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The illegality & moral hazard of Ministries feeding off their paratastals

June 30, 2016

Alex T. Magaisa

 

The ICT Minister, Mr Supa Mandiwanzira, has unwittingly revealed some serious illegality and unconstitutionality which is taking place in government in relation to the management of public funds. He was responding to findings by the Auditor General that his Ministry had made unauthorised borrowings from PORTRAZ and NetOne, two state entities under the Ministry’s charge.

 

“It is now common government practice that the Office of the President and Cabinet authorises ministries to borrow from their parastatals to keep the ministries functional,” said Mandiwanzira, explaining how his Ministry got two loans of $194,000 and $95,000 for the purchase of two vehicles for himself and his deputy respectively. There was also another $55,000 loan from NetOne to fund the Ministry’s expenses.

 

Although Treasury’s authorisation was sought for these so-called loans, none was given. The ICT Ministry seems to be relying on the fact that they advised the Office of the President and Cabinet (OPC). However, this is not a defence against the unconstitutionality of these actions. This note explains why this conduct is highly improper, unconstitutional, and creates a serious moral hazard in the management of public funds.

 

First of all it is important to understand that revenues received by PORTRAZ constitute public funds, these being rents which are paid by communications service providers to the State. Section 308 of the Constituton provides a clear definition as follows:

 

“”public funds” includes any money owned or held by the State or any institution or agency of the government, including provincial and local tiers of government, statutory bodies and government-controlled entities”

 

PORTRAZ, being a statutory body therefore holds public funds on behalf of the state. These funds must accordingly be used in accordance with rules of public finance. The new Constitution contains extensive provisions designed primarily to ensure probity in the management of public funds.

 

Consolidated Revenue Fund

 

The account into which all state funds and out of which state payments are disbursed is called the Consolidated Revenue Fund (CRF).  This is provided for in section 302 of the Constitution:

“There is a Consolidated Revenue Fund into which must be paid all fees, taxes and borrowings and all other revenues of the Government, whatever their source, unless an Act of Parliament –

  1. requires or permits them to be paid into some other fund established for a specific purpose; or

  2. permits the authority that received them to retain them, or part of them, in order to meet the authority’s expenses.

PORTRAZ, which is established under an Act of Parliament, receives rents in the form of licence fees and other fees charged upon communications service providers. Ordinarily, these funds, like all other state revenues, must be remitted to the CRF, unless an Act of Parliament permits the authority to retain them but only if that fund has a specific purpose or to meet the authority’s expenses. The implication here is that there must be legislation which allows PORTRAZ to retain its revenue but even then, its usage is restricted to the authority’s expenses. Lending money to the parent Ministry is not part of an authority’s expenses.

 

There are good reasons for centralising the collection and disbursement of public funds. It is to promote transparency and fairness in the use and allocation of revenues. This is why the Constitution in section 305 provides detail on the national budget managed by the Minister of Finance, which deals with revenue collection and expenditures, among other things. The Constitution also clearly controls the manner in which money from the CRF is used. Section 303 states as follows:

  1. “No money may be withdrawn from the Consolidated Revenue Fund except to meet expenditure authorised by this Constitution or by an Act of Parliament.

  2. Money withdrawn from the Consolidated Revenue Fund must be paid only to the person to whom the payment is due.

  3. An Act of Parliament must prescribe the way in which—

  4. withdrawals are to be made from the Consolidated Revenue Fund and any other public fund; and b. money in the Consolidated Revenue Fund and any other fund is to be held and invested”.

What is clear from this provision is that all withdrawals of public funds to fund any expenditures must be made from the CRF. However, in the exceptions where any other public fund is used, this must be on the authority of an Act of Parliament. In other words there must be legislation to permit and guide that process. In this case, it is clear that the ICT Ministry has used funds from a public fund held by PORTRAZ, and not funds from the CRF. However, there is no indication of any legislation under which this withdrawal from this public fund was done, except to cite a “government policy” or “cabinet approval” and the involvement of the OPC. That is, quite plainly, not a defence because policy or Cabinet approval is not legislation as required by the Constitution. What is happening is therefore illegal and unconstitutional.

 

Parliament

 

These requirement for probity and transparency in the management of public funds is signified by the key role which Parliament plays in the national budget process. Section 305(2) clearly requires that the national budget must be approved by Parliament. Section 305(5) also requires that if a supplementary budget is needed, it must also be approved by Parliament. Further, section 307 requires that where there has been unauthorised expenditure, the Finance Minister must seek urgent condonation from Parliament. Indeed, so important is the role of Parliament that its refusal to approve the national budget is one of the grounds under section 143 of the Constitution upon which the President may dissolve Parliament. This is why it matters a great deal when withdrawals and expenditures from a public fund, such as PORTRAZ, are done outside the legal framework of the national budget and without Treasury authorisation. It is not a defence to call it “bridging finance” when constitutional rules are being infringed.

 

Creating little fiefdoms

 

The moral hazard this so-called common practice in government creates is that it creates little fiefdoms in government, with Ministries that have more revenue-generating parastatals having an unfair advantage over Ministries which have fewer or non-revenue generating parastatals. It increases rent-seeking opportunities for public officers in those Ministries which have revenue-generating parastatals under their charge. It will result in a situation where individual Ministries will have more revenue than the CRF which is centrally-managed by the Treasury. How then will Treasury meet its commitments to others, including creditors and civil service wages? What will Ministries like Defence, which have fewer revenue-generating state entities do when they have guns and ammunition? What about Justice, which has no parastatals but has judges and magistrates, who can generate formal rents through fines and penalties, but can also generate informal and illegal rents through bribes by virtue of their leverage over accused persons and litigants? It’s extremely dangerous to allow Ministries to feed off the parastatals which they manage. But as I noted in an article last week it also creates conflicts of interest, because Ministers who are supposed to oversee those ministries become dependent upon them for loans and other benefits. This conflict of interest dilutes their capacity to supervise these parastatals.

 

However, more significant is the fact that this common practice in government is patently unconstitutional, as I have explained in this article. Any such withdrawals of public funds by Ministries from parastatals must be done in terms of a law made by Parliament. Citing the OPC is not an adequate defence, particularly where Treasury has not given its authorisation. Worse, Parliament, which ought to have a supervisory role in the allocation of public funds is circumvented. It makes the national budget process virtually worthless if Ministries can do as they wish with parastatals under their charge. But worse, it creates tensions between Ministries – the “Haves” and the “Have-nots”, which could lead to conflicts in the long run. It’s dangerous.

 

What can be done? As I have repeatedly pointed out these breaches of the law can be corrected through the courts of law. I cite again the Mawarire precedent, where the Constitutional Court held that a citizen who believes that the Constitution, the rule of law and his/her rights are being infringed by a public authority is entitled to approach the courts of law for redress.

 

waMagaisa

 

wamagaisa@gmail.com

 

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