2016 Budget and the flip side of Zero-Based Budgeting approach

Q: ZBB requires qualified and competent personnel. The availability of central budget staff to develop forms and training for ZBB is crucial to ZBB’s success. Equally important are the analytical skills and capacity of department heads to engage in ZBB analysis.

While presenting the 2016 Appropriation Bill before a joint session of the National Assembly last December, the President did announce the adoption of a zero-based budgeting (ZBB) approach which is a departure from the incremental budgeting system of previous years.

Unlike the incremental budgeting which uses the previous year’s budget as a template for budget preparation, ZBB is a clear departure from traditional budgeting in that each year’s budget is created from scratch. According to the Chartered Institute for Public Finance and Accounting (CIPFA), ZBB “involves the preparation of operating budgets on the assumption that the organization is starting out afresh in the new planning period. The analysis extends to considering the benefits of the activity, alternative courses of action, how to measure performance, and the consequences of not performing the activity. Activities are then ranked in order of priority’’.

Therefore, the basic process of ZBB is to justify budget requests every budgeting cycle regardless of prior period budgets. The foremost theoretical advantage of ZBB is that it offers a rational and comprehensive means to put all spending under scrutiny unlike the traditional line-item process where only incremental spending is considered. In this regard, ZBB helps in identifying areas of wasteful expenditure.

Without doubt, the drastic drop in oil revenue has imposed a major fiscal challenge on the government and therefore calls for a change of approach to budgeting. Going by the experience of countries like USA, UK, India and many others, ZBB holds a lot of promise in ensuring that resources are aligned with government’s priorities and allocated efficiently. There is the flip side though which must be taken into cognizance when implementing a ZBB process in the public sector.

First, the ZBB approach is quite resource-intensive. It takes a lot more time and effort to draw up a budget from scratch rather than modify an existing budget. The errors and duplications in the 2016 appropriation bill is evidence of a process that was hurried which is not in sync with the ZBB.

Also, ZBB is effective when accurate, sufficient and reliable data are in place. This is a precondition for the identification of suitable performance measures and decision/prioritization criteria. Regarding the proposed 2016 budget, media reports confirm that the process of costing some expenditure items was made difficult by the inability of the Bureau of Public Procurement to come up with an updated price reference list.

Moreover, ZBB requires qualified and competent personnel. The availability of central budget staff to develop forms and training for ZBB is crucial to ZBB’s success. Equally important are the analytical skills and capacity of department heads to engage in ZBB analysis. It is doubtful if the requisite skill set is currently available in the public service. Therefore, budget personnel require sufficient training in the zero-based budgeting process.

 

Furthermore, the fact that the Nigerian public service is used to the incremental budgeting system is bound to elicit resistance. This challenge is made worse by the seeming rush to implement the ZBB with a view to plugging loopholes usually exploited by bureaucrats and public officials who have mastered the traditional budgeting system. Recent media reports speak of a “budget mafia” within the federal civil service who were bent on sabotaging the ZBB approach by injecting questionable and unjustified line items into the 2016 proposed budget.

In conclusion, the introduction of the ZBB must have been informed by the need to entrench transparency and fiscal discipline in the conduct of public expenditure. Be that as it may, such a departure from the traditional budgeting system requires some time for a proper foundation to be laid. In view of its imperatives, adopting the ZBB as a basis for the 2016 budget would appear ill-timed. Its application calls for sufficient time to plan, train, re-orientate and possibly dislodge the ‘mafia’in order to set the stage for its gradual implementation perhaps in the 2017 fiscal year.

Uchenna Joseph Uwaleke

Dr Uwaleke is an Associate Professor of Finance, Head of Banking & Finance Department and Deputy Director of Research, Nasarawa State University Keffi