Budget failures: Need for a deeper understanding

SUNNIE OMEIZA-MICHAEL

Government agencies must be assisted in capacity building to have the professional wherewithal to handle projects earmarked for execution in federal and state budgets. The phenomena budget failures and return of unspent monies portend a slack in the provision of welfare for the Nigerian masses.

More than most people realise, Nigeria has lived with budget failure since 1960. As recently as 2008, only about 30 percent of the budget was implemented. This underscores the deep challenge the process of budgeting itself still face.
The 2009 budget has equally run into a hitch and needs urgent review for it to complete its journey this year. Even then, most analysts don’t see it getting through the 20 percent implementation mark by the end of the year.
Indeed, budget failures have become a common norm. Economists and managers of the economy have all the theories, hypotheses, models, standards and formulae to draft and implement a workable budget for Nigeria . Even the politicians have always had their say even if it goes against all economic sense.
That the budget is always controversial is a reflection of the numerous loopholes not taken care of in the process of preparing the document. For instance, only recently, the president raised an alarm over the N60billion that federal law makers smuggled into the budget figures for constituency projects without recourse to any calculations or projections. He had also cited the 30percent drop in revenue projections and the tampering with some of his seven point agenda projects as reasons for his alarmed posture on the implementation of this year’s budget. All of these issues are akin to issues in the past that have screwed up the document and then dragged the discourse to the end of the year.

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Again, at all times the budgets is shrouded in political considerations while, the economics is manipulated which is why it has never been realised. The managers of the economy armed with economic policies are easily silenced by the voice of politicians. In Nigeria , it seems economics only shows its potency within the territory of politics. Politics affects everything as every issue is politicized before put in its economic perspective. Politics has plucked off the fangs economics could use against various economic problems of the country. The National Assembly should be a watchdog and not executors. The golden rule in economics is that over the economic cycle, government should borrow only to invest and not to finance current spending.

Balanced budget (that is, when total public-sector spending equals total government income during the same period from taxes and charges for public services) is desirable but budget deficits are also almost inevitable in the long run. Budget deficits are only reasonable if they are used to finance growth through provision of infrastructure. It even makes more economic sense if budgets are balanced on average over an economic cycle comprising of some years, with budget deficits boosting the economy during recession and budget surpluses stopping the economy from overheating during booms. Though Nigeria still struggles with the yearly budget implementation, growth through provision of critical infrastructure that improves the country’s social and economic indicators like education, balance of payment, poverty, healthcare delivery, human capital development index etc., must remain the focal point. Politicians do not understand this.Budget failure depicts false accounting, wrong projections and assumptions, insincerity of government officials and probably undue political influences. True as reality, the Honourable Minister of Finance, Mansur Muhtar, revealed last month that civil servants who do the actual execution of the budgets in ministries, departments and agencies do not have a good understanding of the workings of the government. Weak capacity of the civil servants is yet another angle to x-raying the factors underneath budget failures in Nigeria . Budgeting has its own technicalities that require professional applications to have desired results. These government agencies require the services of chartered professionals like accountants, engineers, architects, surveyors, HR professionals, medical generalists and specialists, arbitrators/mediators, lawyers etc. to handle projects’ initiation, recommendation, execution, monitoring, auditing and appraisal.
According to Nigeria’s finance Minister, the rate of capital budget implementation varied with an average of about 50 percent in 2002-2003. He said it rose to about 92 percent in 2004-2006 but lamented that the 2008 budget implementation was down to about 60 percent while the 2009 budget is already suffering some hiccups just four months into the year. President Yar’Adua had written to the legislature on what he considered would mitigate against the execution of the current budget. Though prices of oil at the international market has increased from $37 per barrel in December 2008 to about $62 per barrel today, there are still some serious challenges with oil production falling as low as 1.6 million barrels a day due to the lingering militancy in the Niger Delta region which does not even allows us to meet OPEC’s quota. The 2009 budget was built on a benchmark of $45 per barrel and an assumed production of 2.29million barrels per day.
Curses of budget failures are already sniffing life out of some crucial economic and social goals of this present administration. Projects like the vision 20-2020, the Millennium Development Goals (MDGs), targeted 6000 megawatts of electricity by December, 2009; vote for security of oil & gas assets to improve the security around oil installations; payment of arrears of monetisation in parastatals as well as provision for public sector wage adjustment are all at risk of not being achieved. The Budget Office of the Federation confirmed that the projected fiscal balance for 2009 is a deficit of about N836.6 billion (about 3.02 per cent of the Gross Domestic Product). The deficit is to be financed by a combination of sources, including outstanding signature bonuses, proceeds from privatisation and withdrawal of some accumulated reserves that the government has with the African Development Bank’s Nigeria Trust Fund.
Government must begin to closely monitor budgets right from the stage of budget projections, defence, appropriation, allocation and actual execution. Government agencies must be assisted in capacity building to have the professional wherewithal to handle projects earmarked for execution in federal and state budgets. The phenomena budget failures and return of unspent monies portend a slack in the provision of welfare for the Nigerian masses. The influence of politics over economics in making economic choices in the face of crucial national issues is critical for keen observation. Budgets should follow a prudent approach to fiscal policy and government officials must be honest in describing spending as investment, that is, they invest in appropriate projects and do so efficiently, and that they are careful to avoid crowding out superior private investments.

The recently established Infrastructure Concession Regulatory Commission should be well empowered to initiate Public Private Partnerships (PPPs) that would see to the provision of critical infrastructure. The operations of all government agencies that are relevant to budget implementation like the Budget Office of the Federation, The Central Bank of Nigeria, The Office of the Accountant-General of the Federation, the Office of the Auditor-General of the Federation, the National Planning Commission and the Federal Ministry of Finance should be harmonized as regards the stages the budgets go through to their final stages of implementation. Budgets can work in Nigeria if the right things are done and everybody involved in their implementations are closely monitored.
Total funds unspent and returned from the 2008 budget was put at N350billion. We have below some ministries and agencies and what they returned to the federal treasury as unspent budgeted funds: Federal Ministry of Works N50billion; Ministry of Health N11.344billion; Ministry of Petroleum N6billion, The National Assembly N7billion (from the 2007 budget); Fed. Min. of Foreign Affairs N2.86billion; Debt Management Office-N500million.
Government must begin to closely monitor budgets right from the stage of budget projections, defence, appropriation, allocation and actual execution. Government agencies must be assisted in capacity building to have the professional wherewithal to handle projects earmarked for execution in federal and state budgets. The phenomena budget failures and return of unspent monies portend a slack in the provision of welfare for the Nigerian masses. The influence of politics over economics in making economic choices in the face of crucial national issues is critical for keen observation. Budgets should follow a prudent approach to fiscal policy and government officials must be honest in describing spending as investment, that is, they invest in appropriate projects and do so efficiently, and that they are careful to avoid crowding out superior private investments.
The recently established Infrastructure Concession Regulatory Commission (ICRC) should be well empowered to initiate Public Private Partnerships (PPPs) that would see to the provision of critical infrastructure. The operations of all government agencies that are relevant to budget implementation like the Budget Office of the Federation, The Central Bank of Nigeria, The Office of the Accountant-General of the Federation, the Office of the Auditor-General of the Federation, the National Planning Commission and the Federal Ministry of Finance should be harmonized as regards the stages the budgets go through to their final stages of implementation. Budgets can work in Nigeria if the right things are done and everybody involved in their implementations are closely monitored.

Another panacea to budget failures is what the new CBN Governor, Lamido Sanusi, suggested to President Yar’Adua to focus on three key areas of his agenda (power and infrastructure) instead of laying hands on too many tables at the same time. Delays on budget preparation, presentation and approval must be avoided. A budget that is assented to at the middle of the year may naturally fail because of implementation time lag. Between 2005 and 2009 we had time lags of 6 months (2005), 2 months (2006), 2 months (2007), 5 months (2008) and 3 months (2009). Budgets should be purely a yearly tool for economic management and political governance and not a tool of politicking or platform for pressure groups’ interests. Proper review by the budget office is essential as some MDAs overload budgets by including projects that span years in only one particular year’s budget.