Threshold Country Plan/ Implementation Project was a major failure – conclusion

Last week Business Page began a discussion on the just concluded two-year US$6.7 million Guyana Threshold Country Plan/ Implementation Project (GTCP/IP) funded by the US Government Millennium Challenge Corporation (MCC). The column argued that the assessment announced by Director of Threshold Programmes, Mr Malik Chaka, that the project had been successfully implemented was inconsistent with the actual results of key elements of the project. That announcement was made on February 17, 2010 to assembled, mainly government dignitaries, and was echoed by President Jagdeo and Minister of Finance Dr Ashni Singh.

What each of these gentlemen must have known was more than seven weeks earlier, a meeting of the MCC Board chaired by Secretary of State Hillary Clinton, was held to select the countries that would be eligible to receive Millennium Challenge Account assistance during 2010. Guyana, which was included in the lower income countries category, was not even mentioned in the release by the MCC of the decisions taken at the meeting. The countries selected were Cape Verde, Indonesia, Jordan, Malawi, Moldova, the Philippines, and Zambia.

So, before resuming an examination of the statement by Mr Chaka, I will briefly discuss the assessment by the MCC Board, and how it may have come to the decision to exclude Guyana from further MCC fund support.

The MCC decision
In determining eligibility, the Board compared countries’ performance on 17 transparent and independent indicators to assess, to the maximum extent possible, countries’ policy performance and demonstrated commitment to just and democratic governance, economic freedom, and investing in their people. Additionally, the MCC considers adjustments for data gaps, data lags, or recent events since the indicators were published, as well as strengths or weaknesses in particular indicators. From all indications, Guyana performed creditably based on the tabulated assessment, and probably did not suffer from any technical adjustments. Guyana’s failure then must have stemmed from additional quantitative and qualitative information, such as (absence of) evidence of a country’s commitment to fighting corruption and promoting democratic governance, and its effective protection of human rights.

Such additional information could include Transparency International’s Corruption Perception Index which rates Guyana among the most corrupt countries in the world; Heritage Foundation which ranked Guyana at 155 of the 183 nations in terms of economic freedom, as well as oversized government which the Foundation considers one of the biggest barriers to economic development; and the World Bank Doing Business Guide which ranks Guyana at 101 of 183 countries for ease of doing business, with 1 being the best. Then of course the United States Embassy in Guyana would prepare its own commercial and other reports on Guyana, none of which can be assumed to be particularly flattering to this country.

Broken promise
It should come as no surprise therefore, that Guyana did not win MCC’s approval, despite the President’s attempt to discredit these various reports as soon as they were published. Last year for example, he dismissed Heritage as a “conservative right-wing body” and disclosed plans to invite researchers here to dispel fictions about the situation on the ground. It is not known whether President Jagdeo brought in the researchers, or whether his subsequent silence was because their findings did not support his allegation. What it does mean is that when next Guyana complains about any such adverse report, the failure by the President to justify his allegations against these reports would certainly not help our case. Indeed, the report released by Heritage in 2010 was even more damning, demonstrating that despite the use of his bully pulpit, the President has not succeeded in deterring those who use a slightly more objective yardstick to judge the country and government’s performance.

Guyana was rated by the Center for Global Development (CGD) as having passed all the benchmark indicators although it was substantially below the average of the “3-year budget balance” among comparator countries. The median score of all countries for this indicator was a negative 1.36%, while the percentage for “substantially below” was negative 3.34%. Guyana’s score was negative 8.46%. Using the overall score, the CGD had identified Guyana from among the low income countries most likely to be selected for MCA funding. That it failed to win the Board’s approval is a measure that the modern world judges governance well beyond the construction of roads, house lots and social facilities, useful and powerful political incentives though these might be. Unfortunately, this appears to have escaped the notice of our top politicians.

As Mr Chaka had said, failure in one year is not a disqualification from participation in succeeding years. But again, President Jagdeo who demonstrates a pathological inclination to micro-manage – and to do the work of even his “bright” ministers – does not help the country’s case by building close ties with Iran whose leader seems to enjoy daring the international community to declare his country an international pariah. With corruption assuming venal proportions, the country’s biggest budget dollar deficit ever, poor governance, and further evidence of bloated big government, the prospects for Guyana being selected for MCA funding any time soon do not appear too good. So let me take up where we left off last week.

The other tasks
I had noted then that MetaMetrics, one of the project’s US-based consultants had disclosed that the project would be conducted through six tasks. Suggesting that it was against these objectives that the success – or failure – of the project should be measured, I concluded based on the evidence available to the public, the country had performed badly in relation to the first three tasks. How then did we do with the others?

4) Improve Expenditure Planning, Management, and Controls
The revelations arising from the recently concluded budget debate, including the reckless abuse of contract employees; the serial violations of the Fiscal Management and Accountability Act 2003 by ministers and officers; waste and corruption in the procurement processes both in central government and the regions; unqualified contractors; state subsidies to sugar, rice and electricity; the expending of billions on projects for which there is little or no proper technical, economic and financial assessment; the consistent weaknesses identified in the annual reports of the Audit Office; and the almost daily reports of frauds in public offices including the Guyana Revenue Authority, must more than adequately establish that we score poorly on 4) as well.

5) Empower and Create Capacity within Two Principal Parliamentary Fiduciary Oversight Committees
The two principal oversight committees are the Economic Services Sector Committee and the Public Accounts Committee. Reports are that the first has been meeting regularly to identify entities and departments it would question about their performance. Press reports indicate that the committee has met with the loss-making Guyana Sugar Corporation and the National Insurance Scheme which is appearing increasingly under-funded. That this is happening is a positive, commendable development but the information available to the public is far too sketchy to allow an objective assessment of the effectiveness of the committee’s work. It would be useful if the public were allowed to attend the meetings of this committee and its reports made public.

The better known fiduciary oversight committee is the Public Accounts Committee which has as one of its principal mandates the oversight of the Audit Office and the review of that office’s Annual Audit Report. Those reports are always late, are often incomplete and raise more questions than answers. The last report of the Audit Office for 2007 is mainly a repetition of prior years’ issues that have not been resolved and those awaiting “policy decisions.”

While the parliamentary opposition complains that their views and recommendations are ignored, the government has been showcasing the committees as inclusive governance.

The fatal weaknesses in the Audit Office need no repeating. From top to bottom the office is poorly qualified and inadequately staffed, subject to strong political influences and instructions, in violation of its own act and the constitution.

6) Business Registration and Incorporation
While MetaMetrics on their website had referred to both registration and incorporation, I do not believe that those who actually carried out the consultancy in Guyana understood the difference between the two, or that there are two laws dealing with the registration of businesses. These are the Companies Act 1991 which allows for the registration of external companies, and the Business Names Registration Act which deals with unregistered companies.

I participated in a sensitization workshop on Friday December 4, 2009 at which grand claims were made about the reforms in business registration. I was amazed at the level of misunderstanding among the consultants and what they call success. For example they spoke of 96,000 business registrations and 5,600 company registrations, even as only 700 companies file tax returns annually! It must have been the greatest act of resurrection for more than 2,000 years.

One of the lead consultants said at that forum that when the World Bank does its next Doing Business Guide, he expects Guyana to jump by about one hundred places since the time for the registration will be less than countries now in the top 10! I had to point out to him that that is one of ten criteria under one of a score of benchmarks. He did not know that.

Another example of misinformation about the success is an official website that proudly boasts that it is possible to incorporate in Guyana a company by way of the internet, and the time has been significantly shortened. That is not true. Incorporation and registration require statutory declarations by attorneys-at-law and photo ID’s while forms risk being bounced for what appears to be the pettiest of reasons. Under new money laundering rules, commercial banks would not deal with a non-resident company until it has been registered or incorporated and even residents must now produce official, unexpired proof of identity.

There has been more rhetoric than reality in the boasts about success of the project. It has had significant overlaps with other projects such as the National Competitiveness Strategy, parliamentary reform, and other consultancies. This allows several persons and organisations to claim credit for success, and to disown failures. What no one has so far done is consider objectively whether the country gets value for money, with the competitiveness strategy an outstanding example. With scarcely any benefit accruing to the country from that project, it will be the taxpayers who will have to find the money to repay the IDB the five billion dollars we borrowed from them for the project. The poor taxpayer gets poorer.

Threshold Country Plan/ Implementation Project was a major failure

It was interesting to see almost the entire Cabinet turn out on February 17 at a ceremony at the Georgetown Club to mark the end of the Guyana Threshold Country Plan/ Implementation Project (GTCP/IP). The two-year project, financed by a US$6.7 million grant from the (US) Millennium Challenge Corporation (MCC), was launched on January 14, 2008, reportedly with the specific aim of supporting government’s efforts to overcome the country’s serious fiscal challenges while also streamlining the business registration process.

With the project closure coming soon after the 2010 Budget projecting a record deficit for 2010, it had to be diplomacy rather than reality for Director of Threshold Programmes, Mr Malik Chaka, to report to the assembled dignitaries on the successful implementation of the project, an assessment echoed by President Jagdeo and Dr Ashni Singh, Minister of Finance. Even if the 2010 Budget was overlooked, the assessment was not borne out by the results of other elements of the project. Indeed, the ultimate test is that Guyana did not qualify for further assistance under the programme, a sign of failure, not success.

From conception to conclusion, Guyana’s performance on the project was sub-par. Identified by the MCC on November 8, 2005 as eligible to receive Threshold Programme funding, Guyana had to secure assistance from the MCC to enable it to make its proposal. That was accepted by the MCC on June 27, 2007.

E-mail and telephone consultancy
During the course of the project, US consultants MetaMetrics Inc provided “performance-based management systems technical assistance… through email and telephone communications.” According to this firm’s website, the Government of Guyana requested the support of the MCC to provide technical, institutional and operational support in:

(i) the preparation and implementation of a value-added tax (VAT) while at the same time strengthening the institutions involved in tax administration and tax policies;

(ii) the transformation of Customs administration;

(iii) transformation of the institutions that provide fiduciary oversight on the utilization of public resources; and

(iv) completion of government procurement reforms.

According to the Final Draft Report (FDR) dated June 26, 2006, the project was a continuation of the government’s “comprehensive fiscal reforms” in the area of reducing the fiscal deficit and improving transparency, accountability and fiduciary oversight. According to the FDR, these reforms, which have received financial support from the World Bank, IMF, IDB and the CARTAC, are expected not only to alter the fundamental structure of revenues and expenditures but more importantly, to strengthen the institutions involved in tax administration and oversight, leading eventually to a progressive reduction in the fiscal deficit.

The plan
Nathan Associates Inc, another US consulting firm was appointed Implementing Partner for the project. The ‘local’ face of the project was Dr Coby Frimpong, supported by a small number of Guyanese employees. The government would, of course, be aware of how the US$6.7 million was spent, and in the spirit of transparency and accountability, should disclose how much was paid to MetaMetrics, Nathan, and Dr Frimpong who for many years was the country’s highest paid consultant, until that prize went to another foreign, non-resident consultant. It would be interesting to know too, whether the value of the grant has been incorporated in the national accounts, as required by the Fiscal Management and Accountability Act.

MetaMetrics noted that the Guyana Threshold Country Plan Implementation Project would be conducted through the following six tasks:

1) Strengthening tax administration

2) VAT implementation

3) Creating tax policy and forecasting analysis capability

4) Improving expenditure planning, management, and controls

5) Empowering and creating capacity within two principal parliamentary fiduciary oversight committees

6) Business registration and incorporation

Assessing success
It is submitted that it is against these objectives that the success – or failure – of the project should me measured. Let us look at these, though not necessarily sequentially. Item 2 of course came one year after VAT had been introduced, and it would be disingenuous for the project managers to claim any success from VAT’s implementation. Mr Chaka’s praise of the collection of “more taxes and customs revenue” was not only ill-informed but is also not the kind of comment one expects.

Did he know, for example, the government’s commitment to make VAT and excise tax revenue neutral, when in fact it turned out that collections were 48% over budget, because of an error in the rate? Had any work been done by the consultants, they would have realised that the government, even after discovering its error, never publicly admitted or corrected it, or honoured its revenue-neutral commitment.

An informed analysis of the tax collections should extend beyond crude numbers to the composition of the direct and indirect taxes garnered by the GRA. The analysis should examine the composition of the taxes collected by revenue type, sectors, regions, and classes of taxpayers. Did any of the consultants realise that using loopholes and tax shelters one major entity subject to a nominal rate of tax of 45% pays only 14% of profits in taxes? And that many others in a similar situation are not that different? Or that a person receiving a $10 million dividend from any such company pays no income tax, while an employee of the company earning $100,000 per month is required to pay income tax of $260,000 per year? Or that any pension, without limit, is tax free? Perhaps the consultants should have explained their concept of tax equity, to allow a fairer assessment of their own measure.

The missing GRA’s Annual Reports
It will take a dedicated column to examine the tax take and how the self-employed continue to evade taxes on a massive scale. The consultants should have asked the Minister of Finance why he has not brought in regulations to give teeth to the section of the Income Tax Act which empowers the Revenue to apply a presumptive method of determining the income of certain self-employed individuals. Suffice it to say that all the self-employed taxpayers of the country pay a mere 2% of the total income and corporation taxes collected by the GRA. This modest increase by this large group is partly because, as this column has consistently pointed out, a number of previously incorporated trading companies have de-registered, immediately and automatically reducing their tax rate from 45% to 33⅓% and excluding them from the minimum corporation tax of 2% of turnover. If proof be needed, the numbers show that corporation tax as a percentage of tax revenues has declined from 23% to 20% from 2006 to present. Yet, the self-employed percentage has remained fairly flat.

But tax administration would also require better governance, accountability and transparency in the Revenue Authority. I have recommended on numerous occasions that the annual report of the GRA provide useful statistical data on revenue collections to enable informed statistical analysis. Instead, in blatant violation of section 28 of the Revenue Authority Act, the Minister consistently fails to lay the annual report in the National Assembly. This is the same Minister who in his 2010 budget speech railed against persons not providing information to his Bureau of Statistics, describing non-compliance as “unacceptable and unlawful,” and threatening steps to enforce the law.

The missing tax policy
In relation to task 3 above, there has been no progress and therefore, not surprisingly, no report. The consultants were of course at a disadvantage. If the government and the Minister are not serious about tax policy, no consultants could make them become so. It takes a special government to care about tax sources or their impact.

Others care only about quantum and this government has been almost unique in that it has never been hard-pressed for revenue to finance its policies – some good and others less so. Debt-write off, on the back of poor country status, helped the government increase expenditure on the social sector, such as health and education. And just when the write-offs started to dry up, there came the annual windfall from the VAT and Excise Tax. VAT and Excise Tax in 2010 will double the collections in 2006 of the taxes they replaced, even as the economy grew by an average of 3% over the five year period.

Bureau of Statistics workshop
The consultants also probably did not notice, but according to the 2010 budget speech, the country is not nearly as poor as the government was representing it to be. With the Finance Minister now saying that the economy is actually 69% better off than would have been previously calculated, each Guyanese is now much, much better off than we had been told, if not felt. No one has bothered to say how rebasing could actually increase the value of goods and services produced in the country, but the public would no doubt be looking forward to the workshop which the Minister of Finance promised that the Bureau of Statistics would host “shortly” to provide technical details on the rebasing exercise.

Had the rebasing been done earlier, we may very well not have qualified for some of the assistance and concessions we have received from all and sundry.

But there is a more direct connection to tax revenues. The working person is paying income tax at 33⅓% taxes and VAT at an average of a minimum of 10% (to allow for zero-rating and exempt supplies), averaging about 40% and on top, another 5% to NIS which is a form of taxation. At the other extreme are companies, self-employed persons including the new army of government consultants and contract employees; those whose salaries are exempt and whose income comes from unearned income, such as dividends, interest and rents, bear considerably less than half the tax borne by the employed persons.

Since 1994, I have pointed out the inequities in our tax system. These were later identified in National Development Strategy 1 and 11. In fact this is what NDS 11 says, in part, about our tax system:

“Income taxes in Guyana appear to be inherently unfair, since persons in the informal economy, and almost the entire agricultural sector, indeed almost all in the self-employed category, do not pay them…”

If anything, despite all the studies, consultancies and promises, the situation has become worse.

To be continued