Policy Briefs

Grasping Our Incredulous State Budgets

Purposeful governance requires taking into account parameters and key variables that affect governance before making policies.  Even imponderables must be contemplated.  Such seemingly alien disposition is not governance or policy tenets Nigerian governors take seriously. If they did, the Fiscal Year 2016 budgets tabled by most of the 36 State governors would be crafted differently. After all, these are austere times. But from most draft state budgets, you would not know. Every attempt to rationalize some of the state budgets only confounds.

The coincidental visit of Madam Christine Lagarde of the IMF should have given us pause.  First, Nigeria’s longstanding dalliance with the IMF and the deleterious impact of its structural adjustments programmes (SAP) in the 1980s, remain deeply engraved in our psyche.  We recall that her prior visit precipitated a steep petrol pump hike.  Secondly, the IMF boss as a ‘fiscal doctor’ does not make house calls, except in emergency situations.  This makes her assertion that discussions with Nigerian authorities were to “challenges stemming from the oil price reduction, and the need to find different revenue sources” very perplexing. This could be fiscal-diplomatic talk. We await aftershock of the present visit!

Curiously, Lagarde’s engagement with Nigeria’s top brass omitted an encounter with the 36 State governors, most of whom remain in office, thanks to the Federal government’s 2015 bailout, (indirect borrowing); and most of whom by the 2016 budgets they respectively tabled, exhibited a crass grasp of governance, fiscal discipline, frugality and commonsense. How do they intend to service their bailout debts and new debts, when at the national level Nigeria is already devoting 35% of every generated revenue to servicing existing debts? Yes, 35 kobo of every Naira earned goes to servicing our national debts.

Two points stand out.  First, Lagarde’s reluctance to endorse the reduced but deficit-laden FY 2016 Appropriation Bill (Budget) translates to her tacitly declining to endorse the budget of the 36 States, which by aggregation, will be N14 billion more than their collective budget for FY 2015.  Moreover, the states’ budgets for FY 2015 performed collectively at less than 57%.   Ironically, the states’ budgets were hardly broached.  But if the FGN as the paymaster is already in red, how will the dependent states fare in 2016. Secondly, what were the conditionalities the federal government gave the 27 states that received bailouts.  Shouldn’t a core condition have been that their FY 2016 budgets must be lower than their FY 2015 budgets?  That’s the kind of agonizing conditionalities the IMF offers. Ironically, those state budgets benchmarked $38-$40 per barrel, are already skewered.  Today an oil barrel sells at $33, proving that market forces can be unforgiving when ignored.

Absorbed Nigerian analysts who have interrogated President Buhari’s FY 2016 Budget have asked bluntly, how the N2 trillion deficits will be financed, now that oil prices are at an eleven-year low.  Yet very few have questioned states’ budgets, especially budget of states that received bailouts. One word; “incredulity” says it all. Bailed out states with ramped-up budgets include, Abia, Cross River, Delta, Jigawa, Kano, Kogi, Lagos, Rivers, Sokoto and Yobe. Indeed, this curious reality elicited Dele Sobowale’s indignant query, if some of these states “intend to print their own currencies to finance their budgets given the absence of any demonstrable IGR source that is left to be tapped in those states.”

In the realm of governance and policymaking, effective budgeting is hardly ever an academic exercise. There must be correlations; anticipated expenses in relation to envisaged revenue; correlation with capital projects; and with deliverables.  Support from development partners or lack thereof must be factored in. Likewise, the ratio of the budget that goes to capital and recurrent expenses; and indeed, the ratio dedicated to debt servicing.

Clearly, a policy lacuna persists. Without prejudice to states’ rights, Vice President Yemi Osinbajo as the top official in charge of the economy (absent a coordinating Minister), should have forewarned the bailout states of the risks of overreaching.  Secondly, he should have invited them to interact with Lagarde in a closed session and should have broached with the IMF boss, the issue of states with overhanging debt burden, which led to the 2015 bailout.  After all debt is debt, and there’s a nexus between foreign debt, which is Lagarde’s remit and domestic debt owed by states, for which the Federal government is the underwriter.  Still, it will be pure folly to misread Lagarde’s reticence on some core issues, including our warped monetary policies that have badly emaciated our currency and economy.  If Lagarde came to urge further devaluation of the Naira, she soon realized she needed to say little, seeing that our self-inflicted financial conundrum have sufficiently caused a fiscal and economic miasma that sent the Naira into a devaluation tail spin.

While applauding states like Anambra, Bauchi, Bornu, Ekiti, Imo, Kaduna, Kogi and others that pragmatically reduced their FY 2016 budgets to match prevailing realities, our national policymaking deficiencies remain stark.  It’s singularly noteworthy that we remain at risk collectively, since across board, our budgeting processes continue to shy away from fiscal responsibilities and economic fundamentals. No leader, be it at federal or state level should be immune, apathetic or oblivious to global economic trends.  Presently, all such trends point to reverses and negative outcomes as evidenced by China, the global economic hegemon suffering a huge downturn. This reality portends implications of modest to huge shifts for the world economy, Nigeria’s included.  Indeed, as Jeff Sachs observed this week, “equity markets worldwide shed more than $2 trillion in value last week.”  While Sachs concludes that “the cost of Chinese reversals to the real world of jobs and production is still small,” as Africa’s largest and rebased economy and its biggest importer and consumer nation, Nigeria must acknowledge its fate and stand ready to bear its share of the global burden.

It remains a matter of extreme curiosity that some State governors would embark on bloated budgets, even after the Single Treasury Account (TSA) was introduced.  It’s either a case of playing the ostrich, or being totally oblivious of the implications of the TSA for the money deposit banks, which are essentially lenders to the organized private sector and  public sundry, the federal, state and local governments included. Bleakly, our foreign exchange policy flim-flam isn’t helping matters.  Nonetheless, it’s gratifying that some observers are asking the hardheaded questions, which those in officialdom tend to ignore. As Henry Boyo asked in a recent op-ed: “How does one compliment a fiscal plan that resorts to borrowing to service its debts and also fund a substantial increase in the recurrent and capital expenditure, without any consideration of the oppressive cost of servicing or the capacity to repay those debts?”

It’s hardly rhetorical to ask if there’s something egregiously faulty in the way we fashion our budgets. The broader fault line lies in our overall policymaking methods. Though we prefer envelope budgets over revenue-driven, project-driven and zero-based budgets, our nature of governance and politics continue to compel short-term thinking and planning. Perhaps, medium, long-term and succession planning is for the politically naïve, which may explain why, most governors saddle their successors with huge debts.  Hence, few governors that leave surpluses or debt-free coffers are deemed aberrations.  Our media and policy pundits for their part seem all too fixated on inanities. In seeking to be in the good books of the President and Governors, they mortgage honest, constructive and trenchant criticisms.

Yet, the biggest challenge is that dissent even in-house, is no longer stomached by our political leaders. Our democratically elected leaders prefer to surround themselves with minions, too scared to speak up in times of normalcy, conflict and controversy. The end result is the diminution of the heady debate required for making good public interest policies. Public budget forums, once a growing national norm is now all but abandoned in most states.  The end result are circumstances such as we presently encounter; where states already trapped in a debt peonage wittingly incur more debt, by adopting incredulous and vacuous budgets neither supported by facts nor by realities on the ground.


Obaze, MD/CEO of Selonnes Consult, is a strategic public policy adviser and immediate past Secretary to the Anambra State Government.

Oseloka Obaze, MD & CEO

Oseloka Obaze, MD & CEO

Mr. Obaze is the former Secretary to the State Government of Anambra State, Nigeria from 2012 to 2015 - MD & CEO, Oseloka H. Obaze. Mr. Obaze also served as a former United Nations official, from 1991-2012, and as a former member of the Nigerian Diplomatic Service, from 1982-1991.

Leave a Comment