Tuesday, 03 May 2016 07:04

Reforming the Federal Government Budgeting Process in Nigeria

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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

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Phoenix, USA. April 29, 2016

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Emmanuel Ojameruaye Ph.D

Dr. Emmanuel O. Ojameruaye is President/CEO of Capacity Development International, LLC based in Phoenix, Arizona State, USA. He was Vice-Resident for Research & Program Development with the International Foundation for Education and Self-Help (IFESH), an NGO based in Scottsdale, Arizona State until 2013 when that organization closed its operations. He joined IFESH in 2002, first on loan from Shell International Oil Company until 2008 when he retired from Shell. He worked for the with Shell Petroleum Development Company of Nigeria (SPDC) from 1992 to 2002, as Head Community Development (Western Division) from 1997 to 2002, Head Community and Environmental Issues Management (1995-96) and Head Government and Community Affairs in the Lagos Office. Before joining Shell, he was a National Consultant (appointed by the UNDP) for Nigeria’s National Data Bank Project in the Federal Ministry of Budget and Planning in Lagos (1989-1992) and a Lecturer in Economics and Statistics at the University of Benin in Nigeria (1982-1989). He was also the National Secretary of the Nigerian Economic Society (1986-1990). He holds a PhD degree in economics and has several publications to his credit including three books, Political Economy of Oil and other Topical Issues in Nigeria, A First Course in Econometrics and A Second Course in Econometrics (both coauthored), and several articles on energy economics and community development in the Niger Delta region of Nigeria. He is married with five children.