Domesticating Fiscal Responsibility Act in States

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Muhammadu Buhari

Raheem Akingbolu advocates the need for the governors of the 36 States of the Federation to begin domesticating fiscal responsibilities in their various states.

The Fiscal Responsibility Act (FRA) was enacted in 2007 ‘to provide for prudent management of the Nation’s Resources, ensure long-term Macro-Economic stability of the National Economy, and secure greater accountability and transparency in fiscal operations within the Medium-Term Fiscal Policy Framework.

The FRA established the Fiscal Responsibility Commission (FRC) to ensure the coordination of national economic policy between various tiers of government, and enable monitoring of agencies that are ‘off-budget’ but whose activities have significant impact on fiscal policies.

The FRC is central to the country’s quest for improvements in fiscal governance. In clear terms, the Commission is responsible for monitoring budget implementation in the various MDAs at both the Federal and State levels to avoid mismanagement of public funds. The commission is also responsible for ensuring that annual budgets are derived from the Medium Term Expenditure Framework (MTEF) prepared by the Ministry of Finance for a period of three financial years, and approved by the National Assembly.

According to the FRA, every government corporation is required to establish a general reserve fund where 20 per cent of its operating surplus is allocated annually while the balance is to be paid into the federal government’s Consolidated Revenue Fund.
The commission is also required to publish, on a quarterly basis, a list of each of the tiers of governments in the federation that have exceeded the limits of consolidated debt, indicating the amount by which the limit is exceeded.

The Fiscal Responsibility Commission has mandate under the enabling Act to: compel any person or government institution to disclose information relating to public revenues and expenditure; and cause an investigation into whether any person has violated any provisions of this Act. If the Commission is satisfied that such a person has committed any punishable offence under this Act violated any provisions of this Act, the Commission shall forward a report of the investigation to the Attorney-General of the Federation for the possible prosecution.

It is instructive to note that long before Nigeria enacted the fiscal responsibility laws, developing countries like India and Brazil have enacted Fiscal Responsibility laws to strengthen their fiscal institutions and establish a broad framework of fiscal planning successfully. In India, the union government passed the Fiscal Responsibility and Budget Management Act in 2003, a year later, all 28 states replicated the Act. Brazil passed a Fiscal Responsibility Law in 2000 which applies uniformly to the federal, states and municipal governments. The Brazilian law set out borrowing criteria and penalties for default of this rule. It placed limits on public spending, the size of the fiscal deficit, and public debt, and disallows debt refinancing between the state and central governments.

As expected, in India, the fiscal responsibility law positively improved the management of public debt both at the Federal and State Government levels and within the first six (6) years of its operation, India recorded a 4.4% and 4.8% reduction in Central and State Government debts respectively. Brazil on the other hand, 9 years after strict adherence to the Fiscal Responsibility laws, occupies ninth position in the league of the 20 most developed countries in the world.

So far, attempts at implementation of the FRA in Nigeria are mainly at the Federal level. Findings have so far revealed that this is grossly insufficient given that the sub-national governments (states and local governments) control over 50 percent of nationally-shared revenue. Available data collated in 2010 indicated that only 20 out of the 36 states in the Federation had initiated the process of Fiscal Responsibility legislation. The establishment of FRLs in more states will complement the existing federal government FRA and strengthen the overall fiscal responsibility framework for the Federation.

In view of this and given the success story recorded by Brazil and India and the weak fiscal practices and management prevalent in the Nigerian states, it is imperative for sub-national governments in Nigeria to domesticate the Fiscal Responsibility Act in their states. The domestication of the fiscal responsibility act by the States would go a long way in entrenching national and international standards in public finance management practices in the country and engender greater efficiency in the allocation and management of public expenditure, revenue collection, debt control and transparency in fiscal matters. The Program will also strengthen the overall fiscal responsibility framework for the Federation and reduce fiscal risks to the FGN from the states. The increased availability of reliable state fiscal and debt data will significantly improve monitoring of state debt sustainability and risks to facilitate early, coordinated response by the FGN and states.

From any angle one choses to look at it, the responsibility of enacting this law lies with the State legislatures that will kick-start the relevant legislative processes that will culminate into the enactment of the law.

However, it is not enough for the legislature to pass the Fiscal Responsibility bill into Law as the Executive arm of government must give its assent before it becomes law and the law must be accompanied by the establishment of a Fiscal Responsibility Commission to actualize it. The Civil Society Organisations working with the media as agents of public enlightenment should take the lead in promoting advocacy and mass mobilisation campaign in support of the process.

As things are, the task of enhancing accountability and transparency in governance should not be left to politicians but should be seen as a collective responsibility.