BUDGET 2006: Observations on Spending Options

On 5 December 2005, President Olusegun Obasanjo addressed a joint session of the National Assembly in which he presented the 2006 Appropriation Bill. This project contained a number of remarkable if not unique features, some of which we shall be commenting upon. The parameters upon which it is anchored on are assumptions and targets premised on oil prices of $33 per barrel; oil production of 2.5 million barrels per day; NGL upstream gas revenues and signature bonuses of N336 billion; joint venture cash calls of $4.2 billion (N542 billion); GDP growth rate of 7%; inflation rate of 9% and an exchange rate of the dollar to the Naira of 129 to $1. The oil price, the President explained, represents a 10% growth over the 2005 budget price, but the production level of 2.5 million barrels of oil is lower than the projected 2.7 million barrels per day assumed for 2005.

The theme of the budget is interesting in that it seeks to extend as the President states, the theme of the 2004 budget with a focus of “building physical and human infrastructure by job creation and poverty eradication”. Interestingly, it is observed that the budget appears to take account of the necessity to create a social safety net by, for instance, the provision of $9 billion for the population census; improving voting and electoral equipment and techniques receiving an allocation of N55 billion; Public Service Reforms attracting N50 billion and monetization attracting the sum of N50 billion. The budget also appears to make provision for N75 billion to cushion the impact of petroleum prices and assumes, boldly, the problem of tackling contractor and pension arrears. The budget openly expresses a return from the gains of debt relief which, it stated, would have been applied to debt service in 2006 of a sum amounting to N100 billion to poverty reduction expenses in health, power, education, agriculture, water resources, environment, housing and support for women and youth. Ostensibly, these expenditures are targeted at programmes and projects aimed at obtaining reasonable proximity to the Millennium Development Goals (MDGs).

The President indicates that the budget was presented late and that the reason for this was an expanded consultation forum in which various relevant committees of the National Assembly and appropriate ministries engaged in elaborate discussions that facilitated the presentation of a fairer and more comprehensive budget. NAS notes that the wider consultation is welcome because the usual posturing, generally dictated by the irrepressible need secure personal advantages by the legislature is now, at least, obscured even if, in theory, this change of approach may be seen as supporting the view that it represents lip service to providing a wider framework for attracting discursive input.

Our concern, as an organisation is, as always, with implementation. We have not been encouraged by what has happened in the past. Accounts of serious delays in releasing approved funds; wholesale departure from previously identified targets of expenditure as well as corruption have seriously undermined desired budgetary implementation. Government suggests that implementation of the 2005 budget was torpedoed by the fact that the passage of the budget did not occur until after expiry of the first quarter. It is hoped that some of those challenges have now been resolved by the earlier presentation of this budget. Responsible governance means that budgetary timetables must be adhered to. The reception by the National Assembly to the budget would suggest that the customary difficulties experienced in relation to the passage of the budget have now been smoothed over and that the typical acrimony which has existed in the past, particularly with regard to appropriation, are now matters that the nation should expect have been consigned to history.

This was far from being the only problem. Apart from those related to the production of oil, the implementation of petroleum subsidies has been cited as a key reason why implementation, in the past, was fractured. NAS hopes that Government’s position, in the wake of the last price increase and the assurance given in relation to freezing the price of petroleum product together with the gains on excess crude (quoted in this budget as amounting to some $14 billion) will ensure that prices remain truly frozen and that the nation will not have to endure the upheaval of any future price increases. It is a challenge to Government to see that the people should expect to benefit from the professed prudence in the management of the nation’s resources by experiencing, for the first time, a reduction in the price of petroleum prices! Before leaving the 2005 budget, the anti-corruption campaign must, of necessity, receive some mention. Inevitably, one of the most far reaching consequences of corruption is its adverse influence on the implementation of budgetary provisions as a result of the diversion and mismanagement of public funds through corruption. 2005 was, in many respects, a good year for the anti-corruption campaign and Government is encouraged, more than ever, to ensure a significant increase in effort to heighten the campaign and its consequences.

Turning to the 2006 budget, NAS takes the opportunity, whilst the budget is before the National Assembly for debate and approval, to contribute to that discussion by offering comment in relation to some of the issues covered by the project.

Federation Account

Income projection is estimated at N3.7 trillion. 76.1% of this income is from crude only sales. The rest is made up of company’s income tax (6.3%); Custom & Excise (5.4%) and 12.2% from VAT. The VAT figure derives from the proposed increase in the rate from 5% to 10%, the reason being cited that this increase would bring us a little closer to rates in other countries. Save for the purpose of increasing income, an increase in the rate, in our respectful view, seems unnecessary at this stage. The proportion of increase by 100% is significant. The result is that the cost of services that are liable will, of necessity, increase. As is customary with any increase in tax, the effect is to reduce the availability of their services to those using them. Ultimately, the most directly affected would be the people on the street. Our organisation believes that this is wholly wrong. The Nigerian, yet again, has to bear what is an entirely avoidable increase in various services that he would normally have access to and will, as a result, be forced to make choices that may result in further hardship. Belated as it may appears, it seems that the direct consequence of the increase in this tax should be more closely examined in relation to its direct effect to those liable to pay the tax. A better approach would include reducing the rate increase or phased introduction in relation to the scope to some but not all of the services affected. Even limiting the scope of those to whom the increase will apply to corporate as opposed to individual tax payers may yield better and more palatable dividends

Statutory Transfers

The example identified by the President in the budget relating to the National Judicial Council is to be commended especially as it indicates, on the outside, the limited influence that the natural and persistent corrupt tendencies in the Civil Service has had on that organisation’s management of its finances. This would render an under-spend in any Government institution, not only something of a rarity but also extremely surprising. However, it is difficult to imagine how the Nigerian Judicial Council could have under-spent by as much as N5 billion. Whilst clearly demonstrating fiscal prudence, it is also common knowledge that the judiciary (including the Nigerian Judicial Council) is one of the sectors that is savagely affected by infrastructural decay, an issue surely requiring an infusion of funds to remedy. We find these mutually exclusive developments curious and difficult to comprehend.

Contractor & Pension Arrears

We were particularly pleased to note the potentially proactive confrontation of this quite significant problem. The President indicates that the problem presented by pension arrears arises from the necessity to verify size and extent. We respectfully disagree. The verification of size and extent is an exercise that has been conducted by Federal and State Government on a quite infuriating and repetitive basis. In the course of the delay, several pensioners have died, largely from a combination of extreme societal pressure exacerbated by indigence and natural deterioration. These verification exercises have involved the physical appearance of pensioners at nominated place, sometimes at great personal and physical expense. Some have even died in accidents en route these exercises! If there is to be such an exercise, it is to be very tightly deadlined and most incorporate different, more sophisticated methods designed to minimise inconvenience to the pensioners and must, we suggest, be concluded within the first quarter of 2006. It is encouraging to note that a stop has been put to the build up of arrears, so that pensions are paid as and when due. Additionally, we suggest that Government develops policy that it can use to exert influence on state governments to coincide with the Federal Government’s position, particularly because the state governments represent, numerically, the larger authority as responsible for managing these arrears.

Savings from Debt Servicing

NAS notes that the budget contains proposal for the standing of the N100 billion that is to be released from external debt servicing as a consequence of the Paris Club debt arrangement. Government has indicated that the monies are located to MDG-related activities and sectors with programmes of projects which directly impact upon poor people. Allocation has been made to various sectors including health and education. NAS suggests that these specific allocations are monitored extremely closely in relation to disbursements or expenditure and audited quite separately from those allocations made to the various ministries responsible for managing those areas. Indeed the monitoring should assume the same level of scrutiny as obtains in development work where funds are provided by international funders.

With regard to health, comprehensive remedial projects and outreach programmes in order to spread the availability of health facilities must be designed and implemented. The dire nature of the health facilities in the country cannot be any more emphasized. The mortality rate appears on the increase, this being directly attributable to the poor medical facilities available to contain increasing problems even of a routine and uncomplicated nature. Existing facilities must receive grants that are strictly monitored to ensure that the monies are spent on the specific matters for which they are discussed.

The allocation to the education sector is welcomed. The deterioration in education is probably more pronounced than in any other sector. The quality of education provided at secondary and university levels is at its lowest in the light of the country. Poor infrastructure; even poorer working conditions for teachers and academics and cultism represent some of the most serious debilitating factors. Government is encouraged to make specific allocations to each of those three matters. NAS is particularly concerned with Government position in the eradication of cultism. Our view is that it is the government has an irritatingly indifferent and unconcerned view on cultism. Several suggestions have been made in the past about the manner in which the Government’s intervention in this respect should occur. Essentially, these have been undermined by an abject lack of interest translating into poor financial support. Practical and direct intervention funded appropriately will yield the benefits that will significantly improve the position.

The tragedies in the Aviation industry mean that its fortunes fall to be given the most anxious scrutiny. The industry is clearly distressed. Consumer confidence has been destroyed by the most recent crashes. There are a number of serious contributors to this situation. From a public sector perspective, the facilities are in a state of abject decay. The regulatory agencies are riddled with corruption and massively under-funded, a cocktail of even more depressing effect. The failure to meet internationally accepted standards can only be reversed by serious reform in the industry. These reforms will remain in academic consideration unless corresponding funding is secured. It goes without question that provision must be made to provide the funds and to arrange for early release of approved funds to combat what is now a life-threatening problem.

It is evident from the budget that there are a number of well conceived measures designed to regulate spending in the forthcoming financial year. This is not the first project to carry such hopes. Typically, its effect founder on implementation. The biggest problem usually with implementation is poor monitoring. Public expenditure must be more closely and comprehensively monitored. In this vein, we would suggest the creation of a National Audit Office. Its responsibility would be to conduct and publicise financial audits of all Government departments and agencies, without exception and report to the National Assembly on the value for money expenditure by public bodies. The office should be headed by an individual of ministerial rank. The monitoring to be provided by this office should be periodic in that interim audits of no longer than 6 months duration should be considered. To be effective, it should be entirely independent.

It is evident that accountability and transparency remain the key watchwords upon which public spending can be regulated and implemented. NAS strongly encourages Government to fast track any proposals that will ensure that these key features are speedily integrated in the implementation of the 2006 project.


NAS Capone
National Association of Seadogs (NAS)

21st December 2005