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Oil Revenue Management Workshop

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In 2002, quasi-fiscal deficit of 6% of GDP and extra-budgetary expenditures of 14,7% of GDP. ... Identify Sonangol's quasi-fiscal activities and transfer them ... – PowerPoint PPT presentation

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Title: Oil Revenue Management Workshop


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

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 PEMFAR of 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 Topics Covered in the PEMFAR
  • 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

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

6
Dois Sistemas de Gastos Públicos
Two Systems of Public Spending
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 Sonangols
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 Sonangols concessionaire functions to
MINPET.
                             
9
The PEMFAR Recommendations to Restore
Normality
  • 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 Sonangols treasury-like operations
  • Transfer these activities to MINFIN
  • Strengthen the monitoring role of the Tribunal of
    Accounts

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 AUPECs financial model
  • Increased coordination between MINFIN-MAPESS to
    improve the capacity to estimate with more
    precision the governments wage bill

13
Government Actions to Strengthen the Budget
Process
  • Budget Execution
  • Guarantee the consolidation of the CUT
    (Treasurys 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 governments 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
Complicating Factors
  • 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
  • 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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