A budget is only as effective as its implementation. It is in consideration of this that Nigeria’s rule-based fiscal management regimen – particularly as elaborated in the Fiscal Responsibility Act (FRA) 2007 – contains guidelines aimed at helping our macroeconomic managers to align their activities to the intentions of the budget de-signers.
The Prudence Assurance Process
In the first place, the FRA stipulates that in advance of a financial year, the Office of the Accountant-General of the Federation should draw up the year’s annual cash plan setting out the projected monthly cash flows, which would be revised periodically to reflect the actual cash flows. To further support good im-plementation practices and improve achievement of budget targets, the FRA man-dates the Minister of Finance to prepare and publish – within 30 days of the enact-ment of the Appropriations Act – a disbursement schedule derived from the annual cash plan for the purposes of implementing the Appropriations Act.
A corollary of this is that early in the financial year (or, ideally, before the com-mencement of the year), each spending institution has a dashboard showing the funds that are planned to be disbursed to it at scheduled periods through the year. This predictability eliminates the knee-jerk approach to managing reve-nue/expenditure. It also enables institutions to work more deliberately and, one dares say, more prudently, towards the achievement of their budget targets.
Hamstringing the culprits of fiscal imprudence
Historically, the culprits-in-chief of imprudent implementation have centered around these notorious four:
(i) Virement – a situation in which money assigned in the budget is applied to ends other than those specified.
(ii) The budget may be so poorly planned that it is hardly implementable in the first place;
(iii) Cash not being released on time, or not released at all;
(iv) Lack of capacity/intention on the part of MDAs to expend according to the rule and earn good value-for-money;
Because a vired expenditure is an alteration to the originally well thought through plan, it upsets both the plan and its inbuilt metrics. It challenges the integrity of the PRUDENCE ASSURANCE PROCESS and is capable of engendering confusion in the assessment of budget implementation. Recognizing however, that there may be ex-ceptional situations where, in the overall public interest, virement could become ne-cessary in the course of the implementation of a budget, Section 27 of the FRA 2007 vests the power to recommend such virement to the National Assembly only on the Minister of Finance. Even at that, virements can only be between sub-heads of ac-counts, without exceeding the amount appropriated to such head of account. The fact that the National Assembly’s approval is required reinforces the transparency and accountability elements, which are the key drivers of fiscal prudence.
Cash not being released on time, or not released at all
Our nation’s fiscal prudence regimen is so robust that it clearly and unambiguously recognizes the possibility that in the course of a financial year, certain intervening factors could cause a reduction in targeted revenues, thus making earlier scheduled expenditures unfeasible. Section 28 addresses this by stipulating that in such an event, the Minister of Finance can act appropriately to restrict further commitments and financial operations until the targeted revenues are re-established. This is one of the very few situations in which the Fiscal Responsibility Act excuses a midstream change in the dynamics of the in-built PRUDENCE ASSURANCE PROCESS.
Lack of capacity/intention on the part of MDAs to expend according to the rule and earn good value-for-money
To ensure that fiscal prudence remains on the radar throughout the life of an Ap-propriations Act, the FRA, in Section 30, insists that the Minister of Finance, through the Budget Office of the Federation, not only monitor and evaluate the implementa-tion of annual budgets, but also publish their reports quarterly in public media in-cluding its website for all to see. Based on this, value-for-money can be assessed and verified by simply comparing the published claims of budget implementation with actual observations. The net effect is to create an atmosphere where fiscal impunity is discouraged.
Other prudence-related provisions of the FRA
Guarding against whimsical increases in government expenditure
In order to guard against whimsical increases in government expenditure, Section 36 of the FRA requires that the creation, expansion or improvement in government action which results in an expenditure increase be accompanied by:
i. An estimate of the budgetary or financial impact in the year it becomes effec-tive and in the two subsequent years; and
ii. A statement by the person requesting for the expenditure, stating that the in-crease is consistent with the Appropriations Act and the Medium-term Ex-penditure Framework.
Saving of excess revenue
Another important fiscal rules enshrined in the FRA 2007 is to the effect that the government should make intelligent efforts at forecasting its revenues. Where the estimate is surpassed in the course of the year by actual revenue as a result of a rise in the price of the commodity benchmarked in the budget, Section 35 of the FRA stipulates that the excess proceeds be saved and that the amount so saved be depo-sited in a separate account with the Central Bank of Nigeria.
Though the share of each government (i.e. Federal, states and LGs) from the saved amount and the income due them from the proceeds of investing the money will be clearly identified, Section 35(5) is clear in its instruction that no government in the Federation – whether Federal, State or Local council – should have access to these savings until and unless the reference commodity price falls below the benchmarked level for a period of 3 consecutive months. This need to save in times of plenty and have a reserve to which the Federal and sub national governments can make re-course to in lean times has been more robustly addressed by the recent legislation on the Sovereign Wealth Fund.
Fiscal deficit, borrowing and others
The FRA 2007 discourages a government from seeking to execute a budget deficit that is beyond 3% of GDP. It also specifies acceptable purposes and limits, as well as required documentation for borrowing. These are outlined in S.44-46 of the Act.
A key aspect of Nigeria’s Prudence-assurance process is the requirement that issues relating to fiscal governance be placed in the public domain where citizens can not only observe them uninhibited, but can actually contribute and have their contribu-tions carried, as it were, in the scheme of things.
Fiscal prudence is now everybody’s business:
To finally tie up the PRUDENCE-ASSURANCE PROCESS, Section 51 of the Act went the farthest distance that any Act before it had gone on the issue of Locus Standi to grant that a person shall have legal capacity to enforce the provision of this Act by obtaining prerogative orders or other remedies at the Federal High Court, without having to show any special or particular interest. In essence, all citizens and stake-holders can, when the need arises, enforce appropriate fiscal behavior.
The prudence-quotient of the 2013 budget:
I am proud to note that by presenting the 2013 Appropriations Bill three months be-fore the end of the fiscal year, the government of President Goodluck Jonathan has broken away from the embarrassing record of past governments whereby a given year’s budget is presented to parliament for consideration many months after the fiscal year had begun. Timeousness is an important aspect of prudence.
Much as specific contents of the 2013 budget proposal may seem important in gauging prudence or the lack of it, the truth is that the process that is at work to produce the final budget and shepherd the implementation thereof is actually more important. The pertinent questions, therefore, concerning the prudence-quotient of the 2013 budget include the following:
“ Is the underpinning MTEF properly aligned to Vision 20:2020?
“ Is the 2013 budget largely derived from the MTEF and does it meet the process and parameter benchmarks for prudence laid out in the FRA? Please note that the benchmarks include the ratio of fiscal deficit to the GDP. They also include the justification, documentation, limits and purposes for borrowing outlined in S.44-46 of the FRA 2007.
“ Mechanically speaking, do the parameters, projections, policy thrusts, projects and assumptions of the 2013 budget bear the DNA of fiscal prudence?
“ Do relevant stakeholders – including states of the Federation, government cor-porations and other interest-based communities – feel a sense of ownership to-wards the 2013 budget?
“ More importantly, has there been sufficient transparency and inclusion in the process of developing and perfecting the budget? This is actually a question as to whether there has been enough time, knowledge and access for stakeholders and interest groups to dissect and analyze the proposal and, where necessary, repropose what they consider an improved version.
“ After the budget is signed by Mr President, the relevant prudence questions will become those that center on whether the Office of the Accountant-General of the Federation has drawn up the Annual Cash Plan and whether based, on that projected expenditures and monthly cash flows, the Minister of Finance has scheduled (and published) disbursements to various projects and cost centres captured in the budget across MDAs.
“ In the more rigorous implementation phase, the questions will turn to issues of timely releases, public procurement practices, value-for-money, accountability and transparency.
It’s up to us all, really
To mainstream fiscal prudence, the questions above must not only be asked, they must be asked repeatedly and in relevant fora too. Flowing from this, I advise the Budget Office of the Federation to go a step further to place the draft of subse-quent budgets, starting from the 2014 budget, on its website for at least two weeks for Nigerians to study and scrutinize before it is forwarded to the Federal Executive Council. Such scrutiny may reveal duplications, bogus projects and the like which the Budget Office may address before forwarding to the FEC. Mr President will thus be saved the embarrassment of sending a budget to the National Assembly that eventually turns out to be full of avoidable errors.
I commend to every Nigerian, the Fiscal Responsibility Act, particularly Section 51 wherein every person is empowered to enforce fiscal prudence without needing to show any special or particular interest. The state has done its bit by providing this legal framework for prudent, transparent and inclusive fiscal management. Inciden-tally, these rules will only work if they are worked. It’s now up to you and I, the 150 million citizens of this great nation, to take advantage of Section 51 and stand up to be counted on matters concerning the alignment of public revenue and expenditure to the letter and intent of the Fiscal Responsibility Act 2007. That’s how to main-stream fiscal prudence.
Chief (Barr) Okewulonu is Commissioner in charge of Legal, Investigation & Enforcement Matters, Fiscal Responsibility Commission Abuja.