Will Timely Submission, Quick Passage End Cycle of Low Budget Performance?

 

The inability of the federal government to fully implement its annual budgets is cause for much concern, as delay in the passage of appropriation bills and the signing of such bills into law have become despairing attributes of the  budgeting process. Vincent Obia reports

The Senate is worried. With less than three months to the end of the year, only about 14 per cent of the N2.177 trillion capital component of the 2017 budget has been released by the executive. The 2017 budget of N7.441 trillion was signed into law by Vice President Yemi Osinbajo – then acting president – on June 12.  

The legislators are “concerned that since the 2017 budget was assented to by the president, about N310 billion has been released by the federal government to ministries, departments and agencies as funding for capital projects, which is far too low to stimulate the economy to address our present economic challenges,” according to a motion passed by the upper chamber on September 26.

The motion sponsored by Senator Gbenga Ashafa, who represents Lagos East on the platform of All Progressives Congress, and six others, also says the Senate is, “Worried that the governor of the Central Bank of Nigeria, in line with the prevalent concern of financial analysts, stated during the Monetary Policy Committee meeting of the bank, which took place on 25th July, 2017, that ‘the government needs to move quickly to start capital expenditure spending as contained in the 2017 budget to reflate the economy in a way that will impact Nigerians positively’.”

 

Dilemma 

The federal government seems to underscore the challenge of budget implementation with its recent pronouncements. Minister of Finance, Mrs. Kemi Adeosun, highlighted the problem recently when she announced plans by the government to rollover about 60 per cent of the capital projects in the 2017 budget to next year’s budget.

“We had a rollover from the 2016 to the 2017 budget,” Adeosun told the Senate Joint Committees on Finance and Appropriation on October 3. “There was no stoppage in terms of capital spent as projects simply continued.”

She said, “The way in which we allocated the fund, the priotisation was according to the objectives of the economy and growth plan. We were focused on project completion. So we priotised projects that were nearer to completion, that were critical in the first releases of capital.

“We need more of your support. We have a number of resolutions that we need to complete international borrowings.”

Economic progress on all fronts in the country has been hampered by poor budget performance. Since the beginning of the Fourth Republic in 1999, the average performance of national budgets has remained below 50 per cent.

There seems to be no end in sight to the problem of poor budget implementation. Successive administrations have taken various steps to try to implement their budgets. But there has not been an effective strategy to fix the terrible shortfalls in budget execution.  

 

Hamstrung by Rollover   

In the 2017 second quarter and mid-year budget implementation report published by the Budget Office of the Federation, the government said it delivered over ₦1.2 trillion in capital budget in 2016. It said this significantly contributed to the country’s exit from recession with a real GDP of 0.55 per cent in the second quarter of 2017, after five consecutive negative growths.

According to the report, “The sustenance and strengthening of these reform initiatives is therefore the driving force of the 2017 budget implementation.”

The government has upped attention to capital expenditure. But there are fears that the poor release of funds for capital projects and the adverse effect on economic activities may result in the country’s return to recession.

The government said it faced difficulties in the implementation of the 2017 budget in the second quarter mainly due to the extension of the 2016 capital budget to May 5, 2017, “effectively halting execution of the 2017 capital budget in the first half of the fiscal year. The execution of the 2017 budget was also adversely impacted by the late passage of the budget as well as the shortfall in expected oil and non-oil revenue receipts.”

The rollover of capital projects to the next year’s budget has been largely caused by the late commencement of the budget year. This is a function of the late submission of the Appropriation Bill to the National Assembly by the executive and the subsequent late passage of the budget by the federal legislature.

The Nigerian constitution defines a financial year as, “Any period of 12 months beginning on the first day of January in any year or such other date as the National Assembly may prescribe.” By this provision, the budget year is expected to run from January 1 to December 31, but it may be adjusted to any other period, as long as it runs for 12 months. Records show that except in 2001 and 2007, when the budgets were passed before January 1, the country has seen a tradition of late submission and late passage of budgets since the Fourth Republic. The budget submission and assent period has run from October to July. Even when budgets are submitted before January 1, the processes of passage and assent have dragged on for between two and six months.   

Poor Budget Formulation 

Experts have attributed the weak capacity of government to implement its budgets to various causes, principally, sloppy budget formulation, especially, lack of credible income projections; extra-budgetary spending; inconsistency in actual and reported expenditure; and corruption and diversion of funds.

The President Muhammadu Buhari government has placed a lot of emphasis on capital expenditure since coming to power in May 2015. In the 2016 budget, capital expenditure increased from N557 billion in the 2015 budget to N1.8 trillion, taking 30 per cent of the 2016 budget. Capital expenditure took 29 per cent of the 2017 budget. Both cases represent the biggest allocations to capital spending the country has seen in several years.

But only about 40 per cent of the 2016 budget was actually implemented.  

 

New Borrowing 

In an attempt to improve the performance of the 2017 budget, the president has asked the Senate to approve a loan of $5.5 billion to fund the budget. The 2017 budget has a deficit of N2. 356 trillion, with a projected quarterly fiscal deficit of ₦589.19 billion, to be financed through privatisation proceeds (₦2.50 billion), foreign borrowing (₦266.88 billion), domestic borrowing (FGN Bond of ₦313.57 billion), and sale of government properties (₦6.25 billion).

“However, none of the financing items materialised in the second quarter of 2017,” according to the Budget Office of the Federation.

Buhari’s letter to the Senate, which was read at Tuesday’s plenary by Senate President, Bukola Saraki, said, “Accordingly, the Senate is requested to kindly approve the following external borrowings: Issuance of $2.5 billion in International Capital Market through Eurobonds or a combination of Eurobonds and Diaspora bonds for the financing of the Federal Government of Nigeria’s 2017 Appropriation Act and capital expenditure projects in the Act.

“Issuance of Eurobond in the ICM and/or loans syndication by the banks in the sum of $3 billion for refinancing of maturing domestic debts obligations of the Federal Government of Nigeria, while looking forward to the timely approval of the National Assembly to enable Nigerians to take advantage of these opportunities for funding.”

The National Assembly is still considering the president’s loan request.

The Buhari government has done a lot of borrowing in the last two years in what it explains to be an effort to execute its infrastructural and economic recovery programmes. The National Bureau of Statistics said last month that Nigeria’s total domestic and foreign debt stocks as at June 30 was about $15.1 billion and N14.1 trillion, respectively.  

The total foreign debt profile of the federal and the 36 states governments and the Federal Capital Territory rose from $10.718 billion in 2015, to $11.406 billion in 2016, and $15.047 billion in 2017. The federal government accounts for $11.106 billion (about 74 per cent) of the current total figure of $15.047 billion, while the 36 states of the federation and the FCT owe $3.94 billion, or about 26 per cent.

The federal and state governments’ shares of the debt stock grew from $7.349 billion and $3.369 billion in 2015, to $7.84 billion and $3.568 billion in 2016, and $3.94 billion and $11.106 billion in 2017, respectively.

There have been reservations about the rationality of the government borrowings, especially considering recent increments in the excess revenue (crude) account, with crude oil sales above the budget benchmark price of $44.5 per barrel, as well as rise in tax revenues and other revenue sources.     

 

Need for Effective Strategy

The federal government blames the poor implementation of its budgets on revenue shortfalls. But experts say the problem is not so much the lack of funds as sloppy budget formulation.

“A budget is not a public relations statement,” says Professor Pat Utomi, a professor of political economy and former presidential candidate. “A budget is a document that matches resources to targeted goals. 

 If you say the problem is resources, it means that you didn’t have a budget. A budget must have where the resource is coming from and where it is going to. You cannot project what you are going to do without the resources. You can’t call that a budget, that is a joke.”

To overcome the effect of uncertainty in revenue sources, which is often adduced to explain the poor implementation of government budgets in the country, Utomi recommends the zero-based budgeting method.  

Under the current incremental budget approach in the country, the budget is prepared using a previous year’s budget or its actual performance as basis, with incremental amounts added for the new budget. But zero-based budgeting justifies all expenses for each new budget year starting from a zero base. 

t analyses every item for its needs and costs and then builds the budget around the needs for the forthcoming year, irrespective of whether the new budget is higher or lower than the previous one.

In September 2015, during a courtesy visit by the Nigerian Economic Summit Group, Vice President Yemi Osinbajo was quoted as saying that the government was planning to adopt the zero-based budgeting format for the 2016 budget to overcome the lapses of incremental budgeting. It is hard to determine how far that intention was pursued.

 Related to the zero-budgeting strategy, according to Utomi, is the “repetitive budgeting” method recommended by Naomi Caiden and Aaron Wildadavski in their book, Planning and Budgeting in Poor Countries. 

Here, countries are advised to deploy resources to their budgets as they come in, so that periodically, within the budget year, the budget is revised according to the availability of resources. 

 It does seem Nigeria needs to move away from the current incremental budgeting method to a more effective budgeting strategy that would help to eliminate the recurrent problem of poor budget implementation.  

Stakeholders Involvement

Utomi also advocates involvement of critical stakeholders in the entire budget making process.

“In recent times, there is a team they are putting together to work out of the office of the national planning minister to drive the economic recovery programme implementation. I think that is the way to go,” Utomi says. 

“However, ministers need to be educated to give room for their senior special assistants to help in the coordination, monitoring, and mobilisation of stakeholders for the attainment of the goals that have been set.”