Nigeria’s economic reality suggests the need for an expansionary budget to stimulate economic activities. Signed into law in May 2016, the federal government budget is significant for a number of reasons. First, it covers a number of the campaign promises that were made prior to the 2015 general elections. Second, it is an expansionary fiscal policy tool that has the potential to cure the uncertainties that has trailed the Nigerian economy since early 2015 even as each ministry can begin work to deliver their plans to Nigerians. Third, the budget remains important in complimenting monetary policy, which has struggled to keep the economy afloat since 2015.
One of the biggest risks facing the budget is the poor implementation of capital projects. In Nigeria, annual capital budget implementation has never achieved 65%, whereas recurrent expenditure has always achieved over 95% performance annually and in some cases exceeded its budgeted figure. The following factors are responsible for the poor performance of capital budgets in Nigeria:
§ Undue elongation in the process to pass the Appropriation Bill into law
§ Inadequate revenue
§ Delays in the bidding process
§ Delays in processing payments for projects
§ Delays in obtaining approval from Ministers and Permanent Secretaries at various stages of the procurement process
§ Lack of planning and experience in project management of some Ministries, Department and Agencies (MDAs) officials
§ Poor project supervision and lack of transparency and accountability.
For the 2016 budget to have the desired impact on the economy, it is essential for the government to address these challenges with the goal to improve performance of the capital budget.
What should we do as a country going forward?
· Place emphasis on growing the capital component of the budget and enhance its implementation. Given the importance of capex, the government must set target to ensure that capital budget implementation exceeds 85% each year and address its poor performance. To do this, the government must reform the procurement process to remove bottlenecks, undue bureaucracy that causes delays. If unnecessary recurrent items are removed from the 2016 budget as presented by the President, capex could be as high as N2 trillion, which would have a much more bigger impact on the economy.
· The government must earnestly pursue reduction in cost of governance by removing irrelevant and luxury items from the budget. In the State House (Presidency) Budget of N39 billion for instance, purchase of motor vehicles, buses, computers, furniture, kitchen equipment etc. accounts for over N4.6 billion, while maintenance and repairs of buildings, furniture, plant and machinery and equipment totalled N2.7 billion for the year. These costs raise concerns on whether we are truly pursuing a lean government in the face of economic downturn. If this trend continues, recurrent expenditure in the 2017 budget may rise to N5 trillion, while capex will relatively continue to receive meagre allocation.
· We must also review downwards the National Assembly budget which is currently higher than allocations to key ministries like Youth Development, Agriculture and Science and Technology. In the best interest of the nation, our lawmakers must consciously work towards reducing their recurrent expenditure.
· Budget assumptions must be realistic and take into cognisance current and future economic developments.
· As a country, we must inculcate a culture of timeliness in the budget process. A situation where the budget for 2016 was passed in the fifth month of the year would only stall implementation. It is important to introduce a structured budgetary process as practised in the United Kingdom and other countries. In India for instance, the budget is presented to the House on the last working day of February (themed Budget Day) and it is expected to be passed by the House and come into effect on April 1, the start of the country’s financial year. Adopting a similar approach in Nigeria would go a long way to ensure early disbursement of funds to contractors and overall improve the performance of capital expenditure.
Despite the challenges that the 2016 budget might face, the budget is unique in its disclosure of specific cost items of MDAs. This is a huge step towards ensuring accountability and transparency in the public sector. However, more disclosure is needed on the spending plans of the National Assembly and the Universal Basic Education Commission (UBEC). Whether the budget will meet up to the expectations of Nigerians and deliver the promised “change” depends largely on the implementation of institutional and structural reforms targeted at improving the budget process.
Wilson Erumebor
