Fiscal balance and Credibility of the Budget

Findings of the 2004 report on contingent liabilities

64. 
    A 2004 report on contingent liabilities attempted to take stock of intergovernmental debts in the country and illustrates suboptimal communication with central government and poor financial management: intergovernmental debts and municipal arrears. Annex 7 includes the synthesis tables supplied in the report, but it should be noted that the numbers were to a large extent estimates due to the data limitations. In this report, the central government was a net debitor toward the municipalities as a whole, but 5 municipalities (of 17 at the time) were net debitors toward the central government.
    
65. 
    Table 4.10 reviews the 2004 report’s main conclusions regarding the sources of the debts, and examines whether these potential sources of debts are still relevant today.
    

66. 
    Besides the intergovernmental debts, the report also noted that municipalities accumulated significant arrears toward public and para-public enterprises. The two enterprises toward which most debts were incurred were ELECTRA and CV Telecom (see detailed table in annex 7).
    

67. 
    The issue of intergovernmental debts or debts of municipalities toward public enterprises is far from being resolved, even if some measures are being taken to solve the problem. Following the 2004 report, some immediate measures were taken for the areas in which there was immediate agreement on the report’s conclusions. To completely solve the problem, two main agreements must be reached: an agreement on the exact amounts of past arrears (or a negotiation of these) and an agreement on the issues that, if not solved, will lead to the build-up of new arrears.
    
68. 
    For the agreement on past arrears, a multisectoral commission was to be created in 2007. The commission would have representatives from the Ministry of Finance (IGF, DGO, Treasury, DGAL) and the National Association of Cape Verdean Municipalities (ANMCV). Its role would be to visit each municipality, proceed to an audit, and agree on a viable solution to solve the problem.
    
69. 
    For the agreement on the issues that, if not solved, will lead to the build-up of new arrears, the situation is more complex, and nowhere more sensitive than for the debts toward ELECTRA⁵⁷. The arguments from the municipalities to suspend or delay their payments to ELECTRA are two-fold. First, they would like to be duly compensated for the use by the public company of buildings that belong to the municipalities. The concession contracts do not seem to be clear on this issue, but municipalities argue that this is the common practice. Second, municipalities argue that they also build up arrears because they use electricity to supply water to their farmers. However, but the price of water is centrally regulated. This central control puts municipalities in a difficult situation, whereby their water production cost is above the authorized retail price.