Four
months into the 2016 financial year, the Federal Government of Nigeria still
does not have an approved Budget. So, the government has been spending funds
that have not been appropriated and the capital projects planned for this year
are yet to take off. Clearly, the 2016 Budget impasse is an indication of the
urgent need for reform of the federal budgeting process in order to improve
effectiveness, efficiency, transparency and accountability in public spending.
Therefore, President Buhari must initiate the reform process by setting up a
committee to examine the relevant sections of the Constitution and the Fiscal
Responsibility Act (FRA) of 2007 and submit a bill to the National Assembly
(NASS) for the needed changes. Based on international best practices, I
would recommend the following changes to the federal government budgeting
process in Nigeria.
In the
first place, the budgeting process must be adequately sequenced and timed to
ensure that the budget for a financial year t is approved and signed into law
by the President before the start of that financial year, i.e., by the 1st of
January of the year t. A situation where the Appropriation Act is enacted
months into the financial year is a sign of planlessness and a recipe for
economic anarchy and retardation. In most countries, the time span from the
start of the preparation of budget proposals by government agencies (MDAs) to
the enactment of the Appropriation Act before the beginning of the financial
year takes at least 12 months and there are defined time limits for each of the
milestones in the budgeting process. Unfortunately, this is not currently the
case in Nigeria.
For
instance, in the United States of America, government agencies begin to prepare
their budget proposals about 24 months before the start of the financial year
in question, and submit their proposals to the Office of Management and Budget
(Nigeria’s equivalent of the Budget Office) about 12 months before the start of
the financial year. That is, the agencies spend about 12 months (between
October and September of the penultimate year, t-2) to prepare their budget
proposals. Thereafter, between October and January, the OMB collates and
reviews the agencies’ budget proposals and consolidates them into the
President’s Budget Proposal. As required by the law, the President submits his
Budget Proposal (Budget Release) to Congress by the first Monday in February
for the financial year beginning on October 1. The Congress thus has
about eight months (February to September) to review the President’s Budget
Proposal, call for hearings and defense by the various agencies, make necessary
adjustments and reconcile any differences with the President. The Budget
is signed into law by the President by the end of September, before the financial
year starting October 1. Thus, in the United States, there are usually three
budgets in play at each point in time – the Agencies executing the approved
budget for the current fiscal year (t); Congress reviewing/amending the budget
for the coming fiscal year (t+1); and the Agencies planning/preparing
their budget proposals for year t+2.
On
the other hand, in Nigeria, section 81 of the 1999 Constitution simply states
that:
“The President shall cause to be prepared and
laid before each House of the National Assembly at any
time in each financial year estimates
of the revenues and expenditure of the Federation for the next following
financial year”.
In
other words, the President can present his Budget Proposal to the NASS a month
or a week or even a day before beginning of the financial year. It is therefore
not surprising that President Buhari presented his 2016 Budget Proposal to the
NASS on December 22, 2015, i.e., nine days before the beginning of the 2016
financial year. It is therefore not surprising that 4 months into the financial
year we do not have an Appropriation Act! Therefore, section 81 the
Constitution must be amended to compel the President to present his Budget to
the NASS not later than four months (by September 1) before the beginning of
the financial year, and the NASS must submit its amended Budget to the
President for assent not later than 6 weeks (by November 15) before the
beginning of the financial year starting January 1. This will give enough room
for reconciliation in case there is a disagreement between the executive and
the legislature.
Furthermore,
the Fiscal Responsibility Act (FRA) of 2007 that guides the budgeting process
is unwieldy and clumsy to say the least. The 24-page document needs to be
amended to remove ambiguities, redundancies, ensure clarity and give adequate
time for budget preparation, review and approval. For instance, section 11 of
the FRA states that
“(1)
The Federal Government after consultation with the States shall not later than four
months before the commencement of the next financial year, cause to be
prepared a Medium-Term Expenditure Framework for the next three financial
years, (2) The frame-work so laid shall be considered for approval with such
modifications if any, as the National Assembly finds appropriate by a
resolution of each House of the National Assembly. (3) The Medium-Term
Expenditure Framework shall contain: (a) a Macro-economic Framework setting out
the macro-economic projections, for the next three financial years, the
underlying assumptions for those projections and an evaluation and analysis of
the macroeconomic projections for the preceding three financial years; (b) a
Fiscal Strategy Paper”.
Furthermore,
section 18 states that:
“… the
Medium-Term Expenditure Framework shall: (1) be the basis for the preparation
of the estimates of revenue and expenditure required to be prepared and laid
before the National Assembly under section 81 (1) of the Constitution. (2) The
sectoral and compositional distribution of the estimates of expenditure …shall
be consistent with the medium term developmental priorities set out in the
Medium Term expenditure Framework.
Section
19 further states that:
The
estimates of revenue and expenditure (in this Act referred to as the
"Annual Budget') shall be accompanied by: (a) a copy of the underlying
revenue and expenditure profile for the next two years; (b) a report setting
out actual and budgeted revenue and expenditure and detailed analysis of the
performance of' the budget for the 18 months up to June of the preceding
financial year.
However,
section 21(2) of the Act states that each Agency
“Shall
submit to the Minister (of Finance/National Planning) not later than the end
of August in each financial
year: (a) an annual budget derived from the estimates submitted in pursuance of
subsection (1) of this section… (3) The Minister shall cause the estimates
submitted in pursuance of subsection (2) of this section to be attached as part
of the draft Appropriation Bill to be submitted to the National Assembly”.
From
the above, the contradiction is clear. While the President will “cause” the
MTEF to be prepared not later than 4 months before the commencement of the next
financial year, the Act is not clear on when the MTEF should be submitted to
the NASS for review/approval and by what date it has to be approved by the
NASS. In other words, the President can submit the MTEF at
any time before the
commencement of the financial year and the NASS can approve the MTEF at
any time. Furthermore if the MTEF is supposed to be the basis for the
preparation of the Annual Budget as implied in sections 18 and 19 of the Act,
then the MTEF should first be approved before the budget can be prepared.
However, section 21(2) indicates that the Agencies are required to submit their
budget proposals derived from estimates of the MTEF to the minister (of budget) by
the end of August, i.e., four months before the commencement of the
financial year which is the same time the President is required to “cause the
MTEP to be prepared” before it is submitted to NASS.
To
ensure proper sequencing and adequate timing for the various activities in the
budgeting process, I would like to propose the following sequence and timing
for Budget of the financial year t
· Jan-
Feb of year t-1: Preparation/update of MTEF for next three years, i.e., year t,
t+1 and t+2 by the Ministry of Budget & National Planning (FMBP).
Submission of MTEF by the President to the NASS on or before Feb. 28.
· March:
Review/amendment of MTEF by NASS. Reconciliation of differences. Reconciled
MTEF jointly approved by the NASS and President on or before March 31.
· April
– May: Issuance of Budget Call and Guidelines to all MDAs by April 5.
Preparation and submission of agencies’ budget proposals by MDAs to FMBP
(Budget Office) by May 31.
· June-July:
Defense of budget proposals by MDAs and consolidation of Budget into Draft
President’s Budget by July 31.
· August:
Review/Approval of President’s Budget Proposal (Appropriation Bill) by the
President and his Team of Economic Advisers and Federal Executive Council.
Submission of Appropriation Bill to NASS by August 31.
· Sept
1 – Nov 15: Review of Appropriation Bill by NASS, Defense by MDAs and Public
Hearings. Submission of Revised/Amended Budget to President for his
assent/signature
· Nov
16- Dec 30: Review of Amended Budget, Reconciliation of differences and signing
into law by President on or before December 30.
The
second proposed change in the budgeting process is for Nigeria to return to the
concept of national development planning practiced in the 1960s through early 1980s.
In other words, Four-year Rolling National Development Plans (NDP) should
replace the MTEF which currently forms the basis of the Annual Budget.
Given the state of the Nigerian economy and the need long-range
infrastructural development planning and poverty reduction, a NDP is a superior
economic planning vehicle than the MTEF which focuses on financial projections
with little emphasis on specific projects and programs. Once the NDP is
formulated, the Annual Budget derived from the NDP becomes the instrument for
the annual implementation plan of the NDP. Capital-intensive projects that
require long gestation periods such the Lagos-Calabar rail project, new power
plants, new refineries, interstate highways, airports and seaports upgrading
that require assured funding over the medium to long-terms can be captured in
the NDP as against the MTEF. Once these projects are contained in the NDP, they
cannot be easily dropped or abandoned during the annual budgeting process. Thus
national development planning will ensure that capital projects are completed
over a long period of time. When a new government comes into power, its first
NDP will reflect its development agenda over its 4-year term.
The
third needed change is to clarify the roles of the legislature and the
executive in the budgeting process in both the Constitution and FAR of 2007 in
order to avoid or minimize tensions and disagreements. It is known fact
that the power to control the “government purse” has always been a source of
conflict between the executive and the legislature in many democracies. This
tension can be minimized by ensuring that the “rules of the game” are clear and
strictly adhered to. The simple rule is that “The Executive (president)
proposes, while the congress/national assembly/parliament (legislature)
disposes”. The legislature cannot propose and dispose at the same time, just as
the executive cannot propose and dispose at the same time. This means that the
role of the legislature is to scrutinize the President’s budget and make
adjustments where necessary without adding new projects (i.e., not proposing)
and then submit the amended budget to the President for his assent. If the
President has objections to the changes made by the legislature,
representatives of both executive and legislature will meet to reconcile the
disagreements after which the President will sign the amended budget into law.
During the budget review by the NASS, the legislators can remove any project or
reduce the cost of any project that is questionable or which the executive
cannot defend satisfactorily, but they must not insert any new project. They
can also reduce the overall budget and the deficit but they cannot increase it.
Furthermore,
in order to minimize the tension between the executive and the legislature,
constitutional limits should be imposed on the budget allocation to the NASS. I
believe that allocating 1% of the total budget to cover the recurrent and
capital expenses of the NASS is about right. This means that if the total
budget is N5,000 billion, then the budget of the NASS cannot exceed N50
billion. To ensure transparency and accountability, the NASS Budget Office will
prepare the budget proposals for the NASS and submit same to FMBP for inclusion
in the President’s Budget. Like other MDAs, the NASS Budget Office will also
have to defend the budget of the NASS.
The
fourth needed change in the budgeting process has to do with the insertion or
smuggling of projects into the President’s Budget by members of the NASS during
the review/amendment process. A situation where members of the legislature,
especially the Chairmen of the Appropriation Committees and other leaders of
the legislature can unilaterally replace projects in President’s Budget with
their own projects (largely for their constituencies) and insert new projects
is an abuse of legislative power for private gain (corruption). It is a recipe
for anarchy and inefficiency, and results in the introduction of “pork barrel”
projects (or simply called “porks” in the USA) into the budget. A pork barrel
project is the appropriation of government spending for localized projects
secured primarily to bring money to a representative’s district or
constituency. Although it is the practice in some countries for legislators to
insert projects in the budgets submitted by the executive to the legislature,
many countries have either stopped this practice or introduced strict
guidelines to regulate it. It is usually assumed that the projects in the
Budget Proposal submitted by the executive to the legislature have been
challenged and defended but one cannot say the same for projects inserted by
legislators.
In
most cases, projects inserted by the legislators are dubious, localized and
fall outside the responsibility of the federal government. For instance,
most of the projects inserted by NASS members in the amended 2016 Budget are
projects that ordinarily should be left for state and local governments.
Take the example of the "construction and rehabilitation of the works centre, N100m; construction of town hall, N100m; rehabilitation of
Sharada - Kwanar Dogara road, N1.445bn; solar
street lights, N300m; drainage,
N20m; rehabilitation of Gwarzo Kiru, Kwanar Maiyaki road, N180m;.. and
construction of pedestrian bridges,
N200m" smuggled into the
President’s Budget by some members of the NASS. These highlighted projects and
the roads which are "non-federal" roads, are the responsibility of
state and local governments. Smuggling of projects into the President’s Budget
also raises equity issues among the states and the various constituencies
because of the uneven distribution of the constituency projects smuggled into
the Budget by leaders of the NASS.
For
instance, most of the projects inserted into the 2016 Budget are located in the
North, particularly in constituencies of the Chairmen of the Appropriation
Committees of the Senate and the House, both of whom are from the North. Either
by acts of omission or commission, as they inserted these new projects they
dropped the more important “federal” Lagos-Calabar rail project for which N60
billion was allocated in the revised budget submitted by the Minister of
Transportation to the Appropriation Committee during the review session. The
Minister of Agriculture also reported that 360 new projects were inserted in
his ministry’s budget by the NASS, and many of the inserted projects are
outside the scope or jurisdiction of the agencies under which they were
inserted.
Justifying
the insertion of the new projects, the Chairman of the House Appropriation
Committee Rep Abdulmumin Jibril, who allocated 22 new projects totaling N4.169
billion to his constituency alone, said:
“It is
true that there are projects allocated to my constituency just like other
members did. Just because I’m the chairman of the appropriation committee, my
constituents should not get projects? Are my constituents not Nigerians? Every
member has one project or the other in his constituency, so I don’t think I did
anything wrong by having some projects in my constituency. I think people
should be fair to me please.”
My
goodness! If each of the 360 federal constituencies were to be allocated
projects totaling N4.196 billion, then a total amount of N1.5
trillion or about 25% of the total budget will be required for “constituency
projects” which are highly susceptible to corruption. This will obviously crowd
out needed investment in “truck A” (inter-state) roads, railways, electricity,
higher education, security, energy and other much-needed national projects that
are outside the purview and ability of state and local governments.
In view
of the above, the fifth needed change in the budgeting process is to either
abolish the concept of constituency projects in the federal budget OR establish
strict guidelines for the inclusion of such projects in the budget. Since a
strong case can be made for the inclusion of constituency projects in the
federal budget – to ensure “federal presence” in each constituency and to pilot
or ensure that special national program reach all constituencies – I will
option for establishing strict guidelines for constituency projects, including
following: a) The total allocation for constituency project must not exceed 4%
of the total budget; b) The total amount should be allocated evenly among all
the constituencies. Since there are 360 federal constituencies, each
constituency shall be allocated 1/360 (= 0.00278) of the 4% of the budget. For
instance, if the total budget is N5,000 billion, the total allocation for
constituency projects will 4% of N5,000 b = N200 billion and the allocation to
each constituency will 0.00278xN200 billion = N0.556billion = N556 million; c)
Each year, there should be a limited range of projects to choose from for the
constituency projects. These projects will be determine by the FMBP based on
the needs of the constituencies and developmental objectives of the federal
government at the local level; d) The legislators representing the each
constituency (Senator and Representative) will work with the state
government, local government and local CBOs to choose specific projects for the
constituencies from the list of eligible projects. They will also determine the
exact location of the project and prepare the project document detailing the
need for the project, purpose, objectives, drawings, cost estimates,
implementation timeline and strategy; e) The NASS Budget Office will collate
and review all the constituency projects and submit to the FMBP for inclusion
in the President’s Budget before presentation to the NASS. f) The contracts for
the execution of the projects shall be awarded by the state government tender
boards through a competitive process to only local (state) contractors who will
in no way associated with the legislators; g) In the event that the cost of the
project exceeds the amount allocation to constituency, the state government
will be responsible to cover the difference; and h) The legislators and state
government will monitor the execution on the projects and submit a completion
report to the FMBP which will verify project completion and functionality. A
negative report by the FMBP will prevent the constituency from receiving an
allocation in a subsequent year until the project of the previous year is
successfully completed and put into good use.
The
sixth needed change is to reclassify the FMBP as the Office of Budget and
Planning (OBP) within the Presidency and establish a NASS Budget Office similar
to the Congressional Budget Office in the United States.
Finally,
civil society groups, leaders of the private businesses and ordinary citizens
should be given a voice at both the budget preparation and budget
review/amendment stages. As in the case of the Philippines, each MDA should be
tasked to partner with appropriate CSO, businesses and other citizens/stakeholders when preparing their agency budget proposals by calling
for memoranda/suggestions from the public and holding at least one town hall.
During the budget review/amendment stage, the Appropriation Committees should
also have special sessions for CSO, business leaders and other
citizens/stakeholders to comment and offer their suggestions on the President’s
Budget. This way, the budget will reflect the voice and views of a wider
cross-section of the Nigerian society.
I
believe that if the above suggestions are implemented, the federal budgeting
process in Nigeria will witness significant improvement which will result in
reducing waste and corruption and improving efficiency, effectiveness,
transparency and accountability in public spending in the country.
Long Live Nigeria!
Dr. Emmanuel Ojameruaye
Phoenix, April 29, 2016
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