Budget War: Dysfunctional Envelope System - by Olusegun Adeniyi
- Details
- Category: Olusegun Adeniyi
- Published on Thursday, 09 August 2012 11:56
- Written by Olusegun Adeniyi
Finance Minister and Coordinating Minister for the Economy, Dr Ngozi Okonjo-Iweala, who had been summoned to appear before the Senate, honoured the invitation last week Thursday. But, as usual, she was more prepared than those who invited her, so at the end of the day she left the red chambers seemingly unruffled. She also used
the opportunity to dispel the innuendo about the water project in her village which was initiated in 2006 by the lawmaker representing her Federal constituency. “The project in question, a dam, was not brought to Ogwashi Uku by me but by a former colleague of the honorable members who was representing the community in the House. But it’s not right to distort facts just to make a point,” she said.
Last Thursday, I used the current disagreement over the implementation of the 2012 Appropriation Act to start a series on how both the lawmakers and heads of Ministries, Departments and Agencies (MDAs) distort budgets to the detriment of the economy. At the bottom of the current brouhaha is the “envelope system” which means in essence that we simply determine spending categories, i.e. Presidency, Education, Defense, Agriculture, Health etc. But the way it works is to put an amount into each envelope (for every ministry and agency) and throw it at them to do as they please. For instance, if N100 million is put in the Defense envelope, the ministry would simply allocate this amount to its different sub-heads. Nobody assumes responsibility for rationalizing the expenditure within a predetermined pattern, but everybody is made happy with money to spend as they wish. The idea is that overall spending must be aligned ostensibly to balance the books rather than necessarily being geared towards an output level that would increase the overall capacity utilization.
This budgeting method which suits both the executive and the legislature not only promotes waste but also undermines rigour and strategic thinking. Everybody is made to spend something without accepting responsibility for whether it would meaningfully impact the economy in the financial year. Worse still, even those who ordinarily should spend nothing are given something while projects requiring much higher levels of capital outlay are underfunded. As a result, there are now too many uncompleted and abandoned projects all over the nation; even after billions of Naira had been committed.
Having taken time in the last one week to study the budgeting process in several countries, my conclusion is that what we do here is not budgeting. We simply share and spend money. In more organised societies, it takes three years to complete the budget for one fiscal year (FY)- a year to formulate, another to legislate, and yet another to execute. Of course there would always be some details to sort out in the course of implementation but the essence of budgeting is forward planning. Yet in our own case, as of now, the 2013 Appropriation Bill is not ready and may not be when the National Assembly resumes in September. And then, , we don’t expect the lawmakers to approve it until March or April next year! And that itself may begin a process of negotiation and renegotiation that would take days, and possibly weeks, before it is assented by the president.
It must be clear to the two arms of government that working backwards in every financial year, through contrived capital projects and wasteful recurrent expenditures, is unsustainable. But even more critical is the abandonment of the Five-Year Economic Plans (which gave Nigeria most of its critical infrastructure through the 1st to the 4th national development plans). Having destroyed the Ministry of Economic Planning which ordinarily should have responsibility for the preparation and monitoring of capital budget, we replaced it with the so-called National Planning Commission whose most important mandate does not go beyond distributing scholarships and aids by foreign governments and multi-lateral agencies!
Going forward, I believe there are a few things that must give. One, the high recurrent-to-capital expenditure ratio in the annual budgets is unacceptable. Two, we need to curtail the huge outlays for the so-called constituency and MDG projects that are too thinly spread to make any impact. Three, long-term planning should be restored to save us from whimsical insertions of items and upward review of amounts for capital allocations in the annual budgets. Four, enough legal and constitutional safeguards should be provided against individuals and institutions giving themselves the power to misuse vast amount of financial resources outside the budgets. Cases in point are the recent fuel subsidy scam involving MDAs and statutory agencies whose officials and some dubious marketers practically shared un-appropriated money to the tune of over a trillion Naira; abuse of Natural Resources and National Stabilization Funds as well as unilateral payment of $1.1 billion by the Federal Ministry of Finance to an oil company (some would say an individual) for a purpose not captured by the budget.
Finally, to come back to where we started, the appropriation bill, once passed, is a law, and violating that law without recourse to virement is a crime; and a good ground for initiating impeachment proceedings. But nobody is taking our lawmakers serious because most Nigerians are aware that their current anger is not about their power over the purse but rather about some ill-motivated “constituency projects”. Unfortunately, as we have seen over the years, the National Assembly even lacks the requisite capacity to do any serious work on the budget. Yet they have been talking about a Legislative Budget Office like the (United States) Congressional Budget Office for ever. If they are serious, this is the time to begin to put such structure in place.
