A Commentary on the Public Finance Bill

8/12/2019 A Commentary on the Public Finance Bill

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1 | Francis Gimara is the Executive Director of the Centre for Public Interest Law.

A COMMENTARY ON THE PARLIAMENTARY JOINT COMMITTEE

REPORT ON THE PUBLIC FINANCE BILL No. 25 OF 2012

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Author: Francis Gimara

May 2014

Introduction

The Minister of Finance, Planning and Economic Development (the Minister) introduced

the Public Finance Bill on 29th January, 2012. The Bill featured financial management

reforms aimed at tightening control and management of public funds.

The Bill was introduced during the wave of financial scandals and the delayed approval of

the 2012 year's budget, which forced Uganda to work together to improve its financial

management systems. Uganda's largest bilateral donor, the United Kingdom, alongside

Norway, Ireland and Denmark, had announced their suspension of aid after a report by the

Auditor General showed that about sh38b was embezzled by officials in the Office of the

Prime Minister. The World Bank had also said it was re-assessing its assistance to Ugandaover corruption allegations.

During the committee hearing on the Bill, the Ministry of Finance tabled a document with 55

changes to the original Bill, before a Joint Committee comprising members from the Finance,

Budget and Natural Resources Committees of Parliament. The Public Finance Bill has been

considered by the Joint Committee, who have now tabled their report to Parliament. This

commentary responds to the key recommendations of the report and the major concerns and

questions regarding the proposed legislation.

Positive Aspects of the Committee Report on the Proposed Bill

1) The Report of the Joint Committee introduces the principles for developmentof fiscal policy by rephrasing clause 5 of the Bill as follows:

5. Principles for development of fiscal policy

(1)The objective of the Government, when setting fiscal policies within themacro economic framework shall be to ensure macro-economic stability

and economic growth having regard to the National Development Plan.


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(2)The fiscal objectives shall be based on principles including sufficiency inrevenue mobilization; maintaining prudent and sustainable debt; ensuring

fiscal balance of non-oil revenue and expenditure; management of

petroleum revenues for public benefit; prudent management of fiscal risk;

agreement of the Budget with the National Development Plan; and

efficiency, effectiveness and value for money in expenditure.

(3)For purposes for this section the Minister shall set measurable fiscalobjectives in subsection 2 (a) to (e) in the Charter of Fiscal Responsibility

and the annual Budget Framework Paper.

The introduction of this clause is commendable because it gives the implementation

of the National Development Plan legal force. Furthermore, the alignment of the

Charter of Fiscal Responsibility under Clause 6 and the Budget Framework paper in

clause 7 will enhance discipline in the management of national resources by

government.

2) The Committee makes a recommendation to create one Petroleum Fund intowhich all the petroleum revenue which accrues to Government shall be paid

into.

This is a positive step from the Clause 52 of the Bill which had initially providedfor the Petroleum Revenue Holding Account and the Petroleum Revenue

Investment Reserve. Holding all the money in one account should make tracking

monies and preventing the misuse of funds easier, given the way public officials

have manipulated funds held in multiple accounts in the past.

3) Prohibition of using oil as collateral for a loan clause 70 which provides aprohibition on encumbrance of the Petroleum Fund. Under sub clause (4), a

contract, agreement or arrangement, to the extent that it encumbers a financial

asset of the Petroleum Fund, whether by way of guarantee, security, mortgage or

any other form of encumbrance is contrary to the Act and shall be null and void.

This is positive because it prevents irresponsible use of oil wealth at the expenseof future generations.


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Negative Aspects of the Report Regarding the Proposed Bill

The Bill has been challenged on both is legality as a law and also its content in

promoting good public finance principles and specifically oil revenue management.

1) Clause 12 (2), which allows the President to authorize the issue of monies from theConsolidated Fund in cases where the Appropriation Act has not yet been passed at

the start of any financial year, is lifted from the Constitution Article 154 (4) but in

the Constitution Article 154 (4) and (5) are read together. The omission of Article

154 (5) should be reconsidered to avoid ambiguity. By failing to include the

limitations on expenditure (that it should not exceed the amount shown for vote onaccount, and that it should be set off against the amount provided in the next years

Appropriation Act), the current version fails to control adequately how the President

can authorize the issue of funds from the Consolidated Fund.

2) The Bill vests too much power in the Ministers hands(Clause 52)Clause 52(3) provides that the Minister shall be responsible for the overall

management of the Petroleum Fund and shall oversee the transfer into and the

disbursements from the Petroleum Revenue Holding Account. This andseveral other

provisions on petroleum revenue management give a lot of powers to the Minister

and, without strong checks and balances in place, the system may be abused.

3) Sharing of revenues from royalties (Clause 71)Under clause 71 the Bill had provided for the Government to retain 93 percent of the

revenue from royalties arising from petroleum production. The remaining seven

percent was to be shared among the districts located within the petroleum exploration

and production areas of Uganda. The districts located within the petroleum

exploration and production areas of Uganda were specified in Schedule 6.

During the Committee stage the Minister proposed amendments to this section which

involved deleting sub clause (2) above, (4) and (7) in the following terms:

The M in ister responsible for petroleum exploration and development shall with in

a month, af ter approval by cabinet, publi sh the distr icts that wi ll receive the

royalty.

This position was adopted by the Committee and the word districts wasreplaced by

the Local Government. The discretion of the Minister to determine which districts are

to receive the royalties is retained in the law.


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The greatest mistake, in my view, is the failure by the Committee to come up with

guidelines for the Minister to exercise this discretion. It would be better that the

system of Governance in Uganda is taken into consideration and provisions made for

regional tier Governments to be operationalised. These funds would instead are

channelled to the Regional Governments to be used for infrastructure and

development projects. Empowering Regional Governments would also lower the

demand for Districts, and this would consequently lower the administrative costs.

This is indeed important, since the local governments are nearest to the ground and

are vital in matters of collection of revenue and development of the districts. This is

also in light of Article 176 of the constitution that states that the system of governance

is based on decentralization covering economic, political and social power.

Sub clause (12) is another potential area that needs review. It provides that:

where the revenue from royalties to the district is in excess of the total of the non-oil

revenue of a district, the excess money shall be held by the Minister, in trust for the

district.

Most districts have limited non-oil revenues and leaving the excess money to be held

by the Minister is not helpful. The better option would be to let the Local Government

to utilise the money.

4) The Budget Office and Budget CommitteeThe Report retained the Parliamentary Budget Office which initially had been left out

in the Bill. The office has played a pivotal role in analyzing the budgets, which in

most cases were voluminous and too technical to be understood by the Members of

Parliament many of whom are not qualified in that field. It was Parliaments way of

checking on the executive budget and use of public funds.

The Committee has rightly rejected its elimination, but by repealing the Budget Act

and placing this office under the Bill, the Committee has shifted the structure to aweaker foundation, and this makes it very easy for the law to be amended to do away

with the Budget Office.

Conclusion

Whereas the Bill can be commended on certain provisions including the prohibition on using

oil as collateral on public debt and other laudable provisions, certain aspects of the Bill

particularly those regarding royalties and Parliamentary Budget Office need to be reviewed

before the Bill is turned into law.

Documents

A Commentary on the Public Finance Bill