The Budget Conundrum (3) – Implementation or Utilization? By Nasir Ahmad El Rufai

A couple of weeks ago, controversy sprung up between the Executive and Legislative arms of government over the (non) implementation of the 2012 budget. The ruckus between both arms stirred up the consciousness of many people about budget implementation and the numerous jargons associated with the process.

The buck passing between the two arms of government only illustrated that budget implementation is a term used to confuse the masses, and fuel the illusion that the budgetary spending translates to visible developmental projects aimed at improving the lives of our people.
When initially summoned by the Senate on Finance, the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, claimed that the 2012 budget had been implemented up to 56 per cent.  As the implementation issue became the focal point in public discourse, more facts gradually emerged.

The Ministry of Finance retracted its earlier statement. Documents subsequently submitted indicated that mid-way into the third quarter of 2012, the budget had been implemented by only 12.6 per cent. More interesting is how the government used the terms ‘cash-backing’ and ‘implementation’ to confuse many people.
The claimed the budget had been implemented by 56 per cent because it is the percentage of the N1.5 trillion capital budget so far.

This is one definition of implementation. The House of Representatives on the other hand said the implementation level was 34 per cent. They arrived at the figure by calculating the percentage of the capital budget that had been cash-backed (N324bn). The final implementation figure of 12.6 per cent was derived by calculating the percentage of funds appropriated, cash-backed and for use to the MDAs.

This calculation seems to be the most meaningful as it refers to the actual funds available in the coffers of the MDAs to be spent. These various calculations point to the opacity in government expenditure especially as regards developmental projects.
The Federal Government through the Budget Office of the Federation (BOF) has made quarterly budget implementation reports available on its website. In the 2011 report, revenues for all quarters of the year (net oil inflow, non-oil revenue and taxes), fell below projections.

Net oil receipts were N1,694.35 billion instead of the projected N2,346.66 billion, net non-oil revenue was N793.97 billion and underperforming by 7.71 per cent (N66.3bn). Value Added Tax (VAT) and Customs duties fell short of the annual projections by 16.21 per cent and 12.59 per cent respectively.
On the expenditure , N2,425.07 billion was budgeted for recurrent expenditure but the actual amount spent was N2,527.26 billion. The government’s total debt by the end of the 2011 financial year was N527.07 billion as against N495.10 billion projected. Of the N1,146.75 billion capital vote, only N918.55 billion was utilised.

The Budget Implementation Report (BIR) highlights how the recurrent expenditures and debts consistently exceed projections while the capital expenditure falls short.
By December 31 2011, a total of N864.32 billion had been to MDAs for the implementation of capital projects. Of this amount, a total of N812 billion (93.95%) had been cash-backed. The budget had to be extended because of the poor implementation by the end of the year. By the end of the extension, in March 2012, about 87 per cent of the cash backed amount had been utilised: 47 of the 53 MDAs utilised, on the average, about 87.9 per cent; 38 MDAs utilised over 95 per cent of their respective cash backed releases while six MDAs utilised less than 87.9 per cent.
Interestingly, by the end of the second quarter of the year, 11 MDAs had utilised no portion of their funds.

It is therefore shocking that by the end of the fiscal year, the average utilisation rate was 87 per cent. If the projects had specific timelines for execution, how is it that all the funds were disbursed within the last two quarters of the year? Could it be that the MDAs just seek for a means to ‘utilise’ the funds close to the termination of the fiscal year? Why cash-back a road project not yet under construction? Sadly, because the officials and government are not held accountable, the left-over, “cash-backed” funds rather than being returned to treasury are squandered.
A number of issues can immediately be discerned from the multifarious statistics on budget implementation. Important to note is that the actual revenues more often than not fall far below estimates.

This anomaly is not restricted to the Federal Government but is replicated by the state governments. Deficit budgets are the norm and those at the helms of affairs little to balance the budgets with fiscal policies. Worse still are the measures adopted and the cost of funding the deficits.
The nation’s total domestic and foreign debt is about $40 billion (N6.3 trillion) at present. Interest is charged at 10 per cent-16 per cent annually.

The entire budget for 2012 (N4.72 trillion) is lesser than the country’s debt. Most illogically, the accumulated debt is largely fritted away in financing the government instead of developing the country. Apart from the risks of crowding the private sector and raising cost of funds, government borrowing, especially in a developing economy as ours is in itself not a bad thing as long as there is a visible manifestation of the expenditure in the form of infrastructure and social services.

Unfortunately, this is not the case.
The long term effects of government indebtedness (local and foreign) would be grave on future generations and whatever measures adopted at regularising same would trigger untold hardship on the people. Inflation, higher taxes and increased interest rates are some of prolonged deficit budgets.  If the unguarded borrowing by the government is not halted or the loans invested in the real sector, then the downward spiral of the economy would continue with predictable grave for the entire polity.
In the 2011 BIR, N2,425.07 billion was voted for non-debt recurrent expenditure but the actual amount spent was N2,527.26 billion. N1,146.75 was appropriated for capital expenditure while a lower amount of N918.55 was released.

There is clearly no fortitude on the part of government to even the disparity between amounts appropriated and actual expenditures.
According to the 2011 BIR, by the end of the fiscal year (December 2011), the highest performing MDA was the Niger Delta Development Commission (NDDC) at 97.29 per cent; Ministry of Water Resources, Works and Police Formations all implemented at above 90 per cent, while the ministry with the lowest implementation of its budget is Agriculture at 58.45 per cent.

The declining agricultural sector of the country is understood more clearly by these figures which suggest the inability of the Ministry of Agriculture to utilise funds at its disposal. Power implemented 72.86 per cent; health – 68.95 per cent and education – 71.80 per cent.
The budget implementation figures are impressively high but when considered against the background of the budget itself, not mean . The amounts being implemented here are meagre sums compared to the recurrent expenditures for the same MDAs. Therefore an implementation of 100 per cent in a particular MDA may refer to amounts grossly inadequate to fund huge developmental projects. The developed and more advanced nations not have budget implementation figures because the budgets are realistic and thoroughly researched prior to their being enacted into law.

The Appropriation Act is adhered to and expenditures are made as proposed resulting in 100 per cent annual implementation.
Another observation is that in spite of MDAs not fully utilising funds at their disposal to execute existing projects, majority of the projects assessed in the BIR have been stalled because of payment delays and inadequate budgetary provisions. Bureaucracy in implementation and inadequate release of funds for contracts has been identified as the main factor responsible for projects.

It is therefore imperative for government to a transparent and efficient budget process alongside realistic objectives if the country must fare better on implementation.¨While the Legislative and Executive arms of government engage in fisticuffs on budget implementation, Nigerians should not be carried away by their hullabaloo. From past experience, such buck passing on inadequate budget implementation would soon be a forgotten issue. these figures actually mean anything meaningful in our daily lives? Even if the budgets were optimally implemented in previous years, how is it that there are still tonnes of and uncompleted projects, and increasing daily? We will respond to these questions next week.

The whole budget preparation and implementation process has not resulted in any meaningful development in Nigeria considering our soaring debt profile, high recurrent versus capital expenditure ratios, meagre non-oil revenues and inability to follow through with longer-term development plans. For now, the Vision 20:2020 and Transformation Agenda are nothing but slogans, without clear plans and programmes with the zero-implementation process on ground. If we want to leave behind a country that future generations would be proud of, it must begin now. We have to collectively elect people with clearly articulate plans and visions backed with the ability to act on them.

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