Cash crunch: Why fiscal responsibility makes the difference

A mixture of dwindling financial fortunes and fiscal rascality or even laissez-faire attitude towards the management of scarce resources will only aggravate economic misfortune. CHIJIOKE NELSON writes on the need for Fiscal Responsibility Act, strengthening of the law and enforcement, especially in the era of dwindling revenue and engrained misplacement of priorities.

THE United States President, Barack Obama, once said: “Africa doesn’t need strongmen, it needs strong institutions…Development depends upon good governance. That is the ingredient, which has been missing in far too many places, for far too long.”

  Surely, these days are no better times for the country, especially with its revenue earning capacities, dominated by crude oil. This automatically resonates calls for fiscal discipline and becomes very critical as most of the oil exporting countries, beside Nigeria, depend largely on revenue from the oil export to attain economic and fiscal growths. 

  Of course, there is no gainsaying that in the area of fiscal responsibility operations, the dwindling oil prices is a cause for concern for oil export revenue dependent country like Nigeria, especially as the country has the penchant for spending in “bulk”, with no much assessable and accessible projects commensurate to the claims. This highlights the need for strong institutions to raise the bar in accountability issues.

  For example, Nigeria’s budget is battling with visible evidence of project execution against huge revenue base accrued from crude oil windfall and a whooping $69 billion debt profile, which were majorly brokered in the last five years. Already, the debt deals is now set to bring Nigeria up for another brand of headwinds as its debt service provisioning for 2015 in the proposed appropriation bill resurge to a new high of N943 billion and this means that Nigeria is spending more on debt service than capital expenditure- N310 billion more, representing 48.84 per cent of capital expenditure. Given these figures, why is the country still reeling under the pangs of under-development the much it is currently?

  There is no doubt that given the situation of dwindling oil prices, there arises the need to promote measures to improve fiscal responsibility, especially as how the government raise and spend public money is an expression of the country’s priorities. It also has huge implications for the health of the economy, which makes it especially critical as the nation continues to make difficult economic, social, and political tradeoffs.

  It is a fact that government in carrying out its fiscal and budgetary policy, has always “claimed” to have placed emphasis on managing it’s resources, obligations and fiscal risks in a manner that ensures the sustainability of the fiscal position in the medium and long term. But the spirit of the claims, whether it does it or not, is essentially to enable it manage financial risks and unforeseen events in future periods without having to introduce economically or socially destabilizing expenditure on revenue adjustments. 

  However, concerns have been raised in the country in recent times, with several austerity measures undertaken to the detriment of the greater number- majorly the poor masses, in the face of dwindling oil prices and given that the country remained heavily dependent on oil revenues to drive economic growth and development.

 Indeed, there is need for assurance by government to earn, generate funds and judiciously spend it without placing undue hardship on its citizens. For one thing, the Federal Government’s decisive and prompt decisions aimed at cushioning the impact of the oil slump on the Nigerian economy are commendable, although not holistic. Fiscal responsibility in behaviours and as an entity for enforcement.

  Some of the measures unveiled by the Federal Government like the tax regime on luxury goods, reduction in public expenditures and international travels by public servants, cut in oil price benchmark to $52 per barrel, and increased revenue drive are well-thought and unassailable in this critical period which calls for serious belt tightening measures. Of course, these measures would rake in more revenue when properly harnessed, but how would the proceeds be utilized?

  It should be noted that the oil slump has, more than anything else, emphasized the need for more prudence and best practices in fiscal responsibility starting from the three-tiered government.

  From the above, the savings per barrel of oil into the ECA on a yearly basis for six years showed that $2.1 in 2008; 2009, $18.9; 2010, $30.9; 2011, $34.0; 2012, $31.8; and 2013, $31.8 and on average, it represented savings of $31.6. Was the country actually fiscally responsible over these years? The current economic woes of the country affirmed in negative response.

  Jus as Obama said, institutions like the Fiscal Responsibility Commission (FRC), which has thrived in may climes, including the U.S., is facing extinction threat in Nigeria.

  But it has stressed the need for the government to comply with the Fiscal Responsibility Act (FRA) in fiscal management, adding that if Section 35 of the FRA, 2007 had been duly complied with, Nigeria might have saved enough as buffer to mitigate the present declining oil price regime.

  In its response to why fiscal responsibility makes the difference, the commission said that despite insurmountable odds, it has been in the forefront of getting Ministries, Departments and Agencies (MDAs) to remit substantial operating surplus to the Consolidated Revenue Fund, adding that it has so far, through carrot and stick, induced remittance of over N300 billion operating surplus to government’s coffers.

  The commission, which can still do more if given adequate backing by the government, just as Obama canvassed for strong institutions, may only require minor amendment to remedy some observed weaknesses discovered in the course of monitoring and enforcement. 

  “Consolidation should, as a matter of necessity, be given to the setting of limits of consolidated debts of Federal, State and Local Governments as stipulated in Section 42(1) of FRA, 2007. Banks should take cognisance of the provisions of FRA, 2007 regarding lending to the states and local governments,” the commission said.

Institutional challenge

  The Orosanye Committee Report on Fiscal Responsibility Commission had recommended the scrapping of the commission, which marked the official beginning of its travails, but assessment of the FRA Act has shown that the conclusion was, to a large extent, based on an erroneous premise and its extinction will likely do the nation more harm than good.   

  The establishment of the commission through the Act, was a deliberate effort to make it independent and cause change in the areas of public procurement, extractive industries, banking, taxation, the petroleum sector and fiscal responsibility management.

  Historically, prior to the emergence of FRC, Nigeria’s budgeting process at the time was not based on any over-arching strategy or framework. Executive oversight was disaggregated and dysfunctional.

  But in getting FRC established, the Federal Government, the World Bank and the United Kingdom’s Department for International Development (DFID) had a joint analytical review programme, which among other vital areas, covered “reform options for Nigeria to strengthen fiscal policy coordination aimed at safeguarding macro-economic stability and promoting growth, international experience with approaches to fiscal policy coordination and reforms that would fundamentally alter the existing system of Nigeria’s fiscal federalism and the need to enforce and promote Section 16 of the 1999 Constitution.” Part of the commission’s weaknesses still remain with the fiscal federalism framework of the country, not in FRC’s operations.

  The operation of Fiscal Responsibility Laws in many countries- Brazil (promulgated in 1999), New Zealand (1994), Sweden (1997-1998), Peru (2000), Chile (2000), India (2004), Estania (1998), Bulgaria (1998), Luxemburg (1998), Venezuela, Australia, Argentina, Mexico, among others, was surveyed to arrive at Nigeria’s FRA Act.

  The Acting Chairman of FRC, Chief Victor Muruako, in his defense of the recommendations of the Orosanye Committee before the Ministerial Committee for the Implementation of the White Paper, recalled the international support the country received as a result of the Act.

  “It’s been reported that Nigeria’s efforts towards rule-based fiscal responsibility management were encouraged and enthusiastically supported by its international partners, including multilateral institutions. It is also reported, and remarkably so, that Nigeria’s promise to enact the fiscal responsibility law and establish the FRC softened the resistance of the members of the Paris and London Clubs during the negotiations for debt exit in 2005 and 2006. Therefore, a policy reversal to repeal the FRA, 2007 and scrap FRC may send rather unfavourable signals to Nigeria’s international partners,” he said.

  Perhaps, it is more instructive to note that the reversal of the policy means the entrenchment of status quo and/or a reverse version of Obama’s suggestion.

  According to a globally acclaimed authority in fiscal management, George Kopits “Compliance with fiscal policy rules and procedural rules, along with observance of transparency standards, must be subject to continuous monitoring, preferably by an independent authority.”

  The word “independent authority” is highlighted and in in consonance with this, that the fiscal responsibility law in the United Kingdom, is supervised by the National Audit Office; in the U.S., the Congress Budget Office; specialized institutions in Chile and in some European Union member countries. Brazilian assigned the monitoring and enforcement of the law to the Fiscal Responsibility Council and Audit Court. In these countries, it is obvious that there is a conscious attempt to separate the institutions responsible for revenue sharing, transfer and allocation formulae from the ones in charge of fiscal responsibility monitoring and reporting.

  Of course, the global best practice is a situation where more detached institution monitors the levels of responsibility of the allocating institutions, the generating institutions and the user institutions like the Nigeria’s Revenue Mobilization, Allocation and Fiscal Commission.

  “It was only after these issues were severely examined, debated and their merits carefully considered that the National Assembly passed the Fiscal Responsibility Bill in 2007 as part of broader economic and fiscal policy reforms. On assumption of office, President Umaru Yar’Adua assented to the Bill on the 30th of July, 2007. It was an Executive Bill and was never accidental. It was carefully thought through.

  “Therefore, the Act Provides for an independent Fiscal Responsibility Commission as an institutional backbone or ensuring fiscal responsibility, transparency and accountability in the generation of revenues and public expenditure and the enforcement and monitoring of the Act; a Medium Term Expenditure Framework as a basis for budgeting and medium term economic planning; an effective budget process including deadlines for planning, preparation, execution and reporting; system of oversight in savings, asset and debt management; and transparency and accountability in management of revenues and expenditure,” he said.

  The FRA 2007 clearly defined the functions and mandates of FRC, which is very distinct from that of Revenue Mobilization, Allocation and Fiscal Commission (RMAFC) that is constitutionally empowered to perform a very wide spectrum of functions.

  In fact, the Chairman of RMAFC, Elias Mbam, while supported the argument that the functions of the RMAFC and the FRC are neither the same nor conflicting, but distinct and parallel and explained that when his commission, in the past, attempted to gather data in order to “advise the federal, states and local governments on fiscal efficiency and methods by which their revenue is to be increased,” the states went to court to stop them.

  Another pointer to the mistaken identity was the fact that the Orasanye Committee recommended that the enabling law of the RMAFC would be amended to accommodate the functions of the FRC, but there are palpable fears over the effectiveness of RMAFC and the credibility of a single institution “approbating and reprobating”, according to legal parlance. 

  Simply put in other words, placing the responsibility for mobilising revenue, allocating same and justly determining the propriety of the same mobilisation, allocation and use in a single institution challenges the principle of checks and balances on which democracy thrives.

  By positing that the Federal Government stands to save money by scrapping FRC and transferring its functions to RMAFC, the Orosanye Committee may have committed an “error of arithmetic”. In the past couple of years, the annual budget allocation, out of which only a part is eventually released from the Federal Government to the commission faulted the claims.

  According to a data, the elements of personnel cost, overhead cost and even capital expenditures in the FRC budget will surely be transferred to other agencies. The cost of this transfer as well as the cost of RMAFC or any other agency relearning what the FRC has toiled to build in the past six years will exceed what the FRC would otherwise have spent.

  Both in the 1999 Constitution of Nigeria (an amended) and the FRA 2007 give the Federal Government rather little power over the fiscal activities of these sub-national players and the same Federal Government is left to account for the macroeconomic consequences of their actions in terms of inflation, unemployment, debt sustainability, GDP growth.

  Given Nigeria’s fiscal federalism, the best the FRC or the RMFAC can do in this regard at the moment is to continue to persuade these sub-national governments to enact and implement the laws.

  “We make bold to say that FRC has gone a long way in carrying along most of the states on the need of a new order of fiscal prudence. Prior to the establishment of the commission, government-owned corporations made returns from their internally Generally Revenue (IGRs) of sums that were assigned, negotiated and agreed between them and the Ministry of Finance. Though well-intentioned, this practice may have been subject to arbitrariness or abuse. 

  “The FRA 2007 changed all that, establishing in its place, a common rule in Sections 22-23 of the FRA to the effect that at the end of a financial year, each government-owned corporation listed in the Act should remit 80 per cent of the excess of its revenue over its costs for the previous year into the Consolidated Revenue Fund of the Federal Government,” Muruako said.

  Records also indicated that the commission has between 2007 and September 2014 induced the government owned revenue earning agencies to pay into the Consolidated Revenue Fund (CRF) a total of over N337 billion as operating surplus in line with FRA 2007. In 2009, a total of N40.5 billion was received by the Federal Government as its share of Operating Surplus from these corporations. As the commission intensified its activities in this area, this figure increased by 115 per cent to over N43 billion in 2010 and recorded a further year-on-year jump of 93 per cent to N73 billion in 2011. 

  Between 2009 when the FRC started work and the end of 2011- two years later, operating surplus payment to the Federal Government from corporations in the schedule to the FRA had increased by 316 per cent. There has been a tremendous improvement from 2012 to October, 2014.

  “It is no secret that the FRC has encountered some lack of cooperation, resistance and ignorance from some corporations. And there is no doubt that any other agency will encounter similar lack of cooperation, resistance and ignorance until and unless two things happen- first is a considerable improvement in budgetary allocation for sensitization/publicity and second is an amendment of the Act to enhance the compulsive powers of the commission.

  “The FRC has demonstrated exceptional and exemplary prudence in its financials. In 2009, the Commission set an example by returning over N600 million unspent budget to the treasury. In 2010, it equally returned over N200 million. It is therefore, an institution that can be trusted with funds. When the discussion is on saving money for the government, the Orosanye Committee should have given consideration to strengthening (rather than abolish) the commission that has set such unusual examples,” he added.

  It is reported that some countries, which out of political exigencies, have attempted to reverse their otherwise laudable fiscal responsibility laws have regretted it. 

  For example, in Argentina, the fiscal responsibility law was changed for the worse barely three years after enactment. Some members of the Euro zone did not dutifully implement their fiscal responsibility law, hence countries like Greece, France and United Kingdom had to undertake reparative and painful austerity measure in the period of the global economic meltdown. Also, recall that the USA, in order to wage the Kuwait and Iraq wars, deferred the implementation of its FRL, thus engendering a debt overhang. President Obama’s decision in 2010 to establish American National Commission on Fiscal Responsibility and Reform was for purposes of redressing their past mistakes, thereby checking the further slide of the American economy. Most recently, Italy fail back to recession into which the country is still currently battling. Where do we go from here?

  “The sincere logic of this development is hinged far from the welfare of the staff of FRC or any form of individual benefit whatsoever, but indeed on the meticulously articulated economic roadmap aimed at particularly salvaging Nigeria from economic sabotage that has over the years bedeviled the system and denied us the benefit of even the abundant human and natural resources in Nigeria and obviously throwing the nation back the near-success syndrome that left the country behind even when the Asian Tigers (Singapore, Malaysia etc) transited to developed economies,” he concluded.

  But the quest by the executive to hurriedly scrap FRC may have appeared intriguing, as suspicion over what they stand to gain from the extinction of the viable government agency like that heightened.

  The move, which started strongly since the last quarter of 2014, causing operational fund paucity in the commission, may have as well irked some members of the Civil Society Organisations (CSOs).

  Already, the CSOs have petitioned the Senate, as well as drawn its attention to alleged usurpation of powers by the executive arm of government in matters relating to the scrapping of the Fiscal Responsibility Commission (FRC).

  Among the group is the Centre for Social Justice; Civil Society Legislative Advocacy Centre; Action Aid Nigeria; African Centre for Leadership, Strategy and Development; West African Civil Society Forum; BudgIT; National Association of Nigerian Traders; Centre for Peace Project and Development; and Centre for Human Rights and Conflict Resolution.

  The petition addressed to the President of the Senate, David Mark and circulated to all the members, alleged that the executive arm is in the process of usurping legislative powers without a word of protest or action to stop the clear trespass on legislative powers of the National Assemble (NASS).

  The petition titled: “Scrapping of Federal Agencies and Commissions Established by Law Without the Approval of the National Assembly,” noted that the executive and legislature are supposed to work together for the good governance of Nigeria and no arm is supposed to usurp the powers and functions of the other according to Sections 4 and 5 of the Constitution.

  They lamented that the executive has started taking concrete and far reaching steps to scrap some agencies established by law without first seeking to repeal or amend the laws establishing them.

  Specifically, they pointed out that a letter dated November 13, 2014, from the Secretary to the Government of the Federation (SGF), addressed to the Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, instructed her to ensure that agencies, parastatals and commissions in an attached list cease to receive government funding with effect from the 2015 appropriation.

  The Lead Director of the Centre for Social Justice, Eze Onyekpere, who spoke on behalf of the CSOs, said: “The list includes the FRC and 12 other agencies. The SGF stated that this was in accordance with the White Paper on the Report of the Presidential Committee on Restructuring and Rationalisation of Federal Government parastatals, agencies and commissions. 

  “By a further letter addressed to the minister from the SGF, he clarified that necessary steps are being taken to redeploy the staff to other Ministries, Departments and Agencies (MDAs) by the Head of the Civil Service of the Federation. The gravamen of our petition is that the FRC and the other agencies are established by extant Acts of NASS, which have not been repealed; neither has there been bills sent to NASS proposing the repeal of the enabling laws. 

  “Even the report of the original Restructuring and Rationalisation Committee headed by Stephen Oronsaye and the ensuing White Paper acknowledged the need for the executive to engage the legislature to effect the restructuring through repeals and amendments of existing laws. Restructuring ought to be done within the confines of the due process of law,” the CSOs noted in the petition.

  “At this time of declining national revenue from oil resources, the FRC needs to be strengthened and tasked to perform its statutory duties rather than being abolished. It is a fact that in its relatively short period of existence, the FRC has recovered (under Section 22 and 23 of the FRA Act) over N336.6 billion as operating surplus from scheduled corporations as at the end of 2013.

  “It is our request that NASS intervenes and reverse the steps so far taken by the executive to abolish the FRC and other agencies established by law, as these steps of the executive are clearly unconstitutional, illegal and a manifestation of recklessness, which the doctrine of checks and balances empowers NASS to checkmate.”