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Thursday, 9 August 2012
EL RUFAI AGAIN?
The Budget Conundrum (1) – Budgeting Process 2012 AUGUST 9 by Nasir El-Rufai
The nation’s attention has once again been captured by controversy over
budget implementation. Indeed, the House of Representatives has passed a
motion sponsored by my brother Femi Gbajabiamila threatening the
commencement of impeachment proceedings against President Jonathan
unless the administration rapidly improves on budget implementation. The
Jonathan administration reacted in the hapless ways we have all become
accustomed to. Honourable Gbajabiamila was accused of a non-existent
offence, convicted by the PDP and called upon to resign, while high
percentages of budget implementation were claimed by the executive
branch. Both turned out to be indefensible at best and usual Jonathanian
falsehoods at worst.
So what is the truth? Should policy
directions anchor national and sub-national budgets? How are budget
priorities determined and who does? How are budgets prepared, reviewed
and implemented? What do all the jargons like expenditure warrants,
Authority to Incur Expenditure (AIEs) and Cash-Backing mean? And what
does sound budgeting mean for our political economy and progress as a
nation? What can we learn from the past when things worked slightly
better? And what country experiences are available for Nigeria as
lessons for the future? We intend to spend the next couple of columns
explaining budgeting and addressing some of these questions. Our hope is
that our citizens will be better enlightened about the subject and
demand accountability from those in power.
In the past several
weeks, we have analyzed federal and states’ budgets; their context,
content, effectiveness and relevance to critical development challenges.
We came across wasteful spending, wrongful priorities and the absence
of clear cut developmental visions and plans for the states and the
federation as a whole. While the Federal Government has a statement of
intentions for 2011-2015 encapsulated in a pathetic-27 page
“Transformation Agenda” and a dodgy Medium Term Expenditure Framework
(MTEF), most of the states did not even attempt that, and certainly had
no articulated visions, plans and medium-term programmes to anchor their
Development theory and experience support the
proposition that budgets need to be predicated on long-term visions,
economic strategies and plans to be effective instruments of societal
progress. Unfortunately, this is not the case for most of
post-Independence Nigeria. Either the national or states’ government
budgets are not anchored on coherent visions and plans or where there
are development plans, the budgets are at variance with the visions. We
will summarize our national experience in development planning and
budgeting to throw some light on this disconnects between vision and
budgeting which has become exacerbated since 2007.
besides policy incoherence and perhaps in consequence of implementation
discontinuities, Nigeria has been plagued by the phenomenon of
abandoned projects. Recently, a Federal Government committee found that
N2.7 trillion has been expended on about 11,800 abandoned projects which
currently require another N7.28 trillion for completion. According to
the House of Representatives, the Niger-Delta Development Commission
(NDDC) only completed about 1,550 out of 5,100 contracts, a 30%
performance without even analyzing the quality of the projects and
Similarly, the Nigerian National Petroleum
Corporation (NNPC) is alleged to have wasted over N300 billion on
uncompleted projects in the four barely-functioning petroleum
refineries. These and other examples point to a fundamental malaise –
our failure to articulate a national vision, coherent economic strategy,
national development plans and annual budgets to translate these into
concrete outcomes and progress.
The importance of focusing on
the national visioning and development planning process and their link
to the budget cannot be over-emphasized. Unfortunately, this is not
always the case in Nigeria. As a consequence, at all levels of
government – federal, states and local government, budgets are at
variance with government’s visions and plans. While the federal
government has had various national development plans, at the state
levels, governments do not have any articulated development visions and
In the last fifty years, a handful of countries have
transformed their countries from low to middle and high-income through
careful visioning, sound development planning and focused implementation
under competent leaderships. China has not only grown at more than 10%
per annum on average for 30 years, but lifted more than 400 million
people out of poverty since the leadership began implementing economic
reforms from 1978. The five step process to replicate this feat is (1)
articulation of national vision of progress and prosperity (2) consensus
on a national economic strategy to attain the vision (3) preparation of
medium-term development plans pursuant to the agreed strategy (4)
preparing and legislating annual budgets to translate the development
plans into real outcomes, and (5) the disciplined and focused
implementation of the budgets and feedback to the next development
We will first describe the federal government budgeting
process today, which is also similar to what obtains in the states to
enable us benchmark it against what has resulted in real progress in
other countries. The first step in budget preparation begins around
August of the preceding budget year. The President issues directives to
the Minister of Finance and Budget Office to propose a budget in line
with the federal government’s vision for Nigeria.
followed by producing a medium-term fiscal framework (MTFF), mandated in
the Fiscal Responsibility Act (FRA) of 2007. The MTFF shows projected
expenditure and revenue plans for a few years in advance. It is
important to note that the FRA explicitly states that aggregate
expenditure should not exceed aggregate revenues by more than 3% of
Next in the budget preparation process are
stakeholders’ consultations. This entails consulting with the
international financial institutions, donors and national assembly
(NASS) leadership on the broad budget direction, size and proportions.
Then Ministry, Department and Agencies’ (MDAs) expenditure ceilings are
set; that is each MDA is given an envelope – a maximum amount available
for its recurrent and capital expenditure needs for the following year.
The medium term sector strategies (MTSS) for MDAs are then prepared by
the Budget Office, which translate into Medium Term Expenditure
Framework (MTEF) for presentation and approval by the Federal Executive
Council. It is expected by then that the NASS has approved the MTFF
which will be the foundation for the annual budget.
the above is done, the Minister of Finance then issues a budget call
circular which is like a framework for the MDAs to prepare their budget
proposals, but within their ‘envelopes’. When the MDA budgets have been
verified to comply with the requirements, the draft is forwarded to the
President for his approval after which if satisfied, is presented to a
plenary session of the Federal Executive Council for approval. The
President then forwards it to the two houses of NASS.
budget is a ‘money bill’ which is required by our constitution to be
passed by the two houses, but clearly, the House with its 360 members
and more representative of the Nigerian population, has the upper hand
in event of disagreements with the Senate. Our constitution gives the
Senate a greater say in presidential appointments, but confers inherent
superiority to the House with respect to appropriation of public funds.
Like every bill, the Budget – referred to as Appropriation Bill or
Supplementary Appropriation Bill – goes through a First (or
Introductory) Reading and debate in plenary sessions. It is then
referred to the Appropriation and other sector committees for more
detailed review and scrutiny to move the Bill to the Second Reading.
At this point, the various MDAs are invited to justify and defend their
draft budgets in a way similar to “public hearings”. For instance, the
Minister of Information and his staff defend the budget of his ministry
and its parastatals before the NASS committees on Information or Media
and so on. And it is at this point, MDAs ‘lobby’ NASS committee to
increase their allocations, re-introduce projects that may have been
screened out or rejected by the Executive Branch and promises of
financial “quid pro quo” for budget distortions negotiated and agreed.
The respective projects and numbers which constitute the revised budget
are now referred back to the two houses for debate and passage in
It is unlikely that the two houses will come
up with the same list of projects and numbers which make up the budget
for presentation to the president for assent. Some degree of
harmonization is often necessary and the two houses usually appoint a
Conference Committee to undertake this with equal membership from each.
In the unlikely event that the Conference Committee fails to agree, the
two houses go into a joint house to vote on the budget – a process that
ensures that the House version of the Money Bill is passed for assent.
As soon as the budget has been harmonized, the finalized Appropriation
Bill is sent to the President for his assent within 30 days. In the
event the President fails to assent, the Bill lapses unless passed by
two-thirds majority of the NASS thereby no longer requiring presidential
assent. Once enacted the budget becomes a national law which cannot be
changed or modified in any way without recourse to the legislature. The
States and FCT go through a similar process of budgeting. What then
happens after this point?
We will continue next week.....by God's Grace.....