FEDERAL GOVERNMENT AND ZERO BASED BUDGETING IN NIGERIA
Otive Igbuzor, PhD
Executive Director, African Centre for Leadership, Strategy & Development (Centre LSD)
October 1, 2015
The budget is perhaps the most important instrument for the development of any modern state apart from the constitution. It can be argued that it is only through the instrumentality of the budget that the State can allocate resources to deliver services to the people especially the poor and excluded. The focus on budget has assumed greater prominence in recent years with increasing democratization, civil society participation and the desire to respond to the development challenge of poverty. In Nigeria, the return to civilian rule in May 1999 after many years of military rule not only put issues of budget in the public domain but brought out the role of parliamentarians and citizens in the budgetary process. More importantly, although budgets were prepared and read during military regime, there was neither participation by civil society nor input from parliament. In fact, during the twenty nine years of military rule in Nigeria, the legislature was completely absent. In the past sixteen years after return to civil rule, the reality of budgeting in Nigeria is changing. Citizens, civil society organisations and parliament are engaging more with the process. But there are still a lot of problems besetting the budgetary process in Nigeria.
First and foremost, the budgetary process is not participatory. Citizens and communities do not participate in formulating policies and agreeing on projects that go into the budget. Meanwhile, it has been documented that wherever participatory budget is implemented, it has expanded citizenship, empowered excluded groups, redefined rights, deepened democracy and stimulated civil society.
Secondly, the budgetary process is not open. Corruption in any country starts from the budgetary process. In very corrupt countries, the budget is done in secret. Releases are done without the knowledge of citizens. Procurement information is not made available to citizens and corruption is guarded and protected. This is why civil society organisations in Nigeria have been advocating for an open budget system. A budget is regarded as open if citizens have access to the key budget documents; have high level of involvement in the budgetary process and have access to procurement information. As a matter of fact, democracy will be meaningless if the citizens do not participate in how government raise and spend money. This is why the tool (Open Budget Survey Tracker) developed by the International Budget Partnership (IBP) is a very useful instrument. It surveys the availability of eight key budget documents to members of the public: pre-budget statement, executive budget proposal, enacted budget, citizens’ budget, in-year report, mid-year review, year-end report and audit report. The Pre-budget statement is meant to disclose the parameters of the budget proposal including macro-economic assumptions. The enacted budget is the budget that has been passed into law by the legislature. The Citizens’ budget is a simplified version of the budget proposal that the average citizen can understand and relate with. The in-year report is a monthly or quarterly report of budget implementation. The mid-year review is a comprehensive update of implementation in the first half of the year. The year-end report is the annual report of implementation. The audit report is the audited annual account of the government. A budget transparency survey of 15 states in Nigeria carried out by CIRRDOC indicates that citizens in Nigeria generally do not have access to key budget documents. Only a few states are beginning to make effort to expand the access to budget information especially Ekiti, Lagos and Cross River States. It is therefore not surprising that the level of corruption and poverty is very high in Nigeria. Anyone interested in the accelerated development of Nigeria must deal with the issue of corruption by increasing access of citizens to budget documents.
Thirdly, the priorities of the budget are not in accord with the development challenges of the country and there is no synergy between plans, policy and budget. We have always argued that there is the need for better public finance management across the world because of increasing inequality and non-inclusive growth. The past five decades have witnessed monumental changes in the world. Global economic wealth has increased sevenfold and average incomes have tripled. Yet, poverty has increased to record high levels. The major problem is that wealth is concentrated in the hands of a few people while majority of the people live in abject poverty. The UNDP in its 1998 report documented that the three richest people in the world have assets that exceed the combined Gross Domestic Product of the 48 least developed countries. A recent report by Oxfam indicates that the 85 richest people in the world have wealth more than half of the world’s population (3.5 billion people). In Nigeria, for the past ten years, there has been increasing economic growth. But at the same time, poverty is increasing. The budget must therefore prioritise pro-poor programmes and the challenges of poverty.
Fourthly, there are several frivolous expenditures in the budget that will not stand any reasoning and logic. For instance in the 2015 Federal Government budget, over 732 million naira was budgeted for food in the presidency; over 826 million naira for rehabilitation of villa facilities; over 27 million naira daily for newspapers in the Office of Secretary to the Government of the Federation and several security and welfare packages for various ministries, departments and agencies.
Finally the institutions and mechanisms for oversight of the budgetary process are weak. In any modern democracy, the legislature, civil society and media are expected to play oversight functions in addition to the internal control system put in place by the executive.
A few days ago, the Vice-President, Prof. Yemi Osinbajo announced that the Federal Government with start using zero based budgeting for its 2016 budgeting. According to him, zero based budgeting entails careful planning anchored on the needs and costs. It is different from the current envelop budgeting or traditionally incremental budgeting whereby the planning is based on existing income and expenditure as the deciding factor in national planning levels, which often incurs waste and assumes previous costs as constant. The Vice President stated that with the zero based budgeting, the Federal Government will also focus on a bottom up approach to development.
Zero-based budgeting is an approach to planning and decision-making that reverses the working process of traditional budgeting. In traditional incremental budgeting departmental managers justify only variances versus past years based on the assumption that the "baseline" is automatically approved. By contrast, in zero-based budgeting, every line item of the budget must be approved, rather than only changes. Zero-based budgeting requires that the budget request be re-evaluated thoroughly, starting from the zero-base; this involves preparation of a fresh budget every year without reference to the past. This process is independent of whether the total budget or specific line items are increasing or decreasing.
There is no doubt that zero based budgeting has a lot of advantages including efficient allocation of resources, as it is based on needs and benefits rather than history; drives managers to find cost effective ways to improve operations; detects inflated budgets; increases staff motivation by providing greater initiative and responsibility in decision-making; increases communication and coordination within the organization; identifies and eliminates wasteful and obsolete operations; identifies opportunities for outsourcing; forces cost centers to identify their mission and their relationship to overall goals and facilitates more effective delegation of authority. But there are some challenges with the adoption of zero based budgeting. First and foremost, it is very time consuming and it is doubtful whether it is possible for the Federal Government to do a proper zero based budgeting just with three months to the end of the year. Secondly, zero based budgeting requires specific training especially as it is different from the traditional or incremental budgeting that has been used over the years in Nigeria. Additionally, the amount of information required to back up zero based budgeting is huge and can overwhelm public servants that are not used to this kind of budgeting. Finally, it must be recognised that it is difficult and problematic for departments with intangible outputs like education, health and value re-orientaion to justify every line item.
This is a commendable move by the Federal Government. Indeed, it is another success story of advocacy by civil society. We have argued in the past that “in some way, it can be said that the national budget in Nigeria is a copy and paste job because of the type of budgeting that is done in the country. The type of budgeting that is practiced in Nigeria is line budgeting. This kind of budgeting does not require justification from the scratch as in zero based budgeting or linkage to performance as in performance budgeting. The end result is that the line budgets are increased slightly or decreased depending on the priorities.”
Although the adoption of zero based budgeting is a commendable initiative by the Federal Government, there are requirements for the successful implementation of zero based budgeting as noted above. Moreover, the problems of the budgetary process in Nigeria goes beyond the type of budgeting adopted. As noted above, there are problems with citizen participation, openness of the budget, priorities, frivolous expenditure and effective oversight. The Federal Government must go beyond the announcement of the adoption of zero based budgeting to implement a comprehensive reform of the budgetary process in line with its change agenda. First and foremost, for any government to be able to effectively check performance in relation to budget, it must answer the following questions:
· Is the budgeted amount adequate? Is it enough?
· How does the allocation to one sector compare with others? Eg Health and Education compared with the Presidency or Defence)?
· What are allocations to particular sectors?
· Is there allocation to improve on particular sectors?
· Is there transparency in the allocation of funds and expenditure? Is there accessibility of data used in preparing the budget?
Secondly, the Federal Government should reform the the budget process to make it open, transparent and participatory so that it will be people driven.
Thirdly, the payment system should be reformed. The procedures of receiving monies from the public and for making payments to them should be made transparent and accountable. In this regard, government should institutionalise progressive taxation, introduce property tax and ensure effective tax collection mechanism.
Fourthly, there is the need for strengthening of government accounting and financial reporting. This involves the procedure for recording, communicating, summarising, analysing and interpreting financial statement of government. The system should have integrity. Fifthly, government should strengthen the office of the Auditor General and auditing process carried out by qualified auditors on the records and financial statements of ministries, departments and agencies (MDAs) to express an opinion on it. The challenge of auditing in Nigeria is the absence of value for money. This should be introduced. In addition, enabling environment should be provided for legislative oversight. In every modern democracy, the legislature has a great role to play in ensuring transparency and accountability in the budgetary process. In this regard, there is the need to strengthen the Public Accounts Committee (PAC). The convention is that the PAC is headed by opposition party. Moreover, enabling environment should be provided for civil society and media to play their roles as watchdog of the society including legislative oversight. In this regard, the Federal Government should immediately constitute the Procurement Council with representatives of civil society and media in line with the Public Procurement Act 2007. Another important area is the strengthening of the laws to protect whistle blowers. Finally, government should institutionalise monitoring and evaluation with strong internal control and integrity systems.
The budget is very important for the development of any country. The efficacy of the budget determines the success of governments in meeting societal needs. There is a process of making budget which should be open, transparent and participatory in order to bring about development. Unfortunately, despite the enormous resources in Nigeria, the country and its people are poor partly because of corruption, secrecy in the budget process and poor public finance management. This is why open budget is a necessity for development in Nigeria. Anyone interested in the development of Nigeria must join the movement for Open Budget in Nigeria. The adoption of Zero Based Budgeting by the Federal Government is a commendable move. But there are many problems affecting the budgetary process. The Federal Government should go beyond the adoption of Zero Based Budgeting to implement a comprehensive budgetary reform in Nigeria.
Dr. Otive Igbuzor is a Pharmacist, Human Rights Activist, Policy Analyst, Development Expert and Strategist. He holds a doctorate degree in Public Administration.