The Budget Conundrum (2) – Unravelling The Jargon By Nasir El-Rufai

Once the budget is signed
into law, it is published in the
NASS journal as an Act, the
Federal Government Official
Gazette and published online
on the website of the Budget
Office of the Federation. The
Executive Branch is then
bound to comply with the
law. Legislative sanctions
applicable to violation of the
law may include
impeachment. Compliance
with the appropriation law is
what we actually call ‘budget
implementation’ in Nigeria.
Our research on country
comparatives confirmed that
there is nowhere in the world
where such a phrase is used
– presumably, once a budget
is passed, implementation
ought to be a given.
Countries we surveyed use
‘budget utilization’ to refer to
situations when the budgeted
amount is not spent in full
for a variety of unexpected
developments, but not
“implementation”. Except in
Nigeria, it seemed that one is
disallowed from doing
anything other than comply
with the law by implementing
it in letter and spirit!
In the Nigerian context
though, budget
implementation is a vague
term often used
interchangeably with budget
utilization, and refers to how
much of the budget has been
disbursed to the Ministries,
Departments and Agencies
(MDAs) of government. Note
again that disbursement does
not mean the funds have
been spent or the intended
results attained. However, in
an ideal situation,
disbursement should be a
measurement of how the
finances are spent and
translated to visible projects
in the country.
As noted in the last column,
our entire budget process in
Nigeria is vastly bureaucratic
and opaque. It is also not
anchored on any collective
national vision, clear strategy
and well thought-out
programmes. It is an annual
ritual for politicians and
public servants to slice the
fiscal pie into various
expenditure sub-heads that
often fail to improve the
welfare of the rest of us. The
process therefore involves
various stages and
terminology that are
deliberately designed to
confuse, obfuscate and
create space for subsequent
‘flexible’ implementation of
the budget. In the advanced
and rapidly-developing
economies, the budget
process is highly transparent,
devoid of gobbledygook and
timely. Drafts, preparations
and submissions between the
legislature and executive are
completed as and when due
without any unwarranted
overlap from one year to
another, while being
anchored on a coherent
national development vision
and strategy.
A typical example is the 2012
United States federal budget
which was presented to
Congress in February 2011
and enacted in November
2011, just a month into their
fiscal year. The budget was
signed into law almost
immediately without need for
any ‘discussions’. On the
other hand, our 2012 federal
budget was submitted to the
National Assembly (NASS) in
December 2011, barely a
month before the
commencement of the fiscal
year in January. The 2012
Appropriation Bill was finally
passed by NASS in March and
it took a complete month for
the President to sign it into
law barely escaping a
constitutional violation. By
that time, we were neck deep
into the second quarter of
the year, but the bureaucrats
and politicians are happy.
This is because, the recurrent
budget which these days is
nearly three-quarters of the
entire budget was being
drawn down and spent by
them even before the bill was
signed into law!
The budgetary system in
Nigeria is therefore pervaded
by lots of distortions and
perverse incentives which
begin from the conception to
completion; corruption is
involved in all stages before
passing it into law. After the
budget is signed into law,
Expenditure Warrants are
issued to all MDAs.
Expenditure Warrants are
instruments issued by the
Minister of Finance
authorizing the Accountant-
General of the Federation to
issue necessary mandate for
the purpose of cash-backing
monies to MDAs. The
warrants are issued on a
quarterly basis to MDAs
purposely to execute the
projects contained in the
annual budget. This system
allows for flexibility within the
MDAs to determine their
project priorities. The
warrant system also removes
the restrictions that prohibit
MDAs from initiating
procurement process without
funding in place. The two
downsides are that the fiscal
flexibility of the warrant
system allows for reckless
spending in many cases, and
delays the commencement of
procurement processes which
can take months before
contracts are awarded.
Meanwhile, the funds when
available to MDAs remain in
non-interest yielding bank
accounts.
Where do AIEs come in?
MDAs are mandated to
spend within the allocation in
the Appropriation Act.
However, in cases where
there are unforeseen
expenditures which were not
reflected in the budget
preparation e.g. price
escalations due to exchange
rate fluctuations, MDAs apply
to Budget Office of the
Federation (BOF) through the
Minister of Finance for
utilization of funds for these
projects. An Authority to
Incur Expenditure (AIE) is
then issued to the MDAs for
advance release of
appropriated funds or for
additional funds as required.
AIEs are also issued for
projects that are not cash-
backed but which need to be
implemented. AIEs constitute
not just an authority to
spend, but a public notice to
outside parties like
contractors and suppliers
that the expenditure has the
full backing of government.
There is the term ‘cash-
backed’ or ‘cash-backing’
which sounds confusing. This
refers to real monies that
have been disbursed by the
Ministry of Finance to the
relevant MDAs. It means that
the funds are available to the
organizations to expend on
capital projects appropriated
in the budget. Another
contentious terminology is
‘virement’. This is the agreed
movement of money from
one budget heading, to which
it has been allocated, to
another budget heading. It is
used for transferring funds
from where they were
originally allocated but not
stridently required to where
they could be spent more
meaningfully, immediately.
Usually, the President makes
his virement spending
request known to the NASS
and if approved, funds are
accordingly redirected. While
the current administration
has consistently ignored this
requirement and flouted the
process, lack of thorough
research before budgeting
preparation and the
‘envelope’ system (explained
below) have been identified
from experience as the main
causes of frequent virements.
The envelope system was
introduced by the economic
team of 2003 and worked by
providing each MDA with a
maximum amount for its
capital and recurrent needs
for the coming fiscal year.
Our hope was that the
system will force MDAs to
make hard choices and trade-
offs between investment and
consumption, and lay down
the basis for massive cuts in
personnel and overhead
budgets. It worked better
then because we started with
very low envelopes to MDAs,
and gave greater priority to
MDAs engaged in physical
infrastructure and human
development programs. That
has changed for the worse
unfortunately. The envelope
system is now anti-
developmental because
rather than have the sub-
heads receiving funds on the
basis of their needs or
targets, the reverse is often
the case. Our budget
analyses for 2011 and 2012
contained many examples of
that. What is happening since
2010 is that certain
indefensible amounts are
assigned to favored MDAs
and then the budget
templates are filled to cover
all the funds assigned. It is
therefore hardly surprising
that certain MDA projects are
cash-backed but not
implemented. They simply
have no projects to execute –
no project designs, no
bidding documents,
procurement processes
commenced too late and so
on! Meanwhile, other less
favored MDAs with ongoing
projects have no funds to
settle certified payments.
Sometimes, supplementary
budgets are needed in the
course of the fiscal year. This
is an expenditure statement
introduced to provide funds
to the government to meet
new, unexpected or
additional expenses in a
current fiscal year. In
countries like the US,
supplementary budgets are
drawn to fund emergencies
or major challenges in the
economy because their
budgets are usually carefully
researched and considered
before they become law. In
Nigeria, because of our
dependency on the
fluctuations in oil prices,
sometimes an unexpected
rise in oil price presents an
opportunity to pass a
supplementary budget and
introduce imaginary new
projects or expand the scope
of existing projects, for
spending of whatever surplus
funds earned. The
introduction of the Excess
Crude Account (ECA) in 2004
helped reduce that particular
type of appetite, but the ECA
has become so often raided
these days by the
government that it is almost
irrelevant as a ‘rainy day”
fund.
From the foregoing, some of
the failures in budget
implementation stem
principally from the absence
of a coherent national
development vision and
economic strategy to guide
budget formulation and
programs design.
Furthermore, the Ministry of
Finance’s multiple controls of
the Treasury and, the Budget
Office, while at the same
time acting the de facto
planning and monitoring
agency of the government,
has made a weakened
National Planning
Commission simply a
spectator. It is pertinent that
the vision and strategy be
clearly articulated and
debated by Nigerians, while
MDA roles should be properly
delineated so as to provide
checks and balances in the
system.

#CONSENSUS 2015