Page 26 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.74, # 2, 2017, pp. 4-31

Public Sector Accounts in Somali Economy and the Medium Term Fiscal Framework

Government of Somalia is re-establishing itself as a functional system of governance after decades
of conflict. This is a unique opportunity of building the nation and handling the various state of
affairs that the modern government should carry out and implementing. One of these important
functions is rebuilding and activating the public finance systems which considered to be of a
paramount importance and fundamental for fully functioning government machineries. The
significance of having a well-structured public finance system, its evolution and contribution to
achieving government responsibilities and fiscal objectives, through a given state of operational
activities ranging from establishing a realistic fiscal policy for the economy, to preparing as well as
implementing an operational and results oriented budgetary and treasury systems.

Notwithstanding and despite of all existed constraints and bottlenecks, the government has managed
to structure and issuing a federal budget since 2013. The 2013 Budget Policy Framework Paper was
prepared in accordance with Article 124 of the Provisional Constitution of the Federal Republic of
Somalia, and the draft Public Financial Management Bill. However, capacity for policy analysis and
development planning was weak to ensure proper alignment of policies with the budget and with the
overall development objectives. The budget mainly covers recurrent spending that is largely
comprised of salary payments. Consistent with Government commitments to strengthen security,
justice, public finance management and regional administration; funds have been earmarked as
“Allocation for the Priority Areas” with additional procedures for accessing these funds. These were
on the expenditure side. On revenue dimension, it is quite apparent that the revenue base for Somali
government is very low, so does the fiscal space. This is resulting of a number of reasons, amongst
others; is that most of the ports -main revenue generating source- of Somalia are not under the full
control of the federal government. Besides, a lack of a coherent tariff systems for assessment of
custom duties. This drawback, however, is exacerbated by the existence of a number of unapproved
border points through which goods are brought into Somalia without paying custom duties. That
said, the controls for ensuring that revenue is duly collected and fully accounted for are weak,
thereby increasing the risk of revenue leakages, where some of the collections are not properly
accounted for. Furthermore, there is a lack of reliable database on tax payers. In addition to the fact
that there is non-collection of fees from humanitarian airlines and ships by the government. These all
been aggravated by the currently disagreement about where to remit the Ports’ fees once collected, as
well as the level of Ports’ fees that should be retained by the Port management for running and
maintenance costs. All these important revenue enhancement related issues have to be urgently
addressed, within a comprehensive revenue and taxation systems laws and regulations.

Government Expenditure and Revenue: An Overview

The recurrent expenditures (spending on wages and services and salaries paid to civil servant, and
spending on goods and service), that government inject into the economy is about more than ninety
five to ninety nine times of public investment spending, in average, for the last four annual budgets
of Somalia (2013-1016). Investment, however, is not included in the annual budget as it is financed

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