Does the Ethiopian Budget encourage participation?

Does the Ethiopian Budget encourage participation? A Preliminary Assessment Elizabeth Mekonnen The African Child Policy Forum P.O.Box 1179 Addis Ababa, Ethiopia Tel. 251-11-552 84 07/09/10 Fax: 251-11-551 34 20 Website: www.africanchildforum.org

Does the Ethiopian Budget encourage participation? A Preliminary Assessment Elizabeth Mekonnen September 2005

Table of Contents 1. Introduction... - 2-2. Background... - 3-3. Does the Ethiopian Budget encourage participation?... - 4-3.1 Legal framework for transparency...- 4-3.2 Clarity of roles and responsibilities...- 5-3.3 Public Availability of Information...- 5-3.4 Independent checks and balances of budget execution...- 6-3.5 Budget decision-making processes...- 7-4. Conclusion... - 8-5. References... - 9 - - 1 -

1. Introduction The word budget used to turn off social activists and development practitioners. Debate on the budget or public finance in general was traditionally the domain of economists, academics and researchers. Public expenditure analysis was mainly the domain of government officials and academics. In recent years, however, the work of a few pioneering NGOs has demonstrated how policy advocacy can be strengthened by understanding, analysis and debate of budgetary issues. As civil society organizations increasingly began to engage in budget analysis, the absence of timely and accurate information and the closed process of budget planning and implementation have presented major challenges. Many governments in Africa do not make budget information readily accessible nor have they put in place legislation that guarantees access or broader stakeholder participation. The budget is not a subject of media analysis and debate as in Europe and North America. This paper attempts to examine whether the Ethiopian budget is transparent and encourages participation of legislature and civil society in government budget decisionmaking. The analytical framework adapted by the Institute of Democracy in South Africa (Idasa) in conjunction with the International Budget Project (IBP) was used to guide the review. The Idasa framework is based on the International Code on Fiscal Transparency developed by the International Monetary Fund (IMF) and Best Practice Guidelines of the Organizations of Economic Cooperation and Development (OECD). However, the Idasa framework has introduced a new dimension for effective citizens engagement in budgetary process and sharper focus on budget transparency rather than fiscal transparency. The review focused on five basic areas of transparency. These are: a) the legal framework, b) clarity of roles and responsibilities at national and regional level; c) public availability of budget information; d) independent checks and balances of budget execution and government data; and, e) budget decision making processes. The finding of the preliminary assessment draws heavily on desk review. A few interviews were carried out with officials at the Ministry of Finance and Economic Development (MOFED). This article was prepared as an input in an exchange programme on budget. The assessment is far from comprehensive and complete. However, to inform its programmatic work on child rights and economic policies, the African Child Policy Forum intends to carry out a comprehensive research on the budget. - 2 -

2. Background Ethiopia is a land of diversified ethnic and cultural compositions with more than eighty ethno-linguistic groups. The country is administratively structured with a federal system of government with a political system made up two tiers of parliament, the House of Peoples Representatives and the House of Federation. The administrative states are composed of nine regional states and two city administrations. The administrative hierarchy within a state is composed of a regional capital, zones, weredas (districts) and kebeles. Kebles are the lowest administrative units. Since 1997, the USAID has been supporting public financial reform and fiscal decentralization in Ethiopia through Harvard University s the Decentralization Support Activities (DSA) Project. Support for public finance management reform of Regional States was piloted since 2000. Currently, reform is being implemented in the remaining one Regional State. The Kennedy School of Government s technical assistance has been instrumental in helping to enhance governmental transparency and accountability in Ethiopia. The DSA supports the Ethiopian government Expenditure Management and Control (EMC) sub-program of the Civil Service Reform, which is managed by Ministry of Finance and Economic Development (MOFED). The Budget Information System (BIS) and the Budget Disbursement and Accounts (BDA) System implemented with MOFED produced the national budget in a timely manner. In 2004, the budget was ready six weeks ahead of deadline. When implemented nationally, the BIS/BDA system will enable speedy consolidation of the national budget and accounts, efficient tracking of sector expenditures, and improve fiscal transparency nation wide. The United States government thorough its Agency for International Development (USAID), Development Cooperation Ireland (DCI), and the Netherlands Minister for Development Cooperation have joined hands with the Government of the Federal Democratic Republic of Ethiopia to support fiscal decentralization in Ethiopia. - 3 -

3. Does the Ethiopian Budget encourage participation? Major Findings 3.1 Legal framework for transparency Ethiopia has a well established legal framework governing its budget system that derives from the 1995 Constitution of The Federal Democratic Republic of Ethiopia. The Constitution clearly defines structure, division of powers and responsibilities among the State organs. These are the structures of the organs of the Federal Government and of the State members. Article 12 (1) of the Constitution, states that the conduct of affairs of government shall be transparent. Sub Article 2 states that any public official or an elected representative is accountable for any failure in official duties. Furthermore, Article 29 of the Constitution stipulates the right of freedom to seek, receive and impart information and ideas of all kinds, regardless of frontiers, either orally, in writing, or in print, in the form of art or through any media of his choice. This also includes freedom of press and access to information of public interest. Therefore, this article provides legal basis for any individual, civil society organizations and other stakeholders to access information on budgets and budget processes. The Constitution provides the framework for people s participation through electoral representation. The House of Peoples Representatives is composed of 550 members. The Legislature has clear authority over the approval of budget estimated and expenditure. In general, the meetings of the House of the Representatives are public. The law specifies the condition and the process for having closed sessions. The House shall have a closed session upon the request of the Executive or members and when supported by a decision of more than one-half of the members. The legal frame work has made a provision for the Legislature to maintain an oversight over the Executive in the budget process. However, the practice in Ethiopia remains to be studied. The Office of the Federal Auditor General is established by Proclamation No. 68/1997. The Auditor General upon the recommendation of the Prime Minister is appointed by the House of Peoples Representatives. The office is responsible for the inspection of the accounts of all government bodies. Its task is to ensure that expenditures are made in accordance to the approved allocation for the fiscal year and submit report to the House. The Federal Ethics and Anti Corruption Commission is established by Proclamation number 235/2001 as an in dependant Federal Government body 1. The functions are 1 A revised Proclamation, No 433/2005 issued on 2 February 2005. - 4 -

combating corruption, investigating and prosecuting. The Commission is accountable to the Prime Minister and headed by a Commissioner supported by a Deputy Commissioner. Both are appointed by the House of Representatives upon nomination by the Prime Minister. 3.2 Clarity of roles and responsibilities The roles and responsibilities of different players (the Executive, the Council of Ministers, the Legislature) relating to the budget process are clearly defined and entrenched by law in the Constitution. The financial management function of the Federal Government of Ethiopia is regulated by the Federal Government of Ethiopia Financial Administration Proclamation No. 57/1996. The proclamation clearly outlines the budgetary process and prescribes clear authority and relationship. Accordingly, the Ministry of Finance and Economic Development (MOFED) issued directives and regulation required for proper implementation. The financial calendar outlines responsibility, procedures and time frames for each phase of the budget cycle. The preparation of the Fiscal Calendar was introduced in 2001. It clearly defines the financial planning and budgeting cycle; establishes time frames for development, approval and implementation. It also defines institutional responsibilities at each level of government. MOFED makes macro-economic and fiscal plans (forecasts) available for allocation to line ministries. It issues a budget guideline and indicative-spending ceilings. Each spending agency submits its proposal to MOFED. The overall budget envelope, finalized after budget hearing process will be submitted to the Council of Ministers for approval. The budget then is presented to parliament and published. MOFED coordinate donor funding and matches resources with relevant projects. All donor funds are subject to the approval of the Legislature and to normal budget reporting. The role and responsibility of the Auditor General are protected by a strong legal mandate and clear powers to investigate and report on all public accounts. In like manner, the role between the Internal Audit Departments of Line Ministries and MOFED Inspection Department has been clarified thus avoiding overlap of responsibility. 3.3 Public Availability of Information The Constitution grants access to public information, presumably, including budget. However, the implementation of this right is mixed. Information held by public authorities is not easily accessible to the public and comprehensive guidance on how to obtain such information is limited. - 5 -

Very little budget information is made available during the budget drafting phase. No pre-budget statement is released to the legislature or to the public for scrutiny and debate. The Federal Budget for each fiscal year 2 is published in the Federal Negarit Gazeta. It shows allocations for recurrent expenditure, capital expenditure and subsidy appropriation for the 11 Federal States. It indicates the source of fund (domestic revenue, external assistance and loans and domestic borrowing) and allocations by expenditure code, budget holder, function, head and sub-head. Progress has been made in the presentation of a comprehensive and consolidated budget. A number of off-budget funds that operates outside of the main budget structure are now incorporated. Budget reporting is strictly regulated and the computerized system introduced by the DSA project has been very helpful in collation of data, promoting efficiency and transparency to the budget system. Due to the Decentralization Support Activities (DSA) project funded by USAID backlog in closing accounts has been reduced. However, account reporting since 1999/2000 fiscal year is not yet available, thereby failing to meet the international standard of transparency and accountability. 3.4 Independent checks and balances of budget execution The accounts of public enterprises are audited by independent accounting firms of the Auditor General. The Auditor General submits its report to the House of Peoples Representatives. However, there is no evidence of systematic follow up of issues raised by the Auditor 3. Lack of resources and limited understanding about accountability among some members of the Budget and Finance Affairs Committee is considered as a barrier to maintain clear oversight of budget implementation 4. Some reports indicate that the more stringent mechanisms are needed to ensure that public offices comply with requests and queries from the Auditor General and /or with recommendation mad by the House of Representatives regarding audit reports. The Federal Ethics and Anti-Corruption Commission is tasked with the responsibility of combating corruption, investigating and prosecuting. A Special Procedure and Rules of Evidence Proclamation, No. 434/2005 has been put in place currently. The purpose was to amend and regulate the definition of corruption, the procedural and evidential provision related with the investigation and prosecution of corruption offences in accordance with the penal code. The activities of the Commission are made available for the general public and regularly published. Article 55 (17) of the Constitution gives the House of People s Representatives the power to call and to question the Prime Minister and other Federal officials and to investigate the Executive s conduct and discharge of its responsibilities. The Prime 2 The Ethiopian fiscal year runs from July 8 to July 7 the next year. 3 World Bank 2003. p.26 4 Ibid. P. 33-6 -

Minister and the Council of Ministers are responsible to the House of Representatives. The Prime Minister submits periodic report on work accomplished as well as on plans and proposals. The report of the Prime Minister is made public through the media. Lack of adequate capacity on the part of the legislature to research and analyze budget information, particularly audit reports seems apparent. Likewise civil society organizations generally do not have the skills or the knowledge to engage purposefully with the budget debate 5 limiting the capacity of the civil society to hold governments accountable. 3.5 Budget decision-making processes According to Article 55 (10) of the Constitution, the House of People s Representatives can approve general policies and strategies of economic, social and development, and fiscal and monetary policy of the country. It has the authority to levy taxes and duties on revenue sources and shall ratify the Federal budget. Furthermore, it approves the appointment of the Auditor General and other officials whose appointment required approval by law. (Article 55 (13). The role of the Parliament in general and the Budget and Finance Affairs Committee in particular is limited to approving the budget prepared by MOFED and the Council of Ministers. The House of the People s representatives make the budget open through a public call on the media. Recently, efforts have been made to open Parliamentary debates to the public. Civil societies are invited to take part in parliamentary discussion programs when new legislation is being drafted. Apart from these measures, concreted effort on the part of the Government agencies to engage the media and civil society seems limited. The Civil society in Ethiopia is not strong and only a few International NGOs are engaged in budget work. Their participation during budget hearing is limited to giving feedback or raising questions which may not necessarily be incorporated. The degree and nature of participation by the civil society as well as impact of their participation needs to be studied. On the budget day, government makes information available on its economic policy, fiscal framework and policy priorities for the upcoming year, estimated revenues and expenditures, as well as surplus/deficit. In general budget planning is a closed process with no participation. The public and the media have limited access to information about upcoming calls on budget discussion in due time. The civil society or any external stakeholder would have no information and access until it has been adopted and published in the Federal Negarit Gazeta. 5 Ibid. - 7 -

4. Conclusion In general, the legislature is sound and the legal frameworks such as the Constitution and other financial proclamations clearly state the nature of the budget system and the level of transparency. The introduction of the Fiscal Calendar has brought clarity on process of financial planning and budgeting. It clarified responsibilities among the various public intuitions at each levels of government. The drafting of the budget is neither transparent nor open to the public. However, the publication of the outcome (Federal Budget) is a step towards openness and transparency The legal provision for access to budget information is an opportunity for civil society organizations to realize the right to engage in budget related work and understand the dynamics involved. - 8 -

5. References Federal Negarit Gazeta. (1995). The Federal Democratic Republic of Ethiopia. The Constitution of the Federal Democratic Republic of Ethiopia, Proclamation No. 1/1995. Federal Negarit Gazeta. (1996). The Federal Democratic Republic of Ethiopia. Federal Government of Ethiopia Financial Administration, Proclamation No. 57/1996. Federal Negarit Gazeta. (1997). The Federal Democratic Republic of Ethiopia. Council of Ministers Regulations No. 17/1997. Federal Negarit Gazeta. (1997). The Federal Democratic Republic of Ethiopia. Establishment of the Office of the Federal Auditor Genera, Proclamation No. 68/1997. Fedral Negarit Gazeta. (2004). The Federal Democratic Republic of Ethiopia. The Federal Government Budget Proclamation No. 419/2004. Federal Negarit Gazeta. (2005). The Federal Democratic Republic of Ethiopia. Establishment of the Federal Ethics and Anti-Corruption Commission, Proclamation No. 433/2005. Federal Negarit Gazeta. (2005). The Federal Democratic Republic of Ethiopia. Revised Anti-Corruption Special Procedure and Rules of Evidence Proclamation, No 434/2005. Peterson, S. (2000). Financial Reform in a Devolved African Country: Lessons from Ethiopia. Development Discussion Paper No.766, June 200. World Bank. Ethiopia Country Financial Accountability Assessment, Vol. 1:Main report. June 17,2003. http://www- s.worldbank.org/servlet/wdscontentserver.wdsp/ib/2003/09/30/000160-9 -