
stakeholders in the process all the actors, government, private sector, political parties and to
some extend the development partners seemed that they were aware that all their statements and
actions have had no bearing on the distribution and disbursement of the budget resources. Yet all
of them (stakeholders) behaved purposefully as if the budget planning and formulation had had a
bearing on the actual implementation of the budget.
From the quantitative side (PEFA) at the end of the financial year few are surprised to observe
that the actual disbursements or outturns totally differed from the planned/approved budget
expenditures. From the limited information available since the early 2000; it is evident that the
actual expenditure outturns have been significantly differing from originally approved budgets,
both in level and composition. In fact, considering the 2004 budget, which had an approved
estimate of $21 million, had an extra - budgetary expenditure in the amount of $24 million that is
three million more than the budgeted expenditures. Likewise, extra-budgetary revenues were
almost double the budgeted figures, suggesting ultraconservative budget planning or poor ability
to forecast fiscal aggregates. Consequently, this budget cannot be considered as a realistic and
credible policy instrument to guide future government policy implementation. This has been so,
because of weaknesses in the budget preparation, execution and control processes, as well as, the
impact of regional shocks, border problems with Puntland. Most import also the practice of
prepared and executing the budget outside the formal institutions. Non-existence of
macroeconomic forecasting, in particular estimates of Gross Domestic Product (GDP) has also
contributed to unreliable estimates. Rough estimates made by UNDP/World Bank (2003)
indicate that per capita GDP for the Somaliland areas was in the range of the $250 to 300 of
which over 60% is derived from remittances. These patterns of the economic structure has not
changed and the economy is still dominated by remittances and related activities.
From this brief analysis it became clear that estimates of domestic revenues, have been
drastically underestimated either intentionally or poor ability to forecast. Significant budgetary
pressures have been created by under-budgeting of non-discretionary expenditures, especially of
private domestic debt, causing a shortfall of resources for social sector expenditures. Non-
compliance in budget execution has encouraged repeated within-year adjustments in resource
allocation leading to un-authorized and overspending by certain key Ministries, whereas other
Ministries had to cope with significant reduction in budget allocations.
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During the considered period of this study, there have been continuous interactions at each
budget stage between formal and informal institutions. Legislative changes, capacity building
and the development partner‟s attitude have changed formal institutions with the introduction of
new acts and procedures on the budgeting process, but still decision continue to be influenced by
the practices of the informal institutions. Their continued prevalence undermined the reform in
the public financial institutions of the budget process. Behind the scene, interest groups
maneuvered strategically to represent their interests to be kept on board. Despite some good
intentions expressed by the Government in its development strategies the politically powerful
managed to secure their interests in the budget.
Political Factors Affecting Budget Process
Somaliland‟s decade-long experience with democracy displays a number of the democratic
shortcoming, similarly observed across sub-Saharan Africa‟s new democracies and more
specifically in post-conflict countries. Somaliland‟s young democracy also displays several
unique features, which consists of a hybrid system of governance combining tribal traditional
balanced local democracy with western style democracy. At its establishment in the early 1990s
it moved from the style of tribal democracy to a multi-party system modeled to the western style
democracy. In a series of inter-clan peace negotiations which led to the culmination in the
Borame conference in 1993 to the establishment of a clan/traditional system of government.
This was late followed by the National Congress, which adopted the Charter for a transitional
period and established a bi-cameral system of legislation composed with upper and lower houses.
The Upper House or Guurti was entrusted to safeguard peace among the clans and lower House
or House of Representatives was entrusted with the legislative issues. The congress elected the
first President of Somaliland.
In the late 1990s (1996/1997) a third National Congress took place in Hargeisa, which developed
and adopted a Constitution that legalized the structure proposed in the earlier at National
Congress. The Constitution established a bi-cameral system, composed of 82 Council of Elders
(House of Guurti) and 82 elected members of the House of Representatives. The Congress
elected the President and the Vice President for a five years term. The transition from the
traditional democracy to a multi-party system of democracy was completed with district council
elections that were contested by several national and local parties. In the early 2000s there were
three major parties, namely UDUB party, which won the 2003 presidential election for a five
years term, followed by Kulmiye, which won the recent presidential election and Ucid party and
some small ones that are operating at regional and local levels.
Overall, several local and national elections took place; three Presidents were elected in a fair
and transparent elections and powers changed hands in a peacefully manner and without
violence. Virtually all political actors and parties respect in principles, the basic tenants of
democracy, human rights and the country‟s constitution. Nonetheless, the political culture at both
the top and grassroots levels raises a number of serious questions with regard to the depth of
democratization. The limited institutionalization of the democratic process is witnessed by the
lack of full respect for opposing views; weakness of political parties indicated by rapidly
changing alliance and leaderships and the most important weak institutionalization of the
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oversight institutions. At this point in time it is difficult distinguishing the role of the government
and that of the governing parties.
In other words, it can be said that Somaliland has made remarkable progress on many fronts, not
least through a unique reconciliation process, creation and operationalization of functioning
governance, such as judiciary systems, and a democratization process that has led to free and fair
elections and a multiparty Presidential system. This has been made possible primarily through
active involvement of a vibrant private sector, non-governmental organizations (NGOs), civil
society and large inflows of remittances, as well as the active involvement of traditional and
religious leaders that has enabled the democratization process to be entrenched in the
constitution.
Economic Vulnerability
Poverty levels are high compared to East African standards, but lower than in many other post-
conflict countries in Africa. This indicates that Somaliland has moved further along the
development continuum. Per capita income was estimated at US$ 250 in 2004, with 73 percent
of the population living below the poverty line (i.e. less than $2 per day), and 43 percent living in
extreme poverty (i.e. less than $1 per day). The above figures reveal large geographic disparities,
with per capita income ranging from about US$ 201-250 in Sahil; and US$ 251-300 in Sool and
Sanaag; to US$ 301-350 in Awdal, Hargeisa and Togdher regions. In addition, the figures show
clear urban-rural disparities, with urban populations far better off than their rural counterparts.
Unemployment is high and associated with poverty, poor social indicators and prevalent use of
khat (mild drug). Unemployment is both a cause for and result from heavy abuse of Khat, and
the two problems are closely linked. Young males in particular spend their days chewing, and are
left incapacitated and unable to perform their duties. This also has severe gender aspects, as
women are left as sole providers for large families. Although traditional mechanisms still
continue to provide coverage for unemployed, these are far from sufficient, and being
undermined by the increased urbanization and changing society (breaking out of the traditional
networking system).
The traditional livestock and agriculture sectors dominate the economy of Somaliland and hence
the employment of its people, since much of it is labor intensive. Livestock sector represent the
dominant productive activity, followed by fishery and crops. The main features of the livestock
sub-sector in Somaliland are the significance of disease and the dependence on an almost tree-
less rangeland that is extremely sensitive to drought and has been depleted and destroyed over
time. Livestock earnings, which contribute substantially to the budget through export taxation,
were seriously damaged by the 2000 drought, which lasted until 2004, and the livestock export
ban in Saudi Arabia, but has since returned to its previous levels. In addition, Somaliland has a
promising fishing sector with most of the potential in fairly good condition except for the lobster
resource which is considered to be in a state of depletion.
Crop production is sizable, but plagued by many of the same problems as the livestock sector.
About 39,000 farm families are involved in rain-fed and irrigated crop production in Somaliland,
cultivating about one-third of the area suitable for agricultural production. Rain-fed crops
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19
include sorghum, maize, cowpeas, groundnut and sesame. Irrigated crops are citrus, papaya,
guava, water melons and vegetables such tomato, onion, cabbage, carrot, and peppers. The sector
has been vulnerable to droughts and increasingly constrained by the huge damage done to the
environment and the lack of available land for cultivation, and is plagued by low efficiency and
productivity. Given the deteriorated state of the cultivatable farm land the sector‟s economic
potential is limited, but it will continue to impact the domestic market due to high labor intensity
and importance for local market activity.
Somaliland has a strong and vibrant private sector operating in Hargeisa and other urban centers
as a result of the prolonged peace and achievement of relative security, the sector is involved in a
large range of economic activities and import-export businesses. Investments by the private
sector in all these cities resulted in the delivery of goods and services such as electricity,
telecommunications, domestic water supplies, and urban waste disposal. At the same time the
livestock and fisheries industries also flourished.
However, it has been observed that the cost of doing business in Somaliland is extremely high
due in part to the lack of international recognition. Business people do not have access to regular
bank financing, and cannot borrow at international market rates. Import and export activity also
face large constraints, as traders cannot obtain international insurance or guarantees. Remittance
companies are however prevalent and some have even started the transition towards regular
banking operations, including offering savings accounts and limited forms of guarantees.
Power Relation among the Various Actors
Somaliland has a relatively developed democratic and electoral system. The legitimacy of
elected authorities as well as democratic institutions has been reinforced and people in
Somaliland are more aware of their rights. However, deepening of democratic values and
institutions will require strengthening and institutionalizing political systems, strengthening of
civil society and media institutions that can ensure greater accountability and engage in the
decision making process.
Political participation in local communities that can contribute to the fulfillment of the
democratic process should be an urgent priority that will require further work. This would
include research on promotion of the inclusion of women, young adults and other under-
represented groups, research on civic and human rights and perceptions on institutions and non-
state actors. An important aspect of this will be the design of civic education programs and
public information campaigns.
Somaliland Non-state actors are currently suffering from a range of constraints and the question
of legitimacy of the sector emerges as a key constraint to the effective operation and impact of
civil society. Legitimacy is inextricably linked to lack of accountability and inadequate
transparency, and problems include the proliferation of „briefcase NGOs‟ that undermine the
credibility of the NGO sector as a whole. Their power to interact with the authorities and other
budget stakeholders is limited at this moment in time. To improve bottom-up accountability,
priority actions would include developing legal regulation and system of official registration of
civil society organizations and NGOs that could guide and clarify their involvement in public
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affairs, and programs of training for human rights institutions and CSO‟s in civic education,
with special attention to gender issues and disadvantaged groups.
Media institutions are still constrained by weak information delivery capacity, lacking
professional skills of investigative journalists, and close links to political factions. Their power
of leverage to shaping the budget is still at initial stage for them to demand for information from
the budget authorities.
House of Representatives Oversight: oversight of the budget by the House has improved
drastically in recent time, despite being poorly funded by the executive. A limited number of
development partners have supported the various House committees and sub-committees and
made them able to operationalize their activities to provide their mandated constitutional
functions. This has produced significant changes in the way the members of the House perceive
they job as parliamentarians. The committees still lack technical staff and their capability is still
limited.
Chamber of Commerce: as representatives of part of the private sector, their power to shape the
budget is immense. Big companies have been providing loan or contribution to the government
to finance it operations. As private citizens business or company are also involved in politics
and have a stake or interests in how public resources are allocated or distributed.
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21
Budget Analysis: Formulation, Approval, Implementation and
Oversight
Theoretically, the basis for formulating the budget in Somaliland is a Policy Framework Paper,
which articulates the country‟s development policies. There has not been such a Policy
Framework in the past, but in the mid 2000s the government has adopted a Reconstruction and
Development Program (RDP) as such a policy. Since 2007 it was assumed that the RDP would
be the government policy document to determine the policy issues that the budget should address
and also the levels of funding that can be mobilized both domestically and from the development
partners.
The RDP and under it several sectoral documents that were developed by the line ministries was
supposed to be the guiding policy document for development planning and funding. In practice
conflicting interest groups have acted against it. In the first place the development partners who
contributed to the development of the RDP and promised financing the large component never
delivered their commitments. The situation continued as usual, development partners provided
they support either through the UN system or through NGOs with little or no government
involvement.
The government on its side continued with it is effort to mobilize domestic resources and the
strategy for allocation or distribution didn‟t changes much. Most of the funds went for security
and administration and an insignificant part to development projects focusing on reconstruction
and poverty reduction.
Stage 1: Budget Formulation Process
Generally, budget formulation should be preceded by a plan preparation. In Somaliland the plan
is formulated by the Ministry of Planning alongside other players as of today this process is still
partial (the formulation of the plan has not been complete yet) as there is no a development plan
or strategy for Somaliland. The plan (should) provides broad policy directions for what the
government intends to implement in the next three or five years. The actual budget preparation
phase starts with the
preparation of
macroeconomic framework,
where estimates of revenue
and expenditure are made
and initial budget ceilings
set. This is followed by the
issuance of a “Budget
Circular” by the Ministry of
Finance to all ministries and
government agencies. The
circular define broad
parameters of the budget and
sets sectoral expenditure
ceilings (not fully applied today) to be adhered to by the ministries and line agencies. This
Box 2: What role do various stakeholders play in budget planning and preparation?
Are stakeholders (public institutions, agencies, private sector,
NSAs, etc.) inputs solicited and incorporated in setting up budget
priorities?
Are there mechanisms in place for soliciting and integrating
stakeholders‟ proposals?
Are the ministerial budgets processes open to the stakeholders or
interested parties?
Is the budget preparation accorded any form of publicity?
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22 | P a g e
generally happen in the third quarter of the fiscal year. The circular requests budget institutions
to forward their expenditure proposals outlining their proposed activities during the considered
financial year. The line ministries and public agencies prepare and submit their budget proposals
to the Ministry of Finance. The Budget Department of the Ministry of Finance reviews and
harmonizes all the ministerial proposals in accordance with the national priorities and availability
of the resources.
Theoretically, after the review of the proposals and consolidation of the budget by Budget
Department of the Ministry of Finance, negotiations between the Ministry of Finance and line
ministries take place and decisions are made on the resource allocations. During these
“negotiation meetings”, ministries present
their justifications on their need of
resources on the basis of national
priorities. Allocations are made on the
basis of national priorities as set in the
national plan or sectoral strategies. After
the completion of the negotiations the
Ministry of Finance revises the budget
accordingly and submits it to the cabinet
for endorsement. Once endorsed by the
Cabinet the budget is tabled to the House
of Representatives for discussions and
approval.
How does budget planning and formulation operate in practice
As suggested in the previous sections, there are no clear processes followed in the formulation of
the budget. In fact, there is no plan or Policy Framework Paper that articulates government
policies that are required to guide the budget preparation. Budget envelope is also defined
informally as there is no macroeconomic framework in place that could provide estimates of key
forecasts of economic indicators, such as revenue, expenditure forecasts and overall economic
growth. A tabular presentation is given in Box 1 on how the budget formulation process is
operated and who are the major stakeholders involved in both the formal and informal
institutions.
Stage II: Budget Approval
At this stage the Minister of Finance is required by law to present the Budget on the 31st of
October in accordance with the Budget Calendar to House of Representatives. The Minister
generally presents a summary document in the form of “Budget Speech”, which emphasizes
broad government policy objectives, intended in the ensuring fiscal policy and the measures
necessary to achieve them. The document or the budget speech in theory should be accompanied
by the Appropriation Bill, which contains proposed expenditure allocations; Finance Bill,
which contains taxation proposals, and the Statistical Annexes to the budget which contains,
among other things, a statement of the government‟s indebtedness to various lending entities. In
practice not all these documents are prepared and submitted to the House. What is submitted is
the budget document with scratchy and ad hoc related and poorly prepared documents.
Box 3: Power of House of Representatives
Does the House have sufficient time to study the budget
prior to presentation by the Minister?
Does the House have access to an effective research and
information and resources to enable the members to
contribute meaningfully to the budget debates?
Does the House have adequate powers to alter budget
proposals in any way it may deem necessary?
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23
This is followed by a debate in the House of Representatives on the broad policy proposals
contained in the Minister Budget Speech. This is generally done by Economic, Finance and
Trade committee of the House, which reviews and presents it recommendations to the plenary of
the House through the office of the speaker. The review and the debate at the House committees
and at in the plenary session focus on the issues related to the government‟s economic policy and
strategies as they are outlined in the financial statements and the Budget. As it has been the case
the budget has never been submitted to the House according to the Budget Calendar, but with
several months of delays going even beyond start of fiscal year. Due to this and other factors, the
Minister each year seek approval from the House to spend up to 50% (according the rules) of the
allocated expenditure pending the substantive ministerial vote-by-vote debate. The purpose of
approving this advance expenditure is to guarantee continuity of government operations.
The House continues discussing on the proposed taxation proposals contained in the budget
(Finance Bill) along with other laws affecting the proposed revenue collection. This culminates
in the passing of the Finance Act, which authorize the Government to raise revenue from a wide
range of taxation measures.
The House debates and approves the Appropriation Bill on Ministry-by-ministry basis. During
the process members of the House of Representatives have the opportunity to propose reduction
or increase on specific items on the basis of the budget objectives and national priorities. The
Budget procedures require that the debate on the budget conclude by but not late than the 31st of
December of the current budget year.
This is the formal institutional budgeting procedures as prescribed partly in the constitution and
in the Financial and Accounting Procedures of the State. The informal structure used in the
process of budget approval is the one that links the Minister of Finance and some interest groups
that are composed of some members of the House from the same party, business people in the
private sector and senior government officials and in some case members of the ethnic group.
This group tries to maneuver the approval process by convincing or manipulating the House
committees‟ members and members of the House to guide or misguide them to approve the
budget. The outcome might then be a budget that reflect a group interest rather than a budget
that reflect the interest of the nation and to all the citizens.
According to the Financial and Accounting Procedures of the State, the budget should be tabled
to the House by the Minister of Finance by the 31st of October each year, but unfortunately this
has not been followed by the executive, just to give some recent examples, the 2007 Budget was
submitted and resubmitted to the House on March 19th
, 2007 but never approved as the executive
and the legislative couldn‟t reconcile their interests. The 2008 budget was presented to the House
on May 6, 2008. The House due to its priority of holding elections passed the budget without
delays.
Stage III: Budget Execution
This stage of the budget process entails the actual disbursement of the funds (money, money) for
the various user-departments and ministries. Upon approval of the budget and passing of all
related bills, the government (Ministry of Finance) is authorized to raise revenue through taxes
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and related measures and spend the funds according to the approved budget estimates. In
exceptional cases, however, ministries or agencies may exceed the approved allocations during
unpredictable events and in the case of Somaliland for certain institutions this has been the rule
rather than exception. It is said that in such situations the Ministry of Finance authorizes the
withdrawals and then presents the Supplementary Estimates to the House of Representatives for
approval before the end of the prevailing financial year.
Somaliland has been preparing, executing budgets for over a decade and half. The basic
financial and accounting environment in which the Somaliland government operates with is
governed by a set of legislations, namely:
1. The Financial and Accounting Procedures of the State; and
2. Regulations for the Accounts of the State.
The former is the formal Act assented by the President on the 15th
May, 1996 while the later is
the accompanying Regulations. The Financial and Accounting Procedures constitute the basic
underlying legal framework governing budget preparation; revenues of the state; budget
execution; expenditure; annual accounts; administrative and accounting control; the duties of the
auditor general and accounting responsibility.
Once the budget is approved and the authority to expand is given, warrants are issued as follow:
Warrants: The authority to start spending an approved budget is by way of:
1. Expenditure Warrants for MDAs in Hargeisa
2. Departmental Warrants for Regional ministerial departments.
Expenditure Warrants: Each MDA is responsible for the execution of their budget as approved
by the House of Representatives. Budget amounts are disbursed to MDAs by way of expenditure
warrants. Expenditure warrants are notification to the MDA allowing them to expend for the
ensuing Quarter, such amounts as indicated on the warrant. The amount on the warrant is arrived
at taking the yearly budgeted amount and dividing it by three to arrive at the amount for the
quarter.
The MDA initiates the process by drawing the Warrant which details the expenditure for the
quarter including salaries. The Warrants contain sub-heads of expenditure for the quarter. The
Warrant is then sent to the Ministry of Finance in the Budget Department for scrutiny and to
generally assess whether or not the expenditures conform to the budget. Upon approval the
Warrant is sent to the Auditor General, again for scrutiny and approval.
Once the Auditor General has approved the Warrant is then sent to the Accountant General who
proceeds to enter the warrant value in the MDA‟s Vote Book maintained in the Accountant
General‟s Office ready for effecting payments as appropriate, A copy of the warrant is sent to the
originating MDA for it to be enter the approved amount in its counterpart Vote Book.
In the Accountant General‟s Office there is a Vote Book control office manned by officers who
have been assigned to cater for various MDAs payments. Thus each officer is allocated a certain
Dr. Scek
25
number of MDAs for which they are responsible for processing their payments as well as
ensuring that the two vote books are reconciled whenever there is a discrepancy.
Departmental Warrants: These are warrants that are issued by MDAs to their upcountry
stations. These are a subset of the expenditure warrants earlier approved by the Budget
Department and the Auditor General‟s office. These too cover the expenditure of the regional
office for the quarter including salaries and are entered in the respective Vote Books. As for
salaries the names of payees are typed on the back of the warrants and no separate payroll is
provided.
A copy of the warrant is sent to the Regional Accountant (staff of Accountant General) for
recording in the respective regional office‟s Vote Book for control purposes.
The formal institutions in the implementation process includes those institutions that are
involved in collecting revenue, allocating and disbursing this to line ministries, government
agencies and departments using a system of cash budget. Controlling expenditure within the line
ministries and agencies and maintaining accounting records about expenditure, and conducting
audits that enable accounting offers (directors general) to oversee are leading to the effective
execution of the budget.
The formal institutions at this stage of budget process are all ministries and agencies, the
accounting offers (directors general), revenue department, accountant general, auditor general.
While the informal institutions are like invisible hands, which are always there but you don‟t see
them. They originate from the interactions among the formal institutions and individuals or
institutions representing specific interests. This is usually the most complex stage and also a
source for fraud through disregards of existing procedures in the release of funds to certain
powerful institutions and undermining others, which have little political and manipulative
leverage to the Ministry of Finance. The quarterly/or monthly warrants are the major cause of
informality linked to the various interests for the various institutions. It has been observed that
there is ample political pressure on the accounting officers to allocate released funds more to
political objectives rather than priority activities as approved by the House. This always led to
continuously revising the budget throughout the year to accommodate the wishes of the powerful
interest groups. The recording of the disbursement became a nightmare as one has to reconcile
the information as approved in the appropriation bill and one provided or collected through
warrants of the funds released to the line ministries and their disbursement. The end result is that
the accounting and auditing become practically futile as the accounting and auditing personnel
respond to political pressure of the powerful and the records are either incomplete or made
disappear.
Stage IV: Budget Monitoring and Control
Budgeting and public financial management functions are guided by the Constitutions (to limited
extend) and two legislations introduced or up-dated during the second half of 1990s, namely: (i)
The Financial and Accounting Procedures of the State; and (ii) Regulations for the Accounts of
the State. Most of these rules and regulations are outdated and not relevant or adaptable to the
prevailing situation in Somaliland.
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In the current system there are a number of organizations that have the legal and institutional
responsibility for holding the government to account for its performance. These include the
House of Representatives and its number of the House committees, such as the Public Account
Committee, Economic and Finance and Trade Committee, the Auditor General and many more.
The media, Civil Societies and the public at large also have a critical role in overseeing and
scrutinizing the activities of the government, whilst professional accounting bodies have also an
important role to play in ensuring the integrity of the public service, even though they are not yet
well established in Somaliland.
Budgetary controls can be exercised at three levels, these are:
1. Executive controls mainly by the Ministry of Finance
2. House of Representatives controls through the various House committees, Auditor
General, and
3. Citizens controls through advocacy and whistle blowing by individual citizens and
media.
Executive Controls
The Ministry of Finance has on papers a range of control measures on the budget execution.
These are in the form of operational instructions, circulars, directives and regulations that are
issued to the accounting officers in line ministries and public agencies on regular basis.
Some of the control measures in place are those described in the Financial Accounting
Procedures of the State, Government procurement guidelines even outdated but still there;
internal audit, which is most concerned with monitoring compliance with the government
regulations; and the Auditor General who exercise his/her control mandate by scrutinizing and
approving withdrawals from the consolidating fund.
House of Representatives Oversight/Control
The House, working through its committees exercises the ultimate oversight role on the budget.
The House as the legitimate representative arm of government is required by the Constitution
and other laws and procedures to approve all sources of revenue and the proposed expenditure
measures. The Executive is obliged by law to report on how it has utilized all the moneys raised
from taxes and other sources during the year to House. In this context the Minister of Finance
must present all the accounts and statements of all government ministries and agencies to the
Auditor General for audit before presenting them to the House of Representatives
The Auditor General approves all expenditure warrants before they are forwarded to the
Ministries and receives monthly as well as annual financial reports from the Accountant General.
He/She is required to conduct independent audits of the Government Ministries and public
agencies‟ accounts, and issue an audit report within six months of the close of the year. The
minister also issues a circular to all public and statutory bodies requesting them to present their
accounts to the auditor general.
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27
These are practically the formal guiding instruments of budget controls and oversight. The key
statutes among other include the Constitution, the Financial and Accounting Procedures of the
State. These provide a framework (it does not matter how weak the laws are) on public officers
(accounting offices, and other) should operate in managing public funds.
Unfortunately, there is plenty of evidence that the laws, procedures in place are not being
enforced. In fact, overspending have been the norm in most institutions (particularly) powerful
ones, failing to respect financial reporting datelines, including audit report presented to the
House with huge delays or when they become outdated for more details see Annex I: Stage IV.
The key to exercise the oversight function over the budget process is definitely capacity and
commitment among the main actors. From our observations these two factors were not there, in
fact the capacity is severally weak and it has undermined the effectiveness of the oversight
institutions. The Auditor General Office is understaffed, underfunded and also lack technical
capacity to undertake and implement audit plans.
The House of Representatives has no mechanisms for continuous monitoring of the budget, but it
continues to heavily relay on the reports on the Economic, Financial and Trade Committee and
the Public Account committees, which are of post – mortem value. In addition, the House in its
current format lacks in both research and information gathering capacity, as a result the House
cannot effectively challenge the executive on its budget proposals.
During the past two decades, the government has not moved much to translate its commitments
into needed legislations and reforms to address the weaknesses on the ground. This could be
interpreted to the lack of ownership from the government to the reform agenda to reestablish and
establish needed oversight institutions. This could be explained that some development partners
were active in defining reform agendas, to the extent that they supported design initiatives on
behalf of the government, as results these never took off. The fact was that the development
partners were also not committed to that extends of supporting their own initiatives as evidenced
by the fact that all the support they provided went through off budget.
Civil Society and Citizen in Budget Oversight/Control
Monitoring the implementation of the budget does not merely end with the implementation of the
projects. The extent to which implemented projects attain the desired objectives of the allocation
is an important consideration for all budget beneficiaries. Since civil society groups are closely
integrated with the grassroots among stakeholders and are generally closest to the
implementation units, they retain a strategic role in assessing whether the projects were useful,
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acceptable and sustainable to beneficiaries. There is need for greater and deliberate integration of
local communities and other grassroots stakeholders in the implementation and decision making
in the entire budget process.
Performance Measurement Framework1 - PEFA Indicators
PEFA Performance Measurement Framework developed by PEFA partners in collaborative
efforts with the OECD Joint Venture on PFM as a tool that can provide reliable information on
the performance of PFM systems, processes and institutions at a point of time. The information
provided by the framework contribute to the formulation of government‟s reforms process by
determining the extent to which reforms are yielding improved performance and by increasing
ability to identify and learn from reform success.
Using the PEFA measurement framework the following indicators are estimated here bellow:
1 Public Expenditure and Financial Accountability (PEFA): Public Financial Management Performance Measurement
Framework, PEFA Secretariat, June 2005. The methodology is available at the PEFA website: www.pefa.org.
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29
PEFA Indicators
A. PFM-OUT-TURNS: Credibility of the budget Score Remarks
Indicators PI-1 Aggregate expenditure out-turn compared to original
approved budget C- Deviation b/w the out-turn
and approved started
declining
PI-2 Composition of expenditure out-turn compared to original approved budget
D
PI-3 Aggregate revenue out-turn compared to original
approved budget
D+ Actual revenue continue to
be above the budgeted
PI-4 Stock and monitoring of expenditure payment arrears
B. KEY CROSS-CUTTING ISSUES: Comprehensiveness and
Transparency
PI-5 Classification of the budget C-
Budget classification (GSF)
introduced but still it is
implementation is at a slow pace.
PI-6 Comprehensiveness of information included in budget
documentation
D + The budget documents are
still very weak but improvement is progressing
well.
PI-7 Extent of unreported government operations D+ Reporting on government operations is progressing,
slowly but steadily.
PI-8 Transparency of inter-governmental fiscal relations D+
Legislations inter-governmental fiscal relations
are being put in place to address the issues on fiscal
relation.
PI-9 Oversight of aggregate fiscal risk from other public sector
entities D Little information available.
PI-10 Public access to key fiscal information D+ Improving, access can be
obtained on demand
C. BUDGET CYCLE
C(i) Policy-Based Budgeting
PI-11 Orderliness and participation in the annual budget process
D+
Legislations are being prepared to establish clear
budget calendar and give more time to line ministries
to prepare their budget
proposals.
PI-12 Multi-year perspective in fiscal planning, expenditure
policy and budgeting
D+ Attempts have been made to
introduce a Medium Term Fiscal Strategy Framework
Has been developed.
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C(ii) Predictability and Control in Budget Execution PI-13 Transparency of taxpayer obligations and liabilities D+
PI-14 Effectiveness of measures for taxpayer registration and
tax assessment
D No tax identification in place
PI-15 Effectiveness in collection of tax payments D+
Attempts are made to
broaden tax – base by
bringing on board big companies and others.
PI-16 Predictability in the availability of funds for commitment
of expenditures
C- Cash flows forecasts are
prepared both at the central and ministerial levels
PI-17 Recording and management of cash balances, debt and
guarantees
D Lots is required to improve
recording and management of cash balance.
PI-18 Effectiveness of payroll controls C- Payroll controls is
progressing at slow pace.
PI-19 Competition, value for money and controls in procurement
D Constraint by institutional and legislative capacity.
PI-20 Effectiveness of internal controls for non-salary expenditure
D
PI-21 Effectiveness of internal audit D
Internal and external audit
are operated by the Auditor General
C(iii) Accounting, Recording and Reporting
PI-22 Timeliness and regularity of accounts reconciliation D+
Even though basic
procedures are in place, its application has been
minimal.
PI-23 Availability of information on resources received by service delivery units
D Still at the initial stage
PI-24 Quality and timeliness of in-year budget reports D+ Reports are still of poor
quality.
PI-25 Quality and timeliness of annual financial statements D+ Annual financial statements are produced with some
delays.
C(iv) External Scrutiny and Audit
PI-26 Scope, nature and follow-up of external audit D+ Auditor General submit regularly audited report to
House committees
PI-27 Legislative scrutiny of the annual budget law D+
The House Committees have been recently trained on the
oversight and scrutiny procedures.
PI-28 Legislative scrutiny of external audit reports D+
Lack of institutional capacity
constraint the Public account committee to play its
constitutional mandate.
Dr. Scek
31
Linking PEFA results with those obtained from the qualitative approach we get a bigger picture
that deepens our understanding of the interactions between the qualitative and quantitative
approaches. It provides information on inter –linkages of key influencing factors and defining the
priorities for the budget interventions whether linked to political patronage of national interests.
Challenges Facing Somaliland
Strengthening budgetary processes and systems in Somaliland is likely to be constrained by the
weak capacity of public institutions, weak centers of government and the Council of Ministers
that create problems of policy coordination and efficient planning; strong patronage system in
which most of the heads of ministries and public agencies are filled by friends, families and alike
of the government party and clan affiliation. This combined with weak human resources capacity
and information systems.
The key contributing factors to poor performance of improving budgeting processes in
Somaliland include:
i) Weak technical leadership;
ii) System development that was not tailored to the specific context of Somaliland
peculiarities;
iii) Weak links between planning and budgeting;
iv) Weak linkage of actual expenditure with approved budget; and
v) The off-budget issues.
Weak technical leadership: The Ministry of Finance even though one of the most powerful
ministry within the Council of Ministers, with an important potential role in coordinating and
driving improvement in the budget processes lack technical leadership and capacity to drive
reforms. In fact without the intervention and active leadership of both technical and political,
such improvements are unlikely to take place. Unfortunately, in Somaliland the of Ministry of
Finance is undermined by the fact, that the budgeting process is split into two, the Ministry of
D. DONOR PRACTICES
D-1 Predictability of Direct Budget Support D
No budget support provided as yet
D-2 Financial information provided by donors for budgeting
and reporting on project and program aid
D No information provided by
the donors on the projects disbursements or
commitment.
D-3 Proportion of aid that is managed by use of national
procedures D
It is large but not known as
all of it is done off budget.
Dr. Scek
32 | P a g e
Planning dealing with capital budget (capital investment project) and in the preparation of the
national development plan, which is often regarded as the preeminent policy document for
guiding the allocation of resources. While the Ministry of Finance deals with recurrent budget
among other functions. This practice in Somaliland led to not only fragments the budget process,
but significantly weakened the role of the Minister of Finance as a potential leader of the reform
process.
At technical level or capacity both ministries have limited capacity and as such they could not
play a leadership role at technical level to guide all budget stakeholders due the disintegrate roles
that two ministries had to play. The few qualified senior officials attached to the two ministries
continued to argue and counter argue whose role is to do what, such as who is responsible for
planning, budgeting, and aid coordination and related issues. This contributed to more confusion
on institutional roles and responsibilities within the executive arm of government.
System development: The system was developed in a systemic way; in fact it was put together
using a piecemeal approach by putting place what certain individuals or politicians thought it
was appropriate at a time. The results of this led to a budgeting structure that is confusing with
overlapping roles and responsibilities among the various budget stakeholders. Decisions on
resource allocations were made outside the formal institutions that are a typical formal policy
process might be in place, and many key decisions are taken informally. Powerful politicians
(Office of the President, ministers) and their immediate staff or friends at the center of decision
making, direct informal consultations among them and other leaders take place every now and
then.
The system has ignored the reality on the ground, which is based on the informal institutions and
personalized relationships that were operating within the system by focusing only to build the
capacity of formal budgeting institutions, which is a valid long term objective. In the short-term
informal arrangements cannot be ignored, as they could help stimulate and correct the system by
improving it stepwise.
Weak links between plan and budget: Somaliland does not have or has not developed plans in
recent times; the only one currently in place is the Reconstruction and Development Program,
which is supposed to be inter-related with the budget, so that the pattern of budget expenditure
would reflect the policies, priorities, goals and targets spelt out in the RDP. Unfortunately, the
linkages between the RDP and the Budget have not been established or even attempts were not
made to link them at the minimum. The budget is prepared independently without any planning
base. Although the RDP and some of the strategic sectoral plans, to a greater extent have the
necessary elements of a programmatic that link inputs into broader outputs and outcomes.
Weak linkage of actual expenditure with approved budget: Another fundamental weakness
observed is that the approved budgets never provided accurate estimates of what is actually
spent. It has been observed that the actual distribution of budget resources significantly deviated
from the allocation approved in the budget. This has been due to several adjustments made on
the allocations most of them done with the approval of the Minister of Finance without the
involvement of the House. Another factor contributing to the changes included problems
Dr. Scek
33
encountered during the execution that caused by delays in the release of funds, leading to wide
variation in the execution rates.
Off-budget Issue: The public Expenditure Management System in Somaliland is seriously
compromised by the fact that a large proportion of resources and expenditure is not recorded in
the approved budget bill (appropriation bill) or for that matter in the government accounts. This
in a total violation of the fundamental budget principles of integrality, comprehensiveness and
universality (PEFA) which require all government revenue and expenditure to be presented in a
single and comprehensive budget document.
In general it has been observed, that there are two sorts of extra-budgetary resources and
expenditure flows. The major one being the resources provided by the development partners and
disbursed through parallel channels, such the UN system and International NGOs. These are not
included in the budget and as such not reported to the Ministry of Finance for inclusion in the
approved budget estimates. Second is that there are few public institutions (ministries and
agencies) that raise, retain and use own revenues (appropriation in aid), such as fee for services
without providing information to the Ministry of Finance.
As there is no comprehensive information available on the extra-budget resources, it is only
possible to guess the size off – budget flows. Some observers indicated that development
partner‟s off-budget resources could be two to three times the actual budget. The second type of
flow related to NGOs might be insignificant but it is an issue that needs to be addressed.
As a result it can be inferred that the government accounts provide an incomplete picture of the
potential resources available to the government and the expenditure financed, it is then difficult
if not impossible to assess on the quality of the expenditure and allocated resources in a
prioritized rationale way. In effect, not all government finances and activities are subject to the
same rules and regulations. In fact all expenditure outside the budget system are not scrutinized
according the laws existing in the country, as the House of Representatives neither has a role to
approve nor to scrutinize on how the resources are allocated and disbursed. This is to say that
off-budget resources undermine democratic accountability of the budgeting system in
Somaliland.
Conclusions
It is clear that the budget is a key political instrument not only for mobilizing and allocating
resources but also through it is the institutionalization of democratic process of the budget. For
example democratic process through open budget is where the citizens and their representatives
have the opportunity to be consulted by the government institutions in the process of making
decision on how to allocate and disburse public resources.
The government by letting other stakeholders participates in the decision-making process agrees
to create a forum for checks and balances that forces the Ministry of Finance to negotiate with
other members of the government, key budget stakeholders, such civil society groups and private
sector, etc.
Dr. Scek
34 | P a g e
The observations from the analysis of both formal and informal institutions suggest that the
process of formulating, executing and monitoring the budget can be grouped into four main
categories, these are:
i. Executive undermining formal process,
ii. Weak accountability of key institutions;
iii. Weak or lack of demand for accountability; and
iv. Development partners conflicting interests.
Executive Undermining Formal Process
There is clear indication that formulation, approval, execution and the oversight of the budget
process has been bypassed by policy-makers to care for individualistic and incentives
converging to certain groups‟ interests in both resource allocation and disbursement. To the
extent that politicians, senior government officials and the interests groups use creative practices
to circumvent and reduce the transparency of public finances. These led to the manipulation of
the decision-making processes to be maneuvered by interest groups and as a result ended up
reducing the ability of the budget stakeholders to monitor the performance of the executive and
therefore aggravate the situation rather than mitigate the principal – agent problem.
Our investigation also found that senior budget officers and in general civil servants are
demoralized by the limited resources made available to them to do their job. Practically, they
turn themselves to major source of rent-seeking and budget institutions rent-providing behavior
and thus exercise a strong influence on the budget process.
Weak Accountability Institutions
Even though the Constitution, the Financial and Accounting Procedures of the State and other
laws and regulations in place provide basic statutory framework for accountability they have not
been followed by commitment to actual implementation. In fact, the Auditor General Office has
been under-funded, under staffed with no office facilities to enable them to put into practices any
of the existing legislations. This question whether the government is really committed to support
the central oversight institutions. There is also limited support provided to the few parliamentary
oversight committees. The committees actually do not receive any funding from government; the
little work they conduct on the budget is mostly supported either by some bilateral donors or
international NGOs.
Weak Demand for Accountability
Somaliland budgeting procedures originating from a cultural legacy of non-complacence of an
authoritarian dictatorial early 1970s Somalia combined with limited commitment to and
responsibility for national affairs to some extent still prevail in the current state-society relations.
It has been observed that most Somalilanders are neither aware nor informed on the budget. Of
those who have some ideas about the budget, they consider it as a government business and they
have little or nothing to do to do with it. This practically, shows lack of interest from the public
to demand accountability from the government on how it collects, allocates and uses public
resources.
Dr. Scek
35
The private sector has expanded considerable in recent years. It covers a wide range of
commercial ventures, including trade and marketing; remittances services; transport;
communications; airlines; telecommunications; other services, such as construction and hotel;
education and health, etc. Investment is mostly funded by large remittances from the Diaspora
and local business people. There is no clear relation between the state and private sector, the
government does not have any policy framework on the private sector development. The relation
has been practical that‟s “don’t mess me and I will not mess you attitude”. The private sector
does not bother itself on how the government is operated as far as the government does not
introduce taxes, so they will not demand for any accountability. On the other hand, the
government collect taxes at some entry points included ports, airports and border points. In
Somaliland, customs tariffs include both specific and ad valorem duty rates and range from as a
minimum of 3% to over 70%. It has been estimated that trade taxes constitute about 80% of all
government revenue.
The Non-state actors who were benefiting from donors support as most donors programs/projects
are implemented either through the UN system or through NGOs and not through the budget.
Non-state actors did not have any interest in demanding for accountability from the government
as they are the one receiving funding and not having to account to anyone.
Development Partners Conflicting Interests
The study suggests that development partners have never had any clear policy on how they
intended to support Somaliland, most of the support they provided were ad hoc and poorly
thought. They have been providing support through the UN system or through international
NGOs. There was little and in most cases no government involvement at all in the preparation
and implementation of the programs. The development partners created parallel systems where
they operated and sometimes conflicting with the state priorities.
Development partners led by the UN agencies and their associated consultants/advisors have
exerted substantial influence in the process, but achieved very little in reestablishing or
reforming budgeting institutions. Donors provided substantial proportions of funds that were
used to assess and design for several institutions and most of the funds were used for technical
assistance rather than capacity building. These led to the creation of a few parallel institutions
working outside the government system. This approach led to some kind of “dependency” on the
donors and their consultants to do a day-to-day operational work. The end result was inhibiting
the development of local capacity.
Donors exerted little effort to make the budget transparent and no did they demand budget actors
to be accountable. Donors funding were disbursed not in a transparent and accountable manner
neither to the beneficiaries nor do the government have any information on how donors recourses
were allocated and disbursed. Practically, this is in contrast to the idealized models of Public
Financial Management reform, such as the strengthened approach advocated by the Public
Expenditure and Financial Accountability (PEFA), in which countries are assumed to take the
lead in setting priorities, while development partners playing a supporting role in a coordinated
manner.
Dr. Scek
36 | P a g e
Policy Recommendations
Budget stakeholders (the executive, the House, non-state actors, line ministries and other
agencies, etc.) working closely in a transparent manner with the executive would be the most
productive route to all budget actors to influence on the budget process. This process might lead
to make government institutions accountable on how they spend their allocations from the public
resources and prevent officials from misusing entrusted funds. The budget process through its
formulation, approval, executions and monitoring is one of the key mechanism in place to secure
economic accountability. In this context, the Somaliland Reconstruction and Development
Program of 2007 jointly developed the World Bank, UNDP, development partners and the
authorities provides a platform for development partners influences and buy-in in the
development agenda through the budget process if applied properly.
The current form of support by the development partners has been ad hoc with emphasis on
political governance and little on economic accountability. Below are a few recommendations
and measures to improve the current situation and put into prospective a more comprehensive
and systemic approach to the budget process. These are:
Building a strong technical leadership that integrate or work under the umbrella of the
Ministries of Finance to coordinate and champion reform processes. This should be
combined with the design of a system that is tailored to the specific peculiarities of the
Somaliland situation. That‟s build on an incremental improvements aligned to the
development of the local institutional capacity.
Establishing of Resource Center for the House of Representatives – Budgeting is a very
specialized and technical field. A resource center, which the Committee of Economic,
Finance and Trade will ensure is effectively and efficiently operated by a highly multi-
disciplinary team, would be critical as it would provide to the committee members and
the House in general with a comprehensive, accurate information and analysis on the
budget that the members can use to challenge the executive in the areas of operations and
accountability.
Strengthening the Capacity of House of Representatives and its Committees – the
House and its committees were supported and financed through some donors programs,
which provided funding for committees meetings, allowances and some technical
assistance. In the future the support should move beyond allowances and ad hoc support
and address the systemic problems at the House that inhibits its functioning as an
independent institution with its own budget and clear agenda, such as establishing a
policy research and legislative drafting units would be a step in the right direction.
Strengthening Auditor General’s Office - the office should be strengthened in terms of
resources and human capacity to ensure that reports are prepared and finalized on time as
required by the law.
Enhancing the Consultative Budget Process – consultation among key budget
stakeholders is critical. To ensure that the executive consults the legislative and /or other
stakeholders in the budget preparation this could or should be entrenched in the budget
legal framework.
Dr. Scek
37
Budget Cycle Time – to strengthen the House and the various committees to be more
effective, additional time should be availed to them. This is required to allow the
committees more time to carry out thorough scrutiny. The suggestion is that the Ministry
of Finance should submit the draft budget to the House a few months earlier than it does
now, say by the end of October.
Increase Transparency through Information Sharing - simplify and publicize budget
information, that‟s a budget should provide clear and comprehensive information on all
aspects of government fiscal policy. Technical terminologies used in the budget
presentation should be simplified and the budget made available and accessible to the
public through all possible means of communications, media, internet and radio, papers
etc. This would help and facilitate demystification of the budget to make it more
accessible and transparent.
Reduce budget Optimisms – improve macroeconomic forecasting and make sure that
estimates are not over-optimistic; this would require making realistic assumptions on the
expected levels of both revenues and expenditures for the coming years.
Strengthening Demand for Accountability - crucial development should emerge of a
more effective House of Representatives, with resources for proper scrutiny of the
executive. More important at deeper societal level will be the empowerment of all the
stakeholders, including think tanks, Non-state actors and citizens at large, so they have
the capacity to obtain access to information and ideas, organize in support of their rights
and give voice to their concern can influence government policy and performance.
Dr. Scek
38 | P a g e
Annexes: Results of the Analysis
39 | P a g e
Annex I: Practices on how the Budget Process is being operated using Consultative Analysis
Public Institution Action Other Stakeholder’s Response Remarks
Stage I: Preparation and Consultation
There is neither a plan nor a Policy Framework
to start with. Therefore no policy instruments to
guide budget for resources allocation remain a
guess work within the circle of the Ministry
Finance.
There is no Act providing clear roles and
responsibilities of each budget institutions, but
several pieces of ad-hop legislations that most of
time created confusion and overlapping of the
involved budget stakeholders.
Ministry of Finance receive and harmonize
proposals from diverse interest groups
Line ministries determine departmental priorities
and prepare itemized budgets for resources which
they submit to the Ministry of Finance
Estimates provided by the authorities
on both revenue and expenditure are
unrealistic and overestimated to give
good impression rather than precision.
Translating development partners
commitments into action became a
nightmare as the donors neither
provided information on their
intentions nor how their disbursed
their allocated resources
No mechanisms in place to solicit and
process inputs from NSA, citizens,
etc.
Given the fact that there are no
sectoral ceilings set within the
macroeconomic framework, sectoral
ministries. An informal process is put
in motion, where ministries and
departments inflate resource bid the
MoF to receive minimum requirement
as it is well known that the MoF will
cut budget even if realistic figures are
requested.
End result a budget that is based
on unrealistic (or baseless)
information overambitious that
most of the time required
domestic borrowing negotiated in
unclear and despotic framework
with private business partners.
Budget that does not incorporate
citizens and other beneficiary
concerns.
The outcome would be a budget
that reflects political interests
rather than a focused and
prioritized one that reflect
national priorities.
Dr. Scek
40 | P a g e
Annex I (continued): Practices on how the Budget Process is being operated using consultative Analysis
Public Institution Action Other Stakeholder’s Response Remarks
Stage I: Preparation and Consultation
MoF harmonize and consolidate the budget after
consultation with line ministries and agencies
No consultation take place with Non-state actors
and the private sector and citizens
There are no sector working
groups established to discuss and
address sector priorities and their
allocation
This practically ignore inputs from
key stakeholders
A budget poorly prepared due
lack of available professionals.
A budget that does not reflects the
interests of major groups of the
society at large.
Stage II: Budget Approval
The Minister is required by Law to present the
budget to the House of Representatives by the
31st of October of the current year for the next
year budget and has to be approved by not late
the 31st of December.
Economic, Finance and Trade Committee of the
House, receive the budget from the Office of the
Speaker to scrutinize the budget for adequacy
and prioritization and present a report on their
recommendation to plenary
Most of the times the Minister
presents the budget to parliament
very late sometimes even after the
beginning of the financial year.
These happened several times
The time allocated to the committee is
limited and there in no way they can
make any comprehensive assessment.
Capacity of the committee is limited
as don‟t have needed capacity to
undertake budget analysis.
Little or no adequate is give to the
House of Representatives to
review and assess the budget. This
ended reduced the House to
rubber stamp the budget as
presented by the Minister. This
and the unfortunate limited
capability of the parliament to
adequately being able to assess
the budget before approval.
So the Minister of Finance has an
easy out and get his/her budget
easily approved
Dr. Scek
41
Annex I (continued): Practices on how the Budget Process is being operated Using Consultative Analysis
Public Institution Action Other Stakeholder’s Response Remarks
Stage III: Budget Execution
Once the Appropriation Bill is approved and
signed by the president, the actual disbursement
of funds for various user-ministries and
departments is put in motion by the Ministry of
Finance
Once funds are released to the institution the
accounting officer (the Director General) is
responsible for spending and accounting the
funds according to intended purposes
As there are no clear rules on how
prioritize the release of funds
politically connected institutions
are one to benefit most. Some
institutions overspend and get
more resources including the state
house, ministry of finance itself
and security. While other
institutions are starved and receive
insignificant amount of that their
needs are.
It has been a general practice by
the politically connected
institutions to use the funds for not
stated purpose, that is removing
funds from one line items to
another
Political and individual interests
of connected institutions end up
being more resources than other
and as result the process end up of
sectoral misallocation of
resources.
Approval is guaranteed by the
accounting officer after his/her
requested is approved the MoF.
Stage IV: Oversight, supervision
The authority of the Accounting Officer (DG) to
manage and account for resources includes
preventing wastages of allocated resources and
unauthorized expenditure.
There are no clear rules and
procedures as to who the DG
report to the matter related public
resources. To the Minister or to the
Ministry of Finance or other
institutions.
The DGs operate in an
environment of try to satisfy all
by bending the existing rules.
Dr. Scek
42 | P a g e
Annex I (continued): Practices on how the Budget Process is being operated Using Consultative Analysis
Public Institution Action Other Stakeholder’s Response Remarks
The Auditor General to investigate and make
recommendations to the appropriate authorities
any issue(s) he/she deems necessary in the
interest of accountability in the use of resources.
The Auditor General submit his/her report to
House of Representatives to be scrutinize for any
offenses, crimes or corruptions and evidence of
waste in the use of public funds
Non-state Actors, and medias‟ role on the
oversight is not yet developed it is in the early
stage
Role of the donors in the budget oversight
The Auditor General is far behind
in reporting to House of
Representatives and the relation
between the two institutions is not
in good term as the Auditor
General seems to be reporting
more to the executive than to
House
The various House committees‟
charges with the responsibilities of
scrutinizing the report are
technically and professionally
poorly equipped. The lack of all
the necessary facilities included
funds to operate and offices.
The NGOs are weak and most of
them lack credibility and
representation but most important
they lack knowledge in budgeting.
Their role is direct by it has or
could have a big impact
The Auditor General technical
capacity, funding and staffing is
in bad shape. In addition, the
Auditor General Office also lack
adequate office facilities and
needed technical instruments to
deliver its constitutional
mandates.
The committees are totally
dependent on development
partners technical assistance
which is also minimal and most of
the time inadequate for the needed
purposes.
These groups comprise actors
outside the government. These
include NGOs, trade unions,
professional associations, etc. The
role is to be developed and
strengthened in the futures
Donors are operating off – budget
and commitments are blurred by
confusion.
Dr. Scek
43
Annex II: Analysis of the Status of Budget Process in Somaliland Applying PEFA
Clarity of Roles and Responsibilities Open Budget Process
Roles
Structure of the Government - Hazy
Responsibilities b/w Executive and legislative – Poorly defined
Levels of Government (central, regional, districts)- Vague
State Enterprises - Faint
Private Sector - Non-t transparent
Legal Framework
Public Financial Management – Bill not in place
Budget Law -
Draft prepared by the House but never
took off due to political struggle b/w
executive and legislative
Taxes - Use of outdated and
rudimentary laws
Procurement law - Outdated law
Liabilities (debts) - Incognito
Contracts - Blurred
Preparation
Budget Calendar - in place but never followed
Fiscal projections and targets – imprecise and
distorted
Assumptions and budget documentations – kept secret
Linkage b/w policy and budget - rollercoaster ride as
there are no policies and
well defined
strategy to guide the
budget.
Coordination b/w budgetary and Extra- budgetary
activities – This process does not exist
Execution
Accounting, Recording and Reporting –
Very weak system
Cooperation Accountant General and Auditor General –
Very poor
Fiscal Report - Irregular
Audit reporting – With huge delays and poor quality
Supplementary budgets - presented to the House after funds
have been utilized
Dr. Scek
44 | P a g e
Annex II (continued): Analysis of the Status of the Budget Process in Somaliland Applying
PEFA
Public Availability of information Assurance of integrity
Completeness
Budget Coverage - Incomplete
Budget information on the past year and the following years –scanty
Debts, assets and liability – Not compiled adequately
Long-term public finance - little attempts made
Identification of tax/revenue - Non-t transparent
Friendliness
Summary simple guide (popular budget)– Not offered
Summary documents presented the House - Could be compiled
Fiscal Information at gross levels – Could be of great help to
budget stakeholders but not
offered
Timeliness
Calendar of publications – Not provided
Fiscal information - Published ad hoc
Quality of Information/Monitoring & Control
Forecasting of economic indicators;
Revenue and Expenditure
Overall ceiling and sectoral ceilings
- Not done properly due the lack of the
National accounts and other needed
macroeconomic information
Executive Control
Financial regulations and Guidelines
Internal Audit of all line ministries
Ensure Auditor General approval before fund release
Circular on the preparation of account s o All are there but poorly applied
Parliamentary Control
Parliamentary committees PAC & EFT scrutinize Audit reports
Evaluate sectoral issues and policies - (both not effective due to lack of capacity in the House)
Auditor General
Auditing and reporting on all accounts and submit to the House. –
Most of the report are outdated
Overview of PEFA 2010 and 2007 Indicators
45 | P a g e
Annex II (continued): Analysis of the Status of the Budget Process in Somaliland Applying
PEFA
PFM out-turns and key cross-cutting issues Budget cycle
Credibility of the Budget
Aggregate out-turn compared to the original approved Budget – Huge discrepancy observed
Composition of expenditure out-turn compared to original approved Budget– always high discrepancy
Aggregate revenue out-turn compared to original approved budget – Observed enormous deviation
Stocks and monitoring of expenditure payment arrears – even though detail information not available there has been a high level of payment arrears. Comprehensiveness and Transparency
Budget classification – Recently revised but there is not place a clear chart of accounts
Comprehensiveness of information included in the budget - limited to annual budget only
Extent of unreported government operations - Most of the expenditure incurred by the state house were not totally reported and the information is blurred by secrecy.
Transparency of intergovernmental fiscal relation – Not defined
Oversight of aggregate fiscal risk from other public sector entities – weak inst.
Public access to key fiscal information- reports released later
Public access to key Fiscal Information
Policy-based Budget
Orderliness and participation in the annual budget process- time
given to the line miseries is not adequate
Multi-year perspective in fiscal planning, expenditure policy and
budget
Predictability and Control in Budget Execution
Transparency of taxpayer obligation and liabilities
Effectiveness of measures for taxpayer registration & tax assessment
Effectiveness in collection of taxpayer registration and tax assessment
Predictability in the availability of funds for commitment of expenditures
Recording and management of cash balances, debt and guarantees
Effectiveness of payroll controls
Value for money & control in procurement
Effectiveness of internal controls for non-salary expenditure
Effectiveness of internal audit-all these need to be strengthened Or established anew.
Dr. Scek
46 | P a g e
Annex II (continued): Analysis of the Status of the Budget Process in Somaliland Applying
PEFA
Donor practices
Predictability of Direct Budget Support – As
Somaliland did start receiving direct budget
we cannot talk yet about predictability
Financial information provided by donors for
budgeting and reporting on project and
program aid- Donor channel the money though
the UN system, International lNGOs and other
no information has been provided to
Government up to now.
Proportion of Aid that is managed by use of national procedures- Zero
Overview of PEFA 2010 and 2007 Indicators
47 | P a g e
Annex III: Statistical Data
Deviation between Actual and Budgeted Expenditure
Description 2005 2006 2007 2008 2009 2010
Budgeted Actual Budgeted Actual Budgeted Actual Budgeted Actual Budgeted Actual Budgeted Actual
Total Expenditure 289,721,400 285,352,540 252,000.000 301,301,414
Over expenditure 4,368,860 -49301,414
Percentage
expenditure over
budget
98.5 119.6
Over Exp. as % of
the budget
1.5 -19.6
Dr. Scek
48 | P a g e
Deviation between Actual and Budgeted Revenue 2002 to 2006
(In billion Sl.Sh)
Description 2004 2005 2006 2007 2008
Budgeted 0ut-turn Budgeted Out-turn Budgeted Out-turn Budgeted Out-turn Budgeted Out-turn
Total
Revenue
144.8 146.4 148.2 164.1 164.6 175.1 202.7 209.4 280.0 229.1
Deviation
(+/-)
1.6 15.9 6.5 6.7 -50.9
Percentage 1.1 9.7 3.7 3.3 -18.2
Dr. Scek
49
Actual Revenue by sources
Head Sources Actual Revenue by sources of the years 1997-2008 in billions Base year (Average)
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Mean % Share
Growth rate 08
1.1.0 Indirect Taxes
25.9 34.34 52.15 59.95 68.13 98.55 111.4 133.5 150.4 159.8 189.7 204.1
107.327 90.59% 3226%
1.3.0 Direct taxes
0.303 0.401 0.57 1.292 2.201 2.165 1.5 3.5 4.7 5.1 7.4 8.1
3.10267 2.62% 167%
3.1.0 Properties income
0.001 0.004 0.063 1.109 0.801 0.518 1.7 1.6 0.5 1.9 3.3 6.9
1.533 1.29% 179%
4.1.0 Fee and Charges
3.303 6.333 2.935 5.443 5.121 5.257 5.9 7.8 8.5 8.3 9 10
6.491 5.48% 117%
Total 29.5 41.1 55.7 67.8 76.3 106.4 120.8 146.4 164.1 175.1 209.4 229.1 118.475 100.00% 3688%
Source: Ministry of Finance
Dr. Scek
50 | P a g e
Actual Expenditure 2002-2007
Head 2002 2003 2004 2005 2006 2007
Average Actual Exp
1) President's Office 3,250,524,000
3,250,524,000
3,250,524,000
2,600,419,200
2,600,419,200
2,600,419,200
2,925,471,600
1A) Vice-President's Office 1,000,000,000 1,189,000,000 1,189,000,000 1,151,200,000 1,151,200,000 1,151,200,000
1,138,600,000
01B Comm.Aides. 342,777,815 280,731,964
311,754,890
2) House of Elders 1,718,995,189
2,521,607,438
2,762,782,895
2,881,268,923
3,925,084,071
5,914,221,357
3,287,326,646
3) House of Representatives 1,697,044,331
2,467,836,119
3,063,687,978
3,018,186,444
5,953,018,906
5,584,533,941
3,630,717,953
4) Supreme Court 177,231,600
371,111,747
553,433,505
424,337,224
657,313,670
729,383,177
485,468,487
5) Attorney General 235,418,311
397,736,186
490,986,614
450,440,612
605,145,900
616,038,587
465,961,035
6) Civil Service Commission 252,058,314
276,214,550
398,104,010
511,861,938
445,938,111
573,892,396
409,678,220
7) Audit General 369,582,062
386,999,342
674,265,025
490,041,197
1,007,554,116
1,253,299,899
696,956,940
8) Misinstry of Presidency 5,870,727,864
6,164,981,848
10,236,186,504
11,383,568,060
12,277,360,300
12,302,938,002
9,705,960,430
8A) Procurrment Committee 71,994,696
93,535,954
132,244,882
115,214,658
315,783,088
208,441,112
156,202,398
8B) NERAD 295,858,243
180,429,961
268,182,553
313,887,413
264,589,543
9) Ministry of Foreign Affairs 1,087,690,281
1,657,571,893
2,220,187,144
1,852,626,107
2,070,767,042
1,964,508,028
1,808,891,749
10) Ministry of Justice 185,070,653
259,145,736
271,975,444
232,792,083
409,236,287
479,194,081
306,235,714
10A) Custodial Corps 4,417,339,443
5,555,094,950
6,909,919,333
6,290,239,041
6,714,614,282
10,739,215,474
6,771,070,421
10B) Court 966,755,005
1,684,118,363
1,876,318,379
1,944,031,413
2,866,410,172
2,749,198,373
2,014,471,951
11) Ministry of Interior 2,408,660,432
2,714,864,595
4,391,410,942
7,214,254,132
8,326,396,088
8,431,249,178
5,581,139,228
11A) National Police Army
Dr. Scek
51
12,808,260,011 14,409,900,721 18,834,650,239 15,499,408,790 16,139,351,512 21,308,227,390 16,499,966,444
11B) Coustal Guards 1,855,986,983
1,822,059,964
1,839,023,474
12) Ministry of Information 1,059,510,951
954,747,325
4,291,059,531
1,096,248,645
1,609,387,812
2,091,428,457
1,850,397,120
12A Somaliland National T.V 533,443,167
607,159,953
570,301,560
13) Ministry of Defence 425,708,865
531,636,270
664,206,649
8,130,235,013
8,475,765,453
10,558,446,521
4,797,666,462
13A) National Army 25,330,873,968
29,163,132,922
47,943,627,380
39,464,354,458
41,824,431,170
49,782,015,650
38,918,072,591
14) Ministry of Planning & Coordination 204,548,479
205,273,843
422,384,678
288,059,931
691,692,461
674,498,409
414,409,634
15) Ministry of Finance 7,643,660,447 6,284,039,197 7,824,619,086 13,284,122,356 9,410,259,862 15,530,148,642
9,996,141,598
16) Ministry of Commerce 311,015,264
343,345,112
1,152,936,576
866,327,077
1,059,576,338
786,158,912
753,226,547
17) Ministry of Water & Mineral Resources 318,674,819
343,846,490
579,747,092
512,616,318
781,882,430
768,545,325
550,885,412
18) Ministry of fishieries 279,405,028
343,869,728
1,010,416,958
856,999,349
1,222,460,097
905,048,269
769,699,905
19) Ministry of Agriculture 481,139,200
438,726,965
640,747,189
561,168,038
1,211,585,919
1,076,908,713
735,046,004
20) Ministry of Livestock 620,640,093
670,626,263
787,618,443
641,935,523
1,329,294,525
1,064,598,977
852,452,304
21) Ministry of Post & Communication 319,693,522
336,349,986
507,140,981
520,227,587
672,114,690
640,669,334
499,366,017
22) Ministry of Eduction 5,411,912,003
6,013,566,874
7,042,349,684
7,110,889,831
8,331,849,557
10,525,913,105
7,406,080,176
23) Ministry of Health & Labor 3,222,487,149
3,286,733,627
4,539,155,801
4,330,995,900
5,105,548,748
5,504,861,045
4,331,630,378
23A) Director General of Labor 379,805,993
379,805,993
24) Ministry of Religious Affairs 213,760,331
263,836,238
473,654,951
413,109,206
639,443,579
603,069,908
434,479,036
25) Ministry of Culture & Tourism 324,699,099
359,207,353
626,402,703
542,639,800
692,757,469
727,683,196
545,564,937
26) Ministry of Public Works 449,183,553
1,209,886,301
3,161,534,236
3,222,578,574
5,674,870,878
3,358,809,890
2,846,143,905
26a) Hargeisa Electricity Agency 284,228,000
1,225,635,818
-
503,287,939
27) Ministry of Civil Aviation 1,717,578,436
360,722,720
1,370,198,363
1,466,558,384
1,627,240,383
1,694,356,027
1,372,775,719
28) Ministry of Rural Development & Evironment
368,349,392
262,542,883
654,165,847
656,715,736
1,076,674,852
1,080,273,223
683,120,322
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29) Ministry of Rehabilatation 252,890,108
190,236,500
375,625,279
339,406,504
419,333,608
459,353,556
339,474,259
29A) NDC Agency 155,101,067
127,972,578
336,196,270
244,305,371
325,597,384
305,338,841
249,085,252
29B) National Deminning Agency 153,237,329
58,000,348
490,948,426
202,301,299
234,369,646
272,940,799
235,299,641
30) Ministry of Parliamentary Affairs 56,794,322
376,086,012
239,990,448
170,790,425
217,834,221
126,988,052
198,080,580
31) Ministry of Idustry & Energy 277,556,989
234,441,804
-
354,979,284
335,557,226
240,507,061
32) Ministry of Youth & sports 261,570,939
3,397,395,000
642,461,608
392,280,093
610,628,218
765,957,774
1,011,715,605
33) National Election Commision 549,138,000
170,681,538
459,385,000
4,751,944,000
616,599,639
8,476,310,400
2,504,009,763
34) National Parties Registration Committee 399,946,248
135,903,409
- -
521,905,636
264,438,823
35) Ministry of Family Affairs & Women 443,792,919
194,523,222 - -
319,158,071
Total 87,610,655,793
100,688,686,546
144,231,901,235
146,501,652,423
162,682,161,486
198,647,391,369
140,060,408,142
Source: Ministry of Finance
Overview of PEFA 2010 and 2007 Indicators
53 | P a g e
A. PFM-OUT-TURNS: Credibility of the budget Score
2010
Score
2007
Indicators PI-1 Aggregate expenditure out-turn compared to original
approved budget C- C-
PI-2 Composition of expenditure out-turn compared to original
approved budget
D D
PI-3 Aggregate revenue out-turn compared to original
approved budget
D+ D+
PI-4 Stock and monitoring of expenditure payment arrears
B. KEY CROSS-CUTTING ISSUES: Comprehensiveness and Transparency
PI-5 Classification of the budget C- D+
PI-6 Comprehensiveness of information included in budget documentation
D + D+
PI-7 Extent of unreported government operations D+ D
PI-8 Transparency of inter-governmental fiscal relations D+ D
PI-9 Oversight of aggregate fiscal risk from other public sector
entities D D
PI-10 Public access to key fiscal information D+ D
C. BUDGET CYCLE
C(i) Policy-Based Budgeting
PI-11 Orderliness and participation in the annual budget
process D+ D
PI-12 Multi-year perspective in fiscal planning, expenditure
policy and budgeting
D+ D
C(ii) Predictability and Control in Budget Execution PI-13 Transparency of taxpayer obligations and liabilities D+ D
PI-14 Effectiveness of measures for taxpayer registration and
tax assessment
D D
PI-15 Effectiveness in collection of tax payments D+ D
PI-16 Predictability in the availability of funds for commitment of expenditures
C- C-
PI-17 Recording and management of cash balances, debt and
guarantees
D D
PI-18 Effectiveness of payroll controls C- D
PI-19 Competition, value for money and controls in
procurement D NA
PI-20 Effectiveness of internal controls for non-salary expenditure
D D
PI-21 Effectiveness of internal audit D D
C(iii) Accounting, Recording and Reporting PI-22 Timeliness and regularity of accounts reconciliation D+ D+
PI-23 Availability of information on resources received by service delivery units
D D
PI-24 Quality and timeliness of in-year budget reports D+ D
PI-25 Quality and timeliness of annual financial statements D+ D
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54 | P a g e
C(iv) External Scrutiny and Audit PI-26 Scope, nature and follow-up of external audit D+ D+
PI-27 Legislative scrutiny of the annual budget law D+ D+
PI-28 Legislative scrutiny of external audit reports D+ D
D. DONOR PRACTICES D-1 Predictability of Direct Budget Support D D
D-2 Financial information provided by donors for budgeting
and reporting on project and program aid
D D
D-3 Proportion of aid that is managed by use of national
procedures D D