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The New Financial Management Law: What Has It?
Saturday 13 October 2019
* Researcher in the Euphrates Center for Development and Strategic Studies / 2004 -2019
Saturday 13 October 2019
It was launched on Thursday, 23 May 2019 (Federal Financial Management Law 2019) and published in the Iraqi newspaper Al-Waqa'e in issue (4450) on 5 August 2019.
The law aims to regulate the rules and procedures governing the financial and accounting management in the field of planning, preparation, implementation, control and auditing of the federal public budget, directing all federal revenues to the public treasury to cover public expenditure, determining the linkage of the internal control units in terms of administrative and technical aspects, setting the mechanisms related to the implementation of budgets and the commitment of each executing authority. The responsibility of the Ministry of Finance in the implementation phase, in addition to setting specific dates for submission of final accounts and adherence to the principles of the budget (transparency of the budget, budget comprehensiveness, budget unit and annual Budget and non-allocation) when creating and implementing the federal public budget and related matters in a manner that ensures macroeconomic and financial stability, promotes the allocation of budget resources, improves efficiency and effectiveness of expenditure, ensures optimal cash management, and improves the quality of budget information provided to the Council of Representatives and the public.
The following are the main advantages and disadvantages of the financial management law in force, with an attempt to highlight the divergences between the said law and the government program (2018-2022).
The Federal Financial Management Act of 2019 contains a large number of good items and paragraphs, including the following:
1- Article (6) IV stipulates that the deficit in the planning budget does not exceed (3%) of the GDP, which is an important rule to curb the inflated public expenditure at the expense of borrowing and the accumulation of public debt.
2 - Article (20) / second / obliges the Minister of Finance to submit a quarterly report on the uses of the emergency reserve of the House of Representatives, which is positive to tighten control and scrutiny of these amounts.
3 - Article (27) (V) requires the Ministry of Finance to download the amounts resulting from the non-transfer of ministries or regions or governorates that are not organized in a region for oil and gas revenues and other annual funding.
4. The Federal Audit Bureau shall issue its report on the final accounts provided for in item (II) of this article in accordance with Article 28 (3) of this article by the end of June of the following year.
Article 37 (7) stipulates that the account of oil and gas revenues shall be audited by an internationally recognized external auditor and the Federal Audit Bureau.
6. In accordance with Article 44, the Federal Minister of Finance shall submit a consolidated report on government debts within thirty (30) days from the end of the fiscal year to the Council of Ministers.
7. Article (50): (First) obliges all government departments to the basic principles and standards of transparency of the public budget and disclose the mechanisms of collecting and spending public funds and provide them with sufficient data, information, documents and reports on their financial and administrative activities (past, present and future) in a regular and timely manner. And publish them on their websites.
The new financial management law 2019 suffered from a number of weaknesses and conflicts with the government program (2018-2022) and the most prominent defects suffered by the new law are:
1. The new law obliges the Ministry of Finance and Planning and the Central Bank to attach a set of macroeconomic, financial and monetary indicators with the draft general budget law for review and audit before approving the budget. While this provides an integrated picture of the economic landscape, it will necessarily obstruct the approval of the budget within the timelines and increase the intensity of conflicts and conflicts over the items of the proposed budget.
2. Reducing the percentage of the emergency reserve to (3%) instead of (5%) contained in Article 8 (II), paragraph (d) due to the large allocation relative to Iraq's regular budgets.
3. Article (13) Third: The final financial statements for the previous year shall be approved as the basis for the financial statements for the year not approved by the federal general budget and submitted to the House of Representatives for approval.
- Paragraphs should be put in place to ensure the approval of the public budget without delay and delays in relation to the interests of the citizen, not opening loopholes to allow the parliament not to approve the budget at all, especially since the political situation in the country may affect the mood of parliament in rejecting or accepting the budget for reasons that may not be objective.
- The previous budget data for the next year cannot be adopted under any considerations, given the specificity of public expenditures and revenues, considering that the federal public budget is exposed to oil significantly, which is a volatile commodity and its future trends cannot be guaranteed, especially as the regional and global situation of energy markets foreshadows worrying tracks in terms of prices. And export ports.
4. Article (19) / (Second) refers to the use of surplus in the budgets in a sovereign fund. Question: Does Iraq have a sovereign fund and is it a stability fund or investment or generations?
5. Article (25) / (Second) specifies the percentage of transfer to (10%).
6. Article (46) (IV) gives authority to the Minister of Finance, the competent minister and the supreme head of the entity not affiliated with a ministry to write off lost, damaged, and damaged assets for any reason, including due to normal use. Here are the following observations:
- The validity of cancellation should be for unintentional work and not deliberate acts.
- Cancellation of lost assets must be determined by a ceiling for the minister's authority and a ceiling for the authority of the Council of Ministers and more than that must be obtained approval of the House of Representatives.
- Add “other than negligence and willfulness”
7. Article 37 (IV) permits the investment of surplus oil and gas revenues account in credible foreign financial assets. Here, the investment is preferably by the central bank rather than the Ministry of Finance being the state bank and runs its financial business.
8. According to Article (40) (First) of the region and the province that is not organized in a region after the approval of the Minister of Finance to obtain local loans. This article may provide the opportunity for the region and the provinces to expand lending without collateral, which raises financial problems about the point of payment in the future as is the case with the Kurdistan Region. Therefore preferably loans (above a certain ceiling) are conditional with the approval of the Council of Ministers and the House of Representatives.
9. Article (55) provides for the abolition of the Financial Management and Public Debt Law issued pursuant to the Coalition Provisional Authority (dissolved) Order No. (95) for the year 2004, with the exception of Appendix B of the Public Debt Law attached thereto. This means that the Public Debt Law will continue to apply.
- The Public Debt Management Law suffers from several technical problems and needs to be amended.
- There is no justification for the adoption of a new law for financial management without a law for government debt, although the latter is part of the first.
- The fragile financial situation and the accumulated debts need to reconsider the structure and content of the effective debt management law.
Financial Management Law and Government Program (2018-2022)
1. Article 53 grants the Minister of Finance the choice of any type of developed budgets in accordance with the requirements of the stage and provides the necessary capabilities. While the government program is required to be the budget of 2020 programs and performance budget as stated in the fourth axis (I) paragraph 1 in the government program.
2. The new program commits the Federal Government, specifically the Ministry of Finance, to start adopting the Government Financial Management Information System, which is not mentioned in the new Financial Management Law.
3 - The fourth axis (first) paragraph (9) in the government program to monitor the internal and external debt. This paragraph is one of the most important paragraphs of the fourth axis first / because of its repercussions on the economic and financial situation in Iraq in the medium and long term, has provided for: ((control of internal and external debt and prevent it from exceeding certain levels, and linking internal and external debt with investment projects and generating values And wealth and not to be used for consumer purposes or for operational purposes mainly for the budget)). The new Financial Management Law did not mention it any time soon.
4.E-collection has not been added to the new financial management law as it keeps pace with modern technology and development, which was approved within the 2019 budget, Article 16, II, and the Council of Ministers' Resolution No. 378 of 2018, which includes the draft of electronic collection and payment and e-government.
5- The new Financial Management Law did not mention the necessity of settling the final accounts of the past years within specific and binding timelines, as promised by the government program (2018-2022).
What the new law missed
1- Defining the financial frameworks and rules governing the public expenditure path within the criteria of efficiency and effectiveness and achieving financial sustainability.
2 - should focus the efforts of fiscal policy in Iraq in the search for great opportunities for non-oil resources, which is absent from the law clearly.
3. The surpluses generated by the weak implementation of the investment budget should be transferred to the investment budget for next year (exclusively).
4 - The Iraqi oil economy requires the establishment of a sovereign fund to undertake the task of isolating the general budget and macroeconomic from the fluctuations of world oil prices, in order to achieve stability on the economic and financial level and the preservation of the rights of future generations, in addition to being an important basis for the initiation of projects of priority economic and social in order to achieve success in Economic development process.
5- Establishing the Iraqi sovereign debt fund, which is financed mainly from the financial abundance achieved due to the difference between the oil price fixed in the budget and the current price in the markets.
* Researcher in the Euphrates Center for Development and Strategic Studies / 2004 -2019
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