MANAMA: The government entities in the Middle East suffer from the absence of clear and consistent methods to project and monitor the level of funds they require to properly perform their duties, according to Booz & Company latest report.
"Without realistic estimates of future expenditures, governments perpetuate a spiral of overspending in certain areas and under-spending in others, and take on expensive debt to overcome the cash flow shortfalls that inevitably result," the report warned.
"Governments around the world are in various stages of fiscal reform, with many taking the steps necessary to more effectively rein in costs and better align spending with revenues. In the Middle East region, Egypt, Jordan, and the United Arab Emirates are among the leaders implementing new systems to gain greater transparency in their fiscal management processes," it said.
"As finance ministers in the Middle East seek to improve their fiscal oversight, one approach gaining favour is the adoption of a government fiscal management information system (GFMIS). This standardised, robust, and automated system for managing government revenues and expenditures is giving finance ministers and other decision makers the tools they need to improve government services, reduce costs and attract better borrowing terms," it added.
The report said that the special care should be taken to develop a clear strategy and establish realistic expectations.
"Designing a GFMIS programme with a vision of how each end-state element will support critical fiscal management processes, and introducing the programme methodically through modules, will dramatically increase the efficiency of the implementation and help stakeholders to see the benefits," said Ramez Shehadi, a partner at Booz & Company.
"Once budgets are approved and appropriated, Middle East countries then often struggle with managing actual revenues and expenditures. Liquidity shortages force governments to take on additional and unnecessary debt to fund cash shortfalls," added Shehadi.
"A further fiscal management issue faced by governments in the Middle East relates to budget reporting. Middle East countries often lack basic transparency in their standard budget lines across government entities. This shortcoming complicates the aggregation and analysis of financial activities, leading to delays in the budget reporting process and inaccurate information," the report added.
The government fiscal management (GFM) cycle, the report said, begins with the preparation and approval of government entities' budgets before the start of the new fiscal year, and the allocation of these approved funds according to planned expenditures. As government entities purchase goods and services, funds are released to pay suppliers. Cash inflows and outflows are closely monitored to ensure adequate cash is on hand for short-term needs, while funds to meet long-term budget needs are raised through raised revenues and debt. Financial transactions are reported and measured for performance and compliance against the approved budget. Finally, fiscal operations are audited to ensure compliance with national and international standards.
"A healthy fiscal management cycle enables a multitude of significant performance improvements, including greater transparency and accountability, tightened fiscal control, improved accounting and reporting, reduced cash flow shortfalls, improved credit ratings and cost savings," said George Atalla, a partner at Booz & Company.
In generality, the report said, across the globe government leaders are undertaking ambitious fiscal management reform programmes and developing countries are following suit.
"With funding and active support from international bodies such as the World Bank and the International Monetary Fund (IMF), they have begun turning to GFM reform as a way of decreasing public debt, increasing fiscal transparency and improving overall fiscal management," it added.
By MAHMOOD RAFIQUE
© Arab News 2010
