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Somalia 2017 Budget neglects allocation for development

Which way Somalia? Consumer budget with no public participation dims hope for growth. Somalia has made a 1 per cent adjustment to the portion of budget that is set aside for development in the 2017 budget estimates released by the Ministry of Finance.

Somali’s 2017 budget of $268 million only set aside 4.4 per cent of the funds to go to development leaving the rest as payment of salaries and funding other non-development activities.

The fraction is, however, a 1.4 per cent jump from the 3 per cent the government allocated for development last year in the estimates released by the same ministry.

Recurrent expenditure includes payments the government makes other than for capital assets, including on goods and services, (wages and salaries, employer contributions), interest payments, subsidies and transfers.

The country, however, needs better allocation on capital expenditures which are usually made for acquisition of fixed capital assets, stock, land or intangible assets.

The government also outlined its revenue collection targeting largely those employed and cross border trade. These are traditionally easy targets, outlining the weak plans to invest in revenue collections for the country badly in need of money to develop.

The collections mainly target income tax which is payable by all employers, government and private, and including not-for-profit organisations based on the payments, of wages, salaries, allowances and commissions made to their employees.

“In 2017 the Taxation Administration will pay special attention to income taxes due and payable by foreign workers, staff in NGO’s, and employees working in the hotels, telecommunications and utilities sectors of the economy,” the ministry outlined in the preliminary to the budget.

Employers are also expected to withhold taxes payable each calendar month and paid into the Treasury Single Account of the Federal Government of Somalia at the Central Bank, Mogadishu within 10-days after the end of each calendar month.

The preliminary statement and the guidelines issued by the ministry largely leaves out any consultations with the public hence the wide priority gap between the capital spending and allocations for consumption. The business community and the private sector who hold key to Somalia’s revenue mobilisation ought to have been properly involved to suggest possible priority interventions the government needs to make to enable them contribute the much-needed revenues.

The lack of public participation means even the meagre 4 per cent set aside for development may not meet the critical needs of the business community and the general public for whom it is meant for.

Domestic taxes and revenue (taxes plus fees) as a share of GDP remains very low in Somalia at about 2.7per cent of the GDP in 2016. This even makes it harder for the government already challenged by insecurity, drought and lack of infrastructure to provide services needed by the people.

The inadequate allocations for development also raises concerns over revenue management as recurrent expenditures continue to account for almost all expenditure while the government continues to make wrong projections in reliance on the hardly predictable external aid.

For the economy to stabilise, the World Bank in its latest analysis said the country needs reform policies that will strengthen its revenue collection, these are the capital expenditures on systems that will help the country collect and manage income efficiently.

“Beyond stability, significant investments will be needed to close the country’s capital and infrastructure gap, improve resilience, and improve the business environment over the medium term. Finally, reforms in public financial management (including strengthened domestic revenue mobilization), and strengthened governance are needed to raise more resources for development and ensure that the increased resources are used wisely and efficiently,” the World Bank wrote.

The deterioration of domestic revenues which began in the 1980s will have to be reversed as the tax to GDP continues on a downward trend to below the 10 percent (it declined to 5–6 per cent, one of the lowest rates in the world, in the second half of the 90s).

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