Author: George Mangion
Published on Malta Today 7 November 2018
The government’s strategy to keep a tight rein on big spender departments will result in building larger fiscal buffers… This will soften the pain of debt servicing which over the past years acted as a hidden brake to prosperity.
Reading the Budget speech, one meets a number of novel ideas which may go unnoticed by the media. To my surprise, I came across a new entity to be created and made responsible for ensuring that all government concession agreements are properly observed. The entity will monitor concessions granted by the government – past, present, and future.
To me, this sounded a bit of déjà vu considering that over the past 30 years many administrations have voiced their intentions to set up powerful agencies to curb abuse and monitor commitments entered into by the private sector. These include land given out at fire sale prices. One may mention concessions in the sixties of prime site land parcels when hoteliers were encouraged to build hotels and guesthouses.
All such contracts for these concessions were loaded with well-intentioned clauses to safeguard public property and to make sure that benefactors observed their commitments – on pain of severe penalties. We all know that transgressions by the bucketful were discovered later when inquisitive journalists poked their noses and courageously exposed abuses.
Readers may remember how during the Fenech Adami tenure, he had introduced a powerful team of experts (management systems unit) to examine the workings of the administration and recommend improvements how effectiveness, efficiency, and economy could be reaped. Over the years, reams of paper were consumed writing umpteen studies and reports blazing a trail in an effort to reach the elusive goal of good governance and eternally fight corruption.
Budget speeches all counter towards streamlining of excessive bureaucracy and red tape to better oil the machinery of government and yield more value for money. A junior minister acts now as a Czar of simplification. It is interesting to note a number of both internal and external auditing agencies which their sole function is to verify and report any transgressions from the rules. They scrutinise all financial planning, budgeting, financial transactions and fiscal control pertaining to the ministries, permanent secretariat, and the various directorates.
Foremost on the list is “The Internal Audit and Investigations” department (IAID). Over many years, it is adequately funded by the government. It aims to be functionally independent and provide professionally competent appraisals after examining, inspecting and testing controls. It has trained staff to assist permanent secretaries in the effective discharge of their duties. The IAID is independent of the activities it audits so as to ensure objective judgement essential to its proper conduct and impartial advice.
Next, enters the erstwhile National Audit Office (NAO). The latter has its appointment safeguarded by the Constitution and reports directly to Parliament. It performs from ad hoc investigations directed by the Public Accounts Committee. Theoretically, it acts independently to audit the accounts of central government departments and offices and examine whether such entities have used funds and resources in an effective, efficient and economical manner. Its remit is vast, as it covers local councils, all public bodies, and corporations and various entities where the government owns not less than 51 per cent of the shares.
The third arsenal in the armoury of audit tools is the Financial Management Directorate which is responsible to screen all financial planning, budgeting, financial transactions and fiscal control pertaining to the ministry, permanent secretariat, and the various directorates. One may be tempted to say that having three robust filters in the system through which all transactions are monitored should be enough to keep our gunpowder dry. However, there is the addition of the last but not least merited watchdog. This is victoriously titled – The Internal Audit Agency (GIAA) established in 2015. Its noble objective is to provide government departments with the tools how to better manage public funds.
Its powers include inter alia, verifications to counter fraud. It oils the wheels of good governance by drafting “Internal Audit Standards” (PSIAS) based on international practices. With this formidable and costly armoury of checks and balances who can justify that we need another brick in our firewall to protect the administration and political masters from temptations?
Therefore, it comes as an unsolicited appendix in the Budget speech to create a new entity responsible for monitoring performance and proper execution of concessions. All these firewalls make us feel snug and Teflon coated against corruption and abuses of any kind. Yet, reading Bloomberg, it criticises government mentioning the scandal of Panama Papers, AML infringements by Iranian backed banks, saucy tales of alleged corruption and the growing list of political cronies in high administrative places paid at exorbitant rates (reaching three times the amount paid to the Prime Minister).
In another instant, the Financial Times reports that The European Commission is to issue binding demands on Malta’s financial regulator after an EU watchdog found “systematic” weaknesses in its enforcement of anti-money laundering rules. Back in 2012, MaltaToday made a scoop revealing a financial scandal of large proportions involving the State oil procurement company – Enemalta.
It revealed email correspondence, bank transfers and online chats that show how a rogue oil trader played a pivotal role in a corruption scheme involving millions of euro in procurement orders. Having mentioned such failures in governance, one must not tarnish the island with the same brush. It is not all doom and gloom.
A recent IMF report on Malta gives favourable comments on our economic appraisal. The finest accolade is trumpeted on GDP growth – estimated to have expanded by 6.8 percent in 2017, accompanied by dynamic job creation. This has rendered the economy firing on all cylinders with full employment. Employers are now looking for foreign workers to help fill sustainable jobs. IMF continues to report that the economic risks are broadly balanced, and the external position is in line with fundamentals so it is fair to state that the patient is no longer in sickbay. The national accounts last year turned out a 3.7% of GDP surplus. The IMF has kind words about Malta notwithstanding negative press hurled in Brussels. IMF and major rating agencies report steady economic growth owing to favourable budget direction and sound policies.
These kudos are the fruit of structural reforms which in the words of IMF led towards the culmination of strong private and public balance sheets. The government’s strategy to keep a tight rein on big spender departments (such as healthcare by privatising part of the hospital service) will result in building larger fiscal buffers. This will soften the pain of debt servicing which over the past years acted as a hidden brake to prosperity.
As a conclusion, one may wish to comment that the addition of another watchdog agency may not be warranted. It may be preferable if the existing staff at both internal and external audit agencies are better equipped and trained to gain traction in the IT revolution. In the early days of Blockchain, they need to sharpen their tools to keep the public administration on the straight and narrow.