## cr17266 ## Source details **Canonical URL:** [cr17266](https://www.imf.org/-/media/files/publications/cr/2017/cr17266.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2017/cr17266.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2017/cr17266.pdf.json) --- ### Mission context and composition - A Fiscal Affairs Department (FAD) technical assistance mission visited Kampala during March 17–28, 2014. - Mission team: Ms. Suzanne Flynn (mission head), Ms. Lynne McKenzie, Mr. Conrad Smewing (external experts), Mr. Guy Anderson (PFM advisor/AFRITAC East). Mr. Jacinto Muchine joined to share Mozambique’s TSA experience. - Mission funded through the Topical Trust Fund for Management of Natural Resources Wealth. - Key interlocutors listed in source. ### Purpose and scope - Advise on implementation of the new draft public financial management law (PFM Bill). - Review the Bill and recommend structure/content of supporting regulations and instruments. - Assess fiscal policy and reporting, petroleum revenue management, treasury single account (TSA) and cash management. - Provide drafting improvements and suggested regulatory content where feasible. ### High-level findings on the PFM Bill - The Bill finalization is advanced with Parliamentary approval expected in the coming months. - The Bill will replace the Budget Act 2001 and the Public Finance and Accountability Act 2003 and introduces new fiscal responsibility principles and requirements for petroleum revenue management. - Significant conceptual and drafting weaknesses identified that will affect implementability; many issues cannot be fully addressed through regulation and may require amendment. - Institutional coverage of the Bill is unclear: schedules should specify classes of entities and which clauses apply to each class. - Fiscal principles mix principles and process requirements and need amendment (e.g., the Bill should not elevate consistency with the National Development Plan to a fiscal principle). - Macroeconomic and fiscal policy documents must be firmly anchored in the fiscal principles set out in the Bill: Charter of Fiscal Responsibility, Budget Framework Paper, half-year and annual reports must explain how fiscal principles are achieved and link deviations to the Charter’s measurable fiscal objectives. - Drafting improvements were suggested and provided to officials and Parliamentary Committees. ### Implementation timetable (selected actions and indicative dates) - Finalize drafting of the Bill: MoFPED/Parliamentary drafters — July 2014. - Preparation of Draft Regulations: - Preparation of First Draft of Regulations: MoFPED — End-September 2014. Proposed technical assistance: AFRITAC East/FAD. - Final Draft Regulations for Submission to Parliament: MoFPED — November 2014. - Approval of Regulations: Cabinet/Parliament — December. - Charter of Budget Responsibility actions: - EAD to prepare recommendations — April to July 2014. Proposed technical assistance: AFRITAC East/FAD. - Cabinet to approve provisional recommendations — August 2014. - Prepare schedule of minimum content of fiscal reports — EAD to prepare; Minister to approve — July 2014 / August 2014. - Produce template BFP — EAD to produce draft — August 2014. - Prepare draft Charter — MoFPED to prepare and submit to Cabinet; Cabinet to approve — October to December 2014 / December 2014. - Submit Charter to Parliament alongside new format BFP — Minister to submit — December 2014; Parliament to approve — February 2015. - Petroleum Revenue Management actions: - Draft regulations in line with report recommendations — MoFPED — July 2014. - Set up Investment Advisory Committee and secretariat services — MoFPED/BoU — August 2014. - Develop investment policy — Investment Advisory Committee — December 2014. - Develop agreement with BoU — MoFPED and BoU — October 2014. Proposed technical assistance: AFE. - Cash Management and TSA actions: - Review TSA structure — Accountant General — July 2014. - Define donor requirements for project accounting and reporting — Accountant General/Aid Liaison Department — June 2014. - Develop MoU for donor funded projects through the TSA — Accountant General — October 2014. - Pilot Project TSA — Accountant General — September 2014. - Continue with IFMS roll-out and expansion of the TSA — Accountant General — December 2015. ### Key recommendations (summary) - Set up a drafting committee representing each functional area to guide development of the regulations (Recommendation 1.1). - Present regulations to Cabinet for approval (Recommendation 1.2). - Conduct training on changes to regulations for key PFM actors once approved (Recommendation 1.3). --- ### Petroleum Fund: weaknesses and governance findings - Key weaknesses identified: - Lack of clarity as to the nature of the Fund and conflicting definitions. - Lack of an objective for the Fund. - Decision-making overly concentrated on the Minister of Finance. - Incomplete and unclear reporting and auditing requirements. - Poor definition of revenues (investment returns not required to be retained/constituted as part of the Fund). - Inadequate provisions to prevent unduly risky investments. - Inadequate publication requirements for the investment portfolio. - Absence of an oversight board concentrating roles with the Minister, creating potential conflicts of interest. - Governance and ministerial roles (findings): - Minister required to make agreement with BoU; appoint Investment Advisory Committee; approve Investment Policy; monitor BoU performance; approve Annual Plan and Annual Report. - Minister’s roles are extensive, time consuming, and may create tension between short-term budget demands and long-term preservation objectives. - Investment Advisory Committee issues: - Two of five positions allocated by office to senior civil servants; clause 65 (4) requires members to have “substantial experience, training, and expertise in financial investments, portfolio management, or investment law”. - Risk of conflicts of interest and pressure to invest in local/development projects. - Investment and prohibited instruments (findings and suggested protections): - Prohibitions in clause 61 are too limited; suggested protections include: - Specify acceptable issuers of internationally convertible currency deposits or debt instruments. - Require investment grade rating for central banks when investing in their instruments. - Specify portfolio percentage limits in securities and acceptable stock exchanges. - Place further limitations on derivatives. - Prohibit Petroleum Fund resources from being invested in instruments issued by banks, corporations, or individuals resident in Uganda or owned/controlled by a Ugandan national or company registered in Uganda. - Reporting, auditing and loss recovery (findings and recommendations): - Planning and reporting provisions not complementary or well specified; BoU prepares semiannual and annual reports; Accountant General prepares semiannual and annual accounts; Minister reports to Parliament. - Recommend expanded planning and reporting in regulations; Accountant General’s annual report on the Petroleum Fund should include requirements applied to the Minister’s report and explain performance against the Fund’s objective. - BoU should report against suitable benchmarks; require publicly available monthly reports against benchmarks and comprehensive benchmarking in annual report. - Audit provisions must be strengthened: investment funds managed by BoU should be audited by an audit committee of independent and highly qualified members in addition to the Auditor General. - Require that funds withdrawn in breach be treated as losses of public money and permit timely recovery from responsible parties. ### Petroleum Fund: objectives and definitions (recommendations) - Specify clear objectives of the Fund (Recommendation 3.1). - Fully define the revenues of the Fund to include earnings on investments (Recommendation 3.2). - Remove civil servant positions designated by office on Investment Advisory Committee; require appointees be free of conflicts (Recommendation 3.3). - Extend prohibited investments to ensure the Fund is adequately protected (Recommendation 3.4). - Specify that unlawful withdrawals are public losses and ensure recovery provisions (Recommendation 3.5). - Improve planning and reporting; rationalize Accountant General’s and Minister’s reports; make BoU reporting suited to investment portfolio reporting including benchmark reporting (Recommendation 3.6). - Provide suitable auditing provisions for the investment portfolio (Recommendation 3.7). - Provide for dealing with differences between appropriations to local government and actual Fund revenues (Recommendation 3.8). - Set out basic provisions for the Petroleum Pricing and Valuation Committee with detail in regulations (Recommendation 3.9). - Address drafting issues and errors in the Bill before passage (Recommendation 3.10). - Plan implementation of the Fund and related matters (Recommendation 3.11). - Develop supporting regulations once the Bill is finalized (Recommendation 3.12). ### Implementation activities (selected from Table 2) - Include the Fund in fiscal policy and annual budget documents and reports — Responsible: MoFPED — Timing: As per the PFM Bill. - Set up Investment Advisory Committee and secretariat services — Responsible: BoU and MoFPED — Timing: July 2014. - Development of investment policy — Responsible: Investment Advisory Committee — Timing: December 2014. - Set up Valuation and Pricing Committee and secretariat services — Responsible: Relevant ministries — Timing: July 2014. - Allocate roles within MoFPED to support Minister’s functions — Responsible: PS/ST — Timing: July 2014. - Develop agreement with BoU — Responsible: MoFPED and BoU — Timing: October 2014. --- ### Charter of Fiscal Responsibility: role, objectives, design principles - Role: - “Set enduring measurable fiscal objectives” and “specify the detailed reporting arrangements” to maximize transparency and executive accountability. - PFM Bill “broadly achieves this aim” subject to other comments on fiscal principles. - Recommended target formulation: - Place an annual limit on the non-resource, non-grant fiscal deficit with a pre-defined two-year correction period where the limit is breached due to unexpected revenue shortfalls (Recommendation 2.1). - Maintain public debt through a hard annual ceiling with a requirement to target a significant buffer beneath it (Recommendation 2.3). - Supplementary targets may be specified carefully to encourage sound public finance management (e.g., efforts to improve revenue collection; limitations on withdrawals from the Petroleum Fund). - Targets and measurement: - Targets should be based on fiscal aggregates compiled using an international standard such as SNA95 or GFSM 2001 and on consolidated general government where practicable (Recommendation 2.6). - Fiscal objectives should operationalize fiscal policy, enshrine top-down budgeting, and establish mechanisms to ensure prudent revenue estimates, including transparency on forecasting records and assumptions (Recommendations 2.4, 2.7). - Options for deficit and cyclicality: - Options considered: cyclically-adjusted balance (complex), medium-term target (may not constrain single-year outcomes). - Alternative proposed: an annual limit with a pre-defined two- or three-year correction period for cyclical shortfalls; deviation clause for excess due to increased spending (e.g., national emergency). - Debt targets and buffers: - Adopt a hard annual ceiling on gross public debt (potentially referencing EAC convergence ceiling) and include a lower medium-term target to maintain a buffer beneath the hard ceiling. - Consider whether the lower target should be set on nominal debt as a share of GDP for simplicity and transparency. ### Charter recommendations (summary) - Recommendation 2.1: Place an annual limit on the non-resource, non-grant fiscal deficit, with a pre-defined two-year correction period for unexpected revenue shortfalls. - Recommendation 2.2: Consider adopting the principle of keeping estimated benefits of oil revenues and grants constant between generations when setting the non-resource, non-grant balance target. - Recommendation 2.3: Adopt a hard ceiling on gross public debt, potentially referencing the EAMU convergence criteria, and include a lower medium-term target for public debt. - Recommendation 2.4: If Charter contains a revenue collection target, require revenue forecasts used in the BFP and budget to be based only on (i) concrete and properly costed tax policy measures and (ii) realistic assumptions about success in improved revenue collection. - Recommendation 2.5: Consider forms for an objective on withdrawals from the Petroleum Fund but ensure it does not undermine the primary deficit constraint. - Recommendation 2.6: Base targets on fiscal aggregates compiled using SNA95 or GFSM 2001. - Recommendation 2.7: Establish institutional mechanisms to ensure fiscal policy is based on prudent revenue estimates. - Recommendation 2.8: Produce full macroeconomic and fiscal forecasts and report on performance against fiscal objectives twice a year, in the BFP and a half-year update. - Recommendation 2.9: Specify minimum content for fiscal reports, in line with the draft Charter in Appendix II. ### Reporting, forecasting, and fiscal risk management (design details) - Reporting timetable recommended: - Annual Budget Framework Paper, published by the end of March (or aligned with BFP timing specified in Charter). - Half-Year Fiscal and Economic Update, published no later than the end of October. - Full-Year Final Report on Fiscal and Economic Outturns, timed to coincide with or form part of the annual BFP when final outturn fiscal aggregates are available. - Fiscal risk statement requirements: - Must include quantified fiscal risks where practicable (contingent liabilities, external shocks, commitments not included in forecasts, other material risks). - Must include sensitivity analysis with alternative scenarios for GDP and oil prices/production. - Suggested contents include macro-fiscal sensitivity analysis, public debt sustainability analysis, policy/institutional framework for borrowing, specific fiscal risks, and state-owned enterprise exposures. - Recommendations to improve realism and credibility of forecasts: - Consider pre-committing to cautious forecasting assumptions (e.g., historical averages/external consensus for oil prices). - Develop a deliberately cautious planning forecast below the government’s central forecast. - Require external validation/auditing of key forecast assumptions and explicitly compare forecasts with other institutions. --- ### Treasury Single Account (TSA) and cash management: findings - Progress since June 2013: good progress providing a sound platform for extending TSA and cash management reforms. - Current configuration features: - UCF Account and decentralized zero-balanced Vote sub-accounts. - All UCF revenues credited to the UCF Account; spending limits distributed quarterly to a UCF Holding Account. - Cash transfers to Vote sub-accounts based on IFMS-generated payment listings; same-day EFT payments and end-of-day sweeps of Vote sub-account balances back to UCF Holding Account. - Tangible improvements cited: - Enhanced security and efficiency for payroll and supplier payments. - Timelier reconciliation of fewer bank accounts. - Improved planning for service delivery from quarterly fund releases. - MoFPED ambitions: - Expand TSA coverage to include project and other funds. - Further reduce and rationalize operational bank accounts. - Complete decentralization of payroll. - Enhance IFMS/core banking functionality to enable STP of foreign payments. - Formalize GoU-BoU relationships via SLAs. - Build cash management capacity. ### TSA design findings and recommendations - Ring-fencing: - Ring-fenced balances in IFMS and banking systems may be justified for donor-funded projects in short term; over time, ring-fencing demand should diminish as IFMS controls grow. - Design should allow for sub-accounts held in BoU that retain cash balances earmarked for specific purposes (these sub-accounts would not be swept at close of day). - Role of the UCF: - It is inappropriate to include the UCF as the TSA head account. Reasons: - Aggregating all public monies to the UCF is contrary to legal requirements. - Placing UCF at apex conflicts with its fiscal stability role. - TSA Head should not be transactional; UCF is transactional. - Recommendation: introduce a TSA Head Account and relegate the UCF to a lower level within the TSA hierarchy (Recommendation 4.1). - Vote sub-accounts (opportunities to improve): - Fund transfers to UCF Holding Account in tranches. - Cease pre-funding of Vote sub-accounts and review impact over a three month period. - Reduce number of Vote sub-accounts by pooling through centrally maintained TSA sub-account and payment process (Recommendation 4.2). - Extending TSA to projects: - Scale: in February 2013, an estimated 600 project accounts were held in the BoU with a total balance of Ush1.7 Trillion (approx. US$650M); these balances were unremunerated and outside BoU computation of GoU cash position. - Inclusion requires strengthening IFMS use, understanding donor requirements, and change management. - Potential donor requirements (from Mozambique experience) include ring-fencing through TSA/IFMS, authority for project managers to spend restricted funds, ability to refund unspent funding, year-end rollover procedures, accounting for exchange rate variations, flexible reporting with additional code segments, and pilot/testing with donors (World Bank indicated willingness to pilot). - Legal and regulatory framework gaps: - TSA not defined in the Bill (no definition in clause 4); banking arrangements not defined in clause 33. - Accountant General’s responsibility to operate a TSA “as defined in regulations” may limit coverage to votes and risk missing extra-budgetary funds including petroleum funds. - Recommend regulations define TSA, coverage, distinguish UCF and TSA, define banking arrangements, anticipate future cash management stages, cover investment of surplus cash, and borrowing for short-term cash shortages (Recommendations 4.3 and 4.4). - Donor engagement and rollout (recommendations): - Work with donors to establish common and specific requirements for management and accounting of project funds through TSA (Recommendation 4.5). - Continue to expand TSA coverage and roll-out IFMIS, in particular bringing project accounts into TSA (Recommendation 4.6). --- ### Virements, supplementary budgets, contingencies, and accounting/audit findings - Unit of appropriation and virements: - The unit of appropriation is at the vote level and described as "too broad". - Virement rules permit large changes: - A virement can be up to 10 percent of a vote. - The Bill does not specify that this 10 percent is "in total for each year" and can be interpreted as "10 percent for each virement". - The Minister may approve spending "10 percent above the level of a vote". - Risks: could allow implementation of a budget "very different to that passed by Parliament"; Ministerial approval may diminish Parliament’s role. - Recommendation: virement provisions should be clearly specified in regulations; the provision allowing Ministerial approval to spend 10 percent above a vote "should be removed during the drafting process". - Contingencies fund and supplementary budgets: - Bill requires that supplementary budgets "are not usually funded from a contingencies fund" to limit historically high supplementary estimates. - Historical reference: average "8 percent level of supplementary estimates in the past 3 years". - Given size of contingencies fund, "it is unlikely to be sufficient to fund the potential supplementary budgets based on the average 8 percent level". - Regulations should clarify operation of the fund because current drafting "mix a contingency appropriation with a separate contingencies fund" and mix "fund accounting and reporting with reporting on a contingency appropriation". - Reporting, accounting standards, and audit: - Reporting provisions fragmented and repetitive; clauses 14 and 16 are "partial in places, inconsistent, and unclear". - Reports should be well specified in Bill and regulations: who submits, to whom, by when, and publication requirements. - Accounting standards definition is "unclear" and should reflect "Article 16 of the EAMU protocol on financial management, accounting and reporting" and recent EAC discussions suggest national standards based on "International Public Sector Accounting Standards". - Transitional provisions should allow phased implementation where needed (e.g., financial statements timing, audit committees expansion). ### Regulations outline: required content (high-level) - Regulations should: - Set out purpose, elaborate key constitutional and PFMB principles, and be clear on application and "effective date". - Elaborate macroeconomic and fiscal policy indicators, define minimum reports and publication requirements, and define process/contents of the BFP. - Specify budget preparation, approval, management processes, and execution rules (grant of credit, budget release, multi-year commitments, commitment control, carry-over rules, virements, supplementary estimates, in-year reporting). - Expand contingencies fund procedures, define "disaster", and who declares it. - Explain operations of TSA and scope/coverage of the UCF; rules for special funds, bank account procedures, bank reconciliation, loans/guarantees/write-offs, PPPs, public investment planning, and non-financial assets. - Include accounting and audit provisions: chart of accounts design, adoption, maintenance; responsibilities for setting accounting standards; external audit provisions. - Specify petroleum revenue management requirements: objectives, exhaustive revenues payable into Fund, banking/accounting/audit/reporting, minimum investment standards, risk management/reporting, and require Investment Advisory Committee to prepare investment policy aligned with regulations. - Define roles and responsibilities for all significant PFM actors and identify areas where MoFPED should develop further guidelines, instructions and manuals. --- ### Part I (clauses 4 and 5) — regulatory alignment and content highlights - Align clauses 4 and 5 with the Bill and ensure consistent terminology as in clause 4. - Define fiscal balance and fill gaps where Bill is fragmented (e.g., debt provisions). - Specify minimum contents for Charter alignment indicators: prudent public debt, sustainable fiscal balance excluding petroleum, management of petroleum resources, fiscal risk management, efficiency/effectiveness/value for money. - Specify responsibilities, timing, minimum contents and publication requirements for Economic and Fiscal Updates (four types), BFP, medium-term debt strategy, annual budget documents, ministerial policy statements, commitment and cash control procedures, reporting on payments in arrears and performance, pre- and post-election reporting, multi-year commitments, supplementary budgets, contingencies fund operations, cash/asset/liability management, consolidated fund and special funds, bank account management and TSA, loans/guarantees, public-private partnerships, asset management, accounting and audit, consolidated financial statements, and detailed petroleum revenue fund provisions. - Require publication on official government website for relevant reports. --- ### Appendix II — Draft Charter for Fiscal Responsibility (selected provisions) - Legislative basis: Charter prepared under Section 6 (1) of the Public Finance Management Act. - Section 6 (2) (a) requires the Charter to include: - (i) statement of measurable fiscal objectives for no less than the next three financial years consistent with fiscal policy principles in section 5; - (ii) explanation of methodology to measure performance; - (iii) list of data sources for reporting developments against objectives; - (iv) demonstration of consistency with fiscal policy principles. - Section 14 requires Government to report on performance against fiscal objectives at least twice per financial year. - Measurable objectives (draft placeholders): - Objective 1: Ceilings on public deficit with provisions for correction over not longer than the following two financial years if exceeded. - Objective 2: Ceilings on public debt (gross public debt in NPV terms below [*]% of GDP) and target gross public debt level of [*] percent of GDP in nominal terms at end of five-year forecast horizon. - Supplementary targets: placeholders for additional targets. - Operation and timelines: - BFP to be submitted to Parliament by 31st December of the preceding financial year and published no later than 30 days after 1st February of the preceding year. - Annual Budget to be presented and approved no later than 31st May and consistent with approved BFP. - Reporting content minimums: Schedule A/B specify detailed tables, sensitivity analysis, revenue/expenditure breakdowns, petroleum projections, debt projections, fiscal risk statement, and responsibility statements. *Source: PREFACE and EXECUTIVE SUMMARY, cr17266 (IMF technical assistance mission report to Uganda).* ### PREFACE _________________________________________________________________________________________ 4 ### PREFACE ### Mission context and composition - A Fiscal Affairs Department (FAD) technical assistance mission visited Kampala during March 17–28, 2014, at the request of the Permanent Secretary/Secretary to the Treasury, Mr. Keith Muhakanizi. - Mission team: Ms. Suzanne Flynn (mission head), Ms. Lynne McKenzie, Mr. Conrad Smewing (both external experts), Mr. Guy Anderson (PFM advisor/AFRITAC East). Mr. Jacinto Muchine joined the mission to share Mozambique’s treasury single account experience. - The mission was funded through the Topical Trust Fund for Management of Natural Resources Wealth. - Key interlocutors included: Mr. Keith Muhakanizi; Mr. Patrick Ocailap; Mr. Lawrence Semakula; Dr. Fixon Okonye; Godfrey Semogooma; Isaac Mpoza; Dr. Albert Musisi; Robert Okudi; Paul Mwaja; Charles Matavu; Moses Kabanda; Mr. Johnson Mutesigensi; John Chemonges; Kiddungi Sulaiman; Ms. Anne Schwartz; Dr. Elin Jensen; Ms. Ana Lucia Coronel; Ms. Winifred Bisamaza. ### Purpose and scope of the mission - Advise on implementation of the new draft public financial management law (PFM Bill). - Review the Bill and make recommendations for the structure and content of supporting regulations and instruments. - Assess specific areas: fiscal policy and reporting, petroleum revenue management, treasury single account (TSA) and cash management. - Provide drafting improvements and suggested regulatory content where feasible. ### Major findings on the Public Financial Management Bill - The finalization of the new Public Financial Management Bill has reached an advanced stage with Parliamentary approval expected in the coming months. - The Bill will replace the Budget Act 2001 and the Public Finance and Accountability Act 2003 and introduces new fiscal responsibility principles and requirements for petroleum revenue management. - Identified significant conceptual and drafting weaknesses that will affect implementability; many issues cannot be fully addressed through regulation and may require amendment. - Institutional coverage of the Bill is unclear: - Schedules to the Bill should specify classes of entities and which clauses apply to each class. - Fiscal principles in the Bill mix principles and process requirements and need amendment: - The Bill should not elevate consistency with the National Development Plan (NDP) to a fiscal principle; the NDP should comply with fiscal principles and be constrained by fiscal objectives in the Charter. - The requirement to “raise revenues to fund government programs (rather than only fund programs affordable from revenues)” is not a fiscally responsible principle. - Macroeconomic and fiscal policy documents must be firmly anchored in the fiscal principles set out in the Bill: - The Charter of Fiscal Responsibility, Budget Framework Paper, and half-year and annual reports must explain how fiscal principles are achieved and link deviations to the Charter’s measurable fiscal objectives. - Drafting improvements were suggested and provided to officials and Parliamentary Committees. ### Key weaknesses in Petroleum Fund provisions (as identified) - Lack of clarity as to the nature of the Fund and conflicting definitions. - Lack of an objective for the Fund. - Decision-making overly concentrated on the Minister of Finance. - Incomplete and unclear reporting and auditing requirements. - Poor definition of revenues. - Inadequate provisions to prevent unduly risky investments. - Inadequate publication requirements for the investment portfolio. - Absence of an oversight board has concentrated governance, advisory, reporting and operational roles with the Minister of Finance, creating potential conflicts of interest. ### Recommendations on petroleum revenue management - Revisit petroleum revenue management provisions in the Bill to: - Clearly define the nature of the Fund and its objectives. - Clearly define the revenues due to the Fund. - Clarify reporting arrangements and specify specialist audit arrangements. - Ensure investment risks are limited and protect against the Fund’s use as a development fund. - Regulations should further specify planning, reporting, investment, and auditing requirements for the Petroleum Fund. - Suggested work and timing to set up the Petroleum Fund are provided in the report. ### Charter of Fiscal Responsibility: role and suggested design principles - The Charter plays a key role through measurable fiscal objectives that support fiscal discipline in anticipation of significant oil revenue influx. - Recommended target formulation: - Target an annual limit on the non-resource, non-grant fiscal deficit with a pre-defined two-year correction period where the limit is breached due to unexpected revenue shortfalls. - Maintain public debt through a hard annual ceiling with a requirement to target a significant buffer beneath it. - Supplementary targets can be specified carefully to encourage sound public finance management. - Targets should be based on fiscal aggregates compiled using an international standard such as SNA95 or GFSM 2001 and, in due course, on consolidated general government. - The Charter should operationalize fiscal policy: - Enshrine the top-down budgeting process implied by the PFM Act. - Establish mechanisms to ensure prudent revenue estimates, including transparency on forecasting records and assumptions. - Potentially pre-commit to cautious and externally validated methodologies for key variables like the oil price. - Specify timetable and minimum content of reporting on performance against fiscal targets to ensure transparency and accountability. ### Treasury Single Account (TSA) and cash management findings and recommendations - Progress on the TSA has gained momentum and is delivering efficiency gains, though reforms remain at an early stage. - Regulations should: - Define the TSA and distinguish it from the Consolidated Fund. - Require that all public monies are managed through a TSA arrangement, including the petroleum funds as a sub account. - Next implementation stage: expand TSA coverage to include project accounts estimated to hold unremunerated balances of approximately $650M. - Recommended approach for expanding TSA coverage (drawing on Mozambique experience): - Establish donor requirements and engage donor representatives. - Phase implementation, starting with domestic currency accounts. - Develop a memorandum of understanding (MoU). - Pilot the solution using both the IFMS and TSA arrangements. ### Implementation timetable (high-level actions and indicative dates from Table 1) - Finalize drafting of the Bill: MoFPED/Parliamentary drafters — July 2014. - Preparation of Draft Regulations: - Preparation of First Draft of Regulations: MoFPED — End-September 2014. Proposed technical assistance: AFRITAC East/FAD. - Final Draft Regulations for Submission to Parliament: MoFPED — November 2014. - Approval of Regulations: Cabinet/Parliament — December. - Charter of Budget Responsibility actions: - EAD to prepare recommendations to define and enumerate fiscal objectives and set criteria for prudent management of fiscal risk — April to July 2014. Proposed technical assistance: AFRITAC East/FAD. - Cabinet to approve provisional recommendations — August 2014. - Prepare schedule of minimum content of fiscal reports and proposals for prudent revenue forecast mechanisms — EAD to prepare; Minister to approve — July 2014 / August 2014. - Produce template BFP with required analytical tables — EAD to produce draft — August 2014. - Prepare draft Charter including agreed fiscal objectives and reporting requirements — MoFPED to prepare and submit to Cabinet; Cabinet to approve — October to December 2014 / December 2014. - Submit Charter to Parliament alongside new format BFP — Minister to submit — December 2014; Parliament to approve — February 2015. - Petroleum Revenue Management actions: - Draft regulations in line with report recommendations — MoFPED — July 2014. - Include the Fund in fiscal policy, annual budget documents and reports — MoFPED — according to the timing for the budget process. - Set up the Investment Advisory Committee and secretariat services — MoFPED/BoU — August 2014. - Develop investment policy — Investment Advisory Committee — December 2014. - Set up the Valuation and Pricing Committee and secretariat services — Relevant ministries — July 2014. - Formally allocate roles and responsibilities within MoFPED to support Minister’s functions — MoFPED — July 2014. - Develop agreement with BoU — MoFPED and BoU — October 2014. Proposed technical assistance: AFE. - Cash Management and TSA actions: - Review the structure of the TSA — Accountant General — July 2014. - Define donor requirements for project accounting and reporting — Accountant General/Aid Liaison Department — June 2014. - Develop MoU for donor funded projects through the TSA — Accountant General — October 2014. - Pilot Project TSA (possibly using World Bank funded projects) — Accountant General — September 2014. - Continue with IFMS roll-out and expansion of the TSA — Accountant General — December 2015. *Source: PREFACE and EXECUTIVE SUMMARY, cr17266 (IMF technical assistance mission report to Uganda).* ### 5. Provisions for virements, supplementary budgets, and the contingency fund will ### 5. Provisions for virements, supplementary budgets, and the contingency fund will ### Virements and unit of appropriation - The unit of appropriation is at the vote level and is described as "too broad". - Virement rules permit large changes in expenditure: - A virement can be up to 10 percent of a vote. - The Bill does not specify that this 10 percent is "in total for each year" and can be interpreted as "10 percent for each virement". - The Minister may approve spending "10 percent above the level of a vote". - Risks and implications: - These provisions could allow implementation of a budget that is "very different to that passed by Parliament". - The Ministerial approval of 10 percent above a vote may create incentives for Ministers to lobby for additional funds and "diminishes the role of Parliament". - Recommendation on drafting: - The virement and related provisions "should be clearly specified, in detail, in the regulations". - The provision allowing Ministerial approval to spend 10 percent above a vote "should be removed during the drafting process". ### Contingencies fund and supplementary budgets - Design and intent: - The Bill requires that supplementary budgets "are not usually funded from a contingencies fund" but the provisions are "designed to limit the historically high level of supplementary estimates in Uganda". - Size and sufficiency: - Historical reference: average "8 percent level of supplementary estimates in the past 3 years". - Given the size of the contingencies fund, "it is unlikely to be sufficient to fund the potential supplementary budgets based on the average 8 percent level". - If officials deem it operationally feasible in future years, "this may not be a significant issue". - Clarification needed: - The regulations should clarify operation of the fund because current drafting "mix a contingency appropriation with a separate contingencies fund" and therefore mix "fund accounting and reporting with reporting on a contingency appropriation". ### Reporting, accounting standards, and audit requirements - Reporting provisions are "fragmented and in places repetitive" and clauses 14 and 16 are "partial in places, inconsistent, and unclear". - Requirements: - Reports "should be well specified in both the Bill and the regulations and instructions". - Reports must be clear on "who submits the reports to whom, by when and the publication requirements". - Accounting standards: - The definition of accounting standards to be used is "unclear" and should reflect "Article 16 of the EAMU protocol on financial management, accounting and reporting". - Recent EAC discussions suggest national standards based on "International Public Sector Accounting Standards". - The Bill "could also set out appropriate transitional provisions to allow for implementation". ### Petroleum Revenue Fund provisions - The Bill's provisions covering the Petroleum Revenue Fund have "considerable issues" detailed in Section IV, including governance, definitions of revenues, and reporting arrangements. ### Transitional provisions (examples and requirements) - The Bill will require transitional provisions for phased implementation; the Treasury Memorandum example: - Current requirement: Treasury Memorandum for the preceding year must be presented with budget documents for the budget year. - Problem: production of the Treasury Memorandum is "significantly delayed". - Interim measures: transitional provisions needed while speeding up the process. - Examples where transitional provisions may be required: - Specify institutional coverage: entities to which the law applies "should be included in a schedule to the Bill, classified appropriately with the timing for the inclusion of each class". - Accounting Officers’ financial statements: production "within two months of the financial year-end" will "require a financial year to implement". - Accountant General’s consolidated annual financial statements: production "by end-September of the following financial year". - Audit committees: establishing Audit committees "for all votes" implies increasing from "one per sector (16)" to "one per vote", requiring significant effort and financial resources. ### Overview of regulations outline and required content - Purpose: - Regulations should set out purpose, elaborate key principles of the Constitution and the PFMB, and be clear on application and "effective date". - Macroeconomic and fiscal policies: - Regulations or the Charter should elaborate indicators used to assess alignment of the fiscal responsibility Charter and associated documents (BFP, medium term debt strategy, economic updates). - Define minimum indicators, reports, and publication requirements; define process and contents of the BFP. - Budget preparation, approval, and management: - Specify principles, roles, responsibilities, and reporting requirements across the annual budget cycle, including ministerial policy statements and annual budget estimates. - Specify rules for budget ceilings, new spending proposals, and execution rules: "grant of credit, budget release, multi-year commitments and commitment control, carry-over rules, virements, supplementary estimates, and in-year reporting". - Contingencies fund: - Expand procedures for accessing the fund, include definition of "disaster", and who may declare a disaster and authorize release of the disaster portion of the fund. - Cash, asset, and liability management: - Explain operations of the Treasury Single Account (TSA) and scope/coverage of the Consolidated fund (UCF). - Conditions for special funds, bank account procedures, bank reconciliation, rules for loans/guarantees/write-offs, PPPs, public investment planning, and non-financial assets. - Accounting and audit: - Include design, adoption, and maintenance of the chart of accounts; responsibilities for setting accounting standards and policies; obligation to provide access to accounting information and records; external audit provisions as needed. - Petroleum revenue management: - Specify objectives of the fund, exhaustive definition of revenues payable into the fund, banking/accounting/audit/reporting requirements, minimum standards for qualifying investments, risk management and reporting, and require the Investment Advisory Committee to prepare an investment policy in line with the regulations. - Roles and responsibilities: - Define responsibilities for all significant aspects of public financial management including accounting officers, chief executive officers of public corporations, state enterprises, special funds, and local government chief accounting officers. - Process and coordination: - Regulations should identify areas where MoFPED should develop further guidelines, instructions and manuals, and the process for consultation with the broader community. - The regulations and supporting instruments, such as the agreement with the Bank of Uganda, should address weaknesses in the Bill. ### Summary of key recommendations for MoFPED (Section C) - Recommendation 1.1: Set up a drafting committee representing each functional area to guide the development of the regulations to the act as proposed; - Recommendation 1.2: Present regulations to Cabinet for approval; and - Recommendation 1.3: Conduct training on the changes to regulations to key PFM actors, once approved. --- ### Charter of Fiscal Responsibility — role, objectives, and limits - Role of the Charter: - "Set enduring measurable fiscal objectives" to guide the fiscal strategy in the BFP and constrain year-to-year budget making. - "Specify the detailed reporting arrangements" against those objectives to maximize transparency and executive accountability. - The PFM Bill "broadly achieves this aim" subject to other comments on fiscal principles. - Choice of fiscal objectives: - Objectives must support fiscal discipline given the likely "significant influx of oil revenues". - Resource curse concerns motivate a stronger PFM framework. - The EAC monetary union convergence criteria alone are "an inappropriate basis" for Uganda given oil prospects and low current debt. - Deficit limits — principles and options: - Measurable fiscal objectives are most effective when they are: "simplicity", "operability", "counter-cyclicality", "medium term", and "sustainability". - Previous advice suggested targeting a variant of the non-resource, non-grant or "domestic" balance. - The PFM Bill includes principles that the fiscal balance without petroleum revenues should be maintained at a sustainable level and that government should maintain "prudent and sustainable levels of public debt". - Operational options for addressing cyclicality: - Use a cyclically-adjusted fiscal balance (drawback: complexity and lack of transparency). - Specify target over a pre-defined medium term (drawback: does not constrain the crucial single financial year). - Alternative proposed: specify an annual limit with a pre-defined two- or three-year correction period for cyclical shortfalls; no suspension of the Charter required if the correction is planned; deviation clause applies for excess due to increased spending (e.g., national emergency). - On exceptional infrastructure projects: do not recommend an exemption in the deficit objective because of exploitation risk; instead set the deficit ceiling with development spending and fiscal sustainability in mind. - Setting the non-petroleum deficit limit: - The level of the non-petroleum deficit limit "is a crucial medium-term fiscal decision" and defines the pace at which "natural resource assets will be depleted through transfers from the Petroleum Fund". - Previous FAD advice recommended anchoring the level to keep estimated benefits of resource revenue and external grants constant over a fixed "40 or 60 year" catch up period. - Interim supplement before oil revenues: - Prior to significant oil revenue, a non-petroleum deficit limit could be "inappropriately loose" and allow borrowing in anticipation of uncertain revenues. - The government should consider supplementing the Charter with a ceiling consistent with the EAC monetary union deficit limit, applied in the same manner, at least in the first Charter adopted. - Debt limits: - Fiscal objectives on public debt should operationalize the Bill's principle that debt be "maintained at a prudent and sustainable level". - Options include adopting a hard annual ceiling on gross public debt (potentially referencing the EAC convergence ceiling). - Given debt volatility and Uganda's headroom against the "50 percent EAC ceiling", recommend targeting policy to maintain a buffer beneath that hard ceiling. - Suggested approach: set a lower target ceiling for public debt "at the end of the five-year forecast horizon", and require that public debt be projected to fall as a share of GDP by that point. *Source: cr17266 - 5. Provisions for virements, supplementary budgets, and the contingency fund will* ### 25. The level of the target ceiling needs to be chosen carefully, and in light of decisions ### 25. The level of the target ceiling needs to be chosen carefully, and in light of decisions ### Level of the target ceiling and debt targets - The target ceiling should provide a sufficiently large buffer to allow space for the public finances to absorb a large shock without breaching the 50 percent ceiling. - The target should be set to prevent fiscal planning from being based on sharply rising debt ratios over the short to medium term. - The government should consider whether the lower target should be set on nominal debt as a share of GDP, rather than in NPV terms, because nominal debt as a share of GDP would be a simpler and more transparent measure. ### Supplementary targets - Supplementary targets, in addition to primary deficit and debt targets, could further encourage sound management of the public finances. Particular areas under consideration in the Charter include: - Efforts to improve revenue collection; and - Explicit limitations on withdrawals from the Petroleum Fund, including linking the funds to investment or infrastructure expenditures. ### Revenue-to-GDP objective — cautions - The government’s aim to increase the revenue to GDP ratio over time, from its current very low levels, could be included as an objective in the Charter to help hold the government to account. - Two cautions in including this target in the Charter: - Avoid fiscal and expenditure plans being set on the basis of assumed improvements in revenue collection in line with a fixed target. Failures to improve collection—an item not fully in control of the revenue authorities—will result in expectations of expenditure that are too high to be financed from actually available revenue, putting the deficit ceiling at risk. - Including a suitably stretching numerical target on revenue to GDP increases will mean a significant risk that the authorities fall short of it in any given year, potentially causing frequent invocation of the deviation clause in the law suspending the Charter and damaging its credibility. ### Guidance on revenue-forecasting if revenue target included - If the Charter contains a target on improved revenue collection, it should explicitly require the revenue forecasts used in the BFP and budget process to be prudent and realistic, and based only on: - (i) concrete and properly costed tax policy measures to increase revenue; and - (ii) realistic assumptions about success in improved revenue collection. - Revenue forecasts should not be based simply on the assumption that the target will be met. - Consider adopting a fixed cautious forecasting assumption that improvement in revenue collection and reductions in the tax gap should only be included in forward projections when they have been successfully realized in outturn figures. - Any additional revenues realized above forecast should be subject to the supplementary budget provisions as provided for in the draft Bill and supporting regulations. ### Constraints on Petroleum Fund withdrawals and forms such constraints could take - The primary constraint on excessively front-loaded spending of oil resources should be the deficit ceiling calculated excluding petroleum revenues. - Additional constraints on withdrawals from the Petroleum Fund and/or the kinds of expenditure items financed by them could be helpful. Possible forms include: - A cash ceiling on the amount of resources that can be appropriated from the Petroleum Fund in each financial year; this could be a fixed amount, or linked to in-year revenues to ensure a steady build up of the fund for future generations. - A specific floor on government investment spending to help ensure resources funded by a higher non-oil deficit do not leak into recurrent expenditure. - A less tightly drawn link requiring that the government only appropriate resources from the Petroleum Fund where they are to be used to finance capital investment; given that cash is fungible, this target would be largely presentational but could help establish public expectations about prudent management for future generations. ### Definition and coverage of fiscal aggregates - Coverage and definition of fiscal aggregates used to measure objectives in the Charter must be clearly specified and, as far as possible, determined independently of the government to reduce pressure for “creative accounting.” - Targets should be based on fiscal aggregates compiled using an international standard such as SNA95 or GFSM 2001. - Where possible, targets should be based on consolidated general government with prudent forecasting of elements not directly controlled through the annual budget. - Concepts such as “petroleum revenues” and “grants” should be clearly defined and their data source specified; in the case of petroleum revenues this can reference the definition and reporting in the PFM Bill. ### Specifying the operation of fiscal policy in the Charter — top-down budgeting - The Charter should set out and explain the basic operation of fiscal policy and the purpose of the timetable and processes for making fiscal policy set out in the PFM Bill. - The Charter should clearly enshrine the top-down budgeting process implied by the PFM Bill to further fiscal control and prioritization of expenditure, specifically: - The Charter first sets measurable fiscal objectives to operationalize the principles in the PFM Bill; - The BFP establishes a set of medium-term expenditure ceilings for each of the next five financial years based on the Charter objectives and a prudent macroeconomic and fiscal forecast; - The annual budget allocates funds to particular sectors for the coming financial year within the expenditure ceiling fixed in the BFP; - Sector ministries prioritize the use of their resources within their fixed budgets as approved by Parliament; - Proper reporting and accountability on budget execution. ### Prudent revenue forecasting — necessity and mechanisms - Prudent and realistic revenue forecasting is crucial; persistent over-optimism on revenue forecasts significantly damages credibility. - As a prospective oil-exporter, Uganda faces particular challenges including volatility of oil prices, uncertainty of production volumes, and potential optimism bias. - The Charter should require forecasts to be based only on announced revenue policies, transparently published revenue forecast determinants linked to the macroeconomic forecast, and a cautious approach to anticipating improvements in revenue collection. - Increased transparency over forecast assumptions and presentation of forecasting records should be central requirements of the Charter. - The Charter should require a comprehensive and quantified fiscal risk statement showing: - Sensitivity of fiscal balances to alternative macroeconomic assumptions, including oil prices and revenues; - Impact of realization of discrete fiscal risks (guaranteed loans, state-owned enterprises, local governments, PPPs, tax expenditures). - Suggested contents of a fiscal risk statement include (Box 1): - Macro-Fiscal Sensitivity Analysis: discussion of forecasting record, sensitivity of revenues and expenditures to key economic assumptions, use of alternative scenarios or fan charts, and correlation among shocks. - Public Debt Sustainability Analysis: sensitivity of public debt levels and debt servicing costs to variations in assumptions; impact of debt management strategy on government risk exposure. - Policy and institutional framework for government borrowing and on-lending: projected statement of inflows, outflows, balances; disposition of loan repayments and nonperforming loans. - Specific Fiscal Risks: contingent liabilities (expected value and gross exposure to central government guarantees), banking sector risks, legal action against central government, fiscal impact of natural disasters, and sub-national government fiscal positions. - State-Owned Enterprises: policy framework for SOEs, financial performance and position of the SOE sector and largest SOEs. ### Additional policy options to support realism and credibility of forecasts - Consider pre-committing to specific prudent forecasting assumptions (e.g., using historical averages or external consensus forecasts for oil prices; basing revenue projections on flat rather than improving tax gaps). - Develop a deliberately cautious forecast for planning purposes set below the government’s central forecast. - Require external validation/auditing of key forecast assumptions (for example by the Parliamentary Budget Office or the Economic Policy Research Council). - Explicitly compare forecasts with those of other institutions. ### Reporting and accountability — timetable - The Charter should specify the timetable and minimum content of reporting on performance against fiscal targets. - The government should produce full macroeconomic and fiscal forecasts and report on performance against Charter objectives in the following documents: - The annual Budget Framework Paper, published by the end of March. - A Half-Year Fiscal and Economic Update, published no later than the end of October. - A Full-Year Final Report on Fiscal and Economic Outturns, to be published when final outturn data on the fiscal aggregates is available; ideally timed to coincide with (or form part of) the annual Budget Framework Paper. - The current reporting timetable could be streamlined: the PFM Bill (section 14 and 16) requires economic and fiscal updates by the end of February and the end of October; the first public update should be aligned with the BFP projections approved by Parliament by end-February (section 9). ### Reporting content and analytical tables - The Charter should specify minimum content for reports and can enlarge PFM Act basic requirements to include: - The aggregates that must be explicitly forecasted and published depending on targets set in the Charter. - Flexibility for forecasting approaches to evolve over time (e.g., forecasting of oil revenues). - Key analytical tables the Charter should specify to assist Parliament and the public: - Comparisons to outside, independent forecasts; - Comparisons to previous official forecasts with explanations for changes separated into policy changes, changes to economic determinants, and other changes; - Transparent tables setting out key fiscal determinants and their changes since the previous forecast to assist in understanding reasons for revenue deviations; - Data on budget execution; - Sensitivity analysis and alternative scenarios for fiscal aggregates under different assumptions from the baseline as part of the fiscal risk statement. ### Summary of recommendations (mission) - Recommendation 2.1: We recommend placing an annual limit on the non-resource, non-grant fiscal deficit, with a pre-defined two-year correction period where the limit is breached as a result of unexpected revenue shortfalls. - Recommendation 2.2: In setting a target for the non-resource, non-grant balance the government should consider adopting the principle that it should keep the estimated benefits of oil revenues and grants constant between generations. - Recommendation 2.3: The Charter should adopt a hard ceiling on gross public debt, potentially making reference to the EAMU convergence criteria, applying in every financial year. However, it should also include a lower target level for public debt over the medium term. - Recommendation 2.4: If the Charter contains a target on improved revenue collection, it should explicitly require the revenue forecasts used in the BFP and budget process to be based not on the target, but only on (i) concrete and properly costed tax policy measures to increase revenue and (ii) realistic assumptions about success in improved revenue collection. - Recommendation 2.5: The government should consider potential forms for an objective on withdrawals from the Petroleum Fund, but be careful to ensure such an objective does not unintentionally undermine the main deficit constraint on excessive front-loading of their usage. - Recommendation 2.6: Targets should be based on fiscal aggregates compiled using an international standard such as SNA95 or GFSM 2001. - Recommendation 2.7: The Charter should establish institutional mechanisms to help ensure fiscal policy is based on prudent revenue estimates. - Recommendation 2.8: We recommend the government produce full macroeconomic and fiscal forecasts and report on performance against the fiscal objectives twice a year, in the BFP and a half-year update. The annual budget should be based on the BFP forecasts. - Recommendation 2.9: The Charter should specify the minimum content for fiscal reports, in line with the draft Charter included in Appendix II. ### Petroleum revenue management — introduction and issues - Provisions for the Petroleum Fund have been made in the PFM Bill, but there are weaknesses in governance and accountability provisions when compared to the Santiago Principles for Wealth Funds; these weaknesses are commented on in Appendix III. - Proceeding with the Bill as currently drafted will present considerable risks; many issues may undermine the effectiveness of public finances. The Bill is still being discussed and changed in the parliamentary committee process and should be tested against the Santiago principles and the detailed list of issues in Appendix III. Many issues cannot be dealt with by regulation and should be addressed in the final version. ### Objectives and nature of the Petroleum Fund - There are no objectives for the Petroleum Fund in the PFM Bill; in the absence of objectives there is little guidance for transfers to the annual budget apart from fiscal principles that are not well specified nor properly linked to decision-making provisions in the Bill and any implicit restrictions placed by the Charter. - Example of a suitable objective that could be included in the PFM Bill: - The Petroleum Fund is to ensure that petroleum revenues are used for the benefit of both current and future generations. This is done by providing stable and sustainable disbursements to the central government budget through the Consolidated Fund, and investing the remaining revenue for utilization in future budgets. - The exact nature of the Petroleum Fund is unclear due to a lack of precision in the definitions part of the Bill and various clauses. - The Bill states that petroleum revenues may only be used for the financing of infrastructure and development projects, and not recurrent expenditures, but this does not define the purpose of the Fund. - Discussions with officials revealed different understandings of the Petroleum Fund as being either: - (i) a fund that holds the Petroleum Revenues transferred from the Uganda Revenue Authority (URA) and an Investment Portfolio managed by the BoU; or - (ii) only the investment portfolio managed by the BoU. - While regulations can deal with banking and transfer arrangements, they cannot resolve the confusion in the Bill over the nature of the Fund. *Italic: IMF staff report content as provided in the supplied text.* ### 50. The arrangements in the PFM Bill lack the protections of having an independent ### The arrangements in the PFM Bill lack the protections of having an independent ### Governance and ministerial roles - Finding: The governance function for the Petroleum Fund sits with the Minister of Finance who is required to: - make the agreement with the BoU to manage the funds; - appoint the Investment Advisory Committee; - approve the Investment Policy; - monitor the performance of the BoU with regard to the Fund (including through the reports of the BoU and the Investment Advisory Committee); - monitor the Accountant General/PS/ST/BoU with regard to transactions relating to the Fund; - approve the Annual Plan for the Fund; and - approve the Annual Report of the Fund. - Observation: The Minister’s roles are extensive and time consuming, and may present tensions between short-term budget demands and longer-term objectives of preserving wealth for future generations (paragraph 51). - Risk: Delegation of some roles may place too much responsibility on officials who may have official roles that conflict with the, currently unspecified, objectives of the Fund (paragraph 51). ### Revenues from investments - Finding: The PFM Bill does not require all revenues, income, dividends, proceeds, gains, earnings, or other moneys or assets received from the investment of Petroleum Fund to be retained within and constituted as a part of the Petroleum Fund (paragraph 52). - Recommendation notion: These revenues should include: - (a) interest on deposits and securities; - (b) dividends; - (c) proceeds from the sale of stocks and shares; and - (d) earnings from derivative transactions (paragraph 52). ### Investment Advisory Committee and investments - Finding: The Investment Advisory Committee composition is not constituted to ensure it fulfills its functions (paragraph 53). - Two of the five positions are allocated to the Secretary to the Treasury and the Permanent Secretary of the Ministry responsible for Petroleum activities, or their representatives (paragraph 53). - Clause 65 (4) requires each member to have “substantial experience, training, and expertise in financial investments, portfolio management, or investment law” (paragraph 53). - Risk: Civil servants appointed by office may have conflicts of interest and pressures to invest in development projects or local investments that expose the Fund to unacceptable risk (paragraph 53 and footnote 10). - Recommendation notion: Appointments should recruit individuals with appropriate skills rather than source by office; civil servants may be appointed only if they meet criteria and are free of conflicts (footnote 10). ### Prohibited and restricted investments - Finding: The prohibitions on risky investments in clause 61 are too limited and should be extended (paragraph 54). - Suggested protections: - Specify acceptable issuers of an internationally convertible currency deposit or a debt instrument denominated in any internationally convertible currency (paragraph 54). - Require an investment grade rating for the central banks of other countries when investing in their interest bearing instruments (paragraph 54). - Specify limits (percentages) of the portfolio allowed in securities and acceptable stock exchanges (paragraph 54). - Place further limitations on the use of derivatives (paragraph 54). - Prohibit Petroleum Fund resources from being invested in any instrument issued by a bank, corporation, or individual resident in Uganda or owned or controlled by a Ugandan national or company registered in Uganda (paragraph 55). ### Withdrawals and loss recovery - Finding: Protections from unauthorized withdrawals are missing (paragraph 56). - Recommendation notion: Require that funds withdrawn in breach of clause 57 be treated as losses of public money and ensure the Bill permits timely recovery of losses from civil servants, public office holders, and private sector individuals and entities (paragraph 56). ### Planning, reporting, and auditing requirements - Finding: Planning and reporting provisions are not complementary or well specified (paragraph 57). - Current reporting authorities and duties: - BoU prepares semiannual and annual reports including financial statements for the investment funds (clause 67 and 70) (paragraph 57). - Accountant General prepares semiannual and annual accounts for the Fund (clause 59) (paragraph 57). - Minister reports to Parliament on transfers, sources, volumes, and value of petroleum revenues and tables the financial statements (clause 60) (paragraph 57). - Recommendation notions: - If the Fund had a governing board, Annual Plan and Annual Report would come from the Board, BoU would report to the Board on investment portfolio performance, and the Accountant General would report on transactions relating to the Consolidated Fund (paragraph 58). - Given no governing board in the current draft, expand planning and reporting provisions in regulations; the Accountant General’s annual report on the Petroleum Fund should include requirements currently applied to the Minister’s report and include explanation of how the Fund is performing against its objective; the Minister could table this report in Parliament (paragraph 59). - The Bill should require the BoU to report against suitable benchmarks; publicly available monthly reports should be against benchmarks with more comprehensive benchmarking in the BoU’s annual report (paragraph 60). - Audit provisions need strengthening: petroleum revenue investment funds managed by the BoU should be audited by an audit committee of independent and highly qualified members, with periodic and annual reports publicly available, in addition to the statutory external audit by the Auditor General (paragraph 61). ### Other provisions - Finding: The mechanism for transfer of the seven percent of petroleum revenues to local governments is inflexible should forecasts be inaccurate; transfers are appropriated in the annual budget based on forecasts with no mechanism for handling actual-versus-forecast variances (paragraph 62). - Recommendation notion: Regulations should include the process for dealing with significant variances if these cannot be absorbed by central government (paragraph 62). - Finding: The PFM Bill provides for a Petroleum Pricing and Valuation Committee but omits essential requirements (paragraph 63). - Recommendation notion: The Bill should set out membership, appointment provisions, terms and conditions, functions, powers, and reporting requirements; if the committee is simply an internal government advisory committee of public officials, it could be specified in regulations (paragraph 63). ### Implementation issues for the Petroleum Fund - Finding: Implementation will require development of committees, a contract with the BoU, policies, changes to systems and processes, and capability building (paragraph 64). - Table 2 activities (selected entries preserved as in source): - Activity 1. Include the Fund in the fiscal policy, and annual budget documents and reports — Responsible Entity: MoFPED — Resources: MoFPED staff — Timing: As per the PFM Bill. - Activity 3. Set up the Investment Advisory Committee and secretariat services — Responsible Entity: BoU and MoFPED — Resources: MoFPED and BoU staff — Timing: July 2014. - Activity 4. Development of investment policy — Responsible Entity: Investment Advisory Committee — Resources: Will need BoU, MoFPED, and external advice — Timing: December 2014. - Activity 5. Set up the Valuation and Pricing Committee and secretariat services — Responsible Entity: Relevant ministries — Resources: Should be able to be done by current staff — Timing: July 2014. - Activity 6. Allocate roles and responsibilities within MoFPED to support Minister’s functions — Responsible Entity: PS/ST — Resources: Assess whether the MoFPED has skills required and if not, consider options to access these skills. There could be considerable work in supporting the Minister in this technically complex area. — Timing: July 2014. - Activity 7. Develop agreement with BoU — Responsible Entity: MoFPED and BoU — Resources: Current MoFPED and BoU staff with some input from qualified advisers — Timing: October 2014. - Finding: The BoU, the Revenue Authority, and the ministry responsible for petroleum will have additional development work not covered in this report (paragraph 64). ### Summary of Recommendations (section C, enumerated) - Recommendation 3.1: Specify the objectives of the Fund; - Recommendation 3.2: Fully define the revenues of the Fund to include the earnings on investments; - Recommendation 3.3: Remove the civil servant positions designated by office on the Investment Advisory Committee and add the requirement that appointees are not to have conflicts of interest with their functions; - Recommendation 3.4: Extend the prohibited investments to ensure the fund is adequately protected (as suggested above); - Recommendation 3.5: Specify that withdrawals that are not in accordance with the law are to be treated as public losses and ensure that there are adequate provisions in the law to recover such losses; - Recommendation 3.6: Improve and further define in regulations, the planning and reporting requirements so there are suitable and consistent requirements including rationalizing the Accountant General’s and Minister’s reports and making the contents of the BoU report more suited to investment portfolio reporting, including benchmark reporting; - Recommendation 3.7: Provide for suitable auditing provisions for the investment portfolio; - Recommendation 3.8: Provide for dealing with differences in the appropriations to local government and the actual revenues of the fund or deal with this in regulations; - Recommendation 3.9: Set out the basic provisions for the Petroleum Pricing and Valuation Committee with the detail to be covered by regulations if necessary; - Recommendation 3.10: Ensure that the drafting issues and errors in the Bill are addressed before the Bill is passed into law (see Appendix I); - Recommendation 3.11: Plan the implementation of the Fund and related matters; - Recommendation 3.12: Develop supporting regulations once the Bill is finalized so the regulations can be tightly linked to the provisions of the forthcoming Act. ### Cash Management and Treasury Single Account (TSA) — introduction and implementation points - Progress: Good progress since June 2013, providing a sound platform for extending the TSA and introducing cash management reforms (paragraph 66). - Current bank/account structure features: - UCF Account and decentralized zero-balanced Vote sub-accounts to facilitate payments (paragraph 66). - All UCF revenues are credited to the UCF Account and spending limits distributed from it on a quarterly basis to a UCF Holding Account (paragraph 66). - Cash is transferred to Vote sub-accounts based on IFMS-generated payment listings; IFMS-generated payments are made by electronic fund transfers on the same day as cash transfers; any close of business balance on a Vote sub-account is swept back to the UCF Holding Account (paragraph 66). - Complementary initiatives that supported restructuring include: - enhanced IFMS functionality; reconfiguring the core banking application; decentralized payroll processing; changes in the budget fund release process; improved interfaces enabling straight through processing (STP) for domestic payments; closure of dormant bank accounts; appointment of a US Treasury resident advisor (paragraph 67). - Tangible improvements cited by MoFPED and BoU: - enhanced security and efficiency of transactional processing for payroll and supplier payments; - timelier reconciliation of a smaller number of bank accounts; - improved planning for service delivery from quarterly fund releases (paragraph 68). - MoFPED ambitions for TSA extension: - expand TSA coverage to include project and other funds; - further reduce and rationalize the number and location of operational bank accounts; - complete decentralization of payroll; - further enhance IFMS/core banking functionality and interfacing to enable STP of foreign payment transactions; - formalize relationships between GoU and BoU in service level agreements (SLAs); - commence building cash management capacity (paragraph 69). - Implementation issues when extending TSA to projects: - Recognize the role of the UCF and its relationship to the aggregate TSA balance; - Include alternative TSA tools for managing cash pertaining to projects, donor, and extra-budgetary funds; - Review efficacy of daily advances to operational Vote sub-accounts; - Change activities must identify and cater for development partners’ accounting requirements for project funds (paragraph 70). - Box 2 (Mozambique experience) summarizes features, enablers, and challenges in extending TSA coverage to donor-funded projects (paragraphs in Box 2). *IMF staff report (cr17266) — extracted chapter content* ### 71. The current TSA configuration incorporates some sound TSA features. These include ### cr17266 - 71. The current TSA configuration incorporates some sound TSA features. These include ### Ring-fencing cash balances - TSA principles seek to maximize the fungible nature of cash by relying on financial management systems for exercising expenditure controls, but ring-fenced balances in both the IFMS and banking systems may be justified in practice. - Short-term need: ring-fencing within the TSA likely required for donor-funded projects until donors are convinced earmarked funds cannot be diverted. - Longer-term need: ring-fencing may be required to avoid co-mingling monies from various public funds or autonomous government bodies, especially where the IFMS is not used as the accounting/budget execution tool. - Design requirement: allow for sub-accounts held in the BoU which retain cash balances earmarked for specific purposes (footnote 12). Unlike Vote sub-accounts, balances on these sub-accounts would not be swept at the close of each business day. - Inclusion of ring-fenced balances within the TSA structure still provides significant benefit by allowing the GoU to aggregate those balances for determining and managing its overall cash position. - Over time, benefits will accrue as confidence in IFMS controls grows and demand for ring-fencing diminishes. ### Recognizing the Uganda Consolidated Fund’s role - Finding: It is inappropriate to include the UCF as the TSA head account; the current design in the TSA Phase One Progress Report (footnote 13) places the UCF bank account at the apex of the TSA structure, which will cause future difficulties as TSA scope expands. - Three reasons positioning the UCF as the TSA Head Account is inappropriate: - Aggregating all public monies to the UCF is contrary to legal requirements: the UCF is required and its purpose defined in the PFM legal framework; the aggregate of all public cash cannot be shown as belonging to the UCF. - Placing the UCF as the TSA Head Account conflicts with its fiscal stability role: the UCF is the repository of all UCF receipts and the source for cash distributions to settle obligations; inflows to the UCF are used as the main determinant of fund releases to Votes. - The TSA Head should not be a transactional account: the UCF receives transfers from the URA, borrowing proceeds, and budget support grants, and issues cash to Votes; the TSA Head Account should represent a view of all transactions and balances at lower levels rather than be transactional. - Recommendation for design: introduce a TSA Head Account and relegate the UCF to a lower level within the TSA hierarchy so the Head Account can provide a view of all government-controlled cash balances administered through the BoU while preserving the UCF’s role in budget execution. - Regulatory implication: new financial regulations need to clarify relationships between the UCF, public monies, and the TSA; the PFM Bill does not well-define these relationships (see Section I and Appendix II). ### Vote sub-accounts - Current Phase One practice: quarterly budget fund releases allocated to Votes through the IFMS; simultaneously cash transferred from the UCF to a UCF Holding Account; payments constrained by fund releases linked to cash in the UCF Holding Account. - Payment processing: domestic payments use EFT, external payments use bank instruction and letter of credit mechanisms; payment lists produced for each Vote; funding transferred from the UCF Holding Account to the respective Vote sub-accounts; EFTs effected the same day generally causing credit balances on Vote sub-accounts to be cleared. - Residual balances: may result when EFTs are cancelled or fail—transactions canceled and balances automatically swept back to the UCF Holding Account. - Bank reconciliation: bank statements for each Vote sub-account uploaded to the IFMS and matched to the cash book; each Vote responsible for completing its bank reconciliation. - Opportunities to improve efficacy of Vote sub-accounts: - Fund transfers to the UCF Holding Account in tranches through the quarter. - Cease pre-funding of Vote sub-accounts—pre-funding and subsequent sweeping cause additional work and accounting transactions but do not appear to strengthen controls; review this process over a three month period to assess value added. - Longer-term objective: reduce number of Vote sub-accounts by progressively pooling transactions through a centrally-maintained TSA sub-account and payment process, starting with Vote sub-accounts with relatively fewer payment transactions. ### Extending the Treasury Single Account to projects - Scale of project accounts: Ush-denominated project accounts are the largest group of government-controlled bank accounts with substantial combined balance. In February 2013, an estimated 600 project accounts were held in the BoU with a total balance of Ush1.7 Trillion (approx. US$650M) (footnote 14). These balances were unremunerated and outside BoU computation of the GoU cash position. - Recent breaches in PFM procedures leading to losses from donor-funded project accounts have increased demands for greater controls and may have reduced donor confidence in in-country systems. - Incentive to include project balances in TSA is substantial, but incorporation requires complementary activities: - Strengthen accountability by using the IFMS for recording receipts and commitments, processing payments, completing bank reconciliations, and generating financial reports. - MoFPED must understand donor requirements and concerns and be willing to accommodate them with concerted change management measures. - Donor engagement: discussions with the World Bank indicated willingness to act as a pilot for including its projects within the IFMS and TSA; high level sensitization of donor community has commenced with support of the US Treasury Adviser. - Potential donor requirements to anticipate (drawing in part on Mozambique experience): - Protect/ring-fence donor funds for particular purposes through the TSA and IFMS structures, procedures, and workflows. - Authority to spend restricted to project managers or staff designated by development partners. - Enforce good practices and accountability, including transacting through the IFMS using EFT, segregation of duties, regular back-up, and full audit trail of transactions. - Flexibility for managing project budgets (e.g., relaxing line item controls by allowing project manager discretion within overall budget ceilings, subject to having received sufficient receipts of donor funds). - Ability to refund unspent funding to development partners. - Year-end rollover of unspent monies and committed budgets through timely and simple procedures. - Mechanisms to account for exchange rate variations. - Flexible project reporting based on the standard chart of account structure with possibly an additional code segment for discretionary project use and analysis. - Change management actions required for TSA Phase implementation: - Requirements elaboration: convene sessions with donors to understand their requirements and describe solutions. - Involve donor representatives in confirming system requirements and testing configured solutions. - Cooperate with donor fiduciary risk assessments. - Phase implementation sequencing, e.g., (i) include Ush-denominated project monies, (ii) include foreign-denominated accounts, and (iii) reduce level of direct disbursements. - Develop a Donor/MoFPED memorandum of understanding setting out roles and responsibilities. - Pilot with one or more donors/projects to use the IFMS and TSA, provide feedback, and serve as champions for broader donor participation. ### Legal and Regulatory Framework - Current Bill shortcomings: - TSA arrangements are not defined in the new Bill; no definition of the TSA in clause 4; banking arrangements not defined or specified in clause 33. - The Accountant General’s responsibilities require operating a Treasury Single Account “as defined in regulations,” which may limit TSA coverage to votes and risk missing extra-budgetary funds, including petroleum funds. - This coverage issue should be addressed at the drafting stage (see Section I). - Recommended regulatory actions: - Regulations to the Act should define the TSA, its coverage, and distinguish between the UCF and the TSA. - Regulations should define the banking arrangements of the TSA and anticipate future stages of cash management development to realize full benefits. - Regulations should cover investment of surplus cash balances and borrowing to meet short-term cash shortages. ### Summary of Recommendations - Recommendation 4.1: Review the TSA structure and introduce a TSA Head Account, and relegate UCF to a lower level within the TSA hierarchy. - Recommendation 4.2: Review the efficiency of operating Vote sub-accounts. - Recommendation 4.3: During drafting of the legislation, include a definition of the Treasury Single Account and its coverage, with appropriate transitional provisions. - Recommendation 4.4: Develop new financial regulations that define the TSA, and clarify the relationship between the UCF, public monies, and TSA. - Recommendation 4.5: Work with donors to establish their common and specific requirements for management and accounting of project funds through the TSA. - Recommendation 4.6: Continue to expand the coverage of the TSA and roll-out of the IFMIS, in particular, bringing project accounts into the TSA. *IMF staff report excerpt (cr17266).* ### Part I clauses 4 and 5 Align with the Bill ### Part I clauses 4 and 5 Align with the Bill ### Purpose, Objectives, and Scope of the Regulations - Align clauses 4 and 5 with the Bill and ensure that the same terminology is used as in clause 4 of the Bill. - Fiscal balance is not defined in the Bill. - Usual provisions for regulations. ### Charter of Fiscal Responsibility / Macroeconomic and Fiscal Rules - Set of minimum contents including indicators and information to assess the alignment of the Charter to: - Requirement to support macroeconomic stability and economic growth - Fiscal responsibility principles - Bill lacks this in the schedule and if this is not addressed then do this in Regulations. - Define indicators for: - prudent and sustainable levels of public debt - sustainable fiscal balance excluding petroleum - management of petroleum revenues and other finite natural resources for the benefit of current and future generations - management of fiscal risks in a prudent manner - efficiency, effectiveness and value for money (require specification of this as it is missing in the Bill) - Assume inappropriate fiscal principles about revenue generation and adherence to NDP and MTEF are removed. - Specify in minimum content for reports. - Require publication on official website of the government. Publication requirements lack this. ### Economic and Fiscal Updates; Reporting Requirements - There are 4 types of Economic and Fiscal Updates (one with the Charter, twice yearly after that so mid-year and annual, and pre-election)––for each of these four types specify: - Responsibilities to produce these - Minimum contents (ensure these include reference to fiscal responsibility principles as well as the fiscal objectives in the Charter) - Who the reports are presented to - Date reports are presented - Publication requirements - Relevant PFM Bill Clauses: 6 (1) (b); 14; 17 - Reporting requirements are not well specified in the Bill so Regulations will need to cover the gaps unless Bill is amended. ### Deviations from Charter of Fiscal Responsibility - Minimum contents for deviation report which shall include reporting deviations against the fiscal responsibility provisions and Charter. - Date to provide report to Parliament. - Require publication on official website of the government. - Relevant PFM Bill Clause: 7 - Provisions in the Bill need further specification particularly reporting requirements including timing as not all deviations will come from cabinet decisions. ### Budget Framework Paper (BFP) at Government Level - Process steps and dates could be specified for the development of Budget Framework Paper or this can be dealt with in instructions issued under the Act. - Minimum contents for government level BFP are specified in schedule 3 therefore regulations would deal only with matters than need further specification which could include: - Requirement to compare BFP to the fiscal responsibility principles (not just the Charter) - Requirement to present forecasting scenarios and effect on revenue forecasts and requirement to state assumptions (schedule 3 specification is not well drafted) - Comparison to other independent forecasts, past forecasts and explanation of differences - Further specification of the requirement to report contingent liabilities - Minimum contents for MTEF part of the BFP including ceilings to be used in the budget process - Relevant PFM Bill Clause: 9 Schedule 3 - Comment: Bill has unclear specification of BFPs and other medium term documents which must be resolved in the regulations. Clarify timing of government level BFP if Bill fails to reconcile problems of conflicting timing (although Act will prevail over Regulations if Bill is passed with timing issues). ### Medium-Term Debt Strategy - Minimum set of contents for medium term debt strategy. - Definition of sustainable debt limits required to be set in nominal terms and for information purposes as percent GDP and definition of coverage of these limits (total, central government, and local government) for BFP, Charter, and Annual Budget. - Linkage of medium term debt strategy to BFP and Annual Budget process. - Minimum set of contents for annual budget debt document (should draw on MTDS) and include limits on borrowing and guarantees. - Minimum set of contents for debt reports (and provisions about timing and publication if Bill remains unclear on this). - Relevant PFM Bill Clauses: 10 (8) 3; 40 (3) - Comment: Bill has fragmented and incomplete debt provisions and if not addressed, then Regulations will need to be expanded with regard to debt. ### Budget Preparation, Approval, and Management - Annual budget appropriation: Define the unit of appropriation. Relevant Clause: 9. Comment: Bill does not do this clearly––appropriations appear to be at Vote level. - Stages of the budget process: Process and timing requirements for: - Macroeconomic forecasts - Fiscal forecasts - Medium-term plan updates if any from BFP - Issuing Budget Circular/instructions - Vote and entity level documents - Budget production including the documents - Relevant PFM Bill Clauses: 9, 10 - Budget documents from entities (Budget Framework Paper and Ministerial Policy Statements): For each provision cover responsibilities, minimum contents, timing. Note that ministerial policy statements are too operational in section 10 and regulations could specify that the operational parts are presented for information not approval by Parliament and that they may be updated during the year. Regulations could specify the minimum level of higher level information to be in the ministerial policy statements presented with the annual budget. - Comment: Bill has unclear requirements about vote level and government level BFPs and also refers to ministerial policy statements. ### Other Annual Budget Documents and Approval - As far as possible deal with the inconsistencies and gaps in the specification of the Annual Budget documents. - Specify publication requirements including on an official website of the government. - Specify responsibility and minimum contents for some of the annual budget documents such as the treasury memorandum, statement of multiyear commitments (consider setting out limits to be approved by Parliament), statement of tax expenditures, expenditure estimates, statement of budget honesty, revenue estimates, financing estimates, etc. - If a government work plan is still required in the Act then specify contents at a suitable level so it is not an operational level. - Relevant PFM Bill Clause: 10; 11 - Comment: Current draft Bill has unclear requirements about annual budget documents and Bills. ### Commitment of Approved Budget; Cash Controls - Process to prepare, submit and update annual procurement plans. - Process to prepare an annual cash flow plan, linked to the annual procurement plan. (cross reference to cash management for updates and consolidation of the cash plans) - Accounting officer responsibility for preparation of annual procurement and cash flow. - Format and content of annual procurement plan and cash flow plan to be set out in instructions and guidance notes issued under the Act plans and information required and frequency for updating the plan. - Relevant PFM Bill Clause: 12 - Comment: Bill lacks updating requirements. - Requirements to ensure: - Budget limits be based on annual Cash Flow Plan - Commitments not to exceed cash limits - Criteria for release of funds by Accountant General - Limitations of commitment against budget limits - Possible penalties for over commitment? - Report on Expenditure Commitments: Definition of format and content for quarterly commitment report to include budget, commitments, actual, forecast and cash position, and an explanation of the latter. Relevant Clause: 13. Link to cash management. ### Reporting on Payments in Arrears and Performance - Specification of entities that are required to produce quarterly reports. - Requirement for all entities to report not only commitments, but all payments in arrears (including all classes of expenditure: salaries, allowances, goods, services, utilities, payments to international organizations, tax refunds, etc.) - Reference to procurement regulations under the Public Procurement and Disposal Act 1. - Report on Performance: Specify responsibilities, minimum contents, timing, presentation, and publication requirements for financial and nonfinancial performance for: - Government-level in-year reports - Vote and entity level in-year reports - Government-level annual reports - Vote and entity-level annual reports - Relevant PFM Bill Clauses: 6, 7, 14, 16, 17, 18, 50, 51 - Comment: Bill has fragmented, overlapping and incomplete reporting requirements. ### Expiry of Appropriations; Pre- and Post-Election Reporting - Requirements governing carry-over and approval of warranted funds including arrangements for donor-funded project moneys. Relevant Clause: 15. - Provisions about the identification and request for the re-appropriation of unspent funds. - Publication of Pre- and Post-Election Fiscal Reports: - Split reporting into two well specified reports––one is a revised Economic and Fiscal Update and the other is a report on election spending. - Include suitable contents, timing and publication requirements. - Include requirement to report against the fiscal responsibility principles, not just the BFP and Charter. - Relevant PFM Bill Clause: 17 - Comment: Bill confuses reporting on election spending and updating the Economic and Fiscal report prior to the election. ### Budget Execution by Accounting Officers; Virements; Multi-Year Commitments - Define funding limits. Relevant Clause: 18. - Commitments for goods, services and construction works to be recorded in the IFMS. Local purchase orders to be generated from the IFMS. Exceptions listed (e.g., utilities and claims). - Accounting Officer limited to commit within Funding (Cash) limits specified by MoFPED. - Format and minimum content of Budget Execution Report. - Virements: Rules, format, authority and timelines for the submission, consideration and approval of virements with a presumption of allowing line ministries greater flexibility subject to certain restrictions. - Relevant Clause: 19 - Virements to specify impact on objectives and planned outputs and outcomes. - Multi-Year Expenditure Commitments: - Procedures for approving and recording contracts/commitments which extend beyond the current fiscal year. - Provide for the setting of aggregate government wide and not just vote level limits. - Specify the format and content of multi-year commitment limits. - Relevant Clause: 21. ### Supplementary Budgets and Contingencies - Stipulate that government entities may not submit proposals for new or additional spending outside the annual budget unless un-absorbable, unforeseeable, and unavoidable. Relevant Clause: 23. - MoF to develop format and criteria for the preparation of post-budget spending requests. - Supplementary Budget (cont.): - Minimum required contents and timelines for supplementary budgets including identification of funding sources. - Supplementary estimates submitted after the half year to be informed by a mid-year review and to reflect any transfer of functions. - Requirement for formal report on effect on Charter and principles of fiscal responsibility. - Requirements relating to excess expenditure procedure including minimum contents for the excess expenditure report. Relevant Clause: 23(6). - Format and content of statement of losses written off by Minister. Relevant Clause: 44. - Contingencies Fund: - Procedures, responsibility and format for reporting for expenditure under the contingency vote. Relevant Clause: 24. - Responses to disasters to be funded from the Contingencies Fund. - Responsibility for declaring a disaster (refer to relevant legislation). - Supplementary Expenditure Financed from the Contingencies Fund: Define procedures for use of contingencies fund (vote). Relevant Clause: 26. ### Cash, Asset, and Liability Management - Collection and deposit of revenue and retention of revenue: - Responsibility for revenue collection resides with the Accounting Officer. - Accounting Officers to review user charges for services rendered by the state and charged for. - Regulation to indicate that deposits must be made into CFU/TSA. - Collection must be made through the IFMIS and adequately classified. - Responsibility for recording debts owing to the government and pursuing timely settlement. - Processes for debt recovery. - Accounting Officers to disclose in annual reports arrears of revenue owing to the government, analyzed by the nature of revenue, the period overdue and recovery efforts made. - Annual reports of votes, public corporations, and state enterprises to include information on user charges. - Regulation must define what type of accounts can or cannot transfer funds to CFU. - Secretary to the Treasury to specify a format of the publication of information of tax collection arrears, tax exemptions, and tax expenditures. - Relevant PFM Bill Clauses: 27 and 8. - Cash management: - Responsibility for cash management. - Requirement to establish cash management committee. - Roles and responsibilities of cash management committee. - Requirement for consolidated cash plan, regularly updated to reflect latest revenue and expenditure forecasts. Coverage of cash plan to correspond with TSA. - Define the role of the BoU in relation to TSA (not only as a banker but as supervisor of the Commercial banks in the TSA). - Regulation must delegate power to the Minister to define the phases of the TSA implementation. ### Consolidated Fund, Special Funds, and Investment of Balances - Define consolidated fund and distinguish between consolidated fund, public funds and treasury single account. Relevant Clause: 28. - Special Funds: List of Special Funds to be included in the budget. Relevant Clause: 29. - Conditions within which the Minister may create Special Funds. - Secretary of Treasury to issue instructions for the Estimates of Special Funds. - Accountant General to issue instructions for financial statements of special funds. - Investment of balances on the Consolidated Fund: - Responsibility for the management of the cash surplus of the government. - Decision to invest cash surplus must be done upon presentation of a “feasibility study”. - The regulation should allow Treasury to review the terms and conditions of remuneration of the investments (e.g., interest rates change). - Link to section on cash for short-term investment of TSA balance. - Grants of Credit on the Consolidated Fund: Criteria to be considered by the Accountant General in advising the Minister on issuance of grant of credit. Relevant Clause: 31. - Withdrawals from the Consolidated Fund: - Define the procedures and responsibilities for requesting and approval of withdrawals from the consolidated fund. - Procedures for withdrawal through the IFMIS. ### Bank Account Management and Treasury Single Account (TSA) - Define the Treasury Single Account to: - Require the Accountant General to determine the government’s bank account structure, based on the principles of a treasury single account. - Ensure all funds, including petroleum funds and project accounts operate within the TSA. - Require all constitutional bodies, regulatory and other bodies that receive their majority of funding from the national budget are included in the TSA. - Exceptions to inclusion in the TSA (e.g., mission abroad and trading entities). - Roles and responsibilities for requesting and approving the opening of bank accounts or TSA sub-accounts. - Criteria to be considered for justifying the need for a new or continuation of a bank account or TSA sub-account. - Criteria, responsibilities and process for closing a government bank account or TSA sub-account. - Responsibility for maintaining an up to date register of all government bank accounts. - Relevant PFM Bill Clause: 33. - Additional bank account management provisions: - Define the circumstances under which the Accountant General can authorize separate bank accounts to be open outside the Consolidated Fund/TSA. - Define the rules for opening, usage and closing of bank accounts (e.g., every account must have at least two signatories). - Define the responsibility of reconciliation of bank accounts and oversight of bank reconciliation. - Requirement for a memorandum of understanding which specifies the relationship between MoF and BoU on management of government bank accounts. - Procedures for operating the TSA including arrangements for sweeping outstanding balances of commercial accounts to the TSA. - Limits to which accounts can be overdrawn. - Requirements for banking records. - Definition––reference to bank accounts to include TSA sub-accounts. ### Loans, Guarantees, and Debt Management Operations - Authority to raise loans: - Loans can only be raised upon presentation of sound study. - The loan to be raised must be foreseen in the annual budget. - Repayment, conversion and consolidation of loans: Establish the criteria under which loans can be repaid, converted and consolidated. - Expenses of loans: All expenses of loans to be included in the annual budget. - Authority to Guarantee loans: - Conditions that can be imposed on a borrower by the Minister before giving a guarantee. Relevant Clause: 37. - Criteria to be considered by the Minister when guaranteeing a loan. - Information that would be required from the borrower to assess that its intended purpose s in line with government policy and the borrowing entity is capable of repaying the loan. - Specification of the penalties of an entity should it fail to repay the loan (e.g., no entitlement to further guarantees). - Reimbursement of costs of a guarantee: Specification of the expenses the Government incurred in relation to the guarantee for estimation of the costs incurred. Relevant Clause: 38. - Amounts due on loans or guarantees to be charged on the consolidated fund: - Information that the Minister would require to allow for payment of a guarantee from the consolidated fund. - Other details to be included in the report to the Parliament once money is paid out of the Consolidated Fund for a guarantee. - Responsibility for planning and reporting for the guarantees to be issued in the financial year, formats and timing of reports to be produced for inclusion in the budget documents. - Management of Government Debt: - Regulations on responsibility and procedures for handling debt management operations and executing transactions––the assessment of the risk of government guarantees. Relevant Clauses: 40 (2) and (3). - Reports should include, but limited to: - Composition of government debts (e.g., interest, length of maturity, currency for each debt); and - Outstanding debt at the beginning and end of the year; principal paid and interest paid. ### Public-Private Partnerships, Public Investment, and Project Financing - Reference to regulations covering the design, approval and monitoring of Public-Private Partnerships. Not covered in Bill. - Public Investment: - Definition of expenses to be classified as investment. - Responsibility for identifying and negotiating external funding for projects, both loans and grants. - Reporting requirements for investment projects, including project preparation, and implementation status, project appraisals and ex-post evaluations. Not covered in Bill. - Management of Expenditure of Project loans and grants: - Allow in-year budget increments to be approved by the Minister, provided evidence of financing. Relevant Clause: 41. - Allow carry-over of year-end balances within limits so the principle of an annual budget is not undermined. - Allow project implementing units to generate donor specific requirements using budget or specific classifications for reporting purposes. - Authority to receive grants: Directives and criteria for the receipt, deposit and disbursements of grants that will not form part of the CF/TSA. Relevant Clause: 42. ### Asset Management; Abandonment of Claims and Write-off - Accountant General responsible for determining the framework for recording, accounting and reporting of assets. - Responsibility of the accounting officer for managing the assets pertaining to their Vote(s) including to prevent asset loss. - Treatment of gifted assets. - Entities to develop an asset management plan in a format approved by Accountant General. Relevant Clause: 43. - Guidelines including requirements and formats for maintaining asset registers. - Responsibility of the Accounting Officer to prevent asset loss. - Annual verification of asset inventory including certification by Board of Survey that annual inventory has been completed, timing and verifications to be undertaken. - Principles for charging for use of government assets. - Management of losses (including cash) i.e., How they should be managed. - Disposal of assets must be at fair value and in accordance with the public procurement and disposal act. - Accounting Officer to determine recovery of debts by installments. - Accounting Officers to write off debts owing to the state after satisfying stipulated conditions. - Rules and responsibilities governing write-offs. - Collection procedures for overdue debtors. - Accountant General to specify formats for disclosure of asset related matters in the annual financial statements. - Interest must be paid on all over due debtors and shall be prescribed by the minister of finance. ### Accounting and Audit; Budget Classification; Chart of Accounts - Authority to the Secretary of the Treasury to develop the Budget Classification and Chart of accounts. - Authority to the Accountant General to maintain the chart of accounts. Relevant Clause: 52 (3). - Appointment of Accounting Officers: Duties, responsibilities, qualifications and appointment. Relevant Clause: 45. - Types of records to be maintained by Accounting Officers. - Audit Committees: Structure, composition and responsibilities for audit committees including the role of audit committee with regard to report of the Auditor General. Relevant Clause: 49. - Format and deadline for submission of annual report of audit committees. The Bill is currently silent on this. - Limits on remuneration of audit committee members. - In-year financial Reporting: - Format and frequency of in-year financial reports to be developed by Accountant General. Relevant Clause: 50. - Define payments in arrears as payments unpaid by X days after due date and require Accounting Officers to report all payments in arrears for all classes of expenditure. - Annual Accounts: - Generally accepted accounting policies/ accounting standards to be defined by Accountant General. Relevant Clause: 51. Bill should refer to international standards. - Accounting standards adopted to be clearly stated in the annual financial statements and departures from standards disclosed. - Accountant General to issue an accounting manual which specifies accounting policies for each class of revenue, expense, asset and liability. - Accountant General to issue reporting templates for summary statements of financial performance to be prepared by public corporations and state enterprises. - Timeframe and requirements for public corporations, special funds and state enterprises to report to MOFPED. - Publication of annual accounts after completion of audit. ### Consolidated Annual Financial Statements - Generally accepted accounting policies to be defined, including those on consolidation of accounts. - Accounting standards adopted to be clearly stated in the annual financial statements. - Criteria for recognition and publication of generally accepted accounting policies by the Institute of Public Accountants of Uganda to be clearly defined. - List of Accounting Officers and authorized entities allowed to incur classified expenditures. Relevant Clause: 53. - Accountant General to develop format for reporting by Accounting Officers on classified expenditures. ### Petroleum Revenue Fund (PRF) and Petroleum Revenue Investment Funds - Establishment of the Petroleum Fund: - Define petroleum revenues and include all revenues, income, dividends, proceeds, gains, earnings or other moneys or assets received from the investment of Petroleum Fund assets which shall be retained within and constitute part of the Petroleum Fund and such revenues shall include, but not be limited to: - interest on deposits and securities; - dividends; - proceeds from the sale of stocks and shares; - earning from derivate transactions; and - [Others?] - Relevant Clauses: 4 and 55. Comment: Check relevant Acts for definition – the current draft Bill lacks comprehensive definition. - Collection and deposit of petroleum revenues into the Petroleum Fund; Operation of account: - Specify the banking arrangements including: - Requirement to use single Treasury account or a bank account approved by Accountant General. - Requirements about authority to operate account. - Other banking requirements. - Relevant Clauses: 56, 57. - Withdrawals from the Petroleum Fund: - Define infrastructure and development projects and clarify that recurrent expenditure related to the setting up of these projects is an exception to the prohibition on spending on recurrent expenditure (define recurrent expenditure for the purpose of this section as excluding recurrent expenditure related to the setting up of infrastructure or development project). - Relevant Clause: 58. - Reporting and accountability for the Petroleum Fund: - Regulations should set out clear and suitable requirements for: - Investment portfolio reporting by BoU (require benchmark reporting, at least monthly, published on BoU website by set time) - In year and annual reporting by Accountant General on matters relating to the Fund - Reporting requirements should cover: - Who prepares the report - Minimum contents - Accounting and reporting standards - Who the report is presented to - Audit requirements - Timing - Publication (must be timely and include website publication) - Relevant Clauses: 59, 60, 67, 68, 70 - Comment: Bill does not clarify institutional reporting (e.g., financial statements) with reporting on an investment portfolio and the Accountant General reporting on the Fund in relation to the government accounts. - Investments from the Petroleum Funds: - Specify requirements to limit undue risk. Example minimum standards proposed in the regulations include: a. an internationally convertible currency deposit with, or a debt instrument denominated in any internationally convertible currency that bears interest or a fixed amount equivalent to interest issued by i. the Bank for International Settlements; ii. the European Central Bank; or iii. the Central Bank of a sovereign State, other than the Government of Uganda, with a long-term investment grade rating b. a debt instrument denominated in internationally convertible currency that bears interest or a fixed amount equivalent to interest: i. that is of an investment grade security; and ii. that is issued by or guaranteed by the International Monetary Fund, World Bank or by a sovereign State, other than the Government of Uganda, if the issuer or guarantor has investment grade rating; c. equity in a private company that is: i. listed on the stock exchanges of [insert names]; and ii. no more than [3] percent of the total equity capital of the company or [3] percent of the voting shares in a single company; d. a derivative instrument: i. that is solely based on an instrument that satisfies the requirements of this subsection; and ii. where the acquisition has risks no greater than or has risks less than the financial exposure to the underlying instrument or instruments. - Relevant Clause: 61 - Comment: Bill lacks provisions to deal with investment risk. - Management of the Petroleum Revenue: - Set out minimum basic principle of portfolio management to be adhered to. - Ensure that the requirements to adhere to the procurement laws is not overly constraining BoU as those laws are unlikely to have been designed with the procurement of investment portfolio management in mind and if they are unsuitable then use suitable words in the regulations to deal with this (cannot conflict with the Act but can modify the impact without conflicting with the Act). - Banking arrangements with respect to the TSA. - Relevant Clause: 62. - Appointment and qualifications of members of Investment Advisory Committee: - Set out the qualifications required for the committee for the people appointed who are not there by virtue of holding an office (like the PS/ST). Provide more detail than in sub-clause (4). - Relevant Clause: 65. - Functions of Investment Advisory Committee: - Require timely publication of the report to the Minister on a website of the government. Relevant Clause: 66. - Accounts of the Petroleum Revenue Investment funds: - Need to design a set of suitable reports then do what is possible to get them into the regulations given the problems with the specifications in the Bill. Relevant Clause: 67. - Performance reports by the Bank of Uganda: - Investment portfolio reports by BoU must be published each month on the BoU website. Relevant Clause: 68. - Comment: Bill has unclear and inadequate reporting requirements. - Annual plan for the Petroleum Revenue Investment funds: - Make the requirement for Parliament to approve the plan more practical by setting out contents of plan in regulations and make the contents suitable as Parliament should not be dealing with an operational matter like investment portfolio planning. - Require publication on the website of the BoU in a timely way. - Relevant Clause: 69. Comment: Odd requirement that Parliament approves BoU annual investment plan. - Annual report: - Annual report specifications in the Bill are unsuited to investment portfolio reporting. Regulations may be able to ameliorate this to some extent by defining the financial statements in a suitable way as the usual accounting concepts of a set of financial statements are not directly transferable for these. Investment portfolio reporting would include information on classes of investment, returns compared to benchmarks and expectations, and other information including: - Portfolio Position: Portfolio Summary; Portfolio Reconciliation; Portfolio Appraisal; Unrealized Gains & Losses - Portfolio Performance: Performance by Security (for last 12 months); Performance by Security - Fees and Tax: Provisional Tax Report (Year To Date); Monthly Fees Invoice - Transaction Related: Deposits And Withdrawals; Transaction Summary; Income and Expenses Cash Ledger - Income Related: Annual Income Projection, Gross - Relevant Clause: 70. Comment: Bill has an annual report designed for an institution not an investment portfolio. - Audit of the Petroleum Fund: - Specify internal audit requirements such as by a committee of external experts, at least quarterly, minimum coverage of audits, publication requirements including on BoU website and timing for this. - Specify additional external audit requirements including qualifications of auditors (to be suited to auditing an investment portfolio) and publication requirements including on BoU website and timing. - Relevant Clause: 71. Comment: Bill lacks internal audit requirements. - Sharing of revenues from royalties: - Specify mechanism for dealing with situation when revenues vary from projections and the 7 percent amount appropriated to local governments is too small or too large. - Relevant Clause: 73. Comment: Bill has no provisions about this. - Petroleum Valuation and Pricing Committee: - Specify who the committee reports to, its functions, the appointment provisions including terms and conditions (e.g., no extra pay for civil servants, appointment of advisers), secretariat arrangements (if any), powers (advisory and otherwise), obligations of persons or entities in relation to this committee (e.g., to provide information), and reporting. - Relevant Clause: 74. Comment: Bill lacks specifications about this committee. ### Roles and Responsibilities - Responsibilities of Officers to include: Minister of Finance; Ministers, Accounting Officers, PSs and CEOs of all entities including AGAs and SAGAs, commissions, constitutional bodies, state enterprises, special funds and local government Chief Accounting Officers. - Key roles and responsibilities missing from Bill. *Source: cr17266 - Part I clauses 4 and 5 Align with the Bill* ### Appendix II. Uganda: Charter for Fiscal Responsibility ### Appendix II. Uganda: Charter for Fiscal Responsibility ### Legislative basis and scope - Charter prepared under Section 6 (1) of the Public Finance Management Act: Minister shall submit to Parliament a Charter for Fiscal Responsibility relating to formulation and implementation of fiscal policy. - Section 6 (2) (a) requires the Charter to include: - (i) a statement of the government’s measurable objectives for fiscal policy for a period of no less than the next three financial years which are consistent with the fiscal policy principles set out in section 5 of the Act. - (ii) an explanation of the methodology to be used to measure the government’s performance against those fiscal policy objectives. - (iii) a list of the data sources to be used to report developments against the fiscal objectives included in sub-section; and - (iv) a demonstration of how the fiscal objectives set out under sub-section (a) (i) are consistent with respective fiscal policy principles set out in section 5 of this Act. - Schedule 2 of the Act specifies Charter format (placeholders indicated in source). - Section 14 requires Government to report on performance against the fiscal objectives at least twice per financial year. - This Charter maps: Section 2 = objectives and methodology; Section 3 = operation of fiscal policy to meet objectives; Section 4 = timing and content of reporting. ### Fiscal policy principles and measurable objectives - Section 5 (2) principles the Government shall comply with: - Maintain prudent and stable levels of public debt - Ensure the fiscal balance calculated without petroleum revenues is maintained at a sustainable level over the medium term - Manage petroleum resources and other finite natural resources for the benefit of current and future generations - Manage fiscal risks in a prudent manner - Ensure efficiency, effectiveness and value for money in expenditure - Measurable objectives (overview): - Objective 1: Ceilings on the public deficit - Government will ensure in this and each of the next five financial years that: - The [general government] fiscal balance, excluding [resource revenues and grants], is maintained below [*]% of GDP; and - The [general government] fiscal balance, including petroleum revenues and grants, is maintained below [*]% of GDP, [consistent with the macroeconomic convergence criteria for EAC monetary union.] - If unexpected revenue shocks take the fiscal balance above these ceilings, the Government will set fiscal plans to reduce the fiscal balance below them [over a period not longer than the following two financial years]. - If ceilings are exceeded for other reasons, provisions in Section 7 of the PFM Act will be brought into effect. - Objective 2: Ceilings on public debt - Government will ensure that in this and each of the next five financial years gross public debt in net present value terms is maintained below [*]% of GDP, [consistent with the macroeconomic convergence criteria for EAC monetary union.] - Government will target a gross public debt level of [*] percent of GDP in nominal terms at the end of its five-year forecast horizon. - [The Government will target fiscal policy so as to ensure that the annual growth in public debt in the final year of the five-year forecast horizon is lower than forecast growth in nominal GDP.] - Supplementary targets: - • [supplementary target 1]. - • [supplementary target 2]. ### Definitions, data sources, and publication schedule - Definitions to be used in measuring performance: - “The [general government] fiscal balance” means [general government] net lending/borrowing as defined in [specify an internationally recognized accounting standard]. - “resource revenues” means all revenues and taxes to [general government] associated with the exploitation of natural resources, including petroleum revenues as defined in the PFM Act. - “Grants” means [project and budget support grants from foreign countries] [Comment: align definition with definition for EAC rule]. - ‘‘Gross public debt in nominal terms” means [Comment: define comprehensive public debt aggregate.] - ‘‘Gross public debt in net present value terms” means [Comment: align with EAC definition. Specify discount rate to be used to calculate NPVs.] - All statistics required to measure performance will be published at least annually by [*]. Publication schedule: [Insert publication schedule for government finance statistics.] ### Operation of fiscal policy and planning timelines - Budget Framework Paper (BFP) obligations: - Ministry responsible for finance shall prepare an annual Budget Framework Paper, to be submitted to Parliament by 31st December of the financial year preceding the financial year to which the Budget Framework Paper relates. - BFP shall include at minimum contents set out in Schedule 3 of the Public Finance Management Act and Section 4 of this Charter. - BFP will determine medium-term expenditure framework limits by: - (i) Determining a specific path for the fiscal balance consistent with objectives in Section 1 of this Charter. - (ii) Forecasting revenues on a transparent, prudent and realistic basis. - (iii) Calculating annual expenditure ceilings compatible with projected revenue and fiscal balance. - BFP shall be approved by Parliament and published no later than 30 days after the 1st of February of the financial year preceding the financial year to which the BFP relates. - Annual Budget shall be presented to Parliament and approved no later than 31st May of that year and shall be consistent with the approved BFP and its overall expenditure limits. - Roles and reporting on budget execution: [Insert information on the role of Accounting Officers, Ministers and the Cabinet in budget execution.] [Insert specification of reporting on budget execution in line with PFM Act.] ### Reporting on performance: timetable and minimum content - Reporting frequency and documents: - Section 14 requires reporting at least twice per financial year on performance against Charter objectives. - Government will report via: - The annual Budget Framework Paper, published no later than 30 days after 1st February. - A Half-Year Fiscal and Economic Update, published no later than the end of October. - [A Full-Year Final Report on Fiscal and Economic Outturns, published [insert date when final outturn data on fiscal aggregates is available if it cannot be aligned with the BFP.]] - PFM section 16 requires updates by end Feb and end Oct; comments suggest aligning public updates with BFP projections and a half-year report roughly 6 months later; a final outturn report ideally aligns with BFP timing. - Special provision for pre- and post- election updates to be made in the Charter (comment). - Minimum content required in BFP and Half-Year Update (high-level): - Explain consistency of government policy with PFM Act fiscal principles and Charter objectives. - Publish at minimum: - a. An account of developments since the previous official forecast. - b. A medium-term macroeconomic forecast, assumptions, and comparison with previous official and outside forecasts. - c. Medium-term fiscal forecasts, including detailed breakdowns of revenue forecasts (petroleum and non-petroleum), assumptions, and public debt forecasts. Forecast aggregates compiled according to [specify an internationally recognized accounting standard]. - d. Projections for the Petroleum Fund, including revenues and expected drawdowns, over the long-term. - e. Fiscal policy for deficit, debt, revenues and expenditure, including explanation and costing of significant fiscal policy measures introduced since last BFP and methodology used to cost them. - f. A medium-term expenditure framework stating annual and medium-term expenditure intentions. - g. A fiscal risk statement with quantified fiscal risks where practicable. - h. A statement of responsibility signed by the Minister and the Permanent Secretary of Finance attesting to reliability and completeness and compliance with the law. - Full-Year Final Report (proposed content): - Publish outturn figures for economic, fiscal, revenue and expenditure aggregates for the preceding 5 financial years, comparison to forecast projections at the beginning of the year, and explanations for deviations. - Schedules: - Schedule A sets minimum requirements for information to be published in each report. - Schedule B sets the format for provision of this information. ### Basis and prudence of forecasts - Public Finance Management Act requires statements of budget honesty signed by the Minister and Secretary to the Treasury attesting to reliability and completeness of information. - Such statements must confirm: - Forecasts are based on all Government decisions and all other circumstances that may have a material impact on the fiscal outlook. - Where fiscal impacts can be quantified with reasonable accuracy, include them in published projections. - Where impacts cannot be quantified with reasonable accuracy, note them as specific fiscal risks. - Macroeconomic, revenue and expenditure forecasts are prudent and realistic. - Government shall ensure prudence and realism by: - • [insert mechanisms or other measures to ensure prudent forecasting. E.g. pre-specification of key assumptions and/or their external validation.] ### Schedule A: Minimum content details for BFP and Half-Year Update (selected items) - Section 1: Account of developments since previous official forecast: - a. Latest outturn figures for key economic and fiscal aggregates set out in 2a and 3a to e. - b. Comparison of latest figures to previous forecast. - c. Comparison of latest figures to outside forecasters. - Section 2: Medium-term macroeconomic forecast must present actual, estimated and projected values for no less than the previous two years, the current year, and the next three years including: - i. Gross domestic product and its components; - ii. Inflation; - iii. Employment and unemployment; - iv. Exchange rates with major trading partners; - v. Interest rates; - vi. Money supply; - vii. Key export prices, outputs, and sales; - viii. Oil prices and estimated production. - Plus assumptions, comparisons to outside forecasters, and longer term forecasts. - Section 3: Medium-term fiscal forecasts for no less than the previous two years, the current year, and the next three years, compiled in accordance with [specify an internationally recognized accounting standard], including: - i. Key determinants of the fiscal forecast, tax base figures, oil prices and production. - ii. Changes in those determinants since last forecast. - iii. Revenues by type, separately listing - 1. Petroleum revenues - 2. Grants - iv. Aggregate expenditures by classifications; [clarify how aggregated expenditure will be presented] - v. Budget balances for: - 1. The [general government] fiscal balance, excluding [resource revenues and grants] - 2. The [general government] fiscal balance, including [resource revenues and grants] - vi. The level of debt by external source, internal source and total, expressed in net present value terms, nominal terms and as a share of GDP; the report should set out the discount rate used to calculate NPVs and demonstrate consistency with expected GDP growth in interest rates. - vii. Estimates of petroleum revenues including: - 1. Total future petroleum production and revenue by year over the expected lifetime of the resource; - 2. Estimates of their NPV; - 3. Long-term forecasts of the balance of assets in the Petroleum Fund and their expected depletion rate through appropriation to the Budget. - b. Accounting principles and methods used and key assumptions. - c. Forecasts for the longer term taken into account in formulating fiscal policies, including demographic impacts. - d. Any other fiscal aggregates necessary to measure performance against Charter objectives. - e. Any other information the Minister determines is material. - Section 4: Fiscal policy content must include: - a. A summary table of measurable fiscal objectives for no less than the previous two years, the current year, and the next five years including: - i. Aggregate [general government] expenditure as a percentage of GDP and in nominal terms; - ii. Government expenditure on wages and benefits as a percentage of GDP and in nominal terms; - iii. Government revenues as a percentage of GDP and in nominal terms, including and excluding resource revenues and grants; - iv. Fiscal balances for: - 1. The [general government] fiscal balance, excluding [resource revenues and grants] - 2. The [general government] fiscal balance, including [resource revenues and grants] - v. Total gross public sector debt as a percentage of GDP, in nominal terms, and in net present value terms as a percentage of GDP; - vi. Forecast Petroleum Fund balances as a percentage of GDP and in nominal terms; - vii. Government net worth as a percentage of GDP and in nominal terms when net worth can be measured. - b. Information on medium-term fiscal policies including: - i. Revenue policy with planned changes to taxes and policies affecting other revenues; - ii. Deficit policy including deficit limits required by or implied by the fiscal objectives; - iii. Debt policy and an analysis of debt sustainability with debt ceilings; - iv. Expenditure policy including expenditure priorities linked to ceilings in the medium term expenditure framework. - c. Assessment of consistency of planned fiscal policy aggregates with measurable fiscal objectives and fiscal responsibility principles. - d. Information on reasons for any deviations. - Section 5: Medium-term expenditure framework must state annual and medium-term expenditure intentions including ceilings for: - a. Aggregate expenditure ceiling to be used in preparation of the Annual Budget which shall include ceilings for four further years; - b. Government expenditure by [specify ministry or other spending unit] for the budget year and next two years to be used as basis for the Annual Budget; - c. Forecast non-financial performance information at suitable aggregation linked to the budget for strategic changes only; - d. Information on major public investments including priorities, rationale and forecast costs for the forthcoming budget year and two further years, related to expenditure ceilings. *Appendix II. Uganda: Charter for Fiscal Responsibility (Draft Charter for consideration).* ### 6. A fiscal risk statement with: ### 6. A fiscal risk statement with: ### Fiscal risk statement requirements - Must include quantified fiscal risks where practicable for: - Contingent liabilities related to SoEs, PPPs, and sub-national governments; - Risks associated with external shocks, commodity price changes, and contingent liabilities; - Any commitments not included in the fiscal forecasts; and - All other circumstances which may have a material effect on the fiscal and economic forecasts which have not already been incorporated into the fiscal forecasts. - Must include sensitivity analysis taking account of possible changes in macroeconomic conditions, including in particular alternative scenarios for GDP and for oil prices and production. - A statement of responsibility signed by the Minister and the Permanent Secretary of Finance attesting to the reliability and completeness of the information in the Budget Framework Paper and its compliance with the law. ### Half Year Economic and Fiscal Update (HYEFU) additional requirements - The Half Year Economic and Fiscal Update shall contain updates of the above information and in addition: - A summary of the budget execution compared to the appropriations and other lawful spending authorities for the first six months of the financial year; - Information on how any changes in the forecasts or how actual fiscal performance for the half year may affect the performance compared to the Annual Budget for the financial year and compliance with the fiscal responsibility principles and achievement of the fiscal objectives in the Budget Framework Paper; and - Information on reasons for any deviations from the fiscal responsibility principles and fiscal objectives with plans to address any such deviations, and the expected time to achieve this. ### Schedule B — Presentation format and timing - The economic and fiscal content specified for inclusion in the Budget Framework Paper and Half-Year Economic and Fiscal Update shall normally be presented in the following manner (Title / Description / Time Period): - Economic Forecast: Forecasts of Domestic GDP figures; Sectoral and expenditure components of GDP; Balance of payments; Inflation; Regional and World GDP figures — T-2 to T+5 - Changes to the Economic Forecast: The above data, but showing the change on the previous official forecast — T-2 to T+5 - Determinants of the Fiscal Forecast: Forecasts of key fiscal determinants, e.g., Real and nominal GDP; Wages and salaries and profits; The tax gap; Oil and other export prices; Oil production — T-2 to T+5 - Changes to the Fiscal Determinants: The above data, but showing the change on the previous official forecast — T-2 to T+5 - Summary of the effect of identified policy measures: Table showing the impact on the fiscal balance of policy measures enacted since the last official forecast, including: Changes to tax rates and bases; Changes to expenditure plans — T-2 to T+5 - Revenues: Detailed breakdown of revenue forecasts — T-2 to T+5 - Changes to Revenues: The above data, but showing the change on the previous official forecast — T-2 to T+5 - Expenditure: Detailed breakdown of expenditure, showing votes, totals for Budgetary central government and items reconciling to total general government expenditure — T-2 to T+5 - Changes to Expenditure: The above data, but showing the change on the previous official forecast — T-2 to T+5 - Headline fiscal aggregates: Forecasts of: The fiscal balances; Debt; The Petroleum Fund — In nominal terms and as a share of GDP — T-2 to T+5 - Sensitivity analysis to the economic and fiscal aggregates: Alternative projections for the economy and public finances, varying key assumptions including GDP and oil prices — T-2 to T+5 - Comparison of external forecasts: Comparison of key aggregates to outside forecasters (e.g., IMF) including: GDP; Inflation; Revenue; Expenditure; Fiscal Balances; Debt — T-2 to T+5 - Successive forecasts and outturns for real GDP: A chart of real GDP forecasts for the last 4 BFP forecasts, plotted alongside the latest data — T-5 to T - Successive forecasts and outturns for fiscal balance: A chart of fiscal balance forecasts for the last 4 BFP forecasts, plotted alongside the latest data — T-5 to T - Errors in forecasting receipts, spending and borrowing for the last financial year: A chart of errors on the receipts, spending and borrowing forecasts, comparing the BFP forecasts with latest data. Errors should be split into economic factors, policy changes, fiscal forecasting errors and classification changes — T-1 - History of revenue forecast errors: A chart showing the percentage deviation of the BFP revenue forecast from outturn — T-5 to T - Breakdown of revenue errors: Revenue errors for the last financial year broken down by tax type — T-1 - Breakdown of expenditure errors: Expenditure errors for the last financial year broken down by vote and other classification — T-1 ### Appendix III — Comparison of the Petroleum Fund Provisions with the Santiago Principles (summary of findings) - GAPP 1 (legal framework and soundness): - No stated objectives for the Fund in the draft PFM Bill. - Major issues with the legal framework including: lack of a governance body; inadequate provisions for governance given the lack of objectives; poorly specified reporting provisions; inadequate prohibitions on risky investments. - GAPP 2 (policy purpose): - Draft PFM Bill lacks specific objectives for the fund. Fiscal principles in clause 5 are not linked adequately to fiscal decision making and reporting. - GAPP 3 (coordination with fiscal/monetary authorities): - Potential for alignment given requirement for a formal Investment Policy and BoU involvement, but issues include failure to link fiscal policy and reporting adequately to fiscal responsibility principles, the Charter and BFP, and lack of clarity over the nature of the BFP and the link to the annual budget. - GAPP 4 (funding, withdrawal, and spending rules): - Two inconsistent definitions of the Petroleum Fund in clause 4; withdrawal provisions in clause 57 do not make sense given these definitions. - Definition of revenue in clause 4 does not include investment returns; unclear how returns are banked and managed. - GAPP 5 (statistical reporting): - Reporting requirements are unclear and include duplicate and incomplete reporting. Accounting and reporting standards are not required to be international ones. - GAPP 6 (governance framework and division of roles): - Minister/MOFPED has a mixture of governance, advisory, reporting and operational roles that could conflict with long-term objectives. No governance board; functions rest with the Minister, officials, and the BoU for investments. - GAPP 7 (owner oversight and appointments): - Specific objectives not in the PFM Bill. No governing body. Minister/MOFPED mix of roles may conflict with long-term objectives. - GAPP 8 and GAPP 9 (governing body and operational management): - Potential conflicts of interest; absence of governing body; no provisions for BoU independence comparable to Petroleum Authority. - GAPP 10 (accountability framework): - Only partially provided for by the agreement with the BoU; unclear and inadequate reporting provisions for MOFPED and BoU. - GAPP 11 and GAPP 12 (annual report, financial statements, and audit): - International accounting and auditing standards not required and reporting requirements are unclear. No internal audit required for the BoU investment fund. - GAPP 13 (professional and ethical standards): - Not required by the Bill. - GAPP 14 (dealing with third parties): - Not required by the Bill but could be covered in the BoU agreement. - GAPP 16 (operational independence disclosure): - Management is not sufficiently operationally independent of the owner; BoU subject to agreement with the Minister; investment policy, Annual Plan, and Annual Report approved by the Minister. - GAPP 17 (public disclosure of financial information): - Accounting and reporting provisions are not adequate; three unclear annual reports; BoU annual report lacks benchmarking requirements; periodic reports have inadequate timing and publication requirements. - GAPP 18–19 (investment policy and decisions): - No objectives for the Fund for the investment policy to be pegged to; objectives removed from an earlier draft; the Bill lacks specification excluding risky instruments; investment policy minimum content not well specified. - GAPP 20–21 (use of privileged information and shareholder rights): - Bill lacks use of information provisions; silent on approach to voting securities but could be covered in regulations. - GAPP 22–23 (risk management and measurement/reporting): - Bill does not support management of some risks; prohibitions on risky investments removed from earlier draft; no governing board so risk reporting/management will fall on public officials who may lack time, skills and incentives; Investment Advisory Committee may not be sufficiently qualified; Bill lacks reference to international accounting, reporting and auditing standards; investment portfolio reporting inadequate, lacking benchmarks and timely publication requirements. - GAPP 24 (regular review): - Not relevant to the assessment of the draft legal provisions. *cr17266 - 6. A fiscal risk statement with:* --- _Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17266.pdf_