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Oil Revenue Management Workshop

Oil Revenue Management Workshop. By Francisco Carneiro, The World Bank Luanda, 16-19 de Maio de 2006. Quasi-Fiscal Expenditures and Compensation Mechanisms. Objectives of the Presentation. Brief description of the public finance management system in Angola.

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Oil Revenue Management Workshop

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  1. Oil Revenue Management Workshop By Francisco Carneiro, The World Bank Luanda, 16-19 de Maio de 2006 Quasi-Fiscal Expenditures and Compensation Mechanisms

  2. Objectives of the Presentation Brief description of the public finance management system in Angola. Highlight what has been done and what remains to be done to strengthen it.

  3. MethodologyBased on the PEMFARof 2004-05 • Assessment of the legal, institutional, and regulatory frameworks and comparison with actual practices. • Diagnosis and possible solutions based on existing discrepancies in the legal-institutional frameworks and in the practical implementation of the legislation, rules and procedures. • Prioritization of the role of the Government in the reforms already adopted (e.g., PMFP, EMTA).

  4. Main Themes: 1. Fiscal Performance 2.  Public Expenditure Management 3.  Financial Accountability 4.  Relation between Planning, Policies, and Budget 5. Credibility and Transparency in the Management of Public Funds Fiduciary Aspects: 1.  Legal and institutional frameworks 2.  Budget preparation 3.  Budget execution and monitoring 4.  Public Accounting 5.  Internal control 6.  External fiscal control 7. Legislative monitoring Main Topics Covered in the PEMFAR

  5. Institutional Weaknesses and Fiscal Position In 2002, quasi-fiscal deficit of 6% of GDP and extra-budgetary expenditures of 14,7% of GDP. INSUFFICENT BUDGETARY FUNDING FISCAL INDISCIPLINE EXTRA-BUDGETARY EXPENDITURES; QUASI-FISCAL DEFICITS; DISCREPANCIES

  6. Two Systems of Public Spending Dois Sistemas de Gastos Públicos Non-Conventional System Led by Sonangol. Transactions outside of SIGFE  Oil-backed debts Other quasi-fiscal expenditures Responsible for some 11% of total expenditures in 2002. Conventional System Led by DNT. Transactions registered in the SIGFE. Compensation Mechanisms Tax Retentions, Profit Oil Treasury Operations

  7. Negative Implications Informal mechanisms of compensation (MINFIN e Sonangol) Blurs transparency and accountability channels Weakens the budgetary process Creates uncertainty about the actual fiscal stance Impairs planning

  8. A Transitional Strategy Situation in 2004 ·Co-existence of conventional and unconventional public spending system. ·Compensation mechanism between Sonangol and MINFIN. · Growing fiduciary risk and weak supervision. ·BNA not acting as monetary authority in control of foreign exchange ·    Ongoing reforms in Sonangol, MINFIN, and BNA. Transition Period ·Identify expedient mechanisms. ·Eliminate fuel price subsidies. ·Identify Sonangol’s quasi-fiscal activities and transfer them to appropriate institutions. ·Implement a debt management strategy, reduce the need for oil-backed loans. ·Capacity building in MINFIN, MINPET, BNA. Arrival Point ·Respect fully the Lei Quadro do Orçamento. ·Respect fully the Lei Quadro do Banco Central. ·       Transfer Sonangol’s concessionaire functions to MINPET.

  9. Pilar I Strengthen the conventional system Expand and strengthen the credibility and the effectiveness of the budget Respect the Lei Quadro do Orçamento Pilar II Gradual elimination of the non-conventional system Reduce Sonangol’s treasury-like operations Transfer these activities to MINFIN Strengthen the monitoring role of the Tribunal of Accounts The PEMFAR Recommendations to Restore “Normality”

  10. A Gradual Strategy Towards Normality Establish clear reporting mechanisms among Sonangol, MINFIN and BNA Strengthen internal control mechanisms (MINFIN e Sonangol) to ensure that treasury-like operations respect fiscal policy objectives and acceptal public finance practices Improve accounting procedures to allow DNC to receive the necessary information to prepare quarterly budget execution reports

  11. Government Actions in the Domain of: Budget Preparation Budget Execution Public Accounting and Monitoring

  12. Government Actions to Strengthen the Budget Process Budget Preparation • Improve capacity to make projections • Adoption of AUPEC’s financial model • Increased coordination between MINFIN-MAPESS to improve the capacity to estimate with more precision the government’s wage bill

  13. Government Actions to Strengthen the Budget Process Budget Execution • Guarantee the consolidation of the CUT (Treasury’s Single Account) • Follow the correct procedures to execute public expenditures (cabimentação, liquidação, pagamento) • Train staff to operate SIGFE

  14. Government Actions to Strengthen the Budget Process Public Accounting and Monitoring • Adoption of a double entries system (SIGFE) • Training staff of the budgetary units • Establish appropriate accounting mechanisms to administer the government’s non-financial assets • Adoption of an accounting manual and a new Plan of Accounts

  15. There Are Still Important Steps To Be Taken

  16. Elimination of Quasi-Fiscal Expenditures • Careful assessment of the racionality for the different categories of such expenditures. • Eliminate those with weak justification. • Elaborate an action plan to transfer those which are justifiable to the appropriate organizations in the Government.

  17. An Appropriate Fiscal Strategy • Fiscal Policy and Debt Strategy: • Adopt a sustainable and forward-looking fiscal policy (MTEF). • Design a clear debt management strategy in which the need for oil-backed loans should be gradually reduced in a realistic timeframe.

  18. Improve Governance and Transparency Deal with Conflicts of Interest • The effectivness of Sonangol could be strengthened if there was a clear separation of its roles as (a) regulator; (b) commercial enterprise; and (c) social contributor. • Define a clear strategy to ring-fence and separate these functions and transfer them to the appropriate agencies/ministries within a reasonable timeframe.

  19. Phase Out Subsidies • (World Bank – UK Study) • Gradual, through periodic price adjustments. • Generate substantial fiscal savings. • Plan and implement parallel social safety net programs.

  20. Sonangol Concessionaire Regulatory functions Conflicts of interest Decisions about acquisitions (“Local Content”) Ring-fencing? Transfer to Ministry of Petroleum? Sonangol Commercial Commercial orientation Clarify functions as a state enterprise Focus on core activities Internal control and financial accountability External audits Complicating Factors • Issues to Address • Significant flows of public funds • It is essential that these be integrated in the formal expenditure and revenue circuits of the Government • Activities performed by Sonangol are clearly important, but it is necessary to increase the degree of oversight and control of the Government…

  21. A Reform Agenda

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