Why national budgets fail to deliver December 2, 2013 Author: Akin Ambode The Federal Government, in the overall task of discharging its responsibilities towards meeting economic and social growth objectives, has numerous policies to implement. In realizing these policies’ intentions, government must generate a substantial amount of funds to meet its enormous expenditure. The planning process of assessing revenue and utilizing such revenues to meet expenditure is known as budgeting. As one of the most essential information documents of government, the budget provides not only the current financial performance of government, but also the financial plans of government for the next fiscal period. Perhaps the most important is that it presents the various stakeholders information about how the standard of living of citizens of a nation will be impacted by the financial policies of government for the next fiscal year. The Fiscal Responsibility Act 2007 requires the Finance Minister to prepare the Medium Term Expenditure Framework (MTEF) and the Fiscal Strategy Paper for consideration and approval by both the Federal Executive Council and National Assembly, prior to the presentation of the following year’s budget. The essence of these documents, apart from providing the basis for the annual budget planning, is to give an insight into the macroeconomic framework regarding revenue and expenditure estimates and the underlying assumptions on the fiscal projections, as well as evaluation and analysis of the budget of the previous year, whilst highlighting the national debt profile and likely fiscal risks. It cannot be overemphasized that an effective budgetary system requires planning, monitoring and implementation of revenue and expenditure estimates as contained in the annual Appropriation Act. Sadly however, the focus of the budget process in Nigeria presently, is mainly on planning at the expense of the other equally important elements of monitoring and implementation. Budget implementation review activities are used to reassess the overall performance of government. Although the Budget Office of the Federation, on behalf of the Federal Government, makes available on its website the quarterly budget implementation reports, the controversy surrounding the statistics on budget implementation has been a source of concern to many Nigerians. A cursory look at the reports by the Budget Office indicates that actual revenue of government falls far below the approved estimates; the recurrent expenditure exceeds the projected figures with capital expenditure falling short of expectation. This abysmal performance resulting from poor budget implementation at the first tier of government in Nigeria is a serious indictment on the Executive and Legislature. The leadership of the Senate was recently quoted as saying that the Executive had failed to use national budgets to impact positively on Nigerians, as the Federal Government has been abandoning projects and maintaining inconsistent economic policies, which are not in the best interest of the nation. It can be argued that this problem is as a direct result of the appropriation of the national budget, which has 70 per cent of its annual estimates as recurrent expenditure and only 30 per cent as capital expenditure. Fundamentally, the national budget in Nigeria is predicated on the sustenance of the status quo, thereby making economic transformation difficult – an indication that there is a direct relationship between effective budget implementation (in essence, good public financial management) and national development. A good public financial management system comprises of the legal (e.g. Appropriation Laws) and organizational framework for supervising all phases of the budget cycle; preparation of plans and strategies; fiscal projections and costing (budget preparation, budget execution and implementation, budget monitoring and reporting, internal controls and internal audits, external scrutiny and oversight including external audit) and the legislative; follow-up on audit findings and post-implementation project evaluation. In the Nigerian context, the primary issue with prior national budgets is that the Appropriation Act is not strictly adhered to and revenue and expenditure is not made as proposed, resulting in poor annual budget implementation. A central feature of financial management is the Consolidated Revenue Fund (CRF) established under the 1999 Constitution of the Federal Republic of Nigeria. The requirements of section 80 of our Constitution are distinct and specific. Section 80 (1) – ‘All revenues or other monies raised or received by the Federation (not being revenues or other monies payable under this constitution or any Act of the National Assembly into any other public fund of the Federation established for a specific purpose) shall be paid in to and form one Consolidated Revenue Fund of the Federation’. Sub-section 2-4 delves on the power and authorization for the utilization by the Appropriation Act alone. It is, however, worrisome that there are several leakages of funds from the CRF of the Federation arising from non-compliance with the law. Government institutions and agencies that are not complying with the provisions of section 80 are too numerous to be listed here. The revenues being generated by some agencies do not belong to them, neither to the Federal Government, in strict pursuit of section 80 of our Constitution. Conversely, these monies are to be firstly and constitutionally accounted for in the Federation Account and thereafter shared by the three tiers of Government, in accordance with the agreed allocation formula prescribed by the National Assembly. This is when the true resources of all Nigerians would have been appropriated to them by their representatives at the National Assembly and duly expended on the welfare of the citizens by the Executive Arm of Government. It would be recalled that the Federation Account Allocation Committee meeting for the month of July 2013, had to be adjourned in order that more money could be sourced to fund the shortfall in allocation for that month. While the Federal Ministry of Finance subsequently addressed this challenge, the Nigerian National Petroleum Corporation (NNPC) failed to bring its share to make good the deficiency. This ought not to be the case, if the National Assembly applies section 80 of the Constitution strictly. By enforcing the law, we would directly strengthen our institutions, which end up forming the framework for sustained national development. The Fiscal Strategy for 2014-2016, according to the Federal Government, is premised on macroeconomic stability, structural reforms, governance and institutions, and investing in priority sections. With this overreaching policy thrust, government anticipates that remarkable progress would be made in areas such as job creation, power and housing sectors reforms, fiscal discipline and shaping the fiscal framework to be fully effective; these fiscal rules and laws must be enforceable, the medium-term budgetary planning must be credible and the budget coordination among the three tiers of government must be strong. Of significance is that the 2014/2015 MTEF document is fraught with a lot of shortcomings in terms of deficient indicators of growth drivers, with respect to forecasts of economic growth, inflation rate, foreign exchange rate, interest rate and credit policy, as well as lack of projected sectoral contributions to the Nigerian economy. In conclusion, no real meaningful growth can be realized in Nigeria with the distorted revenue inflows into the Federation Account, as is being presently experienced. Ultimately, a distortion of national budgets create systemic financial disorder at the State and Local Government levels, and negates the true tenets of good governance. Brandsmiths Consulting Limited is a Public Finance Management consulting firm, which offers independent financial, investment, advisory and management consulting services to government institutions and non-profit organizations.
Posted on: Mon, 14 Jul 2014 12:49:24 +0000
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