Establishing Public Financial Management system in federal member state in Somalia

item 3

In early 2014 the Stability Fund began negotiations with the newly established Interim Jubbaland Administration to agree on a set of priority areas for investment. In the course of these discussions the Administration requested technical assistance to develop the capacity to manages public funds and generate revenue. The Stability Fund seized on this area as a critical step towards establishing functional governance in the state and supporting service delivery. The Fund set about developing a simple-to-use expenditure management process that was supported by a powerful, world class Financial Management Information System (FMIS). Building on early success in Jubbaland, the Stability Fund has since worked with both the Interim South West Administration and the Interim Galmudug Administration to develop identical systems.

The Stability Fund’s approach was to rapidly implement basic financial functions, but with a longer term plan in mind to introduce additional functions over time. The system was designed to enable ministries to analyse spending and to track and support priority activities. Ensuring compatibility with the expenditure classification used by the Federal Government was an important consideration, so that reports could be shared with the FGS. All the system work was supported by development of enabling decrees for financial management and revenue collection. In particular, the legal framework supported the establishment and operation of a Treasury Single Account.

meetingInitial efforts to support Jubbaland to develop a budget in late 2014, based on the ministry structure established by the Council of Ministers, was an interesting challenge. Ministers’ wish lists far exceeded Jubbaland’s modest revenue raising capacity. The Stability Fund’s emphasis on creating a realistic and credible budget that matched anticipated revenues resulted in an approved budget that was flexible. The process also allowed for unanticipated donor assistance to be introduced into the budget. In parallel, the Stability Fund assisted Jubbaland to implement a Budget Preparation Module (BPM) which has greatly enhanced the state’s capacity to prepare and enact the annual budget appropriation bill for 2015 onwards.

With regard to revenue mobilization, Jubbaland was particularly keen to establish a Revenue Collection Authority to coordinate revenue collection in the state. The Stability Fund assisted with the development of a strategic plan for this purpose, emphasising the need to ensure that citizens understood why they were paying taxes and how, in the longer term, they would benefit, initially through government providing security. This was accompanied by implementing a Revenue Management System (RMS) addressing taxpayer identification and registration, calculation and recording of taxes paid and the ability to identify and manage delinquent taxpayers.

The Stability Fund rounded out the immediate financial management requirements by assisting the Ministry of Finance to: develop a robust procurement policy and procedures manual and related bidding documents; establish a Public Procurement Department: and recruit and train the staff. Importantly, to demonstrate capacity, albeit modest, the Department undertook procurements with SSF resources channeled through the Treasury Single Account, which was established during the implementation of the FMIS. As the Department’s capabilities grow, the Permanent Secretary of Jubbaland Ministry of Finance is enthusiastic and hopeful about the potential for lasting impact. “In Somalia and in Jubbaland, just as security and stability requires a credible army, state building and reconstruction requires sound public financial management; without proper economic and financial governance through a sound PFM to ensure adequate resources, there cannot be an effective army to guarantee peace and security”, said Mohamud Sheikh Ibrahim Liban.

Overall, the Jubbaland experience shows that creating a working financial management system that meets international standards is feasible, particularly where the will of the administration is strong. The administration understood that without the system, progress in providing services to the community would not occur.

As highlighted above, the initial success in establishing the overarching PFM system, which had taken less than 12 months to implement, was quickly recognized by the other emerging states, South West and Galmudug, as a benchmark model they could adopt at low cost and little risk in the context of establishing systems in their own state. Accordingly, in mid-2015 the Stability Fund assisted South West State to introduce the entire PFM system, including Ministry of Finance recruitment and training, over a six-month period. Galmudug State followed in late 2015, with full introduction and operation by April 2016.