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Pitfalls, remedies in 2017-2019 development framework

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Executive Director, Centre for Social Justice, Eze Onyekpere

Executive Director, Centre for Social Justice, Eze Onyekpere

Sections 11 to 18 of the Fiscal Responsibility Act (FRA) provides for the Medium Term Expenditure Framework (MTEF), including the timing, the preparation process, contents, the minister responsible for the preparation, the Fiscal Strategy Paper (FSP) and the entities to be consulted during preparation, the process of approval, and how the MTEF will guide the yearly budget process, among others.
 
But a thorough understanding of these sections shows that MTEF is an important document, as well as central to FRA’s goal of enthroning prudent management of national resources, ensuring long term macroeconomic stability and securing greater transparency and accountability in fiscal operations.
 
However, a suspicion of lack of knowledge or sheer ill-will is currently dogging the the presentation of a $30 billion three-year borrowing plan, assumed to be part of the MTEF content. This is because it came without clear-cut details and specifics to projects.
 
Nigeria is now deep into recession at -2.24 per cent, worse than the second quarter figure, yet with other faltering numbers. This means that the job to redirect the economy back to track is well cut out for the managers. But the body language, as exemplified in the critical document like MTEF, is as good as the “usual”.
 
The extant MTEF is for the period 2017-2019, and is in line with the established practice and the provisions of the FRA which in section 11 specifically states that the MTEF shall be for the next three financial years. Yet there are issues.

Submission of Document
By the provisions of the FRA, the submission of the MTEF by the President to the National Assembly (NASS) on October 04, 2016, was late. The FRA anticipates that the MTEF should be submitted to NASS not later than four months to the end of the financial year since the approval of the MTEF is the actual beginning of the budget formulation process. The Executive Council of the Federation (EXCoF) also may not have helped matters, as they too endorsed the MTEF on August 24, 2016, when it should have been done before the end of the second quarter.
 
With past records, The development has not been without adverse implications for the presentation and passage of the yearly budget. In fact, federal budget has never been passed before the commencement of the New Year. Poor capital budget implementation has always been the victim.

The Financial Year Act  clearly states the Nigerian financial year between January 01 – December 31 of every year. So, such requests and approvals founded on the late passage of the budget are illegal, even if they are done by a resolution of the NASS.

Clarity challenges
There is no clear information in the MTEF about the preparation of Medium Term Sector Strategies (MTSS) by Ministries, Departments and Agencies (MDAs) of government. The EXCoF endorsed the MTEF on August 24, 2016, eight days after the Minister of Budget and National Planning, at a workshop, urged MDAs to support the development of MTSS for proper budgeting from 2017 to 2019.
This raises questions of what the basis for the MTEF was. When and how was it prepared by the MDAs?

Stakeholder Consultations
The Act in section 11 requires the Federal Government to consult the state’s and key agencies as part of the process of formulating the MTEF. Macroeconomic indicators like the benchmark price of oil, interest, inflation and exchange rates would definitely impact on the revenue and expenditure of all stakeholders, hence the need for consultations.

Subjective Projections
MTEF is to set out the macroeconomic projections for the next three financial years, the underlying assumptions for those projections and an evaluation and analysis of the projections for the preceding three financial years. However, this MTEF started with only a listing of growth rates (-0.36 per cent in the first quarter of 2016 and expected to average 0.35 per cent for the full year), among others. There were no attempts to analyse the implications of these major macroeconomic indicators for the next three fiscal years (2017-2019).

The Gross Domestic Product (GDP) growth target for 2017 was placed at 3.02 per cent and inflation target for 2017 placed at 12.92 per cent (now started the fourth quarter at 18.3 per cent). Private consumption expenditure was projected to increase from N80.048 billion for 2017 to N91,955 billion for 2019 (consumption is currently at record low with cash crunch and non-payment of salaries).
 
With just released third quarter growth report on negative stance and outlook in the fourth quarter gloomy, it is obvious that the MTEF projections have started on a shaky note. This is because, the 0.35 per cent average yearly growth may not hold.
 
According to the MTEF document, economic growth will be supported by the envisaged improvement in the implementation of the capital budget, the efficiency of funds utilization to support domestic demand during the period. The MTEF however further provides that GDP figures is expected to increase from N108,734 billion in 2017 to N118,793 billion in 2018 and N129,773 billion in 2019 without any analysis of how they arrived at these figures.
   
But an economist and fiscal governance campaigner, Dr. Uzochukwu Anakom, said: “The macroeconomic targets and figures make no sense to an average Nigerian and can be subject to as many interpretations as there are Nigerians. It commits the government to nothing. It raises several questions: What is the inflation target in the next three fiscal years? Will interest be in the single or double digits for it to be consistent with economic growth that can move Nigeria out of recession?

 
“Essentially, there are no projections for interest rate and lending to the economy. The MTEF contained no information on the build-up in external reserves and the Excess Crude Account (ECA) or the Sovereign Wealth Fund (SWF) under the macroeconomic parameters and targets for the three fiscal years 2017-2019,” he said.
 
A knowledge and fiscal governance institution- Centre for Social Justice (CSJ), said it is in the vanguard of the debate on whether MTEFs were prepared in accordance with the provisions of the FRA while remaining focused on the larger picture of the right of majority of Nigerians to an adequate standard of living, Nigeria’s Vision 2020 and extant national priorities.
 
Fidelity Onyejegbu of the Department of Public Expenditure Management at CSJ, noted that there was no evaluation and analysis of the projections for the preceding three years as no mention was made of them.
 
To him, this leaves a lot of questions unanswered because information about previous performance would have informed extant projections. It could have supplied information about the factors driving successes and failures to realize previous targets and identified binding constraints on growth and development.
 
The Lead Director of CSJ, Eze Onyekpere, also noted that given the gravity of the employment situation in Nigeria, the MTEF is expected to provide information on the level of and causes of unemployment, current government activities and interventions to check the employment crisis, interventions going forward and strategies to ensure the realization of government policy.
 
“This was missing in the MTEF. The unemployment rate stands at 13.3% whilst the underemployment rate stands at 19.3%; youth unemployment is 49.5%. The figure of youth unemployment is a bomb awaiting detonation. These figures are adjusted based on the new method introduced by the National Bureau of Statistics for calculating the employment/ unemployment rates,” he said.
 
The sectoral composition of the GDP in the MTEF was conspicuously missing except the mention of agriculture including agro business, solid minerals, building and housing playing a lead role. It was unable to anchor the GDP growth rate on any policy direction and it did not identify the drivers of growth.
 
“It is equally disturbing that the six core areas which include: Policy Environment, National Security and Governance, Economic Diversification, Priority Critical Infrastructure, Oil and Gas Reforms, Ease of Doing Business, as well as Social Investment which were mentioned by the Minster of Budget and National Planning in June 2016 under the Strategic Implementation Plan (SIP) for implementation of the 2016 budget were no longer mentioned in the 2017-2019 MTEF,” he added.

Foreign Exchange
There is a projection on exchange rates which puts the average naira dollar exchange rate at N290 throughout the period 2017-2019. However, there is no analysis of how the MTEF arrived at that rate. Recent developments in the foreign exchange market have shown that this is unsustainable and the projection cannot be met.
 
The dollar currently exchanges at above N290 at the official exchange rate while the black market rate is over N450 to the dollar. With the already depleted foreign reserves, a depleted ECA, almost empty SWF, import led economy and the unmitigated demand for the dollar, there is the likelihood of further depreciation in the value of the naira. Thus, the exchange rate projection is dead on arrival.

Retrogressive Investment
Essentially, the MTEF should have allocated higher figures to capital budget starting with a minimum of 30 per cent of aggregate expenditure in 2017 and progressing up to 40 per cent in 2019.
 
“This was not the case because the 2017-2019 MTEF shows that in the next three years the share of capital expenditure to the total expenditure is expected to be 25.71 per cent, 26.29 per cent and 25.99 per cent for the years 2017, 2018 and 2019 respectively.
 
“It is also imperative that when considering capital expenditure, its division into administrative and developmental capital is taken into cognizance. A good part of the capital expenditure in previous years has leaned in favour of administrative capital which services the bureaucracy. In the current dispensation, developmental capital should take the greater share of capital expenditure,” Dr. Onyinyechi Agu, said.

 
Therefore, the completion and exit of existing capital projects before introducing new ones is imperative because Nigeria has lots of uncompleted capital projects ongoing at various stages, unless the new capital projects add exceptional value to the nation’s development.
 
For stakeholders and fiscal governance experts, MTEF should document how it arrived at the projections for economic growth and inflation rate as well as include projections for interest rate, external reserves and access to credit, etc as required by the Act. It should document the underlying assumptions, facts and logic in support of these projections.
 
Government should continue to plug the leaking pipes of corruption and waste that have led to the abuse of system. Automation cannot do it alone, there is need to send strong signals to offenders; individuals and companies found to have abused the system should face punitive criminal justice sanctions.The MTEF must be approached with utmost seriousness likewise it implementation.


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