MEMORANDUM TO THE APPROPRIATION COMMITTEES OF THE HOUSE AND SENATE OF THE NIGERIAN NATIONAL ASSEMBLY ON THE 2016 FGN BUDGET (APPROPRIATION BILL) By Dr. Emmanuel Ojameruaye

The purpose of this memorandum is to analyze the 2016 Budget (Appropriation Bill) of the Federal Government of Nigeria (FGN) and` offer recommendations for improvement. In this first part of the article, I will examine some of the weaknesses of the Budget, while in the second part I will make recommendations for amending the Budget before it is approved and signed into law as the 2016 Appropriation Act.

Introduction:

The 2016 Budget got off to a very rough start. The journey began with the 2016-2018 Medium Term Expenditure Framework (MTEF) which was presented to the National Assembly on December 8, 2015 by the Presidency. Although the MTEF received very little attention, it formed the basis of the 2016 Budget which has come under severe criticisms. Thus, any significant amendment to the Budget will require changes to the MTEF. On December 22, 2015, the President presented the 2016 Budget (Appropriation Bill) to the National Assembly (NA). Soon after that the Budget Office posted the 2016 Appropriation Bill on its website[i] and it became a public document for all who have access to the internet. Soon after the Budget presentation, the National Assembly went on Christmas/New Year recess and did not bother to post the Bill on its website or make hardcopies for its members, not even those serving on the Appropriation Committees of the House and Senate. Even as of the time of writing this paper (Jan. 25, 2015) the National Assembly has yet to post the Bill on its website. The latest Bill on its website is that of 2014! Even the 2015 Appropriation Bill and Act are “missing” of the NA website. It appears that members of the National Assembly “went to sleep” during the holiday, while interested members of the public visited the Budget Office website to download and analyze the Budget.

Some analysts who read the Budget were disappointed and wrote scathing reviews/articles on the Budget in the newspapers. For instance, in its editorial of Sunday, January 3, 2016 on the Budget titled “Curious Figures”, The Nation Newspaper noted that “some of the extravagances in the presidency’s budget are stunningly indefensible ...Curiously enough, President Buhari’s first budget estimates after rising to power on a promise of change have familiar ingredients associated with the old discredited order. Details of the 2016 budget proposal reflect astonishing similarities with the immediate past, prompting questions about the meaning of change…To start with, the interest in acquiring a fleet of new high-end luxury cars for the Presidency bespeaks flawed prioritization. A vote of N3.6b for BMW saloon cars for principal officers is certainly on the high side, considering that the cars are not essential for good governance. Furthermore, the number of the cars is unspecified, leaving room for possible corruption-related manipulation…The Buhari government cannot afford such a stain at this time when it is trying to get the public to appreciate its claim that it met a vastly depleted treasury… It is unclear how the Presidency arrived at these figures, but they are unsettling reminders of the Jonathan presidential era when public expenditures seemed to be padded, and were actually inflated to enrich private pockets. … Here and there in the budget are suspect figures that signal not only the possibility of inflation, but also the possibility of wastefulness… As far as government is considered a continuum, it is expected that an administration which is out to correct mismanagement of public funds would not conduct itself in a way that suggests it may not be substantially different after all”.

Amid a plethora of similar criticisms, it was reported in the media in the first week of January that the Presidency was planning to withdraw the Budget and correct the “curious figures”. However, rather than formally writing to the National Assembly to withdraw the Budget, officials of the Presidency surreptitiously withdrew the copies of the Budget from the National Assembly in order to replace them with an amended or corrected version. However, when National Assembly returned from its recess in the second week of January, some member could not find copies of the Budget and they then declared that the Budget was “missing”. Amid the furor over the “missing” budget, on Jan. 14, 2016 the Senate resolved to work on the original copy of the 2016 Budget (Appropriation Bill) which President Buhari presented to the National Assembly on December 22, 2015. However, on January 17, 2016, the President formally wrote to the National Assembly to withdraw the original Budget and replaced it with a “revised” budget. Although details of the revisions have not been made public - it is the “old” version that is still on the Budget Office website - there are indications that the changes were “cosmetic” and did not affect the underlying assumptions as well as the total revenue and total expenditure. According to Senator E. Abaribe, “We were told that in the revised budget there was an adjustment due to error, we agree but what has happened is that the money up to N7 billion were moved from buying vehicles to being spread in offices. It also increases the spending that is due to renovations within the Villa; they are going to renovate the Villa with N3.9bn”[ii]. Thus, this review is based on the old version of the Budget.

Criticisms and Weaknesses: To be sure, there is no perfect Budget. In a democracy, the Budget will always be criticized, especially by the opposition, sometimes dishonestly. However, some of the criticisms are constructive and point to the weaknesses of the Budget. Such criticisms should therefore be given due attention in seeking to amend the Budget before passage into law (an Act). In what follows, I will focus only on some of the “constructive” criticisms.

The first criticism is that the Budget does not reflect the “Change” mantra or slogan of the Buhari’s administration. Although it is tagged “The Budget of Change” many analysts contend that there is very little manifestation of “change” in the Budget. They say that it is almost déjà vu all over, i.e. business as usual. For instance, there is inadequate attention given to the anticorruption campaign in the President’s Speech or the MTEF and there are no estimates of stolen funds that will be recovered and paid into the federation account to or retained by the federal government and how they will be utilized. Perhaps one of the few items the administration has claimed to represent “change” in the Budget is the N300 billion for “FGN Special Intervention Programme” which will be used for the proposed Conditional Cash Transfer, Home Grown School Feeding, post NYSC Entrepreneurial Development and Microcredit programs. However these initiatives do not amount to a significant change. In fact, the amount allocated for these programmes is almost equal to the previous annual allocations for SURE-P (about N270 billion) which has been removed from the 2016 Budget. In other words, it is like old wine in a new bottle. I think that the reason why the Budget has not captured the change mantra is because the administration has yet to come out with a well-articulated Change Plan with SMART[iii] targets as I recommended in my article of June 4, 2015.[iv]

The second criticism, which is actually an extension of the first, is that the Budget is very similar to that of the previous administration (of President Jonathan). A former Governor of the CBN, Prof. C. Soludo went as far as implying that the 2015 Budget is a “carbon copy” of previous budget. Speaking at the 13th Daily Trust Dialogue in Abuja on January 14, 2016, Prof. Soludo said that “The present (2016) budget is more of the same to the previous ones… on the scale of GDP, it is almost the same with the previous government…To craft the new agenda, we must defeat the old agenda. We cannot make progress in the country with the tools and agenda of the old”. While I agree that there are some striking similarities between the 2016 Budget and those of the recent past, it is an overstatement to claim or even infer that the 2016 Budget is carbon copy of previous budgets, even on “the scale of GDP”, whatever that means! For instance, there have been some “structural changes” such as the transfer of the Budget Office from the Ministry of Finance to the National Planning Commission to form the new Ministry of Budget and National Planning and the merging of the three separate ministries of Works, Power and Housing into one Ministry of Works, Power and Housing. More importantly, if you compare the assumptions and allocations by ministries, departments and agencies (MDA) in the 2016 Budget to those of the 2014 and 2015 (see tables 1 and 2 for sample comparison) you will find that the differences are significant at a reasonable probability level (say p˂0.10) even on per capita, per GDP or “constant prices” basis. However the absolute differences do not amount to a significant “change” or “departure” from the past.

The third criticism is that Budget is not “zero-based” as indicated in the MTEF and President’s Speech. In the MTEF it is noted that “to enhance efficiency in resource allocation while optimizing the impact of public expenditure, government has adopted the implementation of a zero-based budgeting (ZBB) system beginning with the 2016 Budget. This is with a view to ensuring cost justification, and that only projects/programmes which are development policy complaint and are of utmost benefit to the Nigerian economy at the lowest cost are accepted into the FGN Budget”. The President reiterated this in his Speech when he stated that “We are determined to ensure that our resources are managed prudently and utilized solely for the public good. To set the proper tone, one of our early decisions was the adoption of a zero based budgeting approach, which ensures that resources are aligned with Government’s priorities and allocated efficiently. This budgeting method, a clear departure from previous budgeting activities, will optimize the impact of public expenditure”. But was this the case? As the saying goes, the proof (or taste) of the pudding is in the eating, so in order to confirm if indeed the ZBB approach was adopted in the preparation of the 2016 Budget, we have to examine the Budget vis-a-vis the definition of ZBB.

According to Investopedia[v], ZBB is “a method of budgeting in which all expenses must be justified for each new period. Zero-based budgeting starts from a ‘zero base’ and every function within an organization is analyzed for its needs and costs. Budgets are then built around what is needed for the upcoming period, regardless of whether the budget is higher or lower than the previous one”. Unlike the traditional (incremental) approach to budgeting in which managers or department heads justify only differences or variances between the proposed allocation and the allocation in the previous period (“the baseline”), under ZBB each line item of the budget, rather than only changes, must be justified and approved. Under ZBB, all budget requests must be re-evaluated thoroughly starting from the zero base which means that the budget must be prepared fresh each year without reference to previous budgets irrespective of whether the total budget or specific line items are increasing or decreasing. In general, ZBB results in lowering costs by avoiding blanket increases or decreases to a prior period's budget. The advantages of ZBB include the following:

· It forces department heads/managers to identify their mission and their relationship to overall goals of the parent organization. It also forces them to find the most cost effective ways to conduct and improve their operations, thereby leading to reduced costs efficient allocation of resources in the organization

· It helps to detect inflated budgets and to identify/eliminate wasteful, useless, unnecessary and obsolete operations, activities, offices, etc

· It helps to identify opportunities for outsourcing.

On the other hand, the disadvantages include the following:

· It requires specific training, due to increased complexity vis- a-vis traditional incremental budgeting.

· It is time-consuming and requires large amount of information to back up the budgeting process than incremental budgeting.

· It could be problematic to justify every line item in departments with intangible outputs.

It is important to stress that the practice of ZBB in the public sector is different from the private sector. For instance, in the United States, ZBB was adopted by the federal government in the 1970s under the Presidency of Jimmy Carter with focus was on optimizing accomplishments available at alternative budgetary levels. Under the USG ZBB budgeting system, budget requests for each decision unit were prepared by their managers, who would (a) identify alternative approaches to achieving the unit’s objectives, (b) identify several alternative funding levels, including a “minimum” level normally below current funding, (b) prepare “decision packages” according to a prescribed format for each unit, including budget and performance information, and (b) rank the decision packages against each other. Elements ZBB budgeting process remained in effect through the Reagan, Bush and early Clinton administrations in the United States before it was eliminated in 1994.

In a subsequent article, I will discuss ZBB in the public sector in greater detail as well as modalities for the application of ZBB in the public sector in Nigeria. However, based on a careful analysis of the 2016 Budget in light of the above definition and description of ZBB, it is difficult to accept the claim that the ZBB approach was used in the preparation of the 2016 FGN Budget. Maybe it was used in a few MDAs or to prepare a few components of the budget but it very doubtful if it was adopted wholesale in view of the similarities of many of the provisions of the budget to previous budget provisions and the many inflated and wasteful allocations which are not complaint with the policy objectives of the Budget and which are also are not of “utmost benefit to the Nigeria economy at the lowest price”. The heads/directors/managers of the various MDAs are in a better position to confirm if they indeed adopted the ZBB approach but I will not be surprised if many of them have not been trained in ZBB. It is also doubtful if most of the amounts in the Budget were challenged and adequately justified as required under ZBB. It is likely that the President was deceived into believing that the budget is zero-based. If the President himself had challenged the budget of the State House Headquarters, he would not have approved most of the items and allocations which have been very embarrassing and have smeared the “change” and “anti-corruption” mantra of his administration.

The fourth criticism is that there are very many dubious, unnecessary and inflated allocations which will provide a fertile ground and cover for corruption and cronyism, as in the previous administration. Some analysts have highlighted some of these allocations[vi]. Table 3 shows examples of such “curious” allocations in the Presidency/State House Headquarters budget. There are similar dubious allocations in virtually all the MDAs. For instance, Budget Office has the following allocations among other things:

· N1 billion for National Assembly Clinics (apart from the N115 billion allocated to the National Assembly)

· N60 billion for Special intervention/Constituency projects

· N1.58 billion for Sustainable Development Goals M&E (apart from the N124million allocated to the Office of Senior Special Assistant to the President on MDGs)

· N4 billion for National Jobs Creation Scheme (apart from the N300 billion FGN Special Intervention Program which contains a jobs creation component, and N5.9 billion allocated to the National Directorate of Employment (NDE) which includes N864 million for Research & Development!)

· N170 million for purchase of new vehicles, N7.5 million for construction of underground fuel dump, N7.4 million for refreshment 7 meals, N45 million for human capacity development, N45 million for R&D, N12 million for computer software and N100 million for budget preparation!

It is mind-boggling that the Budget Office whose raison d’etre is to prepare budget will still have to spend another N100 million to prepare its own budget. The Bureau of Public Procurement (BPP) has the following outrageous allocations:

· N559.2m for Development /deployment of public procurement software and defence procurement/forecast for the Bureau

· N102 million for the establishment of 2 Public Procurement Research Centers at UNILAG and ABU

· N116.4 million for direct purchase of vehicles and N45 million for direct purchase of furniture.

The Bureau of Public Enterprises has N293.6m for post privatization monitoring amongst other things. Even the Fiscal Responsibility Commission (FRC), a very small agency, has the following outrageous allocations, amongst others:

· N44.2 million for purchase of vehicles

· N4.3 million for motor vehicle fuel cost and N5.5 million for maintenance of vehicles

· N8.8 million for cleaning and fumigation services

· N5.5 million for printing of documents

· N3.3 million for telephone charges and N2.2 million for internet charges

· N5.2 million for financial consulting and N4.2 million for IT consulting

· N10.28m for honorarium and sitting allowances and N13.8 million for “welfare packages”

The list of outrageous allocations is endless. Worst still, virtually all the MDAs have curious allocations for such items as budget preparation, software acquisition, financial consulting, and IT consulting.

The fifth criticism is that the revenue projection is unrealistic (over optimistic) while the expenditure is too high, resulting in excessive deficit which will escalate Nigeria’s public debt. On the revenue side, the assumed crude oil price of $38 per barrel used to make the projection of the FGN share of oil revenue (N718 billion in the MTEF but N820 billion in the President’s Speech) is on the high side given the crude oil market dynamics and forecasts for 2016 and the fact that crude oil prices have fallen below $30 per barrel already. I think a more realistic assumption should be $30 per barrel. Furthermore, the assumed exchange rate of N197 to the $ is also unrealistic given developments in parallel market. With regards to non-oil revenue (FG share), I believe that the estimate of N1,454.69 billion is also on the high side given the fact that of the N1,214.69 billion projected in the 2015 Budget only N606.12 billion (less than 50%) was realized as at the end of September 20165 (i.e. 75% of the time) as indicated in the MTEF. However, it may be possible to realize the amount provided the government will be able to plug loopholes and leakages in the collection of corporate taxes, VAT, excise taxes and duties. Furthermore, the estimate of N1,505 billion for FGN Independent Revenue (FNIR) also appears to be on the high side because of the N489 billion projected for 2015, only N401 billion as realized as at the end of September 2015. There is no breakdown or narrative for the N1,505 billion to identify and analyze the sources, but a more realistic target be in the order of N900 billion to N1,000 billion if the government is able to intensify the collection of “independent” revenue. Perhaps, the amount includes what the government expects to realize from “stolen funds” under the anti-corruption crusade. If so, such funds should not be classified under “independent revenue” but should be paid into the “Non-Oil Revenue” component of the Federation Account.

On the expenditure side, there appears to a ground swell of opinion that the total projected expenditure of N6,078 billion is troublesome. This includes N1,336.58 billion for Debt Service up from N953.62 billion in the 2015 Budget, N2,348.62 billion in Recurrent Expenditure (Non-Debt) slightly down from N2,593.21 in the 2015 Budget, and N1,602.38 billion for Capital Expenditure which is more than double the N722.2 billion in the 2015 Budget. As I have indicated earlier, there is scope for significant reduction in all the categories of expenditure. Finally, the deficit of N2,221 billion as against N1,041 billion in the 2015 Budget and N1,043 as of the end of Sept 2015) is uncautionable and unsustainable given the fact that it is more than the capital expenditure , most of which are not quite productive in the first place! Although the deficit represents only 2.16% of the projected GDP – which is less than in many countries, see table 4 in part 2 of this memo for the US – it is nonetheless the highest in recent Nigerian history and it is unnecessary. It will only compound the economic difficulties of the administration in the next three years as the public debt service increases. The deficit must be eliminated by reducing the total spending.

Finally, in my view, the sixth weakness of the Budget is that there appears to be no strong “economic message or theory” behind it. In other words, the theoretical foundation is weak as reflected in the skimpy budget narrative. What that passes as a narrative for the Budget is pages 3 to 9 (7 pages) of the President’s Speech and pages 6 to 18 (13 pages) of the MTEF. Other than these, the 1,810 pages of the Budget tables have no other narrative or explanatory notes that link the allocations to specific policies. Contrast this with the 150-page 2016 United States Budget which consists of only 52 pages of summary tables and 88 pages of narratives including the Budget Message of the President and descriptions/narratives of the various policies in the budget[vii]. In fact, most of stated policy objectives of the 2016 FGN Budget as contained in the President’s Speech and the MTEF are not SMART and it is not clear how they can be achieved through the budgetary allocations. The policy objectives include “efficiency in resource allocation, optimizing the impact of public expenditure, job creation and social inclusion, infrastructural development, improving governance, fiscal stability, improving non-oil sector competitiveness, attaining lower levels of inflation and competitive exchange rate, fiscal transparency, improved tax and custom administration, supporting private sector leadership in employment generation, and management of external and domestic debt to increase confidence building through negotiation and consultation in aggregate debt levels and servicing costs”.

In conclusion, one must admit that the 2016 Budget leaves much to be desired. One wonders if it was reviewed by the President, the Minister of Budget & Planning and Minister of Finance, the CBN Governor and the Chief Economic Adviser to the President. Given that this is the first Budget to be prepared by the Buhari administration, it should have been prepared with greater professionalism and scrutiny. In part 2 of this memo, I will make some recommendations to the National Assembly and the Presidency not only on ways to address the above criticisms and weaknesses before the enactment of the 2016 Appropriation Bill but also to improve the budgetary process in general.

Dr. Emmanuel Ojameruaye

emmaojameruaye@yahoo.com

January 31, 2016.

Appendix

Table 1: Some Key Assumptions and Estimates of the FGN Budgets for 2014, 2015 and 2016

	Units	2014	2015*	2016
Benchmark Crude Oil Price	US$ per barrel	77.5	53	38
Crude Oil Production	Million barrels a day	2.388	2.2782	2.2
Exchange Rate	N : $	160	190	197
GDP Growth Rate	%	6.75	3.3	3.76
JV Cash Call	N'Billion	859	1,020	1,094
Federal Govt Aggregrate Revenue	N'Billion	3,731	3,452	3,856
Oil Revenue	N'Billion	2,115	1,638	820
Non-Oil Revenue	N'Billion	1,021	1,215	1,450
FG Independent Revenue	N’Billion	452	489	1,505
Federal Govt Aggregate Expenditure	N'Billion	4,643	4,493	6,078
Recurrent(non-Debt) Expenditure	N'Billion	2,431	2,593	2,349
Captal Expenditure	N'Billion	1,100	557	1,760
Debt Service	N'Billion	712	951	909
Deficit	N'Billion	912	1,041	2,222
Deficit as % of GDP	%	1.90	1.09	2.16
FG Revenue as % of GDP	%	0.08	0.04	0.04
FG Expenditure as % of GDP	%	0.10	0.05	0.06
GDP	N'Billion	48,066	95,505	102,868
* Approved Budget
Source: Budget Office and CBN Websites

Table 2: Comparison of some Budget Allocations to MDAs

			N'million
	MDAs	2014	2015	2016
1	Presidency	33,407	20,086	39,125
2	National Assembly	150,000	120,000	115,000
3	Office of the SGF	63,187	48,399	62,359
4	National Security Adviser	110,725	62,227	90,350
5	Federal Ministry of Defence	340,332	338,797	429,098
6	Interior*	450,660	461,608	498,453
7	Education, incl UBEC	422,988	392,364	483,666
8	Health	262,742	237,076	257,382
9	Transport****	37,501	9,260	215,797
10	Works, Power & Housing	209,609	35,298	467,645
11	Petroleum Resources	61,928	58,274	62,115
12	Niger Delta	49,193	2,134	67,383
13	Finance**	728,251	966,513	1,486,512
14	Budget & National Planning***	8,187	6,720	1,156,332
14	Sub-Total	2,928,710	2,758,756	5,431,217
16	Others	1,714,250	1,734,608	646,463
19	AGGREGATE BUDGET	4,642,960	4,493,364	6,077,680
	* Includes Police Affairs and Police Formations and Commands
	** includes public debt charges
	*** The Budget Office was moved from the FMF to the National Planning Commission in Oct 2015 to form the new Federal Ministry of Budget & National Planning. The 2016 Allocation includes N1,486,512 million for "service wide charge" which includes N300,000 million for FGN Special Intervention Programs
	**** includes N90,043million for construction/provision of railways, N52,750 million for construction/provision of waterways, and N17,616 million for construction/provision airports

Table 3: Examples Some"Curious" Allocations

N’Million

	PRESIDENCY - State House HQRTS	2014 A	2015 A	2016 B
1	Electricity Charges	68	37	50
2	Telephone Charges	42	22	31
3	Water Rates	28	15	21
4	Office Stationeries/computer consumables	188	101	109
5	Drugs & Medical Supplies	208	112	203
6	Food Stuff and Catering Supplies	201	108	103
7	Maintenance of motor vehicle/transport equipment	139	75	20
8	Purchase of Motor Vehicles	0	0	509
9	Purchase of Buses & Trucks	132	0	278
10	Purchase of Office Furniture and Fittings	24	0	67
11	Purchase of Computers	80	14	28
12	Purchase of Canteen/Kitchen Equipment	131	237	89
13	Purchase of Recreational Facilities	24	14	39
14	Rehabilitation/Repairs - Electricity	150	0	1,833
15	Rehabilitation/Repairs of Office Buildings*	1,650	1,127	3,914
16	Wildlife Conservation	37	25	116
17	Computer Software Acquisition	101	19	269
18	Upgrade of internet infrastructure	0	0	111
19	Purchase of active devises for SH network	0	0	100
20	Sub-Total	3,203	1,906	7,890
	* Annual routine maintenance of villa facilities by JBN A= Approve, B=Budget/Proposed