Policy Briefs

Challenges and Strictures of 2016 Budget.

An out-and-out constancy in Nigeria’s politics and governance is elite shifts and policy changes; a fact well- documented in Joe Garba’s 1995 seminal book, Fractured History.  Another outright constancy is Nigeria’s budgetary process; the drafting, ambiguities, reoccurring sub-heads, unimplemented projects and programmes, padding and more generally, consistent underperformance of budgets.  What is often not discussed is the linkage, between Nigeria’s underdevelopment and the failure to use the national budget as a tool for national development. For Nigeria, budgeting, which ought to be a routine public policy, good governance and service delivery tool, has become pointlessly complicated; and no longer a means of promoting public interest.  The global budgetary ground norm is that government does not spend what is not appropriated. But this is hardly so in Nigeria, where the capacity to undertake sound economic and fiscal planning, expenditure management, financial accountability and evaluation of public sector activities, remain largely elusive.

There’s only one explanation for such dysfunction. Nigerian federal budgets have never been framed to be results-based.  Rather, the budgets have over time, been structured into omnibus documents based on certain common assumptions. Hence, recurrent and capital programmes framed as envelopes offering a potpourri of benefits for vested interests and niche sectors, are presented and adopted in lieu of implementable programmes that should guide development, economic growth and wealth creation. Understanding the downside of such budgetary dissonance, requires grasping Kofi Annan’s observation that “Good public policy is best shaped by the dispassionate analysis of what in practice has worked, or not. Policy based on common assumptions and popular sentiments can become a recipe for mistaken prescriptions and misguided interventions.” In Nigeria, budgetary indiscipline, absence of transparency and poor accountability are responsible for past and prevailing misguided interventions, extra-budgetary expenses and fiscal abuses.  Combined, these have impacted negatively on Nigeria’s development, undermined good governance and called into question the rationale of governmental budgeting.

Though 2016 budget making offered an opportunity to redress past errors, the process had a false start. Hitherto, all kinds of ploys were used to circumvent budgetary controls. This time it was “padding”; a terminology President Muhammadu Buhari claimed to be unaware of. His words: “There is something called “padding”. I’ve been in government since 1975. I was governor of the north-east state… I was in Obasanjo’s cabinet, in the petroleum ministry, for three and a quarter years. I was head of state for 20 months. I never heard the word “padding” until this year.” Besides padding, other challenges and criticisms persist. The approved 2016 budget not being results-based is not incidental.  While past budgets were presumably needs-driven, project-specific and based on reform assumptions, the budgets not ever being by design results-based, explains why MDAs consistently lobby the National Assembly to pass their sections of the budgets, as presented.  It also explain why, MDAs pad their budgets, thus offering the National Assembly the proverbial “pound of flesh” to cut from, or alternatively, the proverbial “pork barrel”, from which to gain constituency project inducements. As such, the padding smacks of insiders’ complicity.

An added challenge of the 2016 budget, which was presented to the National Assembly on 22 December 2015, and signed into law on 6 May, 2016, is its inextricable link to President Buhari’s campaign promises.  Whether the 2016 budget is reform-oriented, remains unclear. But this much is known. Past efforts at budgetary reform failed abjectly due to lack of political will and ownership as well as bureaucratic resistance. Despite the Debt Management Office’s (DMO) oversight role, underperforming national budgets have become the norm and self-perpetuating, without consequences. Now that the government has less than six months to implement the 2016 budget, there exist inherent risks of trying to do much in less time. As always, haste will make waste. Thus, the suggestion by some that the 2016 budget should be operated until May 2017 is quite nonsensical. The 2016 budget overlapping the 2017 budget, will only prolong the simmering discord and turf fights, while creating fertile grounds for fiscal abuses.

Change that does not reform the national budget, and a “budget of change” that does not deliver the goods and services, will make the promise and clamour for change ironic.

So much brouhaha foreshadowed the adoption of the 2016 budget, supposedly a “budget of change”. The delay in passing the Appropriation Bill and President Buhari giving his assent was certainly not orchestrated by a quest for efficacy. Neither did the delay arise from ideological or fiscal divergences. Rather, the delay is indicative that the Nigerian budget as a tool of good governance has simply never enjoyed the pride of place it merits. Commonly, “good public governance involves the management of public resources in a manner that guarantees sustainable development in an atmosphere of due process and rule of law, free from wastage and corruption.” Yet as a political tool, past budgets have been near undemocratic, by not guaranteeing trickle down of economic and developmental dividends. Happenings within the executive and legislative arms, point to an unchanged status quo. Consequently, any desired change coming to our budget making and implementation, will mean altering the conventional ways of doing things. Orthodoxies and traditional thinking on budgetary matters will also need change radically.

When President Buhari presented the N6.08 trillion draft budget at the close of 2015, capital expenditure of N1.8trn, equaled 30% of the total budget was envisaged. The 2016 budget, which outsizes the 2015 N5 trillion budget by N1.6 trillion, is remarkable for its deficit of N2.23 trillion – the highest ever in Nigeria’s history. The budget is based on a projected revenue of N3.86 from sale of oil, and revenue deriving from foreign and domestic loans, as well as recovered looted funds. Segmentally, the budget stand as follows: Capital N1.8t; Recurrent N4.28t and Debt service N1.3t. Comparatively, after the alleged “padding” and debulking of the draft budget, what passed was a slightly leaner budget. The discernible variations agreed to, albeit not necessarily by consensus, include a reduction from N6.8 to N6.6 trillion, while retaining the operational and determining parameters: an oil price benchmark of USD38 per barrel at 2.2 million barrels per day (Mbps). Curiously, the determining exchange rate remained artificially pegged at N197 to US $ 1.

The 2016 budget is essentially Buhari’s first budget as president.  Hence, in content and size, the budget which sets presidential priorities, will shape and help define Buhari’s governance trajectory, his change agenda goals, his fundamental political reform, historical and personal mandate, and distinguish his administration from those the preceding governments. Whether such distinction will be positive or negative, for now remains a matter of conjecture. Certainly, the abrupt removal of the petrol subsidy – so far not a very popular move – is linked to relieving fiscal pressures on revenue earnings that will drive the 2016 budget. Relatedly, some policy contradictions have ensued, with Vice-President Femi Osinbajo and APC Chairman John Oyegun disagreeing on whether or not the fuel hike constituted subsidy removal.

Even if one discounts the fact that the 2016 budget did not have an auspicious beginning, the entrenching, consolidation and fulfillment of Buhari’s campaign promises will still hinge largely on the 2016 budget and its performance outcomes.  Certainly, the 2016 budget given its deficit overhang –some 2.14 per cent of GDP — will require Buhari to expend some of his political capital to ensure that the budget’s deliverables are realized.  In tandem, Buhari cannot expect to reform and downsize government’s expenses, end fuel subsidy and enforce spending cuts without hitting on the purchasing power and confidence of Nigerian consumers, which is at an all-time low. These realities proffer far less solutions than they raise poignant questions that point to the budgetary and fiscal challenges as well as strictures confronting President Buhari.  One intractable challenge hardly ever discussed, is the subterranean drain on Nigeria’s budgeted resources, by way of Nigeria’s informal support of the economies of neighbouring states. From a political angle, it’s presumably the looming risk of a bankrupt government, fiscal cliff and probable shutdown, plus shame that compelled the adoption of the budget. Whatever be the case, passing the 2016 budget underlined the efficacy of collaborative politics and consensus building.

But even with the budget passed, the kinks, questions and the devil in the details are already evident. Outside ongoing labour protestations, has the FY 2016 budget been properly benchmarked, to guarantee its efficient performance and the unfettered delivery of earmarked services and projects?  Are there enough checks and balances in place to guarantee that earmarked projects are expeditiously funded and that allotted funds are used specifically for the institutional purposes they are meant? What due process measures are in place to monitor MDAs that routinely engage in budget busting through unforeseen expenses?   Will the budget realistically sustain the palliatives and renewed personnel wage demands that is imminent? Finally, is the 2016 budget the veritable tool required for kick starting Nigeria’s retrenched economy?

It is curiously interesting that even as it was an inherited budget, the federal government did not indicate the percentile or threshold at which the FY 2015 budget performed. Such assessments tend to offer a basis for comparison. More importantly, they convey a sense of transparency. It’s noteworthy that allotted and encumbered budgetary resources not fully utilized by the end of a budgetary cycle, are not always marks of frugality as they are marks of budgetary underperformance. Accordingly, change that does not reform the national budget, and a “budget of change” that does not deliver the goods and services, will make the promise and clamour for change ironic.

For now, President Buhari’s the biggest challenge, is not the difficulties encountered in getting the budget passed or its faithful execution; but how to fund the 2016 budget fully and expeditiously, considering the deficit.  Contextually, low oil prices remain adversarial and the snail-paced recovery of looted funds, an impediment. That leaves borrowing and taxes.  The former is a budget and economy killer that only increases Nigeria’s debt servicing commitment. And Nigerians are allergic to the latter.  Reliance on the federal government by State and Local governments for further bailouts will add to the challenge. The removal of oil subsidy will result in savings that will count as revenue. Yet, the end impact is indeterminate and won’t amount to much unless the foreign exchange policies are tweaked instantly. As has been proposed, government “should review its policy of maintaining an artificially fixed exchange rate, in the face of depressed income from crude oil.”

What does all this add up to? Attempts to revamp the Nigeria economy using the 2016 budget as a trigger, is fraught with challenges and imponderables. The shock therapy approach is double-edged. Policies are meant for common good and regardless of the goal, must be compassionate as they are rational. The demand to rescind the fuel hike is hardly a support for the cabal that gut Nigeria via oil subsidies; as things stand it’s Nigerians that suffer regardless. Accordingly, it would have been pragmatic to stick to the 2015 budget size; and sensible to pursue a zero-based budget, considering the vagaries of oil prices and the fact that the process of recovering of looted funds is not an exact science.  Secondly, the belated appointment of ministers and rusticating of some experienced permanent secretaries, constituted sufficient grounds for giving the ministers ample time to study their institutional input. Finally, no one has been charged for the budget “padding”. This points to the padding being and insider job; which will also make for eventual ‘budget gutting’, by those who know where the padding are embedded.

Here’s the upshot. The defined priority areas contained in the president’s campaign manifesto must be attended to. Likewise, the 34 priority programmes within six-cluster thematic priorities, namely, policy; governance and security; diversification of the economy; creating support for the poor and the vulnerable; and reflecting the economy through investment, would need to be implemented in just six months. Establishing an annual capital spend minimum of 30 per cent starting from 2016 is a positive development. But these proposals are all in hindsight and without clear matching funds; which guarantees funding turf fights. Most regrettably, there has been a very poor articulation of social safety nets and welfare packages that will be in place, and funded from subsidy savings, and how the masses will benefit therefrom. What did not require the benefit of hindsight, was carrying the legislative arm along from the onset, and respecting their oversight functions.  That did not happen and led to the budgetary impasse. Now that the leaders on both sides of the Arms and Aisle seem ready to collaborate, Nigerians, in the fullness of time, will determine if this collaborative gesture is indeed a practical novelty or a transitory adherence to precepts.

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.

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