GOVERNMENT COOKS THE BOOKS AS ECONOMIC CRISIS LOOMS

Price of fuel to shoot up

Attorney General, Fernando, and Minister of Finance, Danny Faure.

Evidence is now piling up that the decision of President Michel to dissolve the National Assembly less than six months of this body’s scheduled elections, after reaching the end of its natural life, has everything to do with a looming economic and financial crisis. What more, it has now come to light that while the Minister of Finance, Mr Danny Faure, has been unusually vocally quiet, his officials have been busy cooking the books to make the previous year’s public finances balance and to justify illegal overspending of the budget.

Reliable sources say that plans are well ahead to increase the price of fuel at the pumps by as much as 60% which will make a litre of gasoline rise from SR 7 to over SR 12 at the pumps in a desperate attempt to increase government revenue. Revenue from gasoline tax in the past has been as high as SR 175 million a year. This was achieved by a legal sleight of hand. In 2006 it barely brought in SR 30 million. This will mean that, unlike the last 17 years while we have been buying gasoline at the pumps as if the world price of oil was US$ 60 a barrel, we will henceforth be running our cars as if the world price of oil was US$ 120 a barrel.

Just before the First Gulf War in 1990 when the price of oil reached over US$ 60 a barrel, Mr Rene, who was then Minister of Finance under the one-party state, doubled the price of gasoline sold at the pumps in Seychelles. The price was further increased for no apparent reason under Mr Michel who took over from Mr Rene as the Minister of Finance in 1992. But after the Gulf War, which lasted only one month, the world price of oil tumbled to as low as US$13 a barrel and remained at about US$ 20 a barrel  until only a couple of years ago. In Seychelles, however, consumers continued to pay gasoline on the basis of US$ 60 a barrel until today. The difference in cost was collected by SEPEC, the government owned fuel import monopoly, and handed over to the government as trades’ tax.

The bottom fell out, so to speak, for the Government in the last couple of years when the international price of oil started rising steeply to its present level of US$ 60 a barrel. The effect is to wipe out the Government revenue – which got squeezed between the increased import costs and the pump prices. To save the day, GST was imposed on the price at the pump in 2003 but this is bringing in only a meagre SR 30 million at the most.

But recent decision to devalue the official rate of the rupee stealthily is causing its own havoc on the finances of the government. While SEPEC was merrily collecting trades tax on the difference between the import price of fuel and the prices at the pumps – which are set by SEPEC - both PUC (the government monopoly utilities company) and SPTC (the government monopoly public transport company) paid their fuel costs on the import price with a margin allowed to SEPEC for handling. As the import prices rose they had to fork out more to compensate SEPEC. Moreover, as the rupee started to depreciate under the “devaluation” plan SEPEC had to increase its rupee price charged to PUC and SPTC so as not to be out of pocket. The situation has forced the government to absorb these increases in costs with subsidies to both PUC and SPTC, a practice which is criticised severely by the IMF. These subsidies have become very alarming because it is taking an increasing share of government spending. When put together with the costs of servicing government debts they account for more than 25% of total government expenditure.

2006 was a particularly difficult year for government finances than the brave face put on by President Michel would have us believe. Now it has come to light that, in order to make ends meet without printing money,  the Government was compelled to use part of the US$200 million  proceeds of the dollar denominated government bonds floated in September last year to cover the huge hole in the budget caused by overspending spending to win the presidential election. But this decision ( you will be surprised to know) was not taken in 2006 when the 2007 budget was being prepared to be presented to the National Assembly. 

The decision was only taken in March 2007, when President Michel discovered to his horror, that more than SR 200 million of capital expenditures illegally made in 2006 for him to win the presidential elections cannot be paid for by the actual government revenues of January and February 2007. These have not been sufficient to pay even for the planned recurrent expenditures for the first two months of the year and there is an election on the horizon. It explains why the government could not pay the allowances promised to the post-secondary school students on time, while a conspiracy was being engineered to have early National Assembly elections even though the SPPF had not yet secured viable candidates in all the constituencies.

The crunch came over the last three months when the many friendly building contractors came knocking on the Ministry of Finance doors for their money for work done in 2006, the presidential election year. Many of them have lived on commercial bank borrowings during 2006 to keep in business, in order to win lucrative construction contracts from the government. The ones hardest hit were the smaller building contractors who provided trucks and cars to ferry SPPF supporters to the rallies during the presidential election campaign.

The manner by which this exercise was under taken, however, is tantamount to cooking the books by the Ministry of Finance in collusion with the Central Bank in order to mislead the National Assembly and the people of Seychelles. To make the books make sense in the distorted view of the Ministry of Finance a huge chunk of revenue was suddenly allocated to the month of December 2006 which “increased” government revenue for the month from its usual SR 300 million to an unusually large sum of SR 640 million, even though in the budget presented to the National Assembly this amount did not appear.

Under the Constitution, the Government has at least three months from the beginning of any calendar year to present a budget to the National Assembly for the year. This is to allow a transparent and accountable Government an opportunity to verify the figures of the previous year to ensure that representatives of the people in the National Assembly make an informed judgment of the request of the Government to spend public funds.

Ever since the multiparty system was introduced the Ministry of Finance under Mr Michel and now under Faure have preferred to present a budget for the following year before the previous year had ended. As a result most of the figures presented could be massaged or changed later. But the Constitution also requires the Minister of Finance to sign off the actual expenditures made the previous year by March 31st of the following year.  This year, it seems, massaging of figures or cooking the books in accounting parlance has been taken at a higher level still.

 The Constitution is very clear that if the government feels it needs to spend more than the approved budget or has already done so for good reason, it must present a supplementary estimate to be approved by the National Assembly before the financial year ends. In the subsequent year, however, it must also present a Supplementary Appropriations Bill (supplementary budget) to be approved by the National Assembly.  During 2006 the Minister of Finance, in collusion with the SPPF Members of the National Assembly and the Attorney General, made a mockery of the Article 154 of the Constitution by approving a supplementary estimate after the year had ended and then proceed to vote on a supplementary appropriation bill. 

The contempt for the Constitution shown not just by President Michel but also by the Attorney General is all too evident in the way the budget and its over expenditure have been presented to the National Assembly each year for approval. Each year the government would simply spend any amount it wanted without the authority of the Appropriations Act (the budget) which it is required by the Constitution to seek from the National Assembly, in violation of Article 154 of the Constitution.

This year cooking the books of the previous year by the Ministry of Finance, it appears, is not only blatant but it has reached new heights in pursuit of the contempt for which President James Michel and his Minister of Finance Danny Faure has for the Constitution. It appears that the Constitutional Court will be very busy during 2007 unless the people of Seychelles elects a majority of Members for the National Assembly from the Opposition Alliance to clean up the mess and  bring a measure of good governance and transparency to the public finances of Seychelles.

April 13, 2007
Copyright 2007: Seychelles Weekly, Victoria, Mahe, Seychelles