AG calls finance ministry to order

THE finance ministry has been told to get its house in order after it was found that its debt management department is slack, and that the ministry is sidelining the National Planning Commission in prioritising national projects.

The ministry also failed to locate some documents regarding government guarantees. Those are some of the key findings of the auditor general’s special report tabled in the National Assembly recently.

The objectives of the investigation, between 2012 and 2015, was for the auditor general to assess how the cash and debt management division in the ministry of finance was controlling public funds and managing debts.

Namibia’s national debt is estimated to be around N$60 billion. It turns out the key department in government tasked with monitoring national debt is not as effective as expected.

Auditors found that the debt department did not use the international office structure that was supposed to be implemented in 2005.

“Failure to implement the internationally-proposed structure handicaps the cash and debt management division’s ability to properly and effectively perform its debt management functions,” the report said.

Auditors also found that the ministry of finance only started using the Commonwealth debt management system in August 2014 after officials had undergone some training.

However, the investigation found that the Commonwealth system has challenges too since it does not have market-related information, such as exchange rates, and it needs regular updates.

The training provided on the Commonwealth system was not comprehensive enough, investigators also found.

The auditors concluded that the oversight and control of public debt is ineffective since the Commonwealth system is not used to its full capacity.

The AG’s report said Namibia is a country in its early stages of development, and sometimes requires huge inflows of foreign capital, which can be accessed through loans.

“These external inflows constitute future claims on the country’s foreign exchange through debt-service payments,” the report signed by auditor general Junias Kandjeke stated.

Kandjeke said it is important to monitor foreign debt transactions to ensure that the size of the country’s debt is in line with the capacity of the economy, and that future debts can enable the country to generate foreign exchange earnings.

The country’s external debt passed the stipulated limits due to the outdated debt management strategy.

The ministry of finance was also castigated for ignoring the National Planning Commission (NPC), which is the chief planning entity of government.

The auditor general’s report said the NPC should assist Treasury by identifying projects of national interest and prioritise projects to be funded.

“The limited involvement and coordination between the NPC and the Ministry of Finance may result in high default and exchange rate risks when these foreign loans are called upon,” the report stressed.

Auditors furthermore found that some government entities entered loan contracts and agreements with lenders without consulting the finance ministry. “Failure to prioritise national projects to be funded by government may result in projects that do not contribute towards the achievement of NDPs (national development plans) being funded,” the auditor general stated.

The ministry of finance insisted that they do not need to engage the NPC for development projects since they are already consulted when the budget is drafted.

“The auditors concluded that the ministry of finance is failing to effectively monitor government guarantees, which will result in huge unforeseen debt settlement payments,” the report said, adding that the debt division could not produce some government guarantee documents.

In this context, a guarantee is a loan guaranteed by a third party in the event that the borrower defaults. Financial website Investopedia says it is a loan often guaranteed by a government agency, which buys the debt from the financial institution and takes on responsibility for the loan.

“Government guarantees lacked loan agreements’ information which the system requires,” Kandjeke’s report said. Interviews revealed that the same debt division did not have proper control measures to ensure that government guarantees and foreign loans were used for their intended purposes, the report said.

“Failure to properly monitor and control government guarantees within the set benchmark can lead to unexpected defaults from guaranteed loans,” the report added.

Government information shows that in 2014, state guarantees stood at N$4,4 billion.

Finance minister Calle Schlettwein admitted to The Namibian yesterday that his ministry is reviewing the debt department in order to address some of the concerns.

That review is being done with the assistance of the European Union and the German development organisation, GIZ.

Schlettwein admitted that some guarantee documents might not have been located because they might be too old, but insisted that most of the guarantees should be available.