GOVERNMENT OF LIBERIA

Transcription

1 GOVERNMENT OF LIBERIA FISCAL OUTTURN REPORT FOR THE SECOND QUARTER OF THE FISCAL YEAR 2014/2015 OCTOBER 1, 2014 DECEMBER 30, 2014 MINISTRY OF FINANCE & DEVELOPMENT PLANNING FEBRUARY 2015

2 This document is prepared in accordance with Section 36.4 of the Public Financial Management (PFM) Act, which requires that the Minister of Finance provides a report to the President, the National Legislature and the general public outlining the budget execution and the revenue collections. Section 13.4 requires that this document outlines any use of the Contingency Fund. Section 26.3 requires that cumulative budget reallocations be reported. [T]he Minister shall produce a consolidated quarterly report comparing budget execution and revenue collections to the estimates contained in the National Budget. This report shall be available to the President, the Legislature and the general public within forty five days of the end of the quarter Government of Liberia, Public Financial Management Act (2009). Fiscal data should be reported on a gross basis, distinguishing between revenue, expenditure and financing; with expenditure classified by economic, functional, and administrative category IMF Code of Good Practice on Fiscal Transparency. Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 2

3 TABLE OF CONTENTS ACRONYMS... 4 DEFINITIONS... 5 EXECUTIVE SUMMARY... 6 SECTION 1: MACROECONOMIC DEVELOPMENTS... 7 SECTION 2: BUDGET FY 2014/ Public Sector Investment Program... 8 Stages of the MTEF Budget Process... 8 Fiscal Rules... 9 MTEF Budget Sectors... 9 FY 2014/15 Appropriations... 9 SECTION 3: OUTTURN AND DEVELOPMENTS Government Finance Statistics (GFS) Flow of Funds Revenue Tax Expenditures Allotments Commitments Budget Execution SECTION 4: PROSPECTS AND CHALLENGES LIST OF TABLES Table 1: Budgetary Appropriation - FY2014/15 (millions USD) Table 2: GFS Table, July 1, December 31, 2014 (millions USD) Table 3: Flow of Funds (July 1 - December 31, 2014) (millions USD) Table 4: Revenue Performance (July 1 - December 31, 2014) (millions USD) Table 5: Tax Expenditure Summary (July 1 - December 31, 2014) (millions USD) Table 6: Budgetary Allotment (July 1 - December 31, 2014) (millions USD) Table 7: Commitment (July 1 - December 31, 2014) (millions USD) Table 8: Summary of Budget Execution (July 1 - December 31, 2014) (millions USD) Table 9: Summary of Percentage Budget Execution (July 1 - December 31, 2014) LIST OF FIGURES Figure 1: Comparative Analysis of Budgetary Appropriation for FY2013/14 and FY2014/ Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 3

4 ACRONYMS AfT ASYCUDA BFP DMU DBDP ESRP GDP GoL GST LPO M&As MFDP MFP MT MTEF PRS-II PSIP Agenda for Transformation Automated System for Customs Data Budget Framework Paper Debt Management Unit Department of Budget and Development Planning Economic Stabilization and Recovery Plan Gross Domestic Product Government of Liberia Goods and Services Tax Local Purchase Order Ministries and Agencies Ministry of Finance and Development Planning Macroeconomic and Financial Policy Unit Metric Tons Medium Term Expenditure Framework Poverty Reduction Strategy II Public Sector Investment Plan Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 4

5 DEFINITIONS Allotment Appropriation Cash Cash Surplus/Deficit Commitment Net Cash from operating activities An authorization issued to an implementing M&A to incur obligations for specified amounts contained in a legislative appropriation. An authorization made by law or legislative enactment directing payment out of government funds under specified conditions or for specific purposes. Checks cashed or other payments from the consolidated account. Revenue minus Expenditure minus net Acquisition of Assets (capital expenditure). Payment request processed through appropriation, allotment, and stamped with pledge of disbursement. Revenue minus Expenditure (not including Capital). Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 5

6 EXECUTIVE SUMMARY The Liberian economy is estimated to have performed at a slower pace in the second quarter of FY2014/15, due to the prevailing public health crisis that has adversely affected economic activities across various sectors. Initially, the country s real GDP growth rate for 2014 was projected at 5.9 percent. However, due to the attendant adverse effects of the Ebola Virus Disease (EVD), the projected growth was revised downwards to around 0.3 percent, up from -0.4 percent at the end of the first quarter. This has placed a significant strain on the GoL s revenue generation capacity. This trend is likely to continue in However, given the number of fiscal measures currently being implemented, coupled with the interventions stipulated in the ESRP to accelerate the pace of recovery, the economy is expected to pick up once the implementation of these interventions begins. Inflation was estimated to be in the double digits at end of 2014, and is expected to remain at that level in early 2015 despite stable international prices of food and fuels. However, the average inflation rate during the quarter under review was 9.5 percent, a 0.5 percentage point lower than the average of 10 percent for the year. Liberia s balance-of-payment position is expected to deteriorate due to the lower volume of exports and increased importation of food, health, and fuel related commodities, thereby adversely impacting the exchange rate. However, due to the lower Liberian Dollar expenditure by Government arising from the austerity measures currently in effect, the Liberian Dollar nominal exchange rate against the US Dollar has been relatively stable. Other factors that have contributed to the relative stability of the exchange rate include the general slowdown in capital-related imports and the increased intervention by the CBL in the Foreign Exchange (FX) Market. Therefore, the average exchange rate during the quarter under review was 83 Liberian Dollars to 1 US Dollar. The National Legislature approved a budget of US$635.2 million for FY 2014/15, representing a less than 9 percent increase compared to an approved amount of US$ million for FY 2013/14. The budget underwent several changes, due to the public health crisis that has placed a strain on the Government s budget. The original proposal of US$559.3 million became unrealistic, warranting a number of revisions prior to its passage. Of the approved resource envelope of US$635.2 million, tax revenue accounts for US$339.2 million (53.4 percent); non tax revenue accounts for US$62.6 million (9.8 percent); grants, US$59.06 million (9.3 percent); on budget borrowing, US$108.6 million 1 (17.1 percent); and contingent revenue 2 accounts for US$65.8 million (10.4 percent). The total revenue (including borrowing) realized as at end-december 2014 is US$297.2 million, representing about 48 percent of the approved resource envelope. Actual revenue (excluding borrowing) collected during the period under review (July 1 to December 31, 2014) amounted to US$ million, representing about 39.2percent of the approved resource envelope. Of the realized amount, tax revenues accounted for US$179.4 million (71.9 percent), while non tax revenues and grants accounted for US$28.3 million (11.3 percent) and $US41.6 (16.7) percent respectively. Compared to the first quarter, actual revenue collected during the period under review showed a 0.5 percent decrease. This was due to a fall in taxes collected from income and profits and from international trade. Overall, budget execution remained relatively strong. Of the US$635.2 million approved total appropriation, US$303.6 million was allotted as at end December 2014 (representing 47.8 percent of the total appropriations). Of the allotted amount, US$269.3 million was committed (representing 42.4 percent of the total appropriations and 88.7 percent of the total allotments). The quarter under review saw a relatively high rate of budget execution in terms of economic classifications (i.e. compensation of employees, use of goods and services, and social benefits). 1 This includes IMF financing of about US$47.9 million to Liberia 2 This excludes borrowing Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 6

7 However, budget execution during the second quarter of FY 2014/15 inherited the challenges faced during the first quarter. Prominent among these was the slow pace of economic activities due to the EVD outbreak, which significantly reduced the country s GDP growth rate and revenue generation while sharply increasing public expenditure demands. The second quarter also saw the passage of the National Budget after over four months of execution based on the 1/12th rule, mainly to fund recurrent expenditures. Meanwhile, the GoL s commitment to the National Vision of achieving sustained economic growth and development through people, products and processes remains high on the agenda, although it was overshadowed by efforts to contain the EVD outbreak. SECTION 1: MACROECONOMIC DEVELOPMENTS In 2014, the Liberian economy was projected to grow by 5.9 percent, as opposed to earlier projections of 8.7 percent growth, based on GoL and IMF estimates. However, a recent assessment of the economy considering the effects of the EVD outbreak has resulted in a downward revision of real GDP growth from 5.9 percent to 0.3 percent for The initially projected decline to 5.9 percent growth in 2014 was mainly driven by the slow pace of economic activities in all sectors, especially the services, agriculture, manufacturing and mining sectors due to a fall in domestic demand as a consequence of UNMIL drawdown, and a fall in the global prices of the country s key commodity exports rubber and iron ore. This has further been compounded by the outbreak of the Ebola virus disease, which dropped the 2014 growth projection to 0.3 percent. Over the course of 2014, inflation was projected at 10 percent, up from 6.0 percent in However, during the second quarter of FY 2014/15, the average inflation rate was 9.5 percent. This is due in part to the increased demand for food commodities during the EVD outbreak. Liberia s current account balance as a percentage of GDP for 2014 is estimated at a deficit of 36.4 percent, up from a deficit of 34.7 percent for In 2015, the current account balance is projected to further deteriorate to a deficit of 40.5 percent (IMF World Economic Outlook, October, 2014).The projected decline in 2015 signals the impact of the EVD outbreak on the economy. The US-Liberian Dollar nominal exchange rate remained relatively stable during the first half 2014 owing in part to improved coordination between the fiscal and monetary authorities, and increased intervention by the CBL in the FX market. The average exchange rate during the quarter was Liberian dollars to 1 US dollar. SECTION 2: BUDGET FY 2014/2015 The Government of Liberia has remained committed to a strong, transparent and efficient budgetary process in order to achieve greater macroeconomic balance. A key factor in achieving this goal is fiscal discipline attained by prudent management of the available but meager resource envelope. This has necessitated the adoption of the Medium Term Expenditure Framework (MTEF) budget, which contains a revenue outlook and expenditure plan covering a period of three years with FY2014/15 being the final implementation year of the first MTEF budget. The use of the MTEF budgetary process informs and improves the inter- and intra-sectoral allocation of resources based on priorities set in the Agenda for Transformation (AfT), thereby linking the MTEF to the Country s medium term development agenda. It, furthermore, ensures greater budgetary predictability for line Ministries and Agencies (M&As) and the efficient use of public funds; and renders the budget more predictable, comprehensive, transparent, and capable of producing measurable results. The FY2014/15 approved National Budget reasonably highlights crucial national priorities, particularly expenditures that are geared towards curbing the current public health crisis, helping to maintain macroeconomic stability and placing the country back on the trajectory of achieving its development objectives as contained in the AfT and National Vision Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 7

8 Public Sector Investment Program The MTEF budget highlights the GoL s commitment to the vision for achieving sustained pro-poor and inclusive economic growth and development through people, products and processes. In an effort to enhance macroeconomic stability and expand the horizons of economic growth and development, the budget focuses on programs which are necessary to address the immediate impacts of the current public health crisis and invests in critically needed infrastructure in order to ensure that the economic recovery creates jobs and improves welfare conditions in Liberia. Though many of these infrastructure development projects are at risk, their implementation is essential to improving the infrastructure capacity of the country and enhancing medium to long term economic development. These investments are in two categories: A. National High Priority Level Projects: These are national investment priorities designed to meet the goals and objectives of the AfT, and are ranked as follows: Priority 1: Ports, Energy, Transport and Information Technology these include the rehabilitation of the Mt. Coffee Hydroelectric Dam, the West African Power Pool (WAPP), the Heavy Fuel Oil (HFO) Plant, the development and maintenance of major roads, and the installation of the fiber optic backbone in Liberia; Priority 2: Health to support programs and projects implemented by the Ministry of Health; Priority 3: Education to enhance education levels and develop human capacity; Priority 4: UNMIL Drawdown to ensure that national security is enhanced and sustained; Priority 5: Capacity Development in line with the National Capacity Development Strategy; Priority 6: WASH supporting and enhancing access to clean water, sanitation and hygiene; Priority 7: Youth Empowerment to create jobs for new entrants into the country s labor force through gainful employment generation; Priority 8: Reconciliation to promote national unity among Liberians; Priority 9: Agriculture to promote agricultural rehabilitation for smallholder farmers and rural entrepreneurs; and Priority 10: Economic Enhancement to provide support for domestic investment and activities that enhance economic growth and poverty reduction. B. Sector Level Investment Projects: These are projects developed by M&As to meet specific AfT objectives aimed at: Maintaining the stability and sustainability of financial systems; Promoting equitable access to infrastructure and basic social services; Improving the standard of living for the majority of Liberians; and Facilitating economic development and growth. Sector-level projects are selected based on socioeconomic returns such as the impact on job creation, revenue generation and contribution to public good, sector goals that are consistent with the AfT, and the geographical distribution of projects. Stages of the MTEF Budget Process The MTEF budgetary process and structure comprises the following phases: Strategic Phase M&As present plans and strategies linking resources to policy priorities based on the AfT; Operational Phase M&As prepare their detailed budgets; and Budgeting Phase the budget is structured into the eleven economic sectors consisting of groups of M&As that share common functions. It is also disaggregated into policy areas based on groups of administrative departments and projects within M&As that have common functions. Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 8

9 Fiscal Rules The key drivers of the FY2014/15 approved national budget are the response to the current public health crisis, and the GoL s commitment to keeping its development agenda on course. Therefore, a number of fiscal rules were adopted to ensure the effective and efficient use of the country s meager fiscal resources. These rules are intended to allow the GoL to manage the economic impacts of the Ebola crisis, while investing in the needed infrastructure and programs for growth and development. The major fiscal rules governing the FY 2014/15 budget are the following: Prioritization of spending on activities crucial to the fight against Ebola. These include spending on social welfare services such as feeding of patients in hospitals, clinics, and treatment (isolation) centers, etc.; and the provision of safe drinking water and sanitary supplies to quarantined communities; The placement of a moratorium on all non-essential purchases including vehicles, furniture, fixtures, office supplies, etc.; The placement of a moratorium on all non-essential foreign and domestic travels: o o o Reduction in foreign travels of all agencies of Government by 40 percent, with all foreign travel subjected to written Presidential approvals; Placement of a two-person limit per delegation, and a limited number of days for all foreign travel, with exceptions to be expressly granted by the President; The purchase of economy-class tickets only, for all officials on government trips, with the exception of the President, Vice President, Speaker and President Pro-Tempore; the Chief Justice, and the Ministers of Foreign Affairs and Finance and Development Planning. The automatic reduction in fuel and lubricant costs by 25 percent in all Ministries and Agencies (M&As) and commissions that are not directly engaged in the fight against Ebola. MTEF Budget Sectors The formulation of the budget on a sector-specific basis highlights the policy direction of the budget and simplifies the budgetary process. This guides the GoL in measuring the impact of the budget on different sectors, and improves the coordination among M&As within each sector during the budget preparation process. The MTEF budget is divided into the following sectors: Agriculture Education Energy and Environment Health Industry and Commerce Infrastructure & Basic Services Municipal Government Public Administration Security and Rule of Law Social Development Services Transparency and Accountability FY 2014/15 Appropriations The Executive Branch of the Government submitted a draft budget of US$559,349,000 to the National Legislature on April 30, 2014 for consideration and approval for the fiscal period beginning July 1, 2014 and ending June 30, The budget was revised considering the potential impact of the EVD outbreak. The National Legislature approved a budget of US$635,236,000 or L$53,359,824,000 for the fiscal period. The approved national budget shows a 9 percent increase, compared to FY2013/14; a 13.6 percent increase, compared to the draft submission of US$559,349,000; and a 22.8 percent increase, compared to the FY13/14 outturn (excluding borrowing). The 13.6 percent increase compared to the draft submission was mainly driven by increased public Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 9

10 FY13/14 FY14/15 expenditure demands arising from the Ebola crisis. On the basis of the MTEF, Table 1 shows a breakdown of appropriations in the FY2014/15 budget by sector and economic classification, compared to the economic classification totals for the FY2013/14 budget. The GoL appropriated wage bill accounts for 38.6 percent of the current budget (FY2014/15) compared to about 37.8 percent of the FY2013/14 budget. The increased wage bill can be partly attributed to the scheduled UNMIL drawdown, as the GoL expands its presence across the country to provide coverage previously provided by UNMIL, and the payment of compensation for health-care workers previously funded through other streams. Appropriations for capital expenditure seem higher in FY2014/15 as they include appropriations for PSIP spending. Excluding appropriations of US$114.4 million for PSIP spending, capital expenditure shows a decline of 60.9 percent, as compared to the FY2013/14. Appropriations for goods and services account for 27.7 percent of the FY2014/15 budget, compared to 22.8 percent of the FY2013/14 budget. The increased appropriation can be attributed partly to a US$32.5 million allocation to Ebola recovery programs for education, health, agriculture, and the private sector; and the expansion of GoL activities, in light of the UNMIL drawdown. Table 1: Budgetary Appropriation - FY2014/15 (millions USD) Use of Compensation goods and Capital Social Unspecified/ Budget Sectors of employees services Spending Interest Subsidies Grants benefits PSIP 1 Total Agriculture Education Energy and Environment Health Industry and Commerce Infrastructure and Basic Services Municipal Government Public Administration Security and Rule of Law Social Development Services Transparency and Accountability Total Total Capital spending in FY2014/15 includes PSIP. In FY2013/14 PSIP was classified as Unspecified until execution. Source: FY2013/14 and FY2014/15 National Budgets Appropriations for the provision of grants account for 13.7 percent of the approved national budget for FY2014/15, compared to 28.9 percent of the FY 2013/14 budget. On the basis of economic classification, appropriations for compensation of employees show an 11.1 percent growth in the current fiscal year budget, compared to the FY2013/14 budget; similarly, the use of goods and services has increased by 32.4 percent; capital spending, excluding appropriations for PSIP, has declined by 60.9 percent; appropriation for the provision of grants shows a decrease of 48.4 percent; while appropriation for social benefits decreased by 15.4 percent. Appropriations for Agriculture for the FY 2014/15 budget account for 0.9 percent as compared to 1.2 percent of the FY 2013/14 budget figure of US$7 million, representing a decrease of 15.7 percent. Appropriations for Education account for 10.3 percent of the FY 2014/15 budget as compared to 12.5 percent of the FY 2013/14 budget figure of US$73.1 million, representing a decrease of 10.7 percent. Appropriations for Energy and Environment represent 3.7 percent of the FY 2014/15 budget as compared to about 5 percent of the FY 2013/14 budget figure of US$28.8 million, representing a - Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 10

11 Agriculture Education Energy and Environment Health Industry and Commerce Infrastructure and Basic Services Municipal Government Public Administration Security and Rule of Law Social Development Transparency and Accountability decrease of 18.1 percent. Appropriations for Health for FY 2014/15 account for 12.4 percent as compared to 11.4 percent of the FY 2013/14 budget (US$66.2 million), representing an increase of 18.6 percent. Appropriations for Industry and Commerce for FY 2014/15 account for 2.4 percent as compared to 3.5 percent of the FY 2013/14 budget (US$20.4 million), representing a decrease of 25.5 percent. Appropriations for the provision of Infrastructure and Basic Services for FY 2014/15 account for 8.7 percent as compared to 5.8 percent of the FY 2013/14 budget (US$33.8 million), representing an increase of 62.7 percent. Municipal Government appropriations for FY 2014/15 account for 5.0 percent as compared to 5.4 percent of the FY 2013/14 budget (US$31.2 million), representing an increase of 1.6 percent. Appropriations for Public Administration account for 37.0 percent of the FY 2014/15 budget as compared to 34.1 percent of the FY 2013/14 budget (US$198.6 million), representing an increase of 18.4 percent. Security and Rule of Law appropriations for FY 2014/15 account for 13.2 percent of the budget as compared to 14.3 percent of the FY 2013/14 budget (US$83.5 million), representing an increase of 0.1 percent. Social Development Services appropriations for FY 2014/15 account for 1.5 percent as compared to 2.1 percent of the FY 2013/14 budget (US$12.4 million), representing a decrease of about 21 percent. Transparency and Accountability appropriations for FY 2014/15 account for 4.9 percent as compared to 4.8 percent of the FY 2013/14 budget (US$27.8 million), representing a decrease of 12.9 percent. Figure 1: Comparative Analysis of Budgetary Appropriation for FY2013/14 and FY2014/ FY2013/14 FY2014/15 Source: FY 2013/14 National Budget and FY 2014/15 Draft Budget SECTION 3: OUTTURN AND DEVELOPMENTS This section provides information on the status of revenue collection and budget execution against the National Budget, with emphasis on the period under review. Government Finance Statistics (GFS) Government Finance Statistics (GFS) is the government balance sheet, which displays the economic activities of the government covering revenues, expenditures, deficit/surplus, transactions in assets, transactions in liabilities and other economic flows. GFS forms the basis for Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 11

12 fiscal monitoring by international monetary institutions, most notably the IMF. Table 2 provides cumulative information of the GoL s GFS as at end second quarter of FY 2014/15, on a commitment basis. This includes all commitment expenditure for the period July 1, 2013 to December 31, Flow of Funds Table 2: GFS Table, July 1, December 31, 2014 (millions USD) Budget Commitments Revenue Tax Non- Tax Grants Contingent revenue Expenditure Compensation of employees Use of goods and services Interest Subsidies - - Grants Social benefits Sale of Non-Financial Assets - - Acquisition of Non-Financial Assets Spending on Capital* Net Cash from operating activities Cash Surplus/Deficit Financing Accounts Cash to (-)/from (+) - - Amortization - - Domestic Borrowing Foreign Borrowing o/w IMF Others Source: Departments of Budget and Fiscal Affairs, Ministry of Finance & Development Planning * Capital spending includes PSIP appropriation which are not classified until the point of execution The flow of funds table describes financial flows within the public sector; basically, it highlights how revenues finance expenditures. Table 3 shows the flow of funds as at end second quarter, on a commitment basis. Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 12

13 Table 3: Flow of Funds (July 1 - December 31, 2014) (millions USD) JUL AUG SEP OCT NOV DEC TOTAL TA Total Available R Revenue CR Collected Revenue TX Tax NTX Non-Tax G Grants CF Carry Forward ECA Expenditure (Commitment) Compensation of Employees Use of Goods and Services Capital Spending Interest Subsidies Grants Social Benefits PBA Projected Balance at Month End BCF Including Carry Forward BG Including Grants BWG Excluding Grants Financing 0.0 FR Required FI Amortization 0.0 FI Identified Account Commercial Concessional T-Bills CBL Source: Department of Fiscal Affairs Ministry of Finance & Development Planning Revenue The approved revenue envelope for FY2014/15 is US$635.2 million, of which core revenue (Tax, nontax and grant) amounts to US$460.8 million, contingent revenue constitutes US$65.8 million, and onbudget borrowing accounts for US$108.6 million. Of the total resource envelope, core revenue accounts for 72.5 percent, of which tax revenues, nontax revenue, and grants account for 73.6 percent, 13.6 percent and 12.8 percent, respectively. A major component of the projected tax revenue is taxes on incomes and profits, followed by taxes on international trade; while property income tax accounts for a significant portion of non-tax revenues, followed by administrative fees from ministries and agencies. The grand total revenue (excluding borrowing of US47.9 million from the IMF and US$5 million from the domestic private sector) collected as at end-december 2014 amounts to US$249.3 million. This represents approximately 39.2 percent of the approved resource envelope. Of the collected amount, tax revenues accounted for 72.0 percent while nontax revenues and grants account for 11.4 percent and 16.7 percent, respectively. Table 4 provides the breakdown of the GoL resource envelope for FY2014/15, and revenue performance as at end-december Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 13

14 Table 4: Revenue Performance (July 1 - December 31, 2014) (millions USD) FY14/15 Quarter I Quarter II FY14/15 Category (US$M) Approved Budget JUL AUG. SEP OCT NOV DEC ACTUAL GRAND TOTAL REVENUE EXCL. BORROWINGS TOTAL CORE REVENUE TOTAL TAX REVENUE o/w Taxes On Income & Profits o/w Property Taxes o/w Taxes On Goods And Services o/w Taxes On International Trade o/w Other Taxes NON-TAX REVENUE o/w Property Income o/w Administrative Fees o/w Fines, Penalties and Forfeits o/w Other GRANTS (ON-BUDGET) From Foreign Governments From International Organizations BORROWINGS o/w Domestic o/w Foreign CONTINGENT REVENUE o/w Budget Support (NOCAL, LPRC, NPA & LMA) o/w Domestic & External Source: Department of Fiscal Affairs, Ministry of Finance & Development Planning Tax Expenditures Tax expenditures are duty waivers granted to private enterprises and public spending entities as incentives intended to promote investment in support of the Government's policy objectives in various sectors of the economy public transport, mining, agriculture, forestry, etc. Most concessions are granted such exemptions, as part of investment incentives stipulated in their respective agreements. During the period under review, concession exemptions accounted for 45.0 percent of the total US$74.4 million tax expenditures incurred. Ministries & Agencies were the second largest beneficiaries of tax expenditures at 16.3 percent, followed by Executive Orders and Diplomatic Missions, which accounted for 11.9 percent and 11.6 percent, respectively. Table 5 provides the breakdown of tax expenditures by beneficiaries. Table 5: Tax Expenditure Summary (July 1 - December 31, 2014) (millions USD) JUL AUG SEP OCT NOV DEC Total Concessions Investment Incentives Diplomatic Missions GoL/Ministries & Agencies International NGOS Local NGOS Public Corporation Religious Institutions Educational Institutions Medical Institutions Ship Spare In Transit National Legislators Individual/Returnees Executive Order Petroleum Products Total Source: Department of Fiscal Affairs, Ministry of Finance & Development Planning Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 14

15 FY13/14 FY14/15 Allotments Allotments during the course of the first two quarters of FY2014/15 amounted to US$303.6 million, compared to million for the same period of FY2013/2014. Table 6 shows a breakdown of GoL allotment by sector and economic classification for FY2014/15, compared to the same period in the previous fiscal year. Table 6: Budgetary Allotment (July 1 - December 31, 2014) (millions USD) Budget Sectors Compensation Use of goods Capital Social Interest Subsidies Grants of employees and services Spending benefits Total Agriculture Education Energy and Environment Health Industry and Commerce Infrastructure and Basic Services Municipal Government Public Administration Security and Rule of Law Social Development Services Transparency and Accountability Total Total Sources: Departments of Budget and Fiscal Affairs, Ministry of Finance & Development Planning Compensation of employees accounted for about 40.3 percent of the total allotment for the first half of the fiscal period; and the use of goods and services, capital spending, interest & other charges, grants and social benefits accounted for 36.9 percent, 9.4 percent, 1.1 percent, 12.1 percent and 0.2 percent, respectively. More allotments for capital spending were made during the second quarter after the passage of the budget. Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 15

16 FY13/14 FY14/15 Commitments The total commitment issued out to M&As over the first two quarters of FY2014/15 amounted to US$269.3 million. Table 7 shows details of GoL s commitments issued during the period under review. Table 7: Commitment (July 1 - December 31, 2014) (millions USD) Budget Sectors Compensation Use of goods Capital Social Interest Subsidies Grants of employees and services Spending benefits Total Agriculture Education Energy and Environment Health Industry and Commerce Infrastructure and Basic Services Municipal Government Public Administration Security and Rule of Law Social Development Services Transparency and Accountability Unspecified Total Total Sources: Departments of Budget and Fiscal Affairs, Ministry of Finance & Development Planning Compensation of employees accounted for about 41.7 percent of the total commitments issued as at end-december 2014, while the use of goods and services, capital spending, interest, grants and social benefits accounted for 35.4 percent, 10.0 percent, 1.1 percent, 11.7 percent and 0.2 percent, respectively. Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 16

17 Budget Execution Budget execution during the course of the first half of the fiscal year was relatively slow due to delays in the passage of the National Budget. Upon the passage of the National Budget, the second quarter saw relative improvement in budget execution, compared to the first quarter. Table 8 provides a summary of budget execution by economic classification in millions of US Dollars, while Table 9 provides a percentage execution of the National Budget. Of the approved budgetary appropriation of US$635.2 million, US$303.6 million was allotted during the first two quarters, of which US$269.3 million was committed. Compensation of employees accounted for a significant portion of budget execution. Table 8: Summary of Budget Execution (July 1 - December 31, 2014) (millions USD) Budget Allotment Commitment Compensation of employees Use of goods and services Capital Spending Interest Subsidies Grants Social benefits Total Source: Departments of Budget and Fiscal Affairs, Ministry of Finance & Development Planning Of the total budgetary appropriation, 47.8 percent was allotted at the end of the second quarter, out of which 88.7 percent was committed. The amount committed represents approximately 42.4 percent of the total budgetary appropriations. Table 9: Summary of Percentage Budget Execution (July 1 - December 31, 2014) Allotment (% of Budget) Commitment (% of Allotment) Commitment (% of Budget) Compensation of employees Use of goods and services Capital Spending Interest Subsidies Grants Social benefits Total Source: Departments of Budget and Fiscal Affairs, Ministry of Finance & Development Planning Compensation of Employees: about 49.9 percent of the total budgetary appropriation for compensation of employees was allotted at the end of the quarter under review, out of which 91.8 percent was committed. Therefore, commitments for compensation of employees accounted for 45.8 percent of its budgetary appropriation. Use of Goods and Services: as at the end of the quarter under review, allotments for the use of goods and services amounted to 63.8 percent of the total budgetary appropriations, out of which 85.0 percent was committed. Hence, 54.3 percent of the total budgetary appropriation for the use of goods and services was committed at the end of the second quarter. Capital Spending: allotments for capital spending (including PSIP projects) at the end of the period under review amounted to 24.4 percent of its budgetary appropriation, out of which 93.9 percent Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 17

18 was committed. Hence, commitments for capital spending accounted for 22.9 percent of the total budgetary appropriation. Interest: allotments for interest spending at the end of the period under review amounted to 34.6 percent of its budgetary appropriation, out of which 86.1 percent was committed. Hence, 29.8 percent of the total budgetary appropriation for the payment of interest expenses was committed as at end-second quarter. Grants: about 42.5 percent of budgetary appropriation for grants was allotted over the first two quarters out of which 85.6 percent was committed. Hence, commitments for the provision of grants accounted for 36.3 percent of its budgetary appropriation. Social Benefits: Allotment for the provision of social benefits as at the end of the period under review amounted to 48.6 percent of its budgetary appropriation, out of which 97.3 percent was committed. Hence commitments for the provision of social benefits accounted for 47.3 percent of the total budgetary appropriation. SECTION 4: PROSPECTS AND CHALLENGES The budget execution during the second quarter of FY2014/15 inherited similar challenges faced during the first quarter. Prominent among these was the delay in the passage of the National Budget which resulted in the activation of the one-twelfth rule; coupled with the slow pace of economic activities due to the EVD outbreak, which considerably reduced the country s GDP growth rate and resulting in a decline in revenues and high public expenditure demands. However, with the passage of the National Budget during the second quarter, execution was no longer based on the 1/12th rule, which mainly focused on funding recurrent expenditures during the first quarter execution. GoL began funding development projects to keep its National Vision on track to achieve sustained economic growth and development through people, products and processes. A robust Economic Stabilization and Recovery Plan (ESRP) is being developed to guide GoL actions during and after the crisis. This plan is intended to address the impacts of the crisis on the economy, enhance macroeconomic stability, sustain investment in infrastructure, expand the horizons of inclusive growth and development and, most importantly, create jobs to improve the welfare of our citizens. Currently, the Agenda for Transformation is being reviewed in order to align the ESRP with the existing development agenda and the National Budget and to stabilize the economy as well as increase resilience. Second Quarter Fiscal Outturn I Ministry of Finance & Development Planning 18