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May 28, 2013

PFM Law Reforms: Balancing Legislative and Executive Powers

Posted by Kubai Khasiani and Florence Kuteesa

A growing number of Parliaments in Commonwealth African countries are casting off their Westminster inheritance and demanding a greater role of parliaments in budget decision-making. The last decade has seen restive backbenchers in some of  these countries bring forward Private Member’s Bills which look to enhancing the legislature’s powers over the public purse at the expense of the executive. This approach has sometimes been fiercely contested or not fully supported, and the product of this struggle between the branches of government leaves many unresolved issues and, in some cases, an outcome that is fiscally challenging to the country.

For almost half a century after achieving their independence, former British colonies in Africa implemented a budget preparation system that enshrined a weak legislature and a strong executive in the decision-making process. Ian Lienert examined the British influence on budget systems in Tanzania, as an example, and noted that the  parliament was engaged only very late in the budget preparation process, had limited powers to alter the government budget after it was presented, and was often not consulted about changes made by the government during the budget execution phase. As a result, parliaments seldom had a significant impact on the size or distribution of government revenue or expenditure.

These constraints on parliamentary engagement in budget decision-making have served the executive well during the past decades and sustained the power of ministers of finance within the cabinet of ministers.  Given their lack of formal powers over the ex ante formulation and approval of the budget, parliaments focused their financial oversight function with mixed success on holding the government to account for the ex post  performance of the budget. With the support of the auditor general, for example, some African parliaments have drawn attention to examples of waste, corruption, or other misuse of funds. 

During the last decade or so, restive  parliamentarians in a few African countries have taken the initiative to reform the legal frameworks and traditions they inherited to give them more influence of the budget process. In particular:

  • In Uganda, the Budget Act of 2001 provided for a strengthened role and early involvement of policy makers in budget formulation and enhanced parliamentary scrutiny of the national budget. The Act established both a Parliamentary Budget Committee, with a mandate to scrutinize macroeconomic and fiscal targets as well the medium-term expenditure framework, and a Parliamentary Budget Office to analyze budget proposals and related economic developments. Line ministries were also mandated to provide ministerial policy statements that detailed the allocation of resources within a medium-term framework.
  • In Kenya, the Fiscal Management Act, 2009, specifically provided for parliament to regulate and oversee the national budget process, and to make amendments to the draft budget proposed by the executive. It also required the government to submit half-yearly reports on budget execution to the parliament.

While this “backbench revolt” provided parliament with a stronger voice in budget decision-making, it did not achieve a fully satisfactory legal basis for managing public finances. In Uganda, for example, the roles and responsibilities of the executive and legislative branches were not clearly stated, and there were inconsistencies in the treatment of supplementary appropriations, and budget execution. In Kenya, the comments made by parliament on the executive’s draft budget were not binding on the government.

In the last few years, however, there are encouraging signs that countries may be arriving at more coherent and lasting settlement of the issue of how to balance the legitimate financial interests of government and parliament. This new settlement is reflected in the enactment of comprehensive public finance laws that deviate substantially from the Westminster tradition:

  • In Kenya, the 2010 Constitution provided for a clear parliamentary oversight mechanism deliberately whittling away the powers of the ministry of finance in having the final say on the budget. The Constitution is supported by a new PFM Act,2012  which confers detailed responsibilities to the executive’s Budget Committee of the National Assembly including the review of the Budget Policy Statement and the budget estimates for subsequent approval by the full parliament. Unlike previous laws, the new legislation gives the parliament powers to provide general direction on budgetary matters while taking into consideration the views of the executive.
  • In Uganda, the government and Parliament are currently debating a new integrated PFM Bill which provides a comprehensive framework for legal reform that would address the existing gaps and inconsistencies in PFM laws and clarify the complementary roles of the parliament and executive.

Policy makers in other African countries who have been watching developments in Kenya, and Uganda, should be careful to draw the appropriate lessons from recent history. Creating an appropriate balance in the respective powers of the various branches of government is fraught with difficulty and potential risk. It is better that all branches of government work together to achieve a legal outcome that is balanced and fair, rather than acting unilaterally with the result that efforts to deal efficiently with the many fiscal challenges facing these countries are compromised. 

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy. 

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Comments

These initiatives are encouraging signs of an emphasis on democratic accountability in the budget processes of these African states. In a number of instances over the last 14 years my experience has been that, not only are executive branches often reluctant to allow for proper budgetary oversight by the elected representatives of the polity, but they have often also been supported in that resistance by elements within the donor advisory and technical assistance communities. Attempts to integrate legislative bodies into budget planning processes (particularly MTEF/MTBF development) have been resisted quite strenuously on the grounds that this infringes upon the competencies of executive bodies. Still less has there been agreement on the creation of sufficient capacity for legislative bodies to secure their ability to rigorously analyze the proposals of the executive. While obviously sensitive and/or pre-proposal information held by the executive should be protected, that should not be used as a rationale for non-inclusive budget planning and development processes. Congratulations to both Kenya and Uganda for their initiatives!

This is an important post, but it underestimates the powers of the Kenyan legislature and is perhaps overly optimistic about the "balance" of legislative and executive interests. For example, the Treasury no longer controls any budget, including the budget for Parliament itself, or for the Judiciary. Moreover, while last year's budget still saw substantial restraint by MPs in the amendment process, this year's budget process has a new component: the Division of Revenue Bill. This Bill, which will determine the relative share of national and county governments, is the first step in the new budget process. At this moment, Treasury's proposed figures for the division of revenue have been swamped by a newly aggressive Senate, a second house which participates primarily at this stage of the process. The Executive is virtually powerless to stop the Senate from allocating as much as it wants to counties. The only check on the Senate is the other half of Parliament. We are yet to see how they will use their authority. But the point is that Kenya is still working out a balance between the branches of government on financial control.

Budget planning and Development processes should as much as possible be inclusive. The Executive should share the justification for expenditure proposals with the Legislature; and the Legislature should make informed changes on the Executive proposals. The point of departure is the incentive/motivation for resource allocation. While the Budget may be tool for achieving the "Public Good" as diagonized by the Executive; it is also a political tool for delivering the "will of the people" as interpreted by the Legislature.
The supremacy of the legislature is checked by the electorate hence logically, the Legislature is constrained to act in the best interest of the electorate; the Executive(Presidency) in a democracy is also subject to the electorate.

How then can we achieve a balance between the "will of the people" and the "Public Good"?

This is not a matter that calls for a legal remedy.The Kenyan Constitution has sufficiently provided.The Executive will need to be more transparent by providing both the Legislature and the public the bare facts; while the Legislature will have no option but to face the facts. The healing will therefore be borne out of the apparent conflict; through the realization by the different parties of the implosive nature of the standoff!

This is an appropriate topic of discussion particularly in light of PFM reforms over the past decade that are increasingly emphasising results management of the budget in the context of sustainable fiscal and macro-economic framework. The "result" element appears to be what Kubai refers to as the "will of the people" if the budget is linked to the political manifesto of the day. The "result" also is also linked to accountability - a key function of the Legislature. While seeking to balance the executive and legislative powers in Uganda has been a welcome step, a creeping behaviour particularly on part of the Legislature, similar to what Lawrence has described about Kenya, has been to render the budget more political; in some cases the Legislature has sought to exclude itself form the discipline and accountability mechanisms imposed by the budget process. For example, a few years back, Parliament voted to have the Parliamentary Commission become a statutory vote making its expenditures less constrained by MTEF programming. Two years ago, Parliament attempted to review the budget to provide more money to teachers in response to a teachers strike for higher pay. Who will adjudicate in this delicate process as we seek to get an optimal balance? Greater transparency and accountability by each party right through policy discussions and budget formulation and reporting is critical. At the same time, the Executive needs to exercise a high degree of discipline in the management of public resources so that the Legislature does not feel that is authority is undermined.

Working together is so important. It allows everyone to have an idea of what is going on and have a say, rather than it be controlled by one party.

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