Akabueze: FG’s Budget Performance Not Low

0

The Director General, Budget Office of the Federation, Mr. Ben Akabueze, in this interview on Arise Television, spoke on issues around the federal government’s annual budget, especially the 2019 budget that was recently passed by the National Assembly. Nume Ekeghe presents excerpts:

 

What is the guarantee that the 2019 budget will be implemented faithfully?

 Well, every budget is designed with a view to achieving its full implementation, or close to full implementation. Well as you know a budget represents an estimate, albeit a well-informed one. And there are two sides to the budget -you have the revenue side, and you have the expenditure side. And what happens on the expenditure side critically extends to what happens on the revenue side. When the projected revenue doesn’t materialise, it becomes very impossible for the expenditure side to be fully realised especially, in a situation where we are already running a deficit budget. Which means that ab-initio it is understood that, the revenue will not suffice and therefore there is a plan to borrow to augment the revenues. So, when the budget is passed by the National Assembly, which makes it a law, it poses a ceiling on how much you can borrow to fund that budget. Therefore, if it turns out that your revenue projections are fully met, and you borrow up till the limit that has been approved for you; there is no reason therefore why the expenditure side cannot be met.

But then, even on the expenditure side, you have boldly speaking, recurrent expenditure, and capital expenditure. There is also a category of expenditure called statutory expenditure, which takes care of statutory transfers to other arms of the government – the legislature and the judiciary. Whether or not your revenue projections are met, every month, you must transfer to those other arms of government one twelfth of what is represented in the budget for them. There are other areas as well that are very critical, like security; whereby, regardless of whatever happens, you have to fund them. So when people talk about low performance of the budget, of which everybody is right to be concerned about, that concern really revolve around the capital expenditure side. But for recurrent expenditure, salaries are paid monthly, pensions are paid and other obligations necessary to keep government running are paid. So when people look at the capital side and use that as a complete determinant of how the budget has performed, it is not quite so.

The capital expenditure budget for instance for 2018, has being overall, cash-backed about 60 per cent, but on the recurrent side, it is near 100 per cent. A significant part of our budget is also for debt service.  That also has performed 100 per cent. We met all our obligations as at when they fall due. So when you put all of these together, the aggregate performance of the budget is not as low as people make out. The aggregate performance of the budget is close to 80 per cent.

 

 

What is your role in the process of budget preparation and also; there have been calls for the review of the budget cycle to the January- December period, how does the late passage impact performance?

 

Without a doubt, late approval of the budget usually affects the performance of the budget, especially the capital projects. Don’t forget that, since January this year, salaries for 2019 have been paid. Other utility bills to keep government running have been paid, the security agencies have been working and they are being paid. In effect, the 2019 budget have been in operation. The constitution has what we call the Provisional Budget Clause, which allows us; even before budget is passed, to spend up to 50 per cent of what was appropriated in the previous year. But then, because capital expenditure is appropriated in specifics, we cannot assume that, because there was an approval to spend money on a road last year, that there would be a similar approval to spend money on that road this year. And therefore on the capital expenditure side, we do not spend until the budget is signed into law, and we know exactly what has been approved. So, that is also a contributory factor to the lower performance on the capital budget side. The truth is, for quite a long time now, we haven’t been able to have a budget ready by the month of January. What needs to happen to get that is everybody – the legislative and executive. We have all agreed on the necessity to return the country to a predictable fiscal year. Despite the fact that government is not necessarily in aggregate; you know the private sector spends much more money than the government, but government expenditure has a great signalling effect in terms of the direction that the economy is going. So, the private sector tends to take their direction from the government budget, and that is why it is critical that we get back to a predictable cycle. With that, the private sector and all other people who do business in the country can plan better.

So everybody has agreed for the necessity of this but somehow we haven’t been able to make this happen. It requires collaboration on both sides. The National Assembly argues understandably that, to be able to pass the budget by the end of December, they need to get the budget by the end of September and that is great. But you see, if we only get a budget passed in May, it’s very difficult to have the budget for the next period ready before September. On the average, it takes a six months from the start of the process to the end, to complete a budget preparation. Remember, there are over a 1,000 budget units/agencies of government that we have to prepare budget for. So in the year where we all agreed to return the country to a January-December cycle, there has to be compromises on both sides. Everybody has to understand the difficulties and we work together to basically get this done and there would have to be some transitional arrangement. But once we do that in one particular year, then we can get back to basics. And I am a supporter of legislation, let’s have legislation in place. There has being an organic budget law pending but of course, that law includes a budget calendar which will mandate everybody – executive and legislature, to complete their own part of the job by certain time. However, there is a challenge with that because we will need some amendments to the constitution, before that law can be passed. That is because the constitution doesn’t impose such a time limit, the constitution simply say’s that the president must present a budget by the end of December. So, if the president presents a budget by the 31st of December, he has satisfied the requirements of the constitution as it stands now. So, that constitutional position needs to be amended, and if that doesn’t happen, someday in future, even if you pass the budget, one president that doesn’t feel inclined with that law, may wake up to say that the constitution is superior, and the constitution gives him the latitude to present the budget as late as December.

 

Talking about revenue target for the 2019 budget, how feasible is that?

It is interesting that five months ago you all were shouting about the oil prices itself as being unrealistic as well as the quantity projection being unrealistic. You all basically wrote off the revenue projections as dead on arrival. It is interesting how time changes thing and now you acknowledge that we were right on the price projection. I think we should wait for the end of the year to see whether we are right on the quantity projection. For us, 2.3 million barrels wasn’t a number pulled from the sky. We have a technical capacity to produce 2.5 million barrel per day. There have been challenges of security, safety and integrity of the pipeline on even evacuating the crude after it has been produced. There was funding challenges in the past and what we have sorted to do is try to address these challenges. We need to produce as much oil as we can while we still can.

So that is why we have challenged everyone involved to say what are your constraints so we can produce this 2.3 million barrels which we need to fund the ever growing needs of this economy. I think that rather than this fixation or discussion of whether it is unrealistic or not, let us have the right conversation which is, do we need to produce 2.3 million barrels and more? And what we would need to do. The president has given marching orders to NNPC to do whatever they have to do to ensure that the 2.3 million barrels per day is met and the numbers we are currently getting is that they are doing more than 2.1 million barrels per day. Again, we have cushion for pricing that means we are 15 per cent over the price. That means that at the end of the day, instead of 2.3 million and we end up with 2.1 million, we would be 10 per cent down on volume. If we are 10 per cent down on volume and 15 per cent on price, we would still meet our projections.

 

 

What is your reaction to the decision by the National Assembly to increase deficit financing as well as the inclusion of some items into the budget every year?

 

Let me begin with the adjustment as the National Assembly was said to have made. As we speak, we have not received the details of what they passed. And on the usually process, when they pass the budget, they communicate details to the President who pass them on to us, and we match what they have passed to what was sent and then try to understand the rational for the changes and what needs to be done to implement them and if it is implementable. And until then, I am afraid I may not be able to comment on that. If we go by the media, we have heard too much news out there. From saying the National Assembly increased the budget by N10 billion and all kind of numbers. If you go by the new number, the difference is about N90 billion. But we don’t know if N90 billion is a net number. It may well be that the adjustments are much more than that. Some things may have been taken out; some things may have been added and N90 billion is just a net number. But until we get that details, I am not able to comment.

Then on the other part of your question which people often describe as repetitive and frivolous items, on one hand, you talk about the fact that the budget doesn’t perform up to 100 per cent, and the other hand you talked about repetitive provisions. The reality is that some of those items that you find repeating themselves, sometimes because they are considered low priority items, they are the last to get funding. And so, because the budget doesn’t perform up to 100 per cent, we don’t get to them. So, all that happens is that the agencies are asked to move them to the following year. Then in the following year, if we are able to get to them, we realise them, but if not, we further move them forward. That is one explanation. The other explanation is because resources are constrained, if an agency has a need for 200 computers, we then would say to them that ‘sorry, we might not be able to fund 200 computers in one year, we will be able to fund only 50 computers in a year.’ What that means is that in year one, you will see 50 computers in the budget of that agency, in year two you would see 50 computers in the budget of that agency again, then same as year there and year four. That is not repetitive, but 200 computers bought over four years. So before you make conclusion of whether an item is frivolous or repetitive, ask us through the citizens’ portal on our website, we will give you answers rather than rush to conclusion when you may not have all the facts. And it baffles me when people talk about entertainment, all of the provisions for what you call entertainment.  The entire provisions in the budget for overheads of government in the 2018 budget for instance was N246 billion, which was less than three per cent of the total budget. So people talk about cost of government; if you made overheads zero, it doesn’t amount to significant savings.

 

Why is the federal government shying away from fuel subsidy removal just as the new minimum wage has been approved; what are some of the recommendations you came up with so that we do not borrow more to fund this budget?

The government would make the recommendations public when it deems it necessary to do so and there is a process that is currently on-going. It would be difficult for me to comment even though I was a member and secretary of that committee. Broadly speaking, the recommendations about initiatives for raising revenue and for cutting cost where feasible. I can assure you that there is not much in those recommendations that is totally novel. On the removal of subsidy, again this is a matter that is under consideration. Right now, we had a situation where the current administering has made some adjustment in petroleum pricing on PMS and because all other products have been deregulated. It is only about petrol with N145 on the price. Given the current dynamics of the oil market, the landing cost of PMS is more than the price ceiling and so what has happened is that the private traders of petroleum products have moved away from the market. But NNPC, given its commitment to ensure availability of petroleum products in the country now finds itself as the only one in that business of importing and distribution and in that process, is incurring losses. So the under recovery of the trading in PMS washes off on the over- recovery of profits in some other lines of their business and that is the way it is happening. Whatever decision we make on recovery is only interim. The goal of the administration is to increase domestic refining capacity. When we have sufficient capacity, some of the cost elements that contribute to what we call subsidy would disappear and so if the products where refined domestically, we would expect cost like transportation, financing cost for period of ordering to delivery and even the infrastructure cost that is required to manage and handle importation, insurance and more. Whatever happens to subsidy is only interim measure.

 

Many Nigerians have raised concerns about extra budgetary spending, is there a justification for it especially on the Tradermoni not being appropriated for which the opposition recently described as a vote buying tool?

 

Anyone that says Tradermoni is extra budgetary probably hasn’t read the budget and doesn’t understand it. There is a N500 billion provision in the budget and it has been there in the last three years, every year, for what we call the social investment program of the government and Tradermoni is only a small component of that.

Tradermoni is provided for in the budget. But what has happened in terms of delivery and mechanism for delivery was that instead of set up another agency or another structure of government, government decided to utilise the Bank of Industry, which already had an arm of it focused on MSMEs. One of the programs under the social investment is the Government Empowerment Program (GEP).  Tradermoni and Marketmoni are simply just an element of that and a small one at that. So there is nothing extra budgetary about that.