Special Report: Budget Must be Inclusive and Work for All – Dr Okiti

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Alex Ekemenah

The ongoing workshop on budget monitoring and reporting by financial analysts at the Central Bank of Nigeria International Training Institute in Abuja organized by the West African Financial and Economic Management, Centre for Financial Journalism and African Capacity Building Foundation has revealed how the annual budget works.

The lecture on the budget and how it works was delivered by Dr. Ogho Okiti, the President of Time Economics, an Abuja-based research, strategy and markets firm.

The goals of government budget at any point in time and space should include, according to Dr. Okiti, economic growth, economic stability, management of public enterprises, reallocation of resources, reducing inequality in income and wealth, reducing regional disparities

However, this has not been the case as experiences have shown over the years. Despite the amount that has been budgeted over the years, economic growth and stability, reduction of inequalities and regional disparities including efficient management of public enterprises have not occurred. Development expectations have thus eluded Nigeria.

This suggests that certain reasons account for the non-achievement of the goals of government annual budgets. The main reasons why Nigeria’s annual budget has never really achieve its main goals include failure to increase spending on capital projects; humongous recurrent expenditure as against capital projects; lack of rigorous and transparent process, lack of adoption of modern techniques or methodologies of budgeting.

Collectively, these have been the major causes of failure of economic development in Nigeria.

The key elements of good or inclusive budget that works for all include sound Medium-term Fiscal Framework (MTFF); achievable goals and/or objectives – in other words, the budget must be realistic -; surplus (if possible); adequate capital expenditure; allocation to education and health; transparency; and proper monitoring and evaluation.

In Nigeria budget projections are often based on the medium term revenue framework (MTRF); oil price benchmark; oil production output; exchange rate between Naira and US Dollar; inflation rate; GDP growth rate prediction; and priority sectors.

The first four elements have large impacts on the success or failure of the budget.

The budgetary cycle starts when the Federal Ministry of Finance requests MDAs to submit their budgets after which the MDAs submit their budget proposals to the BOF.

The FMOF then produces a draft budget which it submits to the President for approval after which the President submits the draft budget to NASS.

Committees from both the Senate and House of Representatives discuss the document including Appropriation Committee reviews and organization of the committees’ recommendations.

Final recommendations are then aligned or synchronized and passed back to Mr. President. At this stage, it becomes an Appropriation bill. When the President gives his accent, it becomes an Appropriation Act.

The Federal Ministry of Finance through its Cash Management Committee makes funds available to the MDAs. The MDAs receives funds for capital projects every quarter. MDAs spend funds based on the share of the budget from the Consolidated Revenue Fund of the Federation (CRF).

The Federal Ministry of Finance prepares a Budget Implementation Report which reviews the level of execution of project implementation from various locations in the country. The Federal Ministry of Finance, NPC, the National Economic Intelligence Agency (NEIA), the Presidential Budget Monitoring Committee (PBMC), the Office of Auditor General of the Federation (OAGF), the Office of the Accountant General of the Federation and the National Assembly monitor budget process including physical inspection of the completed and ongoing projects.

The same process is applicable at the state government level including the local government level.

Although, compared with the federal government, state budget are not given the needed attention, they have more impact at the grassroots level.

While the federal budget has a wider implication for the macro-economy, the state budgets are growing and becoming more significant because of its closer relationship and impact on the citizens.

In 2017, the total budget for all states combined was N6.7 trillion, while the federal budget was N7.4 trillion.

Thus, there is need for more attention and monitoring for the states’ budgets because they also have macroeconomic impact on the aggregate economy when combined.

States derive their revenues from Federal allocations, Internally-Generated Revenue among others.

However, in the Nigeria, the main sources are: oil and gas revenue to the Federation Account (royalties, petroleum profit tax, rents and other oil taxes); non-oil revenue: Income Tax, customs and excise duties, company income tax, and value added tax) and other government enterprises.

The differentiating parameters in the types of budgets are the relationship between Revenue and Expenditure.

Surplus Budget: When the government expenditure (G) is less than its tax revenue (T); meaning there is something left to save.

Deficit Budget: When the government expenditure is more than its tax revenue; meaning there must be borrowings to meet up.

Balanced Budget:  When revenue and expenditure matches; you spend only what you earn.

From experience, Nigeria has never has surplus and balanced budget but deficit budget.

Budget deficits can be financed through: Issuing Government Bonds (domestic and external borrowing); creating new money (Printing) and increasing taxes.

Nigeria’s deficit keeps shooting for the sky. From available data, it has climbed from N101 billion to N2.36 trillion in 2017. Government keeps borrowing to finance the budget which IGR could not provide.  

“As deficits continue to rise over successive years, the chances of meeting the objective of future budgets becomes thin.

“Since such government credibility (ability to borrow more) becomes low and debt servicing becomes higher.

It thus becomes a vicious cycle from which it is difficult to free oneself at the end of the day.

Indeed, the implications are of wider ramification. “With different credit rating agencies these days (e.g. Moody’s Investors Service, Standard & Poor’s (S&P), Fitch Ratings etc.), it’s easy for borrowers to know where not to channel their funds

“This can lead to drop in capital stock and wealth for the future generations if debts are not used for Investments that meet optimal cost/benefit analysis

While debt on its own is not a problem if it used for the purpose for which it is incurred, the debt buildup may become dangerous if  most of the spending is on recurrent expenditure, which does not increase Nigeria’s ability to repay the loans.

In addition, higher debt servicing costs will take up a larger part of the budget down the line limiting the country’s ability to make much needed investments

Furthermore, the bigger the government’s debt load, the greater the temptation to pay off domestic debt by printing money, which will cause high levels of inflation.

Dr Okiti maintained that from whichever angle we look at the issue of national budget, government expenditure is policy-driven. However budget is never exact because of intervention of unforeseen factors and variables.

 “If you don’t get your public finance right, you can never develop”

“In a country where people don’t pay enough taxes, democracy suffers” because people will not be able to hold government accountable.

“When budget is not passed in time, the first casualty is certainty. And where there is no certainty, investors cannot invest their monies.

“Productivity should be the first priority of growth and government budget. In other words, government expenditure, i.e. budget should be aimed at increasing productivity of the economy” Okiti stated.

No government since 1999 has introduced any significant change in the process of how budget is originated, prepared and finally executed or implemented. There has been no end-of-the-year budget audit or performance assessment. Indeed, the inherent weaknesses and fault-lines are now being revealed and pronounced under the current administration.

Government continues to borrow for one reason or the other. Yet there are no visible physical developments to justify such humongous foreign loans. Budget deficit continue to climb and head for the sky. Budget deficit is even worse under the current administration that had hitherto promised to change the ways government expend budget funds.

It was revealed during the interactive session that government all over the world love to borrow simply because it does not have to pay. Such debt is passed on to the next government and ultimately to the future generations to contend with. As a matter of fact, hardly has Nigeria succeeded in debt cancellation in 2005 under Obasanjo administration than it started borrowing again by the same Obasanjo administration.

Today, Nigeria has a foreign debt portfolio of over $60 billion. The debt-GDP ratio now stands over 22 per cent. Debt service now stands over N1trillion annually.

The current budget, from all indications, has suffered the same calamitous fate that befell past budgets. In fact, it can be safely concluded that it has failed before it even takes off the ground. Two quarters have passed without releasing any fund for implementing the budget. With this, it is very much doubtful whether the budget can be fulfilled in its entirety.

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