**_Chart 7.4   FY 2011 Budget lines by government entity_**

||**Union**<br>_in_|**Ngazidja **<br>_millions of Co_|**Anjouan**<br>_morian Fran_|**Moheli**<br>_cs_|
|---|---|---|---|---|
|**_Internal Shared Revenue_**|23,908|1,521|4,426|319|
|**_Island Government Own Revenue_**|-|664|349|58|
|**_Salary Expenses_**|7,189|5,012|4,862|1,286|
|**_Goods and Services Expenses_**|5,035|974|790|444|

Source: Government of Comoros, Finance Act of 2011.

Chart 7.4 suggests that own revenue sources of the Island Governments are indeed small, representing under 4% of the internal shared revenue total. It moreover covers only a fraction of spending on the salary and expenses, and not even the totality of the goods and services expenses. In other words, Island Governments are almost completely reliant on the shared revenue to cover their expenses. The view that the shared quota would be used for salary expenses, combined with weak own source revenue generating capacity, means that there is little financing available not just for capital investment but also operating costs.

This system of finance changed around 2009, in a way that is indicative of the rather haphazard way in which the devolved system has been designed and maintained. The Minister of Finance, along with the Finance Commissioners of the Islands, agreed that the shared revenues would no longer enter the Central Bank account, from which the funds would be transferred to the Union and Island accounts. Instead, they would enter a “Common Salary” account at the Central Bank. The Ministry of Finance controls this account, with the understanding that, after payment of pensions, public debt and payments to international organizations, the remaining balance would pay for civil servant salaries at both the Union and Island level.<sup>22</sup> This adjusted system remains in place to date in end 2011, despite the fact that the 2005 Act has not been amended. Interviews with key informants are conflicting regarding the motives for these changes. Several union level officials claimed that island governments were misusing funds that should have been used for paying staff salaries for other extraneous expenses, such as missions for the governor. Meanwhile, a few island level officials suggest that the changes came, due to the desire of the central government to control revenues and expenditures, particularly as they can prioritize their own expenditures first.

Three points emerge from the analysis of the evolving financial system of the Union and Island governments. First, the fact that the Union pays for Island Government employees clearly indicates a tendency towards re-centralization of financial systems. Indeed, the Union Government collects nearly all revenue, with the exception of the relatively small amount of ownsource island revenues. Moreover, the Union Government deposits this revenue into an account that its Ministry of Finance then controls. These changes are correlated with the defeat of the separatist movement in Anjouan, and the increased political power of the Union government.

Second, the new system in which the Island Governments maintain the right to recruit employees while the Union Government pays for them represents a disjointed system between centralized and devolved government. In a devolved system, the island government uses its revenues to directly cover its expenses. In a centralized system, the Union Government employs its revenues to cover expenses for its own employees. The Government of Comoros has chosen a mixture of these systems. Several senior island officials expressed suspicion regarding the use of the central Common Salary Account, given that it is controlled by the Ministry of Finance. They believed that it was being used to cover a number of Union expenses, leaving fewer funds available for salary payments.

> 22 Another reputed change at the time is that the Union Government pays its operating costs from the consolidated fund before transferring the balance into the island governments according to the percentages.

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