Thursday, 24 September 2015

THE NEED TO RESTORE SANITY TO BUDGETING

Muhammadu Buhari & Yemi Osibanjo
The Vice-President of the Federal Republic of Nigeria, Professor Yemi Osinbajo, gave a strong indication last week that the federal administration would dump the horrible budgeting practices of the past 16 years, which have become a long-standing hurdle to national development.

Restoring sanity to public financial management however will require dogged commitment to produce growth-enhancing fiscal plans and the elimination of waste and corruption. Unlike the three previous administrations since 1999, the Muhammadu Buhari administration has confronted the reality that our current budgeting system cannot deliver development.

According to Prof. Osinbajo, the government will use the Zero-Budgeting format in preparing the 2016 national budget in preference to the existing traditional incremental budgeting or Envelope Budgeting format that has served indolent, corrupt federal officials so well, but failed to drive development.

This is long overdue as repeated calls for a more efficient budget formulation and implementation process were ignored by past presidents Olusegun Obasanjo, Umaru Yar’Adua and Goodluck Jonathan.

Defined as a summary or plan of the expected revenues and expenditure for fiscal year, a government budget sets out revenues, costs, expenses and cash flows, while expressing strategic plans and national development targets.

Development planners broadly identify three types of government budget as: the operating or current budget, the capital or investment budget and cash flow budget. The emphasis is on the operating (recurrent) and capital outlays.

Traditional budgeting relies mainly on the incremental format with planning based on existing income and expenditure, where officials simply add to the preceding year’s vote on each line item, making allowance for inflation. This system may have worked well in the past when Nigeria had five-year development plans and, later, three-year rolling plans and budgets were formulated to meet defined planning targets. The problem with our budgeting is multifaceted.

First, we have failed to move with the best in the world, away from the “envelope” system to zero-based budgeting that according to experts, “involves evaluating the inputs and outputs for specific activities as opposed to the traditional line item format”. Second, national planning has derailed: there is an absence of commitment to implement any and achieve specific development targets. Budgets have become mere ad hoc spending plans with poor linkages to medium or long-term national growth objectives beyond the slogans of politicians. Moreover, our budgeting has been overtaken by ineptitude, corruption and a signal lack of professionalism.

Instead of plans that can provide infrastructure, stimulate production and job creation, we have consumptive budgets that feed parasitic political and bureaucratic classes and by the brazen abuse of the envelope system, sustains a gigantic system of corruption. That is why incrementally, “Service wide” vote, for instance, rose from N301.84 billion in the 2014 budget to N348.69 billion in 2015. Not tied to specifics, such outlays easily become “pocket money” for officials.

For the same reason, expenditures on kitchen equipment, cutlery, presidential villa gate, computers, printers, cars and generators, among others, keep on returning to the budget each year. Since these are items that no sane person replaces every year, it is obvious that our envelope system feeds a vast complex of fraud that encourages officials to generate invoices, fake contracts and receipts to enjoy the budget largesse.

Having identified the problem, however, the government should realise that zero-based budgeting poses the challenge of high level professionalism by budget planners and places a tougher demand on implementation. Replacing the Planning-Programming-Budgeting System adopted in the United States in the 1960s to the 1970s, zero-based budgeting demands that planners do a thorough evaluation of the costs and benefits of each project and requires that every expenditure be justified in detail, helping to identify redundancies or duplications.

Modern budgeting is scientific and Nigeria must join the train. Never again should the government return to making budget plans without tying them to revenue sources. Every expenditure project should have identifiable revenue sources. Cuts in in the United Kingdom and the United States defence budgets are planned to move into other critical sectors. To partly fund its new F-35 war planes, for instance, the Pentagon aims to retire its A-10 Thunderbolt aircraft fleet.

Planning for projects must include identifying where the funds will come from. More crucially, Nigeria needs practical national plans to which all stakeholders will buy in and national budgets geared towards meeting identified growth targets. Malaysia was able to grow its economy from an agrarian to an industrialised one within the ambit of national plans with the annual budgets as stepping stones to achieving growth targets.

Its government said its robust budgets had delivered 196 projects in 12 national “key economic areas”, created 437,000 jobs and achieved 6.3 per cent expansion in Gross Domestic Product since 2009. Indonesia’s budgets are components of five-year plans that have made it South-East Asia’s largest economy and the third fastest growing G-20 economy with a per capita GDP of $82,762, the world’s third highest, according to the IMF, based on certain projected data.

President Buhari should begin by appointing upright technocrats as ministers in charge of finance and national planning and re-professionalising the Budget Office. The office should be insulated from political influence, while approved capital budgets should be scrupulously implemented. Emphasis should be on infrastructure, education, health, institutional reforms and job creation.

Beginning from 2016, national budgets should eliminate waste and loopholes for corruption, while budget implementation and monitoring agencies should be upgraded and strengthened. (punch)