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ONIGBINDE: Capital Expenditure Took A Back Seat In 2015


capital market- image source aspec

capital market- image source aspec

What do you think are the flashpoints of the 2015 budget?

THE problem with the 2015 budget is that when it was developed, there were concerns about oil price benchmark, that even at $53 per barrel, it was too high. The forecast for oil at the time was that it would be around $45 per barrel for this year. At that point, there were serious challenges and it was obvious that revenue from the oil sector was grossly going to underperform. It was also an election year, where the activity of governance slowed down considerably. The Federal Government, through the supplementary budget it sent to the Assembly, revised the benchmark for oil to $43 per barrel. From the N3.45 trillion approved revenue, it has come down to N2.855 trillion before the end of the year. It means there is already a shortfall of close to N600bn in terms of revenue. That is why the Federal Government sent the supplementary budget to reverse this considerably. But I think we have to have clearer discussions on how we need to get our revenues to perform optimally. Maybe we should stop the oil-based fiscal rule for the budget and look for other metrics to judge the budget.

Coming from the experience of low performance of budgets over time, with government mostly having to run overheads cost and little capital expenses, how would you assess government’s implementation of the 2015 budget?
Capital expenditure, this year, has taken a backseat. According to the Ministry of Finance, capital budget

for this year has been lower than N200bn, and that is low, considering that Nigerian economy needs infrastructural development, building of schools, hospitals and police stations. The figure is abysmally low. If government’s expenditure this year was around N3.42trn, and as at September, we have spent less than N200bn on capital expenditure, that shows there is something fundamentally wrong with government spending. It is clear that implementation has been really poor. But the most instructive thing is that the budget office has not published budget implementation report in the last five quarters. That shows a lot of laxity and inefficiency in that space and also contravenes the Fiscal Responsibility Act, which states that such should have been produced 30 days after the end of each quarter. There is a challenge in that regard, that the Federal Government is not doing the best in terms of transparency and accountability. Most of the things that we have used about performance have been press releases, minister’s speech and the likes, but the actual documentation of the spending is yet to be published.

For 2015, we have seen a number of abandoned projects by governments across the federation, particularly the Lagos-Ibadan expressway, which has only recently been reactivated; with this experience, do we say the budget was just on paper?

Governance has taken a backseat too this year. N174bn was spent on capital expenditure as at September and there has no clarity as to the projects on which the monies were spent. There has been serious downturn of the economy as the Gross Domestic Product (GDP) growth this year has been below four per cent. There has also been high level of job losses, and contracting at the Federal Government level, has stagnated. And on the Lagos-Ibadan expressway, because contractors didn’t see any clear policy direction, they couldn’t continue work. There has been challenge in that area too.

Going forward, government needs to work more with a clear policy direction and say exactly what they want to do. If they have that in mind, then they can look at allocations, how they can finance projects. But the challenge is that there is a poor fiscal policy from government about what they are supposed to do. I think the economy has not grown the way it is supposed to and capital expenditure has been on a very low level in the last five years. It is a challenge.

There has been discussion around the need to raise capital expenditure to about 40 per cent of the N8trn proposed 2016 budget, but that has not been clear enough. Government needs to come out with something bold in that regard.

But nothing really happened this year in terms of contracts and project development. There were elections. It took five months to appoint ministers, and it is just now that we have ministers that the Lagos-Ibadan Expressway is coming on stream. We are looking forward to 2016, which should be the civil bullet for the present administration.

The 2016 budget is going to be the first by the Buhari administration. We are looking forward to seeing if it aligns with their promises, what are the funding mechanisms involved and how detailed is the project, so that they can be trackable by the citizens?

The Finance Minister said there is a huge gap between prices of items purchased in public and private institutions, highlighting the notorious contract inflation in public service; how does all of that contribute to Nigeria’s huge recurrent expenditure and how can that be plugged?

There is a lot of waste in governance and the minister recently stated that there is waste in the region of millions of naira. We need to cut that, immediately. I believe a lot of savings can be got from that. I believe we need a lot of reforms in the procurement system.

Apart from under reporting of revenues, we also battle with contract inflation, where we have a divergence with the private sector price for a commodity and what the public sector pays for it. That divergence is where we find corruption. We need to bring that down to zero.

If something costs N50,000, government should buy it at that price. The group buying power of government is supposed to give it the best prices. We are in a society where working for government is seen as an avenue to make quick money, and it is a challenge. Procurement needs huge reform.

There is a possibility that government can centralize the purchase of items. Why must every ministry buy its printer, why can’t it make a request through a Federal Government agency and they get supplies? If they want to buy monitors, Prado or Hilux Jeeps, why not route that through a central agency that has set a standard price for such commodity. That is very necessary. Until we tackle bits and piece like that, we can’t win the fight on corruption.
What does the continued absence of the budget implementation report portend for accountability in government?

It doesn’t help us in holding government accountable or doing an independent analysis of government finance. We can’t even say what government is spending money on at a particular time. For five quarters, since June 2014, the budget implementation has not been published and that is a big challenge. It doesn’t help us to demand accountability. It doesn’t help us suggest how government should do better with subsequent budgets too.
Going forward, do you see the adoption of the zero-based budgeting helping with the challenges in budgeting and accountability?

It is necessary. But if it is not carefully managed, government could run into trouble. When we say adopt such an approach, it means everyone has to justify any new project that has to be included in the budget. But there is a backlog of abandoned projects. If a new principal in an agency does not think a project merits being included in a new budget, then we would keep having a backlog of abandoned projects. It has to be clearer and abandoned projects need to be tackled.

There has to be a resource review before we do a zero-based budget. Government has not been clear enough with its policies. We have only heard them speak in bits and pieces, but what is the framework going to look like to support zero-based budgeting. We have seen a Kaduna model, where there is an internal ministerial agency that is headed by the commissioner for budget and planning, who checks through everybody’s budget. He has been able to rank government’s projects. That is key. There is supposed to be a clear framework at the Federal Government level.
The Medium Term Expenditure Framework (MTEF) has not been presented by government and the last one seem not to have lived up to its billing; what do you think is the cause for these?

The new government has not presented the MTEF. The delay of five months in appointing ministers did a lot of damage. And I think government sees that already. But we are waiting for the new budget; we would like to see what would go for capital projects. We have a project-tracking tool in budgIT; we would look around to get capital projects to monitor.

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